Medallion Bank (MBNKP) 10-Q 2018 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2018

OR

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

For the transition period from                    to                    

Commission file number001-37747

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, 38^th Floor,

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  ☒    NO  ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit such files).    YES  ☒    NO  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” inRule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller Reporting Company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    YES  ☐    NO  ☒

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of November 9, 2018 was 24,440,052.

MEDALLION FINANCIAL CORP.

FORM10-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	59
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	92
ITEM 4. CONTROLS AND PROCEDURES	92
PART II – OTHER INFORMATION	93
ITEM 1. LEGAL PROCEEDINGS	93
ITEM 1A. RISK FACTORS	93
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	107
ITEM 5. OTHER INFORMATION	107
ITEM 6. EXHIBITS	108
SIGNATURES
CERTIFICATIONS

Page 2 of 108

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BASIS OF PREPARATION

We, Medallion Financial Corp. or the Company, are a finance company, organized as a Delaware corporation, that includes Medallion Bank, our primary operating subsidiary. Effective April 2, 2018, following authorization by our shareholders, we withdrew our previous election to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. Prior to such time, we werea closed-end, non-diversified management investment company that had elected to be treated as a BDC under the 1940 Act.

As a result of this change in status, commencing with the three months ended June 30, 2018:

• we consolidate the results of Medallion Bank and our other subsidiaries in our financial statements, which, as an investment company, we were previously precluded from doing; and

• with the consolidation of Medallion Bank, given its significance to our overall financial results, we now report as a bank holding company for accounting purposes under Article 9 and Guide 3 of RegulationS-X (but we are not a bank holding company for regulatory purposes).

In accordance with FASB Accounting Standards Codification (ASC) Topic 946 – Financial Services – Investment Company, we are making this change to our financial reporting prospectively, and not restating or revising periods prior to our change in status to anon-investment company effective April 2, 2018. Accordingly, in this report we refer to both accounting in accordance with US generally accepted accounting principles (GAAP) applicable to bank holding companies (Bank Holding Company Accounting), which applies commencing April 2, 2018, and to that applicable to investment companies under the 1940 Act (Investment Company Accounting), which applies to prior periods.

In order to maintain its status as anon-investment company, the Company operates so as to fall outside the definition of an “investment company” or within an applicable exception. The Company expects to continue to fall within the exception from the definition of an “investment company” provided under Section 3(c)(6) of the 1940 Act as a company primarily engaged, directly or through majority-owned subsidiaries, in the business of, among other things, (i) banking, (ii) purchasing and otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance and services, and (iii) making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services. The Company is required to monitor its continued compliance with this exception, which it met for the 2018 second and third quarters.

We are a finance company that historically has had a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. Recently, our strategic growth has been through Medallion Bank, a wholly-owned subsidiary of ours, which originates consumer loans for the purchase of recreational vehicles, boats, and trailers, and to finance small-scale home improvements. Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 16% (20% if there had been no loan sales during 2016, 2017, and 2018). In January 2017, we announced our plans to transform our overall strategy. We are transitioning away from medallion lending and placing our strategic focus on our growing consumer finance portfolio. Total assets under management were $1,598,000,000 as of September 30, 2018, and were $1,593,000,000 and $1,646,000,000 as of December 31, 2017 and September 30, 2017, and have grown at a compound annual growth rate of 10% from $215,000,000 at the end of 1996. Since our initial public offering in 1996, we have paid/declared distributions in excess of $263,060,000 or $14.66 per share.

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

• Medallion Bank, or the Bank, an FDIC-insured industrial bank that originates consumer loans, raises deposits and conducts other banking activity;

• Medallion Funding LLC, or Medallion Funding, a Small Business Investment Company, or SBIC, our primary taxicab medallion lending company;

• Medallion Capital, Inc., or Medallion Capital, an SBIC which conducts a mezzanine financing business;

• Freshstart Venture Capital Corp., or Freshstart, an SBIC which originates and services taxicab medallion and commercial loans; and

• Medallion Servicing Corp., or MSC, which provides loan services to the Bank.

Page 3 of 108

Our other consolidated subsidiaries are comprised of Medallion Fine Art, Inc., Medallion Taxi Media, Inc.,CDI-LP Holdings, Inc., Medallion Motorsports, LLC, and RPAC Racing LLC, or RPAC. In addition, we make both marketable and nonmarketable equity investments, primarily as a function of our mezzanine lending business.

The financial information is divided into two sections. The first section, Item 1, includes our unaudited consolidated financial statements including related footnotes. The second section, Item 2, consists of Management’s Discussion and Analysis of Financial Condition and Results of Operations for the quarter ended September 30, 2018.

Our consolidated balance sheet as of September 30, 2018, and the related consolidated statements of operations, consolidated statements of other comprehensive loss, consolidated statement of stockholders equity, and cash flows for the quarter then ended included in Item 1 have been prepared by us, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the US have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly our consolidated financial position and results of operations. The results of operations for the quarter ended September 30, 2018 may not be indicative of future performance. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form10-K for the year ended December 31, 2017.

Page 4 of 108

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

	Bank Holding Company Accounting			Investment Company Accounting
(Dollars in thousands, except share and per share data)	UNAUDITED September 30, 2018			December 31, 2017
Assets
Cash(1)	$	10,678		$	12,690
Federal funds sold		132,882			—
Equity investments		10,752			—
Equity investments, at fair value		—			5,213
Equity investments in affiliated entities, at fair value		—			4,308
Investment securities		45,757			—
Investments in Medallion Bank and other controlled subsidiaries, at fair value		—			302,147
Loans		1,089,545			—
Medallion loans, at fair value		—			208,279
Commercial loans, at fair value		—			53,737
Commercial loans to affiliated entities, at fair value		—			999
Commercial loans to controlled subsidiaries, at fair value		—			35,452
Allowance for losses		(29,484	)		—
Net loans receivable(1)		1,060,061			—
Net investments(1)		—			610,135
Accrued interest receivable(1)		7,005			547
Property and equipment, net		1,093			235
Loan collateral in process of foreclosure(1)		59,761			—
Goodwill and intangible assets		210,761			—
Investments other than securities		—			7,450
Other assets		32,657			4,465
Total assets	$	1,571,407		$	635,522
Liabilities
Accounts payable and accrued expenses(1)	$	17,789		$	4,373
Accrued interest payable(1)		6,118			3,831
Deposits		946,975			—
Short-term borrowings(1)		160,218			—
Deferred tax liabilities and other tax payables		2,011			12,536
Long-term debt		157,881			—
Funds borrowed(1)		—			327,623
Total liabilities		1,290,992			348,363
Commitments and contingencies		—			—
Stockholders’ 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 –27,391,295 shares at September 30, 2018 and 27,294,327 shares at December 31, 2017 issued)		274			273
Additional paid in capital		274,163			273,716
Treasury stock (2,951,243 shares at September 30, 2018 and December 31, 2017)		(24,919	)		(24,919	)
Accumulated undistributed net investment loss		—			(65,592	)
Net unrealized appreciation on investments, net of tax		—			103,681
Accumulated other comprehensive loss		(469	)		—
Retained earnings		3,871			—
Total stockholders’ equity		252,920			287,159

Page 5 of 108

	Bank Holding Company Accounting		Investment Company Accounting
(Dollars in thousands, except share and per share data)	UNAUDITED September 30, 2018		December 31, 2017
Non-controlling interest in consolidated subsidiaries		27,495		—
Total equity		280,415		287,159
Total liabilities and equity	$	1,571,407	$	635,522
Number of shares outstanding		24,440,052		24,343,084
Book value per share/net asset value per share	$	10.35	$	11.80

(1) See Note 18 for details of balances related to a consolidated variable interest entity.

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 6 of 108

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Bank Holding Company Accounting			Combined			Investment Company Accounting
(Dollars in thousands, except per share data)	For the Three Months Ended September 30, 2018			For the Nine Months Ended September 30, 2018 (1)			For the Three Months Ended September 30, 2017			For the Nine Months Ended September 30, 2017
Interest and fees on loans	$	32,692		$	64,718		$	—		$	—
Interest income on investments		—			3,287			3,768			10,153
Dividend income from controlled subsidiaries		—			28			1,256			1,256
Interest income from affiliated investments		—			654			453			1,844
Interest income from controlled subsidiaries		—			10			39			165
Medallion lease income		30			100			40			159
Interest and dividends on investment securities		430			1,032			—			—
Dividends and interest income on short-term investments		—			—			11			27
Total interest income(2)/total investment income(2)		33,152			69,829			5,567			13,604
Interest on deposits		5,064			9,264			—			—
Interest on short-term borrowings		1,698			3,557			—			—
Interest on long-term debt		2,125			3,991			—			—
Interest expense		—			3,551			3,543			10,285
Total interest expense(3)		8,887			20,363			3,543			10,285
Net interest income/net investment income		24,265			49,466			2,024			3,319
Provision for loan losses		18,205			48,781			—			—
Net interest loss after provision for loan losses		6,060			685			2,024			3,319
Other income (loss)
Sponsorship and race winnings		5,371			10,599			—			—
Gain on sale of loans		5,488			5,488			—			—
Impairment of equity investments		(388	)		(862	)		—			—
Writedown of loan collateral in process of foreclosure		(1,265	)		(1,361	)		—			—
Other income		235			515			8			22
Total other income		9,441			14,379			8			22
Other expenses
Salaries and employee benefits		5,999			13,987			2,224			5,086
Race team related expenses		2,876			5,416			—			—
Professional fees		3,951			6,920			567			1,875
Loan servicing fees		1,185			2,313			—			—
Collection costs		1,381			2,218			64			168
Travel, meals and entertainment		313			1,122			126			541
Rent expense		615			1,449			275			802
Regulatory fees		563			1,145			—			—
Amortization of intangible assets		361			722			—			—
Other expenses(4)		2,220			5,206			420			1,111
Total other expenses		19,464			40,498			3,676			9,583
Loss before income taxes/net investment loss before taxes(5)		(3,963	)		(25,434	)		(1,644	)		(6,242	)
Income tax benefit (provision)		117			4,474			(846	)		2,024
Net loss after taxes/net investment loss after taxes		(3,846	)		(20,960	)		(2,490	)		(4,218	)
Net realized gains (losses) on investments(6)		—			(34,745	)		944			3,785

Page 7 of 108

	Bank Holding Company Accounting			Combined			Investment Company Accounting
(Dollars in thousands, except per share data)	For the Three Months Ended September 30, 2018			For the Nine Months Ended September 30, 2018 (1)			For the Three Months Ended September 30, 2017			For the Nine Months Ended September 30, 2017
Income tax benefit		—			8,426			—			—
Total net realized gains (losses) on investments		—			(26,319	)		944			3,785
Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries		—			29,115			2,035			11,089
Net change in unrealized depreciation on investments other than securities		—			(1,915	)		—			—
Net change in unrealized depreciation on investments		—			(4,403	)		(6,871	)		(26,843	)
Income tax (provision) benefit		—			(8,122	)		7,001			13,120
Net unrealized appreciation (depreciation) on investments		—			14,675			2,165			(2,634	)
Net realized/unrealized gains (losses) on investments		—			(11,644	)		3,109			1,151
Net loss after taxes/net increase (decrease) on net assets resulting from operations		(3,846	)		(32,604	)		619			(3,067	)
Less: income attributable to the noncontrolling interest		851			1,614			—			—
Total net income (loss) attributable to Medallion Financial Corp./net increase (decrease) on net assets resulting from operations	$	(4,697	)	$	(34,218	)	$	619		$	(3,067	)
Basic net loss per share	$	(0.19	)	$	(1.41	)	$	0.03		$	(0.13	)
Diluted net loss per share	$	(0.19	)	$	(1.41	)	$	0.03		$	(0.13	)
Distributions declared per share	$	—		$	—			—		$	—
Weighted average common shares outstanding
Basic		24,235,242			24,207,273			23,930,086			23,916,334
Diluted		24,235,242			24,207,273			24,083,919			23,916,334

(1) Balance includes the six months ended September 30, 2018 under Bank Holding Company Accounting and three months ended March 31, 2018 under Investment Company Accounting.

(2) Included in interest and investment income is $450 and $1,428 of paid in kind interest for the three and nine months ended September 30, 2018 and $939 and $1,650 for the comparable 2017 periods.

(3) Average borrowings outstanding were $1,255,945 and $1,226,896, and the related average borrowing costs were 2.81% and 2.22% for the three and nine months ended September 30, 2018, and were $330,885 and $335,907 and 4.25% and 4.09% for the comparable 2017 periods.

(4) See Note 11 for the components of other operating expenses.

(5) Includes $256 of net revenues received from Medallion Bank for the nine months ended September 30, 2018 and $184 and $641 for the three and nine months ended September 30, 2017, primarily for expense reimbursements. See Notes 6 and 13 for additional information.

(6) There were no net losses on investment securities of affiliated issuers for the nine months ended September 30, 2018 and for the three and nine months ended September 30, 2017.

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 8 of 108

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS

(UNAUDITED)

	Bank Holding Company Accounting			Combined			Investment Company Accounting
(Dollars in thousands)	For the Three Months Ended September 30, 2018			For the Nine Months Ended September 30, 2018 (1)			For the Three Months Ended September 30, 2017		For the Nine Months Ended September 30, 2017
Net loss after taxes/net increase (decrease) on net assets resulting from operations	$	(3,846	)	$	(32,604	)	$	619	$	(3,067	)
Other comprehensive loss, net of tax		(214	)		(469	)		—		—
Total comprehensive loss		(4,060	)		(33,073	)		619		(3,067	)
Less: comprehensive income attributable to the noncontrolling interest		851			1,614			—		—
Total comprehensive loss attributable to Medallion Financial Corp.	($	4,911	)	($	34,687	)	$	619	($	3,067	)

(1) Balance includes the six months ended September 30, 2018 under Bank Holding Company Accounting and three months ended March 31, 2018 under Investment Company Accounting.

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 9 of 108

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND CHANGES IN NET ASSETS

(UNAUDITED)

	Bank Holding & Investment Company Accounting														Investment Company Accounting								Bank Holding Company Accounting									Bank Holding & Investment Company Accounting
(Dollars in thousands)	Common Stock Shares		Common Stock		Preferred Stock		Capital in Excess of Par		Treasury Stock Shares			Treasury Stock			Accumulated undistributed net investment loss			Accumulated undistributed net realized gains on investments		Net unrealized appreciation on investments, net of tax			Retained Earnings			Accumulated Other Comprehensive Income			Total Stockholders’ Equity			Noncontrolling Interest			Total Equity
Balance at December 31, 2017		27,294,327	$	273	$	—	$	273,716		(2,951,243	)	($	24,919	)	($	65,592	)	$	—	$	103,681			—		$	—		$	287,159		$	—		$	287,159
Net decrease in net assets resulting from operations		—		—		—		—		—			—			( 38,299	)		—		23,425			—			—			(14,874	)		—			(14,874	)
Stock based compensation expense		—		1		—		151		—			—			—			—		—			—			—			152			—			152
Issuance of restricted stock, net		95,726		—		—		—		—			—			—			—		—			—			—			—			—
Balance at March 31, 2018		27,390,053		274		—		273,867		(2,951,243	)		(24,919	)		(103,891	)		—		127,106			—			—			272,437			—			272,437
Adoption of Bank Holding Company Accounting		—		—		—		—		—			—			103,891			—		(127,106	)		23,215			—			—			—			—
Balance at April 2, 2018		27,390,053		274		—		273,867		(2,951,243	)		( 24,919	)		—			—		—			23,215			—			272,437			27,065			299,502
Net loss		—		—		—		—		—			—			—			—		—			(19,344	)		—			(19,344	)		1,614			(17,730	)
Distributions on noncontrolling interest		—		—		—		—		—			—			—			—		—			—			—			—			(1,184	)		(1,184	)
Stock based compensation		—				—		296		—			—			—			—		—			—			—			296			—			296
Issuance of restricted stock, net		1,242		—		—		—		—			—			—			—		—			—			—			—			—
Net change in unrealized losses on investments, net of tax		—		—		—		—		—			—			—			—		—			—			(469	)		(469	)		—			(469	)
Balance at September 30, 2018		27,391,295	$	274	$	—	$	274,163		(2,951,243	)	($	24,919	)	$	—		$	—	$	—		$	3,871		($	469	)	$	252,920		$	27,495		$	280,415

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 10 of 108

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(UNAUDITED)

	Investment Company Accounting
(Dollars in thousands, except per share data)	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Net investment loss after income taxes	$	(2,490	)	$	(4,218	)
Net realized gains on investments, net of tax		944			3,785
Net unrealized depreciation on investments, net of tax		2,165			(2,634	)
Net increase (decrease) in net assets resulting from operations		619			(3,067	)
Investment income, net		—			—
Return of capital		—			—
Realized gains from investment transactions, net		—			—
Distributions to shareholders(1)		—			—
Stock-based compensation expense		222			551
Exercise of stock options		—			—
Capital share transactions		222			551
Total increase (decrease) in net assets		841			(2,516	)
Net assets at the beginning of the period		282,739			286,096
Net assets at the end of the period(2)	$	283,580		$	283,580
Capital share activity
Common stock issued, beginning of period		27,227,291			26,976,064
Exercise of stock options		—			—
Issuance of restricted stock, net		(492	)		250,735
Common stock issued, end of period		27,226,799			27,226,799
Treasury stock, beginning of period		(2,951,243	)		(2,951,243	)
Treasury stock acquired		—			—
Treasury stock, end of period		(2,951,243	)		(2,951,243	)
Common stock outstanding		24,275,556			24,275,556

(1) Distributions declared were $0.00 and $0.00 per share for the three and nine months ended September 30, 2017.

(2) Includes $0 of undistributed net investment income, $0 of undistributed net realized gains on investments, and $0 of capital loss carryforwards at September 30, 2017.

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 11 of 108

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Combined			Investment Company Accounting
(Dollars in  thousands)	For the Nine Months Ended September 30, 2018(1)			For the Nine Months Ended September 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(32,604	)	$	(3,067	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		48,781			—
Loans originated		(8,193	)		(16,775	)
Proceeds from principal receipts, sales, and maturities of loans		13,279			36,922
Paid-in-kind interest		(1,428	)		(1,650	)
Depreciation and amortization		2,995			410
Change in deferred and other tax assets/liabilities, net		8,676			(12,268	)
Amortization of origination fees, net		2,192			55
Net change in loan collateral in process of foreclosure		3,258			—
Capital returned by Medallion Bank and other controlled subsidiaries, net		93			588
Net realized gains on sale of loans and investments		(4,726	)		—
Net change in unrealized depreciation on investments		5,380			26,843
Net change in unrealized depreciation on investment other than securities		1,915			—
Increase in unrealized appreciation on Medallion Bank and other controlled subsidiaries		(29,115	)		(11,089	)
Net realized (gains) losses on investments		34,745			(3,785	)
Stock-based compensation expense		446			551
Decrease in accrued interest receivable		486			209
Increase in other liabilities		3,159			—
(Increase) decrease in other assets		(7,173	)		548
Decrease in accounts payable and accrued expenses		(675	)		(354	)
Increase (decrease) in accrued interest payable		41			255
Net cash provided by operating activities		41,532			17,393
CASH FLOWS FROM INVESTING ACTIVITIES
Loans originated		(256,933	)		—
Proceeds from principal receipts, sales, and maturities of loans		240,915			—
Purchases of investments		(8,304	)		—
Proceeds from principal receipts, sales, and maturities of investments		2,475			—
Net cash (used for) investing activities		(21,847	)		—
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from time deposits and funds borrowed		336,108			—
Repayments of time deposits and funds borrowed		(253,497	)		(18,935	)
Purchase of federal funds		8,000			—
Repayments of federal funds		(8,000	)		—
Distributions to noncontrolling interests		(1,184	)		—
Payments of declared distributions		(65	)		(139	)
Net cash provided by (used for) financing activities		81,362			(19,074	)

Page 12 of 108

	Combined		Investment Company Accounting
(Dollars in  thousands)	For the Nine Months Ended September 30, 2018(1)		For the Nine Months Ended September 30, 2017
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		101,047		(1,681	)
Cash and cash equivalents,beginning of period(2)		42,513		20,962
Cash and cash equivalents,end of period(3)	$	143,560	$	19,281
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest	$	17,381	$	9,692
Cash paid during the period for income taxes		52		48

(1) Balance includes the six months ended September 30, 2018 under Bank Holding Company Accounting and three months ended March 31, 2018 under Investment Company Accounting.

(2) Included in the beginning balance for the nine months ended September 30, 2018 was $29,923 of cash, cash equivalents, and federal funds sold as a result of the consolidation of previously unconsolidated subsidiaries and excludes $100 of cash held by the Company on deposit with Medallion Bank.

(3) Includes federal funds sold for the nine months ended September 30, 2018.

The accompanying notes should be read in conjunction with these consolidated financial statements.

Page 13 of 108

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

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

Medallion Financial Corp. (the Company) is a commercial finance company organized as a Delaware corporation that reports as a bank holding company (but is not a bank holding company for regulatory purposes). The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Bank, a Federal Deposit Insurance Corporation (FDIC) insured industrial bank, that originates consumer loans, raises deposits, and conducts other banking activities. Medallion Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies, and undergoes examinations by those agencies. Medallion Bank was initially formed for the primary purpose of originating commercial loans in three categories: 1) loans to finance the purchase of taxicab medallions, 2) asset-based commercial loans, and 3) SBA 7(a) loans. The loans are marketed and serviced by Medallion Bank’s affiliates that have extensive prior experience in these asset groups. Subsequent to its formation, Medallion Bank began originating consumer loans to finance the purchases of RVs, boats, and other related items, and to finance small scale home improvements. The Company also conducts business through Medallion Funding LLC (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans.

The Company also conducts business through its subsidiaries, Medallion Capital, Inc. (MCI), an SBIC which conducts a mezzanine financing business, and Freshstart Venture Capital Corp. (FSVC), an SBIC which originates and services taxicab medallion and commercial loans. MFC, MCI, and FSVC, as SBICs, are regulated by the Small Business Administration (SBA). MCI and FSVC are financed in part by the SBA.

The Company has a controlling ownership stake in Medallion Motorsports, LLC, the primary owner of RPAC Racing, LLC (RPAC), a professional car racing team that competes in the Monster Energy NASCAR Cup Series, which is also consolidated with the Company.

The Company formed a wholly-owned subsidiary, Medallion Servicing Corporation (MSC), to provide loan services to Medallion Bank. The Company has assigned all of its loan servicing rights for Medallion Bank, which consists of servicing taxi medallion loans originated by Medallion Bank, to MSC, which bills and collects the related service fee income from Medallion Bank, and is allocated and charged by the Company for MSC’s share of these servicing costs.

Taxi Medallion Loan Trust III (Trust III) was established for the purpose of owning medallion loans originated by MFC or others. Trust III is a variable interest entity (VIE), MFC is the primary beneficiary and as a result the Company consolidated Trust III in its financial results, until consummation of the restructuring subsequent to September 30, 2018. Trust III is a separate legal and corporate entity with its own creditors which, in any liquidation of Trust III, will be entitled to be satisfied out of Trust III’s assets prior to any value in Trust III becoming available to Trust III’s equity holders. The assets of Trust III, aggregating $63,512,000 at September 30, 2018, 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 Trust III. Trust III’s loans are serviced by MFC. As of September 30, 2018, Trust III had liabilities of $98,491,000 and a deficit of $34,979,000, as a result of losses taken on the medallion loans in Trust III. As of September 30, 2018, this amount exceeded the Company’s maximum exposure to Trust III, which is solely due to a limited guaranty by MFC of $5,987,000, by $28,992,000. Refer to Note 19 for a discussion of the restructuring the Company executed subsequent to September 30, 2018.

The Company established a wholly-owned subsidiary, Medallion Financing Trust I (Fin Trust) for the purpose of issuing unsecured preferred securities to investors. Fin Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of Fin Trust, will be entitled to be satisfied out of Fin Trust’s assets prior to any value in Fin Trust becoming available to Fin Trust’s equity holders. The assets of Fin Trust, aggregating $36,142,000 at September 30, 2018, 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 Fin Trust.

MFC, through several wholly-owned subsidiaries (together, Medallion Chicago), purchased $8,689,000 of City of Chicago taxicab medallions out of foreclosure, which are leased to fleet operators while being held for sale. The 159 medallions are carried at a net realizable value of $5,535,000 on the Company’s consolidated balance sheet at September 30, 2018 compared to fair value of $7,450,000 and $9,510,000 at December 31, 2017 and September 30, 2017.

Page 14 of 108

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change to Bank Holding Company Accounting

As described above, effective April 2, 2018, the Company withdrew its previous election to be regulated as a BDC under the 1940 Act. Prior to such time, the Company wasa closed-end, non-diversified management investment company that had elected to be treated as a BDC under the 1940 Act. Accordingly, commencing with the three months ended June 30, 2018, the Company (which now consolidates the results of Medallion Bank and its other subsidiaries) reports in accordance with Bank Holding Company Accounting; periods prior to such change in status are reported in accordance with Investment Company Accounting. Significant accounting policies that differ between such periods are described in more detail below.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the US (GAAP) requires management to make estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. Accounting estimates and assumptions are those that management considers to be the most critical to an understanding of the consolidated financial statements because they inherently involve significant judgments and uncertainties. All of these estimates reflect management’s best judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions change, it is reasonably possible that the judgments and estimates could change, which may result in future impairments of loans and other receivables, investments other than securities, loans held for sale, and investments, among other effects.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned and controlled subsidiaries commencing with the three months ended June 30, 2018. All significant intercompany transactions, balances, and profits (losses) have been eliminated in consolidation. Prior to the Company’s election to withdraw from being regulated as a BDC under the 1940 Act effective April 2, 2018, Medallion Bank and various other Company subsidiaries were not consolidated with the Company prior to the three months ended June 30, 2018, and as such see Note 6 for the presentation of financial information for Medallion Bank and other controlled subsidiaries for such prior periods.

The consolidated financial statements have been prepared in accordance with GAAP. The Company consolidates all entities it controls through a majority voting interest, a controlling interest through other contractual rights, or as being identified as the primary beneficiary of VIEs. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third-party’s holding is recorded as non-controlling interest.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash balances are generally held in accounts at large national or regional banking organizations in amounts that exceed the federally insured limits.

Fair Value of Assets and Liabilities

The Company follows FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, (FASB ASC 820), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 defines fair value as an exit price (i.e. a price that would be received to sell, as opposed to acquire, an asset or transfer a liability), and emphasizes that fair value is a market-based measurement. It establishes a fair value hierarchy that distinguishes between assumptions developed based on market data obtained from independent external sources and the reporting entity’s own assumptions. Further, it specifies that fair value measurement should consider adjustment for risk, such as the risk inherent in the valuation technique or its inputs. See also Notes 14 and 15 to the consolidated financial statements.

Equity Investments

Equity investments of $10,752,000 at September 30, 2018, comprised mainly of nonmarketable stock, equity units and equity warrants, are recorded at cost and are evaluated for impairment periodically. Prior to April 2, 2018, equity investments were recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. The fair value of investments that had no ready market were determined in good faith by the Board of Directors, based upon the financial condition and operating performance of the underlying investee companies as well as general market trends for businesses in the same industry. Included in the equity investments werenon-marketable securities of $9,521,000 at December 31, 2017.

Page 15 of 108

Investment Securities (Bank Holding Company Accounting)

The Company follows FASB ASC Topic 320, Investments – Debt and Equity Securities (ASC 320), which requires that all applicable investments in equity securities with readily determinable fair values, and debt securities be classified as tradingsecurities, available-for-sale securities,or held-to-maturity securities. Investment securities are purchasedfrom 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 on a level yield basis as an adjustment to the yield of the related investment. The net premium on investment securities totaled $186,000, and $26,000 and $47,000 was amortized to interest income for the three and six months ended September 30, 2018. Medallion Bank, a previously unconsolidated subsidiary under Investment Company Accounting, for the period, had net premium on investment securities of $250,000 as of September 30, 2017, and $21,000 and $61,000 was amortized to interest income for the three and nine months ended September 30, 2017. Refer to Note 3 for more details. ASC 320 further requiresthat held-to-maturity securities be reported at amortized cost andavailable-for-sale securities be reported at fair value, with unrealized gains and losses excluded from earnings at the date of the consolidated financial statements, and reported in accumulated other comprehensive income (loss) as a separate component of shareholder’s equity, net of the effect of income taxes, until they are sold. At the time of sale, any gains or losses, calculated by the specific identification method, will be recognized as a component of operating results and any amounts previously included in shareholder’s equity, which were recorded net of the income tax effect, will be reversed.

Other Investment Valuation (Investment Company Accounting)

Prior to April 2, 2018, under the 1940 Act, the Company’s investment in Medallion Bank, as a wholly owned portfolio investment, was subject to quarterly assessments of fair value. The Company conducted a thorough valuation analysis, and also received an opinion regarding the valuation from an independent third party to assist the Board of Directors in its determination of the fair value of Medallion Bank on at least an annual basis. The Company’s analysis included factors such as various regulatory restrictions that were established at Medallion Bank’s inception, by the FDIC and State of Utah, and also by additional regulatory restrictions, such as the prior moratorium imposed by the Dodd-Frank Act on the acquisition of control of an industrial bank by a “commercial firm” (a company whose gross revenues are primarily derived fromnon-financial activities) which expired in July 2013 and the lack of any new charter issuances since the moratorium’s expiration. Because of these restrictions and other factors, the Company’s Board of Directors had previously determined that Medallion Bank had little value beyond its recorded book value. As a result of this valuation process, the Company had previously used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the 2015 second quarter, the Company first became aware of external interest in Medallion Bank and its portfolio assets at values in excess of their book value. Expression of interest in Medallion Bank from both investment bankers and interested parties has continued. The Company incorporated these new factors in the Medallion Bank’s fair value analysis and the Board of Directors determined that Medallion Bank had a fair value in excess of book value. In addition, in the 2016 third quarter there was a court ruling involving a marketplace lender that the Company believes heightens the interest of marketplace lenders to acquire or merge with Utah industrial banks. The Company also engaged a valuation specialist to assist the Board of Directors in their determination of Medallion Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $128,918,000 was recorded in 2016, $7,849,000 was recorded in 2017, and $39,826,000 was recorded in the first quarter of 2018. Refer to Note 6 for additional details.

At December 31, 2017, there werenon-marketable securities of $302,147,000 related to portfolio investments in controlled subsidiaries that were not consolidated with the Company. Because of the inherent uncertainty of valuations, the Board of Directors’ 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.

Loans

The Company’s loans are currently reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan. Effective April 2, 2018, the existing loan balances were recharged at fair value in connection with the change in reporting, and balances, net of reserves, became the fair value opening balances.

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, 2018 and December 31, 2017, net loan origination costs were $14,041,000 and $90,000 ($11,187,000 when combined with Medallion Bank). The majority of these loan origination costs were capitalized into the loan balances on April 2, 2018 in connection with the change in reporting status. Net amortization (accretion) to income for the three months ended September 30, 2018 and 2017 was $1,147,000 and ($17,000) ($901,000 when combined with Medallion Bank), and was $2,192,000 ($3,065,000 when combined with Medallion Bank) and ($55,000) ($2,526,000 when combined with Medallion Bank) for the comparable nine month periods.

Page 16 of 108

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 collectability 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 generally recognized when cash is received, unless a determination has been made to apply all cash receipts to principal. The consumer portfolio has different characteristics, typified by a larger number of lower dollar loans that have similar characteristics. A loan is considered to be impaired, or nonperforming, when based on current information and events, it is likely the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Management considers loans that are in bankruptcy status, but have notbeen charged-off, to be impaired. These loans are placed on nonaccrual, when they become 90 days past due, or earlier if they enter bankruptcy, and are charged off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever occurs first, at which time appropriate collection and recovery efforts against both the borrower and the underlying collateral are initiated. For the recreational 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. If the collateral is repossessed, a loss is recorded to write the collateral down to its fair value less selling costs, 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. Proceeds collected on charged off accounts are recorded as a recovery. Total loans more than 90 days past due were $14,061,000 at September 30, 2018, or 1.29% of the total loan portfolio, compared to $60,450,000, or 18.9% at December 31, 2017.

Loan collateral in process of foreclosure primarily includes taxicab medallion loans that have reached 120 days past due and have been charged down to their net realizable value, in addition to consumer repossessed collateral in the process of being sold. The taxicab medallion loan component reflects that the collection activities on the loans have transitioned from working with the borrower, to the liquidation of the collateral securing the loans.

The Company had $123,173,000 and $183,529,000 of net loans pledged as collateral under borrowing arrangements at September 30, 2018 and December 31, 2017.

The Company accounted for its sales of loans in accordance with FASB Accounting Standards Codification Topic 860, Transfers and Servicing (FASB ASC 860) which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. In accordance with FASB ASC 860, the Company had elected the fair value measurement method for its servicing assets and liabilities. The principal portion of loans serviced for others by the Company and its affiliates was $26,558,000 at September 30, 2018 and $338,867,000 at December 31, 2017, which included $311,988,000 of loans serviced for Medallion Bank. The Company has evaluated the servicing aspect of its business in accordance with FASB ASC 860, most of which relates to servicing assets held by Medallion Bank, and determined that no material servicing asset or liability existed as of September 30, 2018 and December 31, 2017. The Company assigned its servicing rights to the Medallion Bank portfolio to MSC. The costs of servicing were allocated to MSC by the Company, and the servicing fee income was billed to and collected from Medallion Bank by MSC.

Allowance for Loan Losses (Bank Holding Company Accounting)

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. In analyzing the adequacy of the allowance for loan losses, the Company uses historical delinquency and actual loss rates with a one year lookback period for consumer loans. For commercial loans deemed nonperforming, the historical loss experience and other projections are looked at, and for medallion loans, non performing loans are valued at the median sales price over the most recent quarter, and performing medallion loans are reserved utilizing historical loss ratios over a three year lookback period. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. As a result, reserves of $15,587,000 (includes Bank’s reserves since April 2^nd); are recorded as a general reserve on medallion loans as an additional buffer against future losses. Credit losses are deducted from the allowance and subsequent recoveries are added back to the allowance.

Unrealized Appreciation (Depreciation) and Realized Gains (Losses) on Investments (Investment Company Accounting)

Prior to April 2, 2018, under Investment Company Accounting, the Company’s loans, net of participations and any unearned discount, were considered investment securities under the 1940 Act and recorded at fair value. As part of the fair value methodology, loans were valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market existed for these loans, the fair value was determined in good faith by the Board of Directors. In determining the fair value, the Board of Directors considered factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, cash flows of the borrower, market conditions for loans (e.g. values used by other lenders and any active bid/ask market), historical loss experience, and the relationships between current and projected market rates and portfolio rates of interest and maturities. Investments other than securities, which represent collateral received from defaulted borrowers, were valued similarly.

Page 17 of 108

Under Investment Company Accounting, the Company recognized unrealized appreciation (depreciation) on investments as 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 appreciation on investments was $139,700,000, and $100,732,000 as of December 31, 2017 and September 30, 2017. Refer to Note 5 for additional details.

Goodwill and Intangible Assets

The Company’s goodwill and intangible assets arose as a result of the excess of fair value over book value for several of the Company’s previously unconsolidated portfolio investment companies as of April 2, 2018. This fair value was brought forward under the Company’s new Bank Holding Company reporting, and was subject to a purchase price accounting allocation process conducted by an independent third party expert to arrive at the current categories and amounts. Goodwill is not amortized, but is subject to impairment testing on an annual basis. Intangible assets are amortized over their useful life of approximately 20 years. See below for detailed information on the fair value allocation as of April 2, 2018. As of September 30, 2018, the Company had goodwill and intangible assets of $210,761 and recognized $361 and $722 of amortization expense for the three and nine months periods then ended.

(in thousands)	Fair Value as of March 31, 2018		Allocation as of April 2, 2018
Medallion Bank
Assets
Net loans(1)			$	890,000
Other assets				130,393
Liabilities
Funds borrowed and other liabilities				(853,650	)
Total fair value excluding goodwill and intangibles				166,743
Goodwill				150,803
Intangibles				28,900
Total fair value(2)	$	346,446	$	346,446

(1) Includes $12,387 of premiums associated with the loan portfolio.

(2) Includes $26,303 of preferred stock held by the US Treasury. See Note 17 for details.

(in thousands)	Fair Value as of March 31, 2018		Allocation as of April 2, 2018
RPAC Racing LLC
Assets
Cash			$	1,647
Net fixed assets				774
Race cars and parts, net				203
Race cars held for sale				916
Other assets				1,902
Liabilities
Deferred revenue				(6,531	)
Notes payable(1)				(27,220	)
Other liabilities				(2,275	)
Total fair value excluding goodwill and intangibles				(30,584	)
Intangibles				31,779
Total fair value(2)	$	1,195	$	1,195

(1) Includes $20,177 due to the Company and its affiliates as of March 31, 2018.

(2) Fair value as of March 31, 2018 represents the Company’s investment in RPAC Racing LLC series D units.

Page 18 of 108

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 $131,000 and $23,000 ($64,000 had Medallion Bank been consolidated) for the quarters ended September 30, 2018 and 2017, and was $289,000 and $71,000 ($166,000 had Medallion Bank been consolidated) for the comparable nine months.

Deferred Costs

Deferred financing costs, included in other assets, represents costs associated with obtaining the Company’s borrowing facilities, and are amortized on a straight line basis over the lives of the related financing agreements and life of the respective pool. Amortization expense was $558,000 and $229,000 ($567,000 had Medallion Bank been consolidated) for the quarters ended September 30, 2018 and 2017, and was $1,322,000 and $697,000 ($1,680,000 had Medallion Bank been consolidated) for the comparable nine months, recorded as interest expense. In addition, the Company capitalizes certain costs for transactions in the process of completion (other than business combinations), including those for potential investments, and the sourcing of other financing alternatives. Upon completion or termination of the transaction, any accumulated amounts are amortized against income over an appropriate period, or written off. The amount on the Company’s balance sheet for these purposes was $4,859,000, $3,070,000 ($5,011,000 had Medallion Bank been consolidated), and $3,295,000 ($5,437,000 had Medallion Bank been consolidated) as of September 30, 2018, December 31, 2017, and September 30, 2017.

Income Taxes

Income taxes are accounted for using the asset and liability approach in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities reflect the impact of temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are also recorded for net operating losses, capital losses, and any tax credit carryforwards. A valuation allowance is provided against a deferred tax asset when it is more likely than not that some or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether a valuation allowance for deferred tax assets is needed. Items considered in determining our valuation allowance include expectations of future earnings of the appropriate tax character, recent historical financial results, tax planning strategies, the length of statutory carryforward periods, and the expected timing of the reversal of temporary differences. Under ASC 740, forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence, such as cumulative losses in recent years. The Company recognizes tax benefits of uncertain tax positions only when the position is more likely than not to be sustained assuming examination by tax authorities. The Company records income tax related interest and penalties, if applicable, within current income tax expense.

Page 19 of 108

Earnings (Loss) Per Share (EPS)

Basic earnings (loss) per share are computed by dividing net income (loss)/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, or if restricted stock vests, and has been computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and restricted stock. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants, including unvested compensation expense related to the shares, in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. The table below shows the calculation of basic and diluted EPS.

	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2018			2017		2018			2017
Net loss/ net decrease in net assets resulting from operations available to common shareholders	($	4,697	)	$	619	($	34,218	)	($	3,067	)
Weighted average common shares outstanding applicable to basic EPS		24,235,242			23,930,086		24,207,273			23,916,334
Effect of dilutive stock options		—			—		—			—
Effect of restricted stock grants		—			153,833		—			—
Adjusted weighted average common shares outstanding applicable to diluted EPS		24,235,242			24,083,919		24,207,273			23,916,334
Basic loss per share	($	0.19	)	$	0.03	($	1.41	)	($	0.13	)
Diluted loss per share		(0.19	)		0.03		(1.41	)		(0.13	)

Potentially dilutive common shares excluded from the above calculations aggregated 115,000 and 359,000 shares as of September 30, 2018 and 2017.

Stock Compensation

The Company follows FASB ASC Topic 718 (ASC 718), “Compensation – Stock Compensation”, for its equity incentive, stock option and restricted stock plans, and accordingly, the Company recognizes the expense of these grants as required. Stock-based employee compensation costs pertaining to stock options is reflected in net income (loss)/net increase (decrease) in net assets resulting from operations for any new grants using the fair values established by usage of the Black-Scholes option pricing model, expensed over the vesting period of the underlying option. Stock-based employee compensation costs pertaining to restricted stock are reflected in net income (loss)/net increase in net assets resulting from operations for any new grants using the grant date fair value of the shares granted, expensed over the vesting period of the underlying stock.

During the nine months ended September 30, 2018 and 2017, the Company issued 101,010 and 258,232 of restricted shares of stock-based compensation awards, and 39,000 and 23,333 shares of other stock-based compensation awards, and recognized $151,000 and $446,000, or $0.01 and $0.02 per share for the 2018 third quarter and nine months, and $222,000 and $551,000, or $0.01 and $0.02 per share in the comparable 2017 periods, ofnon-cash stock-based compensation expense related to the grants. As of September 30, 2018, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $408,000, which is expected to be recognized over the next 11 quarters (see Note 9).

Derivatives

The Company manages its exposure to increases in market rates of interest by periodically purchasing interest rate caps to lock in the cost of funds of its variable-rate debt in the event of a rapid run up in interest rates. The Company entered into contracts to purchase interest rate caps on $20,000,000 of notional value of principal from various multinational banks, with termination dates ranging to December 2018. The caps provide for payments to the Company if various LIBOR thresholds are exceeded during the cap terms. Total cap purchases were generally fully expensed when paid, including $0 for the three and nine months ended September 30, 2018 and $0 and $19,000 for the comparable 2017 periods, and all are carried at $0 on the balance sheet at September 30, 2018.

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Regulatory Capital

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

FDIC-insured banks, including Medallion Bank, are subject to certain federal laws, which impose various legal limitations on the extent to which banks may finance or otherwise supply funds to certain of their affiliates. In particular, Medallion Bank is subject to certain restrictions on any extensions of credit to, or other covered transactions, such as certain purchases of assets, with the Company or its affiliates.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting the Bank’s application for federal deposit insurance, the FDIC ordered that the Tier 1 leverage capital to total assets ratio, as defined, be not less than 15%, and that an adequate allowance for loan losses be maintained. As of September 30, 2018, the Bank’s Tier 1 leverage capital ratio was 15.08%. The Bank’s actual capital amounts and ratios, and the regulatory minimum ratios are presented in the following table.

	Regulatory
(Dollars in  thousands)	Minimum			Well- capitalized			September 30, 2018			December 31, 2017
Common equity Tier 1 capital		—			—		$	138,946		$	137,494
Tier 1 capital		—			—			165,249			163,797
Total capital		—			—			178,552			176,876
Average assets		—			—			1,096,094			1,127,087
Risk-weighted assets		—			—			1,010,792			995,145
Leverage ratio(1)		4.0	%		5.0	%		15.1	%		14.5	%
Common equity Tier 1 capital ratio(2)		4.5			6.5			13.7			13.8
Tier 1 capital ratio(3)		6.0			8.0			16.3			16.5
Total capital ratio(3)		8.0			10.0			17.7			17.8

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

(2) Calculated by subtracting preferred stock ornon-controlling interests from Tier 1 capital and dividing by risk-weighted assets.

(3) Calculated by dividing Tier 1 or total capital by risk-weighted assets.

In addition, the Bank is subject to a Common Equity Tier 1 capital conservation buffer on top of the minimum risk-based capital ratios. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will increase by 0.625% each subsequent January 1 until January 1, 2019. Including the buffer, by January 1, 2019, the Bank will be required to maintain the following minimum capital ratios: a Common Equity Tier 1 risk-based capital ratio of greater than 7.0%, a Tier 1 risk-based capital ratio of greater than 8.5% and a total risk-based capital ratio of greater than 10.5%

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value. The objective of this update is to modify the disclosure requirements as it relates to the fair value of assets and liabilities. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its financial disclosures.

In January 2017, the FASB issued ASU2017-04 Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of this update is to simplify the subsequent measurement of goodwill, by eliminating step 2 from the goodwill impairment test. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its financial condition.

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In June 2016, the FASB issuedASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The main objective of this new standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit held by a reporting entity at each reporting date. The aftermath of the global economic crisis and the delayed recognition of credit losses associated with loans (and other financial instruments) was identified as a weakness in the application of existing accounting standards. Specifically, because the existing “incurred” loss model delays recognition until it is probable a credit loss was incurred, the FASB explored alternatives that would use more forward-looking information. Under the FASB’s new standard, the concepts used by entities to account for credit losses on financial instruments will fundamentally change. The existing “probable” and “incurred” loss recognition threshold is removed. Loss estimates are based upon lifetime “expected” credit losses. The use of past and current events must now be supplemented with “reasonable and supportable” expectations about the future to determine the amount of credit loss. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL (current expected credit loss) model.ASU 2016-13 applies to all entities and is effective for fiscal years beginning after December 15, 2019 for public entities and is effective for fiscal years beginning after December 15, 2020 for all other entities, with early adoption permitted. The Company is assessing the impact the update will have on its financial statements, but expects the update to have a significant impact on how the Company expects to account for estimated credit losses on its loans.

In February 2016, the FASB issued ASU2016-02, Leases (Topic 842). ASU2016-02 requires the recognition of lease assets and lease liabilities by lessees for leases classified as operating under GAAP. ASU2016-02 applies to all entities and is effective for fiscal years beginning after December 15, 2018 for public entities. The Company has assessed the impact the update will have on its financial condition and does not believe this update will have a material impact on its financial condition.

(3) INVESTMENT SECURITIES (Bank Holding Company Accounting)

Fixed maturity securities available for sale at September 30, 2018 consisted of the following:

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	35,147	$	9	$	(1,188	)	$	33,968
State and municipalities		12,239		1		(451	)		11,789
Total	$	47,386	$	10	$	(1,639	)	$	45,757

The amortized cost and estimated market value of investment securities as of September 30, 2018 by contractual maturity are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	27	$	27
Due after one year through five years		11,404		11,035
Due after five years through ten years		11,718		11,283
Due after ten years		24,237		23,412
Total	$	47,386	$	45,757

Information pertaining to securities with gross unrealized losses at September 30, 2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows.

	Less than Twelve Months					Twelve Months and Over
(Dollars in thousands)	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	(143	)	$	7,165	$	(1,045	)	$	24,751
State and municipalities		(142	)		5,918		(309	)		5,726
Total	$	(285	)	$	13,083	$	(1,354	)	$	30,477

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Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date.

As of December 31, 2017, under Investment Company Accounting, investment securities made up 0% of the net investments.

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(4) LOANS AND ALLOWANCE FOR LOAN LOSSES (Bank Holding Company Accounting)

The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at September 30, 2018 under Bank Holding Company Accounting.

(Dollars in thousands)	Amount			As a Percent of Gross Loans
Recreation	$	575,875			53	%
Home improvement		169,642			16
Commercial		82,558			7
Medallion		261,470			24
Total gross loans		1,089,545			100	%
Allowance for loan losses		(29,484	)
Total net loans	$	1,060,061

The following table sets forth the activity in the allowance for loan losses for the three and six months ended September 30, 2018 under Bank Holding Company Accounting.

(Dollars in thousands)	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Allowance for loan losses – beginning balance(1)	$	21,425		$	—
Charge-offs
Recreation		(4,825	)		(9,471	)
Home improvement		(659	)		(1,220	)
Commercial		—			—
Medallion		(6,457	)		(12,737	)
Total charge-offs		(11,941	)		(23,428	)
Recoveries
Recreation		1,318			3,217
Home improvement		367			606
Commercial		—			4
Medallion		110			304
Total recoveries		1,795			4,131
Net charge-offs		(10,146	)		(19,297	)
Provision for loan losses		18,205			48,781
Allowance for loan losses – ending balance(2)	$	29,484		$	29,484

(1) Beginning balance for the six months ended September 30, 2018 reflects the transition to Bank Holding Company Accounting by netting previously established unrealized depreciation against the gross loan balances resulting in a starting point of zero for this table.

(2) Includes $15,587 of a general reserve for current and performing medallion loans under 90 days past due, as an additional buffer against future losses, representing 53% of the total allowance, and 7% of the loans in question.

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The following table sets forth the composition of the allowance for loan losses by type as of September 30, 2018:

	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	2,880		10	%		0.50	%
Home Improvement		861		3			0.51
Commercial		100		—			0.12
Medallion		25,643		87			9.81
Total	$	29,484		100	%		2.71	%

The following table presents total nonaccrual loans and foregone interest, substantially all of which is in the medallion portfolio. The decline reflects the charge-offs of certain loans and their movement to loan collateral in process of foreclosure. The fluctuation in nonaccrual interest foregone is due to past due loans and market conditions.

	Bank Holding Company Accounting						Investment Company Accounting
(Dollars in thousands)	September 30, 2018			June 30, 2018			December 31, 2017 (1)			September 30, 2017 (2)
Total nonaccrual loans	$	45,765		$	47,904		$	98,494		$	132,316
Interest foregone quarter to date		563			770			823			1,845
Amount of foregone interest applied to principal in the quarter		350			400			52			574
Interest foregone life to date		8,530			8,281			12,485			16,286
Amount of foregone interest applied to principal life to date		3,412			3,748			3,495			9,750
Percentage of nonaccrual loans to gross loan portfolio		4	%		4	%		31	%		36	%

(1) Does not include Medallion Bank nonaccrual loans of $32,668, $1,487 of interest income foregone and $1,221 of foregone interest paid and applied to principal.

(2) Does not include Medallion Bank nonaccrual loans of $39,626, $1,278 of interest income foregone and $1,102 of foregone interest paid and applied to principal.

The following presents our performance status of loans as of September 30, 2018 under Bank Holding Company Accounting.

(Dollars in  thousands)	Performing		Non-Performing		Total
Recreation	$	570,800	$	5,075	$	575,875
Home improvement		169,475		167		169,642
Commercial		77,155		5,403		82,558
Medallion		223,413		38,057		261,470
Total	$	1,040,843	$	48,702	$	1,089,545

For those loans aged31-90 days, there is a possibility that their delinquency status will continue to deteriorate and they will subsequently be placed on nonaccrual status and be reserved for, and as such, deemed nonperforming.

The following table provides additional information on attributes of the nonperforming loan portfolio as of September 30, 2018 under Bank Holding Company Accounting, all of which had an allowance recorded against the principal balance.

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	September 30, 2018						Three Months Ended September 30, 2018					Six Months Ended September 30, 2018
(Dollars in  thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized
With an allowance recorded
Recreation	$	5,075	$	5,075	$	180	$	5,494	$	106		$	4,496	$	231
Home improvement		167		167		3		178		—			119		—
Commercial		5,403		5,814		100		7,047		(82	)		5,838		(12	)
Medallion		38,057		39,038		10,085		55,065		101			54,917		215
Total nonperforming loans with an allowance	$	48,702	$	50,094	$	10,368	$	67,784	$	125		$	65,370	$	434

The following table provides additional information on attributes of the nonperforming loan portfolio as of December 31, 2017 and September 30, 2017.

(Dollars in  thousands)	Recorded Investment (1) (2)		Unpaid Principal Balance		Average Recorded Investment
December 31, 2017
Medallion(3)	$	79,871	$	82,612	$	128,671
Commercial(3)		18,623		20,491		18,792
September 30, 2017
Medallion(3)	$	120,716	$	123,199	$	124,944
Commercial(3)		11,600		18,867		11,951

(1) As of December 31, 2017 and September 30, 2017, $20,851 and $55,871 of unrealized depreciation was recorded as a valuation allowance on these loans.

(2) Interest income of $124 and $1,383 was recognized on loans for the three and nine months ended September 30, 2017.

(3) Included in the unpaid principal balance is unearnedpaid-in-kind interest on nonaccrual loans of $4,609 and $9,750 as of December 31, 2017 and September 30, 2017, which is included in the nonaccrual disclosures on page 25.

The following tables show the aging of all loans as of September 30, 2018 and December 31, 2017:

Bank Holding Company Accounting	Days Past Due												Recorded Investment > 90 Days and Accruing
September 30, 2018 (Dollars in thousands)	31-60		61-90		91 +		Total		Current		Total(1)
Recreation	$	14,974	$	4,095	$	3,164	$	22,233	$	534,065	$	556,298	$	—
Home improvement		782		212		175		1,169		170,825		171,994		—
Commercial		471		95		421		987		81,571		82,558		—
Medallion		11,012		4,993		10,301		26,306		227,187		253,493		—
Total	$	27,239	$	9,395	$	14,061	$	50,695	$	1,013,648	$	1,064,343	$	—

(1) Excludes loan premiums of $10,606 resulting from purchase price accounting and $14,596 of capitalized loan origination costs.

Investment Company Accounting	Days Past Due												Recorded Investment > 90 Days and Accruing
December 31, 2017 (Dollars in thousands)	31-60		61-90		91 +		Total		Current		Total
Medallion loans	$	16,049	$	12,387	$	59,701	$	88,137	$	140,279	$	228,416	$	265
Commercial loans
Secured mezzanine		—		—		—		—		88,334		88,334		—
Other secured commercial		—		—		749		749		1,728		2,477		—
Total commercial loans		—		—		749		749		90,062		90,811		—
Total	$	16,049	$	12,387	$	60,450	$	88,886	$	230,341	$	319,227	$	265

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The following table shows the troubled debt restructurings which the Company entered into during the three months ended September 30, 2018 under Bank Holding Company Accounting.

(Dollars in  thousands)	Number of Loans		Pre- Modification Investment		Post- Modification Investment
Medallion loans		10	$	4,810	$	4,810

The following table shows the troubled debt restructurings which the Company entered into during the nine months ended September 30, 2018 under a combined accounting approach.

(Dollars in  thousands)	Number of Loans		Pre- Modification Investment		Post- Modification Investment
Medallion loans		17	$	7,505	$	7,505

During the twelve months ended September 30, 2018, three loans modified as troubled debt restructurings were in default and had an investment value of $1,305,000 as of September 30, 2018, net of $773,000 of an allowance for loan loss under Bank Holding Company Accounting.

The following table shows troubled debt restructurings which the Company entered into during the quarter ended September 30, 2017 under Investment Company Accounting.

(Dollars in  thousands)	Number of Loans		Pre- Modification Investment		Post- Modification Investment
Medallion loans		7	$	2,994	$	2,994

The following table shows troubled debt restructurings which the Company entered into during the nine months ended September 30, 2017 under Investment Company Accounting.

(Dollars in  thousands)	Number of Loans		Pre- Modification Investment		Post- Modification Investment
Medallion loans		54	$	34,905	$	34,831
Commercial loans		2		6,547		6,547
Total		56	$	41,452	$	41,378

During the twelve months ended September 30, 2017, sixteen loans modified as troubled debt restructurings were in default and had an investment value of $5,027,000 as of September 30, 2017, net of $4,495,000 of unrealized depreciation under Investment Company Accounting.

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(5) UNREALIZED APPRECIATION (DEPRECIATION) AND REALIZED GAINS (LOSSES) ON INVESTMENTS (Investment Company Accounting)

The following table sets forth thepre-tax change in the Company’s unrealized appreciation (depreciation) on investments under Investment Company Accounting for the three months ended March 31, 2018 and for the 2017 quarters shown below.

(Dollars in  thousands)	Medallion Loans			Commercial Loans			Investments in Subsidiaries		Equity Investments			Investments Other Than Securities			Total
Balance December 31, 2017	($	20,338	)	($	513	)	$	158,920	$	3,121		($	1,490	)	$	139,700
Net change in unrealized
Appreciation on investments		—			—			38,795		(998	)		—			37,797
Depreciation on investments		(38,170	)		18			—		—			(1,915	)		(40,067	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—		—			—			—
Losses on investments		34,747			—			—		—			—			34,747
Balance March 31, 2018	($	23,761	)	($	495	)	$	197,715	$	2,123		($	3,405	)	$	172,177

(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Subsidiaries			Equity Investments			Investments Other Than Securities			Total
Balance December 31, 2016	($	28,523	)	($	1,378	)	$	152,750		$	3,934		$	584		$	127,367
Net change in unrealized
Appreciation on investments		—			—			3,751			1,261			—			5,012
Depreciation on investments		(8,670	)		(332	)		—			—			—			(9,002	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			(2,093	)		—			(2,093	)
Losses on investments		825			—			—			486			—			1,311
Balance March 31, 2017		(36,368	)		(1,710	)		156,501			3,588			584			122,595
Net change in unrealized
Appreciation on investments		—			—			(771	)		120			—			(651	)
Depreciation on investments		(12,425	)		(118	)		—			—			—			(12,543	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			—			—			—
Losses on investments		337			636			—			—			—			973
Balance June 30, 2017		(48,456	)		(1,192	)		155,730			3,708			584			110,374
Net change in unrealized
Appreciation on investments		—			—			(2,771	)		(361	)		—			(3,132	)
Depreciation on investments		(6,669	)		75			—			—			(15	)		(6,609	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			(272	)		—			(272	)
Losses on investments		311			60			—			—			—			371
Balance September 30, 2017	($	54,814	)	($	1,057	)	$	152,959		$	3,075		$	569		$	100,732

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The table below summarizespre-tax components of unrealized and realized gains and losses in the investment portfolio for the three months ended March 31, 2018 and the three and nine months ended September 30, 2017 under Investment Company Accounting.

	Three Months Ended
(Dollars in thousands)	March 31, 2018			September 30, 2017			Nine Months Ended September 30, 2017
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	($	998	)	($	361	)	$	1,132
Unrealized depreciation		(38,152	)		(6,594	)		(28,253	)
Net unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries		29,115			2,035			11,089
Realized gains		—			(272	)		(2,363	)
Realized losses		34,747			371			2,656
Net unrealized losses on investments other than securities and other assets		(1,915	)		(15	)		(15	)
Total	$	22,797		$	(4,836	)	$	(15,754	)
Net realized gains (losses) on investments
Realized gains	$	—		$	272		$	2,363
Realized losses		(34,747	)		(371	)		(2,656	)
Other gains		—			1,187			4,189
Direct recoveries (chargeoffs)		2			(144	)		(111	)
Realized gains on investments other than securities and other assets		—			—			—
Total	($	34,745	)	$	944		$	3,785

(6) MEDALLION BANK

The following note is included for informational purposes as it relates to the prior periods when the Company reported under Investment Company Accounting and as such, was not able to consolidate Medallion Bank’s results.

The following table presents information derived from Medallion Bank’s statement of comprehensive income and other valuation adjustments on other controlled subsidiaries for the three and nine months ended September 30, 2017.

(Dollars in thousands)	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Statement of comprehensive income
Investment income	$	29,259		$	82,247
Interest expense		3,660			9,952
Net interest income		25,599			72,295
Noninterest income		28			99
Operating expenses		6,668			19,368
Net investment income before income taxes		18,959			53,026
Income tax provision		2,940			7,035
Net investment income after income taxes		16,019			45,991
Net realized/unrealized losses of Medallion Bank		(10,859	)		(34,586	)
Net increase in net assets resulting from operations of Medallion Bank		5,160			11,405
Unrealized depreciation on Medallion Bank(1)		(592	)		(1,212	)
Net realized/unrealized gains (losses) on controlled subsidiaries other than Medallion Bank		(2,533	)		896
Net increase in net assets resulting from operations of Medallion Bank and other controlled subsidiaries	$	2,035		$	11,089

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(1) Unrealized depreciation on Medallion Bank reflects the adjustment to the investment carrying amount to reflect the dividends declared to the Company and the US Treasury, and the fair value adjustments to the carrying amount of Medallion Bank.

The following table presents Medallion Bank’s balance sheet and the net investment in other controlled subsidiaries as of December 31, 2017.

(Dollars in  thousands)	December 31, 2017
Loans	$	864,819
Investment securities, at fair value		43,478
Net investments		908,297
Cash		110,233
Other assets, net		58,827
Total assets	$	1,077,357
Other liabilities	$	3,836
Due to affiliates		1,055
Deposits and other borrowings, including accrued interest payable		908,236
Total liabilities		913,127
Medallion Bank equity(2)		164,230
Total liabilities and equity	$	1,077,357
Investment in other controlled subsidiaries	$	11,449
Total investment in Medallion Bank and other controlled subsidiaries(3)	$	302,147

(1) Includes $26,303 of preferred stock issued to the US Treasury under the Small Business Lending Fund Program (SBLF).

(2) Includes $152,267 of unrealized appreciation on Medallion Bank, in excess of Medallion Bank’s book value as of December 31, 2017.

(7) FUNDS BORROWED

The outstanding balances of funds borrowed were as follows:

	Payments Due for the Fiscal Year Ending September 30,												Bank Holding Company Accounting September 30,		Investment Company Accounting December 31,		Interest
(Dollars in  thousands)	2019		2020		2021		2022		2023		Thereafter		2018		2017		Rate (1)
Deposits	$	417,151	$	213,514	$	135,218	$	140,394	$	40,698	$	—	$	946,975	$	—		2.04	%
DZ loan		96,058		—		—		—		—		—		96,058		99,984		3.86	%
SBA debentures and borrowings		3,621		25,877		8,500		—		5,000		37,500		80,498		79,564		3.40	%
Notes payable to banks		60,039		—		7,265		—		—		—		67,304		81,450		4.47	%
Retail notes		—		—		33,625		—		—		—		33,625		33,625		9.00	%
Preferred securities		—		—		—		—		—		33,000		33,000		33,000		4.45	%
Other borrowings		500		7,114		—		—		—		—		7,614		—		2.00	%
Total	$	577,369	$	246,505	$	184,608	$	140,394	$	45,698	$	70,500	$	1,265,074	$	327,623		2.64	%

(1) Weighted average contractual rate as of September 30, 2018.

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(A) DEPOSITS

Deposits are raised through the use of investment brokerage firms who package deposits qualifying for FDIC insurance into pools that are sold to the Bank. The rates paid on the deposits are highly competitive with market rates paid by other financial institutions. Additionally, a brokerage fee is paid, depending on the maturity of the deposits, which averages less than 0.15%. Interest on the deposits is accrued daily and paid monthly, quarterly, semiannually, or at maturity. All time deposits are in denominations of less than $250,000 and have been originated through certificates of deposit broker relationships. The table presents time deposits of $100,000 or more by their maturity:

(Dollars in  thousands)	September 30, 2018
Three months or less	$	126,721
Over three months through six months		72,280
Over six months through one year		218,150
Over one year		529,824
Total deposits	$	946,975

(B) DZ LOAN

In December 2008, Trust III entered into a loan agreement with DZ Bank, to provide up to $200,000,000 of financing through a commercial paper conduit to acquire medallion loans from MFC (DZ loan), which was extended in December 2013 until December 2016, and which has been further extended several times and currently terminates in December 2018. The line was reduced to $150,000,000, and was further reduced in stages to $125,000,000 on July 1, 2016, and remains as an amortizing facility, with $96,058,000 outstanding at September 30, 2018. During 2017 and 2018, the DZ loan was amended several times, for the most part to improve Trust III’s flexibility under the credit facility. Also, see Note 7(H) below.

Borrowings under Trust III’s DZ loan are collateralized by Trust III’s assets. MFC is the servicer of the loans owned by Trust III. The DZ loan 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 interest rate with the 2013 extension is a pooled short-term commercial paper rate which approximates LIBOR (30 day LIBOR was 2.26% at September 30, 2018) plus 1.65%.

(C) SBA DEBENTURES AND BORROWINGS

Over the years, the SBA has approved commitments for MCI and FSVC, typically for a four and half year term and a 1% fee, which was paid. During 2017, the SBA restructured FSVC’s debentures with the SBA totaling $33,485,000 in principal into a new loan by the SBA to FSVC in the principal amount of $34,024,756 (the SBA Loan). In connection with the SBA Loan, FSVC executed a Note (the SBA Note), with an effective date of March 1, 2017, in favor of SBA, in the principal amount of $34,024,756. The SBA Loan bears interest at a rate of 3.25% per annum, required a minimum of $5,000,000 of principal and interest to be paid on or before February 1, 2018 (which was paid), and requires a minimum of $10,000,000 of principal and interest to be paid on or before February 1, 2019, and all remaining unpaid principal and interest on or before February 1, 2020, the final maturity date. The SBA Loan agreement contains covenants and events of defaults, including, without limitation, payment defaults, breaches of representations and warranties and covenants defaults. As of September 30, 2018, $172,485,000 of commitments had been fully utilized, there were $3,000,000 of commitments available, and $80,498,000 was outstanding, including $29,498,000 under the SBA Note.

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(D) NOTES PAYABLE TO BANKS

The Company and its subsidiaries have entered into note agreements with a variety of local and regional banking institutions over the years, as well as othernon-bank lenders. The notes are typically secured by various assets of the underlying borrower.

The table below summarizes the key attributes of the Company’s various borrowing arrangements with these lenders as of September 30, 2018.

(Dollars in  thousands)

Borrower

# of Lenders / Notes

Note Dates

Maturity Dates

Type

Note Amounts

Balance Outstanding at September 30, 2018

Monthly Payment

Average Interest Rate at September 30, 2018

Interest Rate Index (1)

The Company

6/6

4/11 - 8/14

11/18 - 7/19

Term loans and demand notes secured by pledged loans (2)

$

47,621

$

47,621

Interest(3)

4.87

%

Various

(2)

Medallion Chicago

3/28

11/11 - 12/11

6/19 - 9/21

Term loans secured by owned Chicago medallions (4)

25,708

19,683

$171 principal & interest

3.50

%

N/A

$

73,329

$

67,304

(1) At September 30, 2018, 30 day LIBOR was 2.26%, 360 day LIBOR was 2.92%, and the prime rate was 5.25%.

(2) One note has an interest rate of Prime, one note has an interest rate of Prime plus 0.50%, one note has a fixed interest rate of 4.50%, one note has an interest rate of LIBOR plus 3.50%, and the other interest rates on these borrowings are LIBOR plus 2%.

(3) Various agreements call for remittance of all principal received on pledged loans subject to minimum monthly payments ranging from $0 to $75.

(4) Guaranteed by the Company.

(E) RETAIL NOTES

In April 2016, the Company issued a total of $33,625,000 aggregate principal amount of 9.00% unsecured notes due 2021, with interest payable quarterly in arrears. The Company used the net proceeds from the offering of approximately $31,786,000 to make loans and other investments in portfolio companies and for general corporate purposes, including repaying borrowings under its DZ loan in the ordinary course of business.

(F) PREFERRED SECURITIES

In June 2007, the Company issued and sold $36,083,000 aggregate principal amount of unsecured junior subordinated notes to Fin Trust which, in turn, sold $35,000,000 of preferred securities to Merrill Lynch International and issued 1,083 shares of common stock to the Company. The notes bear a variable rate of interest of 90 day LIBOR (2.40% at September 30, 2018) plus 2.13%. The notes mature in September 2037 and are prepayable at par. Interest is payable quarterly in arrears. The terms of the preferred securities and the notes are substantially identical. In December 2007, $2,000,000 of the preferred securities were repurchased from a third party investor. At September 30, 2018, $33,000,000 was outstanding on the preferred securities.

(G) OTHER BORROWINGS

In November and December 2017, RPAC amended the terms of various promissory notes with affiliate Richard Petty (refer to Note 13 for more details). At December 31, 2017, the total outstanding on these notes was $7,007,894 at a 2.00% annual interest rate compounded monthly and due March 31, 2020. As of September 30, 2018, $7,114,000 was outstanding on these notes. Additionally, RPAC has a short term promissory note to Travis Burt, an unrelated party, for $500,000 due on December 31, 2018.

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(H) COVENANT COMPLIANCE

Certain of the Company’s debt agreements contain restrictions that require the Company and its subsidiaries to maintain certain financial ratios, including debt to equity and minimum net worth. The Company was not in compliance with a financial covenant in the DZ loan agreement as of September 30, 2018. The Company is currently in the process of working with DZ Bank to amend such covenant in the DZ loan agreement. Historically the Company has received approvals for similar amendments. While there can be no assurance that it will be received, the Company has received preliminary indication from DZ Bank that it will obtain approval for such an amendment. Except as previously set forth, the Company is in compliance with such restrictions as of September 30, 2018.

(8) INCOME TAXES

The Company is subject to federal and applicable state corporate income taxes on its taxable ordinary income and capital gains. As a corporation taxed under Subchapter C, the Company is able, and intends, to file a consolidated federal income tax return with corporate subsidiaries, in which it holds 80 percent or more of the outstanding equity interest measured by both vote and fair value.

The following table sets forth the significant components of our deferred and other tax assets and liabilities as of September 30, 2018 and December 31, 2017.

(Dollars in  thousands)	September 30, 2018			December 31, 2017
Goodwill and other intangibles/unrealized gain on investments in Medallion Bank	($	45,736	)	($	35,297	)
Provision for loan losses/unrealized losses on loans and nonaccrual interest		27,002			10,071
Net operating loss carryforwards(1)		17,062			615
Unrealized gains on investments in other controlled subsidiaries		—			(3,617	)
Unrealized gains on investments other than securities		—			(1,395	)
Accrued expenses, compensation, and other		1,815			782
Unrealized gains on investments and other assets		(3,877	)		(542	)
Total deferred tax liability		(3,734	)		(29,383	)
Valuation allowance		(167	)		(39	)
Deferred tax liability, net		(3,901	)		(29,422	)
Taxes receivable		1,890			16,886
Net deferred and other tax liabilities	($	2,011	)	($	12,536	)

(1) As of September 30, 2018, various subsidiaries of the Company had $11,148 of net operating loss carryforwards that expire at various dates between December 31, 2026 and December 31, 2035, which had a net asset value of $2,057 as of the balance sheet date.

The components of our tax benefit for the three and nine months ended September 30, 2018 and 2017 were as follows.

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2018			2017			2018			2017
Current
Federal	($	9,353	)	($	910	)	($	3,040	)	$	639
State		(2,318	)		(807	)		(1,078	)		(445	)
Deferred
Federal		9,100			1,609			8,128			7,275
State		2,688			6,263			768			7,675
Net benefit for income taxes	$	117		$	6,155		$	4,778		$	15,144

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The following table presents a reconciliation of statutory federal income tax benefit to consolidated actual income tax benefit reported in net income/net increase in net assets for the three and nine months ended September 30, 2018 and 2017.

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2018			2017			2018			2017
Statutory Federal Income tax benefit at 21% (35% in 2017)	$	877		$	1,937		$	8,106		$	6,374
State and local income taxes, net of federal income tax benefit		(107	)		99			994			327
Appreciation of Medallion Bank		—			1,681			(1,974	)		3,731
Depreciation of other unconsolidated subsidiaries		—			(462	)		—			(462	)
Utilization of carry forwards		(247	)		459			(910	)		2,715
Change in effective state income tax rate		—			3,232			(1,358	)		3,232
Non deductible expenses		(215	)		—			(403	)		—
Other		(191	)		(791	)		323			(773	)
Total income tax benefit	$	117		$	6,155		$	4,778		$	15,144

On December 22, 2017, the US Government signed into law the “Tax Cuts and Jobs Act” which, starting in 2018, reduced the Company’s corporate statutory income tax rate from 35% to 21%, but eliminated or increased certain permanent differences.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible pursuant to ASC 740. The Company considers the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company’s evaluation of the realizability of deferred tax assets must consider both positive and negative evidence. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified. Based upon these considerations, the Company has determined the valuation allowance as of September 30, 2018.

The Company has filed tax returns in many states. Federal, New York State, New York City, and Utah tax filings of the Company for the tax years 2015 through the present are the more significant filings that are open for examination. Currently the Company and the Bank are undergoing various state exams covering the years 2009 to 2011 and 2013 to 2016.

(9) STOCK OPTIONS AND RESTRICTED STOCK

The Company has a stock option plan (2006 Stock Option Plan) available to grant both incentive and nonqualified stock options to employees. The 2006 Stock Option Plan, which was approved by the Board of Directors on February 15, 2006 and the Company’s shareholders on June 16, 2006, provided for the issuance of a maximum of 800,000 shares of common stock of the Company. No additional shares are available for issuance under the 2006 Stock Option Plan. The 2006 Stock Option Plan is administered by the Compensation Committee of the Board of Directors. The option price per share may not be less than the current market value of the Company’s common stock on the date the option is granted. The term and vesting periods of the options are determined by the Compensation Committee, provided that the maximum term of an option may not exceed a period of ten years.

The Company’s Board of Directors approved the 2018 Equity Incentive Plan (2018 Plan), which was approved by the Company’s shareholders on June 15, 2018. The terms of 2018 Plan provide for grants of a variety of different type of stock awards to the Company’s employees, including options, restricted stock, stock appreciation rights, etc. A total of 1,494,558 shares of the Company’s common stock are issuable under the 2018 Plan, and 1,455,558 remained issuable as of September 30, 2018. Awards under the 2018 Plan are subject to certain limitations as set forth in the 2018 Plan, which will terminate when all shares of common stock authorized for delivery have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the 2018 Plan, whichever first occurs.

The Company’s Board of Directors approved the 2015 Employee Restricted Stock Plan (2015 Restricted Stock Plan) on February 13, 2015, which was approved by the Company’s shareholders on June 5, 2015. The 2015 Restricted Stock Plan became effective upon the Company’s receipt of exemptive relief from the SEC on March 1, 2016. The terms of 2015 Restricted Stock Plan provide for grants of restricted stock awards to the Company’s employees. A grant of restricted stock is a grant of shares of the Company’s common stock which, at the time of issuance, is subject to certain forfeiture provisions, and thus is restricted as to transferability until such forfeiture restrictions have lapsed. A total of 700,000 shares of the Company’s common stock are issuable under the 2015 Restricted Stock Plan, and 236,224 remained issuable as of June 15, 2018. Effective June 15, 2018, the 2018 Plan was approved, and these remaining shares were rolled into the 2018 Plan. Awards under the 2015 Restricted Stock Plan are subject

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to certain limitations as set forth in the 2015 Restricted Stock Plan. The 2015 Restricted Stock Plan will terminate when all shares of common stock authorized for delivery under the 2015 Restricted Stock Plan have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the 2015 Restricted Stock Plan, whichever first occurs.

The Company’s Board of Directors approved the 2015Non-Employee Director Stock Option Plan (2015 Director Plan) on March 12, 2015, which was approved by the Company’s shareholders on June 5, 2015, and on which exemptive relief to implement the 2015 Director Plan was received from the SEC on February 29, 2016. A total of 300,000 shares of the Company’s common stock are issuable under the 2015 Director Plan, and 258,334 remained issuable as of June 15, 2018. Effective June 15, 2018, the 2018 Plan was approved, and these remaining shares were rolled into the 2018 Plan. Under the 2015 Director Plan, unless otherwise determined by a committee of the Board of Directors comprised of directors who are not eligible for grants under the 2015 Director Plan, the Company will grant options to purchase 12,000 shares of the Company’s common stock to anon-employee director upon election to the Board of Directors, with an adjustment for directors who are elected to serve less than a full term. The option price per share may not be less than the current market value of the Company’s common stock on the date the option is granted. Options granted under the 2015 Director Plan are exercisable annually, as defined in the 2015 Director Plan. The term of the options may not exceed ten years.

The Company’s Board of Directors approved the First Amended and Restated 2006 Director Plan (the Amended Director Plan) on April 16, 2009, which was approved by the Company’s shareholders on June 5, 2009, and on which exemptive relief to implement the Amended Director Plan was received from the SEC on July 17, 2012. A total of 200,000 shares of the Company’s common stock were issuable under the Amended Director Plan. No additional shares are available for issuance under the Amended Director Plan. Under the Amended Director Plan, unless otherwise determined by a committee of the Board of Directors comprised of directors who are not eligible for grants under the Amended Director Plan, the Company will grant options to purchase 9,000 shares of the Company’s common stock to an Eligible Director upon election to the Board of Directors, with an adjustment for directors who are elected to serve less than a full term. The option price per share may not be less than the current market value of the Company’s common stock on the date the option is granted. Options granted under the Amended Director Plan are exercisable annually, as defined in the Amended Director Plan. The term of the options may not exceed ten years.

Additional shares are only available for future issuance under the 2018 Plan. At September 30, 2018, 144,666 options on the Company’s common stock were outstanding under the 2006 Stock Option Plan, and 2015 Director Plan, of which 79,778 options were exercisable, and there were 202,971 unvested shares of the Company’s common stock outstanding under the 2015 Restricted Stock Plan.

The fair value of each restricted stock grant is determined on the date of grant by the closing market price of the Company’s common stock on the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumption categories are used to determine the value of any option grants.

	Nine Months Ended September 30,
	2018			2017
Risk free interest rate		2.82	%		1.84	%
Expected dividend yield		4.86			7.39
Expected life of option in years(1)		6.00			6.00
Expected volatility(2)		30.00			30.00

(1) Expected life is calculated using the simplified method.

(2) We determine our expected volatility based on our historical volatility.

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The following table presents the activity for the stock option programs for the 2018 quarters and the 2017 full year.

	Number of Options			Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2016		345,518		$	7.10-13.84	$	9.67
Granted		29,666			2.14-2.61		2.35
Cancelled		(54,558	)		10.76-11.21		10.94
Exercised(1)		—			—		—
Outstanding at December 31, 2017		320,626			2.14-13.84		8.78
Granted		—			—		—
Cancelled		—			—		—
Exercised(1)		—			—		—
Outstanding at March 31, 2018		320,626			2.14-13.84		8.78
Granted		24,000			5.58		5.58
Cancelled		(214,960	)		9.22-9.24		9.22
Exercised(1)		—			—		—
Outstanding at June 30, 2018		129,666		$	2.14-13.84	$	7.45
Granted		15,000			5.27		5.27
Cancelled		—			—		—
Exercised(1)		—			—		—
Outstanding at September 30, 2018(2)		144,666		$	2.14-13.84	$	7.23
Options exercisable at September 30, 2018(2)		79,778		$	2.22-13.84	$	9.44

(1) The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at the exercise date and the related exercise price of the underlying options, was $0 and $0 for the 2018 and 2017 third quarter and nine months.

(2) The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at September 30, 2018 and the related exercise price of the underlying options, was $174,000 for outstanding options and $33,000 for exercisable options as of September 30, 2018. The remaining contractual life was 7.22 years for outstanding options and 5.51 years for exercisable options at September 30, 2018.

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The following table presents the activity for the restricted stock programs for the 2018 quarters and the 2017 full year.

	Number of Shares			Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2016		167,703		$	3.95-13.46	$	8.88
Granted		327,251			2.06-3.93		2.48
Cancelled		(8,988	)		2.14-10.08		3.07
Vested(1)		(77,384	)		9.08-13.46		11.09
Outstanding at December 31, 2017		408,582			2.06-10.38		3.45
Granted		97,952			4.39		4.39
Cancelled		(2,226	)		3.93-9.08		5.86
Vested(1)		(296,313	)		2.06-10.38		3.24
Outstanding at March 31, 2018		207,995			2.06-7.98		4.16
Granted		212			3.93		3.93
Cancelled		(199	)		3.93		3.93
Vested(1)		—			—		—
Outstanding at June 30, 2018		208,008			2.06-13.84		7.45
Granted		2,846			5.27		5.27
Cancelled		(1,617	)		3.93-3.95		3.94
Vested(1)		(6,266	)		7.98		7.98
Outstanding at September 30, 2018(2)		202,971		$	2.06-5.27	$	4.07

(1) The aggregate fair value of the restricted stock vested was $32,000 and $1,241,000 for the three and nine months ended September 30, 2018, and was $0 and $151,000 for the comparable 2017 periods.

(2) The aggregate fair value of the restricted stock was $1,350,000 as of September 30, 2018. The remaining vesting period was 1.51 years at September 30, 2018.

The following table presents the activity for the unvested options outstanding under the plans for the 2018 quarters.

	Number of Options			Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2017 and March 31, 2018		46,666		$	2.14-9.38	$	4.52
Granted		24,000			5.58		5.58
Cancelled		—			—		—
Vested		(17,000	)		2.22-9.38		7.16
Outstanding at June 30, 2018		53,666		$	2.14-7.10	$	4.16
Granted		15,000			5.27		5.27
Cancelled		—			—		—
Vested		(3,778	)		2.61		2.61
Outstanding at September 30, 2018		64,888		$	2.14-7.10	$	4.51

The intrinsic value of the options vested was $10,000 and $24,000 for the three and nine months ended September 30, 2018.

(10) SEGMENT REPORTING (Bank Holding Company Accounting)

Under Bank Holding Company Accounting, the Company has six business segments, which include four lending and twonon-operating segments, which are reflective of how Company management makes decisions about its business and operations.

Prior to April 2, 2018, the Company had one business segment, its lending and investing operations. This segment originated and serviced medallion, secured commercial and consumer loans, and invested in both marketable and nonmarketable securities.

The four lending segments reflect the main types of lending performed at the Company, which are recreation, home improvement, commercial, and medallion. The recreation and home improvement lending segments are conducted by the Bank in all fifty states, with the highest concentrations in Texas, California, and Florida, at 17%, 11%, and 11% of loans outstanding and no other states over 10%. The recreation lending segment is a consumer finance business that works with third-party dealers and financial

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service providers for the purpose of financing RVs, boats, and other consumer recreational equipment. The home improvement lending segment works with contractors and financial service providers to finance residential home improvements concentrated in pools, solar panels, and roofing, at 34%, 18%, 13% of total loans outstanding, and no other product lines over 10%. The commercial lending segment focuses on enterprise wide industries, including manufacturing, retail trade, information, recreation and various other industries, in which 47% of these loans are made in the Midwest. The medallion lending segment arose in connection with the financing of the taxicab medallions, taxicabs, and related assets, of which 88% were in New York City as of September 30, 2018.

In addition, ournon-operating segments include RPAC which is a race car team and our corporate and other segment which includes items not allocated to our operating segments such as investment securities, equity investments, intercompany eliminations, and other corporate elements.

The following tables present segment data at September 30, 2018 and for the three and six months then ended.

Three Months Ended September 30, 2018	Consumer Lending						Commercial Lending			Medallion Lending			RPAC			Corp. and Other			Consolidated
(dollars in thousands)	Recreation			Home Improvement
Total interest income	$	24,001		$	3,968		$	2,637		$	2,126		$	—		$	420		$	33,152
Total interest expense		2,306			709			681			3,672			40			1,479			8,887
Net interest income (loss)		21,695			3,259			1,956			(1,546	)		(40	)		(1,059	)		24,265
Provision for loan losses		4,423			598			(75	)		13,259			—			—			18,205
Net interest income after loss provision		17,272			2,661			2,031			(14,805	)		(40	)		(1,059	)		6,060
Sponsorship and race winnings		—			—			—			—			5,371			—			5,371
Race team related expenses		—			—			—			—			(2,876	)		—			(2,876	)
Other income (expense)		(3,160	)		400			(934	)		(4,077	)		(1,887	)		(2,860	)		(12,518	)
Net income before taxes		14,112			3,061			1,097			(18,882	)		568			(3,919	)		(3,963	)
Income tax benefit (provision)		(3,979	)		(863	)		(254	)		4,371			(107	)		949			117
Net Income (loss) after tax	$	10,133		$	2,198		$	843		($	14,511	)	$	461		($	2,970	)	($	3,846	)
Balance Sheet Data
Total loans, net	$	572,995		$	168,781		$	82,458		$	235,827		$	—		$	—		$	1,060,061
Total assets		582,610			175,333			90,380			369,763			36,237			317,084			1,571,407
Total funds borrowed		431,868			132,914			71,655			399,750			7,614			221,273			1,265,074
Selected Financial Ratios
Return on assets		6.80	%		4.57	%		3.35	%		(15.23	%)		4.94	%		(4.60	%)		(1.19	%)
Return on equity		27.77			19.99			6.99			NM			42.83			(16.79	)		(6.59	)
Interest yield		15.87			8.10			12.87			3.41			N/A			N/A			10.75
Net interest margin		14.34			6.65			9.54			(2.48	)		N/A			N/A			7.94
Reserve coverage		0.50			0.51			0.12			9.81			N/A			N/A			2.71
Delinquency ratio		0.55			0.10			0.51			4.06			N/A			N/A			1.29
Charge off ratio		3.19			1.34			0.00			10.35			N/A			N/A			3.69

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Six Months Ended September 30, 2018	Consumer Lending						Commercial Lending			Medallion Lending			RPAC			Corp. and Other			Consolidated
(dollars in thousands)	Recreation			Home Improvement
Total interest income	$	46,133		$	8,605		$	4,959		$	5,315		$	—		$	784		$	65,796
Total interest expense		4,442			1,448			1,336			7,045			81			2,460			16,812
Net interest income (loss)		41,691			7,157			3,623			(1,730	)		(81	)		(1,676	)		48,984
Provision for loan losses		9,133			1,475			100			38,073			—			—			48,781
Net interest income after loss provision		32,558			5,682			3,523			(39,803	)		(81	)		(1,676	)		203
Sponsorship and race winnings		—			—			—			—			10,599			—			10,599
Race team related expenses		—			—			—			—			(5,416	)		—			(5,416	)
Other income (expense)		(8,680	)		(1,285	)		(2,044	)		(6,888	)		(4,124	)		(4,233	)		(27,254	)
Net income before taxes		23,878			4,397			1,479			(46,691	)		978			(5,909	)		(21,868	)
Income tax benefit (provision)		(6,141	)		(1,159	)		(339	)		10,528			(150	)		1,399			4,138
Net Income (loss) after tax	$	17,737		$	3,238		$	1,140		($	36,163	)	$	828		($	4,510	)	($	17,730	)
Balance Sheet Data
Total loans, net	$	572,995		$	168,781		$	82,458		$	235,827		$	—		$	—		$	1,060,061
Total assets		582,610			175,333			90,380			369,763			36,237			317,084			1,571,407
Total funds borrowed		431,868			132,914			71,655			399,750			7,614			221,273			1,265,074
Selected Financial Ratios
Return on assets		6.14	%		3.42	%		2.15	%		(18.49	%)		4.46	%		(3.67	%)		(2.51	%)
Return on equity		25.48			15.22			4.81			NM			38.67			(11.85	)		(13.34	)
Interest yield		15.88			8.94			12.24			4.03			N/A			N/A			10.91
Net interest margin		14.35			7.44			8.94			(1.31	)		N/A			N/A			8.17
Reserve coverage		0.50			0.51			0.12			9.81			N/A			N/A			2.71
Delinquency ratio		0.55			0.10			0.51			4.06			N/A			N/A			1.29
Charge off ratio		3.26			1.27			0.00			9.66			N/A			N/A			3.53

(11) OTHER OPERATING EXPENSES (Investment Company Accounting)

The major components of other operating expenses were as follows.

(dollars in thousands)	For the Three Months Ended March 31, 2018		For the Three Months Ended September 30, 2017		For the Nine Months Ended September 30, 2017
Directors’ fees	$	89	$	101	$	230
Miscellaneous taxes		120		84		170
Computer expenses		74		51		176
Depreciation and amortization		23		23		71
Other expenses		281		161		464
Total other operating expenses	$	587	$	420	$	1,111

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(12) SELECTED FINANCIAL RATIOS AND OTHER DATA (Investment Company Accounting)

The following table provides selected financial ratios and other data for the three months ended March 31, 2018 and September 30, 2017, and the nine months ended September 30, 2017 under Investment Company Accounting.

	Three Months Ended,						Nine Months Ended, September 30, 2017
(Dollars in thousands, except per share data)	March 31, 2018			September 30, 2017
Net share data
Net asset value at the beginning of the period	$	11.80		$	11.65		$	11.91
Net investment loss		(0.15	)		(0.07	)		(0.26	)
Income tax benefit		0.03			0.26			0.63
Net realized gains (losses) on investments		(1.44	)		0.04			0.16
Net change in unrealized appreciation (depreciation) on investments		0.94			(0.20	)		(0.66	)
Net increase (decrease) in net assets resulting from operations		(0.62	)		0.03			(0.13	)
Issuance of common stock		(0.03	)		(0.00	)		(0.10	)
Repurchase of common stock		—			—			—
Net investment income		—			—			—
Return of capital		—			—			—
Net realized gains on investments		—			—			—
Total distributions		—			—			—
Total increase (decrease) in net asset value		(0.65	)		0.03			(0.23	)
Net asset value at the end of the period(1)	$	11.15		$	11.68		$	11.68
Per share market value at beginning of period	$	3.53		$	2.39		$	3.02
Per share market value at end of period		4.65			2.17			2.17
Total return(2)		129	%		(37	%)		(38	%)
Ratios/supplemental data
Total shareholders’ equity (net assets)	$	272,437		$	283,580		$	283,580
Average net assets	$	284,021		$	284,151		$	285,673
Total expense ratio(3) (4)		10.02	%		1.49	%		2.21	%
Operating expenses to average net assets(4)		5.87			5.13			4.49
Net investment loss after income taxes to average net assets(4)		(4.61	)		(3.48	)		(1.97	)

(1) Includes $0 and $0 of undistributed net investment income per share and $0 and $0 of undistributed net realized gains per share as of March 31, 2018 and September 30, 2017.

(2) Total return is calculated by dividing the change in market value of a share of common stock during the period, assuming the reinvestment of distributions on the payment date, by the per share market value at the beginning of the period.

(3) Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average net assets.

(4) MSC has assumed certain of the Company’s servicing obligations, and as a result, servicing fee income of $1,290 and $1,330, and operating expenses of $1,150 and $1,037, which formerly were the Company’s were now MSC’s for the three months ended March 31, 2018 and September 30, 2017, and were $3,938 of servicing fee income, and $3,129 of operating expenses for the nine months ended September 30, 2017. Excluding the impact of the MSC amounts, the total expense ratio, operating expense ratio, and net investment income ratio would have been 11.75%, 6.88%, and 7.51% in the March 31, 2018 quarter, 3.10%, 6.58%, and (3.23%) in the September 30, 2017 quarter, and 3.86%, 5.95%, and (1.97%) in the nine months ended September 30, 2017.

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(13) RELATED PARTY TRANSACTIONS

Certain directors, officers and shareholders of the Company are also directors and officers of its main consolidated subsidiaries, MFC, MCI, FSVC, and Medallion Bank, as well as other subsidiaries. Officer salaries are set by the Board of Directors of the Company.

Jeffrey Rudnick, the son of one of the Company’s directors, is an officer of LAX Group, LLC (LAX), one of the Company’s equity investments. Mr. Rudnick receives a salary from LAX of $172,000 per year, and certain equity from LAX consisting of 10% ownership in LAX Class B stock, vesting at 3.34% per year; 5% of any new equity raised from outside investors at a valuation of $1,500,000 or higher; and 10% of LAX’s profits as a year end bonus. In addition, Mr. Rudnick provides consulting services to the Company directly for a monthly retainer of $4,200.

The Company’s consolidated subsidiary RPAC, has an agreement with minority shareholder Richard Petty, in which they make an annual payment of $700,000 per year for services provided to the entity. In addition, RPAC has a note payable to a trust controlled by Petty of $7,114,000 that earns interest at an annual rate of 2% as of September 30, 2018.

The Company and MSC serviced $311,988,000 and $314,974,000 of loans for Medallion Bank at December 31, 2017 and September 30, 2017. Under Investment Company Accounting, included in net investment income were amounts as described in the table below that were received from Medallion Bank for services rendered in originating and servicing loans, and also for reimbursement of certain expenses incurred on their behalf.

The Company had assigned its servicing rights to the Medallion Bank portfolio to MSC, a wholly-owned entity that had been unconsolidated under Investment Company Accounting. The costs of servicing are allocated to MSC by the Company, and the servicing fee income is billed and collected from Medallion Bank by MSC. As a result, in the three months ended March 31, 2018 and the three and nine months ended September 30, 2017, $1,290,000, $1,330,000 and $3,938,000 of servicing fee income was earned by MSC.

The following table summarizes the net revenues received from Medallion Bank not eliminated under Investment Company Accounting.

	Three Months Ended,				Nine Months Ended, September 30, 2017
(Dollars in thousands)	March 31, 2018		September 30, 2017
Reimbursement of operating expenses	$	250	$	182	$	636
Loan origination and servicing fees		6		2		5
Total other income	$	256	$	184	$	641

The Company had a loan to Medallion Fine Art, Inc. in the amount of $999,000 as of December 31, 2017, which was repaid in full during the 2018 first quarter. The loan bore interest at a rate of 12%, all of which was paid in kind. During 2017, the Company advanced $0, and was repaid $2,165,000 with respect to this loan. Additionally, the Company recognized $10,000 of interest income not eliminated for the nine months ended September 30, 2018, and $38,000 and $163,000 in the three and nine months ended September 30, 2017 with respect to this loan.

The Company and MCI have loans to RPAC, an affiliate of Medallion Motorsports LLC, which totaled $16,472,000 as of December 31, 2017 and under Investment Company Accounting had not been eliminated, and which were placed on nonaccrual during 2017. These loans have been eliminated in consolidation for the three and six months ended as of September 30, 2018. The loans bear interest at 2%, inclusive of cash and paid in kind interest. The Company and MCI recognized $0 of interest income for the three months ended March 31, 2018, and $0 and $56,000 for the three and nine months ended September 30, 2017 with respect to these loans.

(14) FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC Topic 825, “Financial Instruments,” requires disclosure of fair value information about certain financial instruments, whether assets, liabilities, oroff-balance-sheet commitments, if practicable. The following methods and assumptions were used to estimate the fair value of each class of financial instrument. Fair value estimates that were derived from broker quotes cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

(a)Cash –Book value equals market value.

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(b)Equity securities –The Company’s equity securities are recorded at cost less impairment, which approximated fair value.

(c)Investment securities –The Company’s investments are recorded at the estimated fair value of such investments.

(d)Loans receivable –The Company’s loans are recorded at book value which approximated fair value.

(e)Floatingrateborrowings –Due to the short-term nature of these instruments, the carrying amount approximates fair value.

(f)Commitmentstoextendcredit –The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and present creditworthiness of the counter parties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the current levels of interest rates and the committed rates. At September 30, 2018 and December 31, 2017, the estimated fair value of theseoff-balance-sheet instruments was not material.

(g)Fixedrateborrowings – The fair value of the debentures payable to the SBA is estimated based on current market interest rates for similar debt.

	Bank Holding Company Accounting September 30, 2018				Investment Company Accounting December 31, 2017
(Dollars in  thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash and federal funds sold(1)	$	143,560	$	143,560	$	12,690	$	12,690
Equity investments		10,752		10,752		—		—
Investment securities		45,757		45,757		—		—
Loans receivable		1,060,061		1,060,061		—		—
Investments		—		—		610,135		610,135
Accrued interest receivable(2)		7,005		7,005		547		547
Financial liabilities
Funds borrowed(3)		1,265,074		1,266,016		327,623		330,084
Accrued interest payable		6,118		6,118		3,831		3,831

(1) Categorized as level 1 within the fair value hierarchy.

(2) Categorized as level 3 within the fair value hierarchy.

(3) As of September 30, 2018 and December 31, 2017, publicly traded retail notes traded at a premium to par of $942 and $2,461.

(15) FAIR VALUE OF ASSETS AND LIABILITIES

The Company follows the provisions of FASB ASC 820, which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements.

In accordance with FASB ASC 820, the Company has categorized its assets and liabilities measured at fair value, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). Our assessment and classification of an investment within a level can change over time based upon maturity or liquidity of the investment and would be reflected at the beginning of the quarter in which the change occurred.

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As required by FASB ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a level 3 fair value measurement may include inputs that are observable (level 1 and 2) and unobservable (level 3). Therefore gains and losses for such assets and liabilities categorized within the level 3 table below may include changes in fair value that are attributable to both observable inputs (level 1 and 2) and unobservable inputs (level 3).

Assets and liabilities measured at fair value, recorded on the consolidated balance sheets, are categorized based on the inputs to the valuation techniques as follows:

Level 1. Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, most US Government and agency securities, and certain other sovereign government obligations).

Level 2. Assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

A) Quoted prices for similar assets or liabilities in active markets (for example, restricted stock);

B) Quoted price for identical or similar assets or liabilities innon-active markets (for example, corporate and municipal bonds, which trade infrequently);

C) Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include mostover-the-counter derivatives, including interest rate and currency swaps); and

D) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (examples include certain residential and commercial mortgage-related assets, including loans, securities, and derivatives).

Level 3. Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the assets or liability (examples include certain private equity investments, and certain residential and commercial mortgage-related assets, including loans, securities, and derivatives).

A review of fair value hierarchy classification is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain assets or liabilities. Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers in/out of the level 3 category as of the beginning of the quarter in which the reclassifications occur. The following paragraphs describe the sensitivity of the various level 3 valuations to the factors that are relevant in their valuation analysis under both Bank Holding Company Accounting (applicable as of June 30, 2018 and for the quarter then ended) and Investment Company Accounting (applicable to prior periods).

Bank Holding Company Accounting

Commencing with the quarter ended June 30, 2018, equity investments are recorded at cost and are evaluated for impairment periodically.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2018.

Bank Holding Company Accounting (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Equity investments	$	—	$	—	$	10,752	$	10,752
Available for sale investment securities(1)		—		45,757		—		45,757
Total	$	—	$	45,757	$	10,752	$	56,509

(1) Total unrealized losses of $469, net of tax, was included in accumulated other comprehensive income (loss) for the six months ended September 30, 2018 related to these assets.

Investment Company Accounting

Medallion loans are primarily collateral-based lending, whereby the collateral value exceeds the amount of the loan, providing sufficient excess collateral to protect against losses to the Company. As a result, the initial valuation assessment is that as long as the loan is current and performing, its fair value approximates the par value of the loan. To the extent a loan becomes nonperforming, the collateral value has been adequate to result in a complete recovery. In a case where the collateral value was inadequate, an unrealized loss would be recorded to reflect any shortfall. Collateral values for medallion loans are typically obtained from transfer prices reported by the regulatory agency in a particular local market (e.g. New York City Taxi and Limousine Commission). Those portfolios

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had historically been at very low loan to collateral value ratios, and as a result, historically have not been highly sensitive to changes in collateral values. Over the last few years, as medallion collateral values have declined, the impact on the Company’s valuation analysis has become more significant, which could result in a significantly lower fair value measurement.

The mezzanine and other secured commercial portions of the commercial loan portfolio are a combination of cash flow and collateral based lending. The initial valuation assessment is that as long as the loan is current and performing, its fair value approximates the par value of the loan. If a loan becomes nonperforming, an evaluation is performed which considers and analyzes a variety of factors which may include the financial condition and operating performance of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience, the relationships between current and projected market rates and portfolio rates of interest and maturities, as well as general market trends for businesses in the same industry. Since each individual nonperforming loan has its own unique attributes, the factors analyzed, and their relative importance to each valuation analysis, differ between each asset, and may differ from period to period for a particular asset. The valuation is highly sensitive to changes in the assumptions used. To the extent that any assumption in the analysis changes significantly from one period to another, that change could result in a significantly lower or higher fair market value measurement. For example, if a borrower’s valuation was determined primarily on the cash flow generated from their business, then if that cash flow deteriorated significantly from a prior period valuation, that could have a material impact on the valuation in the current period.

The investment in Medallion Bank was subject to a thorough valuation analysis as described previously, and on at least an annual basis, the Company also received an opinion regarding the valuation from an independent third party to assist the Board of Directors in its determination of the fair value. The Company determined whether any factors gave rise to a valuation different than recorded book value, including various regulatory restrictions that were established at Medallion Bank’s inception, by the FDIC and State of Utah, and also by additional regulatory restrictions, such as the prior moratorium imposed by the Dodd-Frank Act on the acquisition of control of an industrial bank by a “commercial firm” (a company whose gross revenues are primarily derived fromnon-financial activities) which expired in July 2013, and the lack of any new charter issuances since the moratorium’s expiration. Because of these restrictions and other factors, the Company’s Board of Directors had previously determined that Medallion Bank had little value beyond its recorded book value. As a result of this valuation process, the Company had previously used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the 2015 second quarter, the Company first became aware of external interest in Medallion Bank and its portfolio assets at values in excess of their book value. Expression of interest in Medallion Bank from both investment bankers and interested parties has continued. The Company incorporated these new factors in the Medallion Bank’s fair value analysis and the Board of Directors determined that Medallion Bank had a fair value in excess of book value. In addition, in the 2016 third quarter there was a court ruling involving a marketplace lender that the Company believes heightens the interest of marketplace lenders to acquire or merge with Utah industrial banks. The Company also engaged a valuation specialist to assist the Board of Directors in their determination of Medallion Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $128,918,000 was recorded in 2016, $7,489,000 was recorded in 2017, and $39,826,000 was recorded in 2018.

Investments in controlled subsidiaries, other than Medallion Bank, equity investments, and investments other than securities were valued similarly, while also considering available current market data, including relevant and applicable market trading and transaction comparables, the nature and realizable value of any collateral, applicable interest rates and market yields, the portfolio company’s ability to make payments, its earnings and cash flows, the markets in which the portfolio company does business, and borrower financial analysis, among other factors. As a result of this valuation process, the Company used the actual results of operations of the controlled subsidiaries as the best estimate of changes in fair value, in most cases, and records the results as a component of unrealized appreciation (depreciation) on investments. For the balance of controlled subsidiary investments, equity investments, and investments other than securities positions, the result of the analysis resulted in changes to the value of the position if there is clear evidence that its value has either decreased or increased in light of the specific facts considered for each investment. The valuation is highly sensitive to changes in the assumptions used. To the extent that any assumption in the analysis changes significantly from one period to another, that change could result in a significantly lower or higher fair market value measurement. For example, if an investee’s valuation was determined primarily on the cash flow generated from their business, then if that cash flow deteriorated significantly from a prior period valuation, that could have a material impact on the valuation in the current period.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2017.

Investment Company Accounting (Dollars in  thousands)	Level 1		Level 2		Level 3		Total
Assets
Medallion loans	$	—	$	—	$	208,279	$	208,279
Commercial loans		—		—		90,188		90,188
Investments in Medallion Bank and other controlled subsidiaries		—		—		302,147		302,147
Equity investments		—		—		9,521		9,521
Investments other than securities		—		—		7,450		7,450
Other assets		—		—		339		339

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Included in level 3 investments as of December 31, 2017 is primarily the investment in Medallion Bank, as well as other consolidated subsidiaries such as MSC, and other investments detailed in the consolidated summary schedule of investments following these footnotes. Included in level 3 equity investments are unregistered shares of common stock in a publicly-held company, as well as certain private equity positions innon-marketable securities.

The following tables provide a summary of changes in fair value of the Company’s level 3 assets and liabilities for the quarter and six months ended September 30, 2018, under Bank Holding Company Accounting, and for the quarters ended March 31, 2018 and September 30, 2017 and the nine months ended September 30, 2017 under Investment Company Accounting.

(Dollars in  thousands)	Equity Investments
June 30, 2018	$	10,773
Gains (losses) included in earnings		(400	)
Purchases, investments, and issuances		631
Sales, maturities, settlements, and distributions		(252	)
Transfers in		—
September 30, 2018	$	10,752
Amounts related to held assets(1)	($	400	)

(Dollars in  thousands)	Equity Investments
March 31, 2018	$	9,458
Gains (losses) included in earnings		(774	)
Purchases, investments, and issuances		1,160
Sales, maturities, settlements, and distributions		(469	)
Transfers in(2)		1,377
September 30, 2018	$	10,752
Amounts related to held assets(1)	($	774	)

(1) Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of September 30, 2018.

(2) Represents the removal of RPAC investments eliminated in consolidation as well as the transfer of LAX from controlled subsidiaries during the 2018 second quarter.

(Dollars in  thousands)	Medallion Loans			Commercial Loans			Investments in Medallion Bank & Other Controlled Subsidiaries			Equity Investments			Investments Other Than Securities			Other Assets
December 31, 2017	$	208,279		$	90,188		$	302,147		$	9,521		$	7,450		$	339
Gains (losses) included in earnings		(38,190	)		(8	)		29,143			(993	)		(1,915	)		—
Purchases, investments, and issuances		7			7,252			462			935			—			—
Sales, maturities, settlements, and distributions		(8,941	)		(3,812	)		(583	)		(5	)		—			—
March 31, 2018	$	161,155		$	93,620		$	331,169		$	9,458		$	5,535		$	339
Amounts related to held assets(1)	($	38,190	)	($	10	)	$	29,143		($	993	)	($	1,915	)	$	—

(1) Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of March 31, 2018.

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(Dollars in  thousands)	Medallion Loans			Commercial Loans			Investments in Medallion Bank & Other Controlled Subsidiaries			Equity Investments			Investments Other Than Securities		Other Assets
June 30, 2017	$	233,415		$	78,092		$	301,819		$	10,316		$	9,510	$	354
Gains (losses) included in earnings		(6,690	)		(73	)		3,291			(325	)		—		(15	)
Purchases, investments, and issuances		1,475			6,007			250			300			—		—
Sales, maturities, settlements, and distributions		(3,620	)		(1,266	)		(1,499	)		(307	)		—		—
September 30, 2017	$	224,580		$	82,760		$	303,861		$	9,984		$	9,510	$	339
Amounts related to held assets(1)	($	6,669	)	$	75		$	3,291		($	325	)	$	—	($	15	)

(1) Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of September 30, 2017.

(Dollars in  thousands)	Medallion Loans			Commercial Loans			Investments in Medallion Bank & Other Controlled Subs			Equity Investments			Investments Other Than Securities		Other Assets
December 31, 2016	$	266,816		$	83,634		$	293,360		$	8,407		$	9,510	$	354
Gains (losses) included in earnings		(27,837	)		(476	)		12,345			3,830			—		(15	)
Purchases, investments, and issuances		1,795			13,823			652			1,156			—		—
Sales, maturities, settlements, and distributions		(16,194	)		(14,221	)		(2,496	)		(3,409	)		—		—
September 30, 2017	$	224,580		$	82,760		$	303,861		$	9,984		$	9,510	$	339
Amounts related to held assets(1)	($	27,764	)	($	375	)	$	12,345		$	1,056		$	—	($	15	)

(1) Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of September 30, 2017.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on anon-recurring basis as of September 30, 2018.

2018(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Impaired loans	$	—	$	—	$	48,702	$	48,702
Loan collateral in process of foreclosure						59,761		59,761
Other receivables						5,500		5,500
Total	$	—	$	—	$	113,963	$	113,963

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Significant Unobservable Inputs

ASC Topic 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as level 3 within the fair value hierarchy. The tables below are not intended to beall-inclusive, but rather to provide information on significant unobservable inputs and valuation techniques used by the Company.

The valuation techniques and significant unobservable inputs used in recurring level 3 fair value measurements of assets and liabilities as of September 30, 2018 were as follows under Bank Holding Company Accounting.

(Dollars in  thousands)	Fair Value at 9/30/18		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Equity investments		6,538	Investee financial analysis	Financial condition and operating performance of the borrower Collateral support		N/A
		2,550	Investee book value adjusted for market appreciation	Financial condition and operating performance of the investee		N/A
			Precedent arm’s length offer	Business enterprise value	$	6,018 – $7,218
				Business enterprise value/revenue multiples		0.94x – 4.42x
		1,455	Precedent market transaction	Offering price	$	8.73 / share
		209	Investee book value	Valuation indicated by investee filings		N/A

Page 47 of 108

The valuation techniques and significant unobservable inputs used in recurring level 3 fair value measurements of assets and liabilities as of December 31, 2017 were as follows under Investment Company Accounting.

(Dollars in  thousands)	Fair Value at 12/31/17		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Medallion Loans	$	208,279	Precedent market transactions	Adequacy of collateral (loan to value)		1% - 420% (131	%)
Commercial Loans – Mezzanine and Other		90,188	Borrower financial analysis	Financial condition and operating performance of		N/A
				the borrower Portfolio yields		2% -19.00% (12.02%	)
Investment in Medallion Bank		290,548	Precedent M&A transactions	Price / book value multiples		2.1x to 2.5x
				Price / earnings multiples		8.7x to 10.6x
			Discounted cash flow	Discount rate		17.50	%
				Terminal value	$	470,964 to $623,007
Investment in Other Controlled Subsidiaries		4,623	Investee financial analysis	Financial condition and operating performance		N/A
				Enterprise value	$	37,500 - $41,500
				Equity value	$	2,000 - $5,000
		3,878	Investee book value adjusted for asset appreciation	Financial condition and operating performance of the investee		N/A
				Third party valuation/ offer to purchase asset		N/A
		3,001	Investee book value adjusted for market appreciation	Financial condition and operating performance of the investee		N/A
				Third party offer to purchase investment		N/A
		97	Investee book value and equity pickup	Financial condition and operating performance of the investee		N/A
Equity Investments		5,417	Investee financial analysis	Financial condition and operating performance of the borrower		N/A
				Collateral support		N/A
		2,193	Investee financial analysis	Equity value	$	2,000 - $5,000
				Preferred equity yield		12	%
		1,455	Precedent market transaction	Offering price	$	8.73/share
		456	Investee book value	Valuation indicated by investee filings		N/A
Investments Other Than Securities		7,450	Precedent market transaction	Transfer prices of Chicago medallions		N/A
			Cash flow analysis	Discount rate in cash flow analysis		6	%
Other Assets		339	Borrower collateral analysis	Adequacy of collateral (loan to value)		0	%

Page 48 of 108

(16) INVESTMENTS OTHER THAN SECURITIES (Investment Company Accounting)

The following table presents the Company’s investments other than securities as of December 31, 2017 under Investment Company Accounting.

Investment Type(Dollars in thousands)	Number of Investments			Investment Cost		Value as of 12/31/17
City of Chicago taxicab medallions		154	(1)	$	8,411	$	7,238	(2)
City of Chicago taxicab medallions (handicap accessible)		5	(1)		278		212	(3)
Total investments other than securities				$	8,689	$	7,450

⁽¹⁾  Investment is not readily marketable, is considered income producing, is not subject to option, and is anon-qualifying asset under Investment Company Accounting.

⁽²⁾  Gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation for Federal income tax purposes was $5,846, $0, and $5,846 as of December 31, 2017. The aggregate cost for Federal income tax purposes was $1,392 at December 31, 2017.

⁽³⁾  Gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation for Federal income tax purposes was $172, $0, and $172 as of December 31, 2017. The aggregate cost for Federal income tax purposes was $40 at December 31, 2017.

(17) SMALL BUSINESS LENDING FUND PROGRAM (SBLF) AND TROUBLED ASSETS RELIEF PROGRAM (TARP)

On February 27, 2009 and December 22, 2009, Medallion Bank issued, and the US Treasury purchased under the TARP Capital Purchase Program (the CPP) Medallion Bank’s fixed ratenon-cumulative Perpetual Preferred Stock, Series A, B, C, and D for an aggregate purchase price of $21,498,000 in cash. On July 21, 2011, Medallion Bank issued, and the US Treasury purchased 26,303 shares ofSenior Non-Cumulative Perpetual Preferred Stock, Series E (Series E) for an aggregate purchase price of $26,303,000 under the SBLF. The SBLF is a voluntary program intended to encourage small business lending by providing capital to qualified smaller banks at favorable rates. In connection with the issuance of the Series E, the Bank exited the CPP by redeeming the Series A, B, C, and D; and received approximately $4,000,000, net of dividends due on the repaid securities. The Bank pays a dividend rate of 9% on the Series E.

(18) VARIABLE INTEREST ENTITIES

During the quarter, the Company determined that Trust III is a VIE. Trust III had been consolidated as a subsidiary of MFC historically, although it should have been consolidated under the variable interest model, since MFC is its primary beneficiary. Trust III is a VIE since the key decision-making authority rests in the servicing agreement (where MFC is the servicer for Trust III) rather than in the voting rights of the equity interests and as a result the decision-making rights are considered a variable interest. In addition, this conclusion is supported by a qualitative assessment that Trust III does not have sufficient equity at risk. Since the inception of Trust III, MFC has also been subject to a limited guaranty which was considered a variable interest because MFC absorbed variability as a result of the on-going performance of the loans in Trust III.

The following table shows the assets and liabilities of Trust III as of September 30, 2018 and December 31, 2017.

	Bank Holding Company Accounting		Investment Company Accounting
(Dollars in thousands)	UNAUDITED September 30, 2018		December 31, 2017
Assets
Cash	$	166	$	393
Net loans receivable		45,384		—
Net investments		—		96,688
Accrued interest receivable		97		170
Loan collateral in process of foreclosure		17,865		—
Total assets	$	63,512	$	97,251
Liabilities
Accounts payable and accrued expenses	$	69	$	—
Accrued interest payable		2,364		1,849
DZ loan		96,058		99,984
Total liabilities		98,491		101,833

Assets held by Trust III are restricted and can only be used to settle obligations owed to DZ Bank. The liabilities of Trust III arenon-recourse to the Company and are subject to a limited guaranty by MFC of $5,987 at September 30, 2018. The Company and MFC are not required to provide financial support to Trust III in excess of the limited guaranty.

(19) SUBSEQUENT EVENTS

On October 29, 2018, a credit facility with a maturity date of November 1, 2018 was extended until March 1, 2019.

On November 8, 2018, MFC’s limited recourse guaranty of the obligations of Trust III to DZ Bank was terminated. As consideration for the termination of such guaranty, MFC issued to DZ Bank a promissory note in the amount of $1.4 million, payable in quarterly installments over the next five years. This restructuring resulted in the deconsolidation of Trust III in the Company’s financial results effective November 8, 2018; subsequent to such date, the Company will not include any additional losses incurred by Trust III.

Page 49 of 108

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 31, 2017

Investment Company Accounting

(Dollars in thousands)	Obligor Name/ Interest Rate Range	Security Type (all restricted unless otherwise noted)		Acquisition Date		Maturity Date		No. of Invest.		% of Net Assets			Interest Rate (1)			Original Cost of 2017 Acquisitions (5)		Principal Outstanding		Cost(4)		Fair Value
Medallion Loans
New York									350		53	%		4.23	%	$	10,898	$	168,710	$	167,226	$	151,309
	Sean Cab Corp ##		Term Loan		12/09/11		11/23/18		1		1	%		4.63	%			$	3,159	$	3,159	$	3,159
	Real Cab Corp ##		Term Loan		07/20/07		12/20/17		1		1	%		2.81	%			$	2,545	$	2,545	$	2,545
	Real Cab Corp ##		Term Loan		07/20/07		12/20/17		1		*			2.81	%			$	350	$	350	$	350
	Slo Cab Corp ##		Term Loan		07/20/07		12/20/17		1		1	%		2.81	%			$	1,527	$	1,527	$	1,527
	Slo Cab Corp ##		Term Loan		07/20/07		12/20/17		1		*			2.81	%			$	210	$	210	$	210
	Junaid Trans Corp ## & {Annually-Prime plus 1.00%}		Term Loan		04/30/13		04/29/19		1		*			5.00	%			$	1,379	$	1,379	$	1,379
	Avi Taxi Corporation ##		Term Loan		04/11/14		12/10/17		1		*			3.25	%			$	1,329	$	1,329	$	1,329
	Hj Taxi Corp ##		Term Loan		04/11/14		12/10/17		1		*			3.25	%			$	1,329	$	1,329	$	1,329
	Anniversary Taxi Corp ##		Term Loan		04/11/14		12/10/17		1		*			3.25	%			$	1,329	$	1,329	$	1,329
	Kby Taxi Inc ##		Term Loan		04/11/14		12/10/17		1		*			3.25	%			$	1,329	$	1,329	$	1,329
	Apple Cab Corp ##		Term Loan		04/11/14		12/10/17		1		*			3.25	%			$	1,329	$	1,329	$	1,329
	Penegali Taxi LLC ##		Term Loan		12/11/14		12/10/17		1		*			3.75	%			$	1,294	$	1,294	$	1,294
	Uddin Taxi Corp ## &		Term Loan		11/05/15		11/05/18		1		*			4.75	%			$	1,284	$	1,284	$	1,284
	Waylon Transit LLC ##		Term Loan		09/27/17		09/27/22		1		*			0.00	%	$	1,275	$	1,275	$	1,275	$	1,277
	Sonu-Seema Corp ## (interest rate includes deferred interest of 2.50%)(deferred interest of $34 per footnote 2)		Term Loan		12/07/12		12/20/18		1		*			5.00	%			$	1,275	$	1,275	$	1,275
	Bunty & Jyoti Inc ## (interest rate includes deferred interest of 2.50%)(deferred interest of $35 per footnote 2)		Term Loan		03/13/13		12/13/18		1		*			5.00	%			$	1,259	$	1,259	$	1,259
	Perem Hacking Corp ## & {Annually-Prime plus .25%}		Term Loan		05/01/16		05/01/21		1		*			4.25	%			$	1,223	$	1,223	$	1,225
	S600 Service Co Inc ## & {Annually-Prime plus .25%}		Term Loan		05/01/16		05/01/21		1		*			4.25	%			$	1,223	$	1,223	$	1,225
	Ela Papou LLC ##		Term Loan		06/27/14		12/15/17		1		*			4.00	%			$	1,213	$	1,213	$	1,213
	Earie Hacking LLC ##		Term Loan		12/28/15		12/28/20		1		*			3.60	%			$	1,173	$	1,173	$	1,174
	Amme Taxi Inc ##		Term Loan		10/21/13		10/21/18		1		*			3.70	%			$	1,162	$	1,162	$	1,162
	Yosi Transit Inc ##		Term Loan		07/20/07		12/20/17		1		*			2.81	%			$	1,018	$	1,018	$	1,018
	Yosi Transit Inc ##		Term Loan		07/20/07		12/20/17		1		*			2.81	%			$	140	$	140	$	140
Various New York && ##	0.00% to 18.38% (interest rate includes deferred interest 1.00% to 9.19%)(deferred interest of $1,281 per footnote 2)		Term Loan		03/23/01 to 12/22/17		05/28/16 to 12/21/26		327		42	%		4.36	%	$	9,623	$	139,356	$	137,872	$	121,948

Page 50 of 108

(Dollars in thousands)	Obligor Name/ Interest Rate Range	Security Type (all restricted unless otherwise noted)		Acquisition Date		Maturity Date		No. of Invest.		% of Net Assets			Interest Rate (1)			Original Cost of 2017 Acquisitions (5)		Principal Outstanding		Cost(4)		Fair Value
Chicago									107		5	%		4.74	%	$	0	$	20,172	$	19,436	$	15,602
	Sweetgrass Peach &Chadwick Cap ## (interest rate includes deferred interest of 1.00%)(deferred interest of $20 per footnote 2)		Term Loan		08/28/12		02/24/18		1		*			6.00	%			$	1,374	$	1,374	$	1,374
Various Chicago && ##	0.00% to 7.00% (interest rate includes deferred interest .75% to 2.75%)(deferred interest of $207 per footnote 2)		Term Loan		01/22/10 to 08/08/16		03/12/16 to 12/22/20		106		5	%		4.65	%	$	0	$	18,798	$	18,062	$	14,228
Newark && ##									110		8	%		5.34	%	$	1,047	$	21,999	$	21,935	$	21,684
	Viergella Inc ##		Term Loan		02/20/14		02/20/18		1		*			4.75	%			$	1,278	$	1,278	$	1,278
Various Newark && ##	4.50% to 7.00% (interest rate includes deferred interest 1.50%)(deferred interest of $2 per footnote 2)		Term Loan		04/09/10 to 10/12/17		10/17/17 to 05/14/25		109		7	%		5.38	%	$	1,047	$	20,721	$	20,657	$	20,406
Boston && ##	2.75% to 6.15%		Term Loan		06/12/07 to 10/04/17		12/07/15 to 11/06/25		59		6	%		4.51	%	$	633	$	18,907	$	18,564	$	18,504
Cambridge && ##	3.75% to 5.50%		Term Loan		05/06/11 to 12/15/15		03/29/16 to 01/26/20		13		0	%		4.55	%	$	0	$	824	$	773	$	693
Various Other && ##	4.75% to 9.00%		Term Loan		04/28/08 to 07/30/15		01/03/17 to 09/01/23		9		0	%		7.95	%	$	0	$	500	$	482	$	487
Total medallion loans ($183,529 pledged as collateral under borrowing arrangements)									648		73	%		4.41	%	$	12,578	$	231,112	$	228,416	$	208,279
Commercial Loans
Secured mezzanine (22% North Carolina, 16% Minnesota, 7% Ohio, 6% Texas, 6% Delaware 6% California, 5% Oklahoma, 5% Oregon, 4% Kansas, 4% North Dakota, 4% Pennsylvania, and 15% all other states)(2)
Manufacturing (37% of the total)	Innovative Metal, Inc. dba Southwest Data Products (interest rate includes PIK interest of 2.00%)		Term Loan		04/06/17		04/06/24		1		2	%		14.00	%	$	5,000	$	5,000	$	5,000	$	4,980
	Stride Tool Holdings, LLC (interest rate includes PIK interest of 3.00%) (capitalized interest of $217 per footnote 2)		Term Loan		04/05/16		04/05/21		1		1	%		15.00	%			$	4,217	$	4,217	$	4,179

Page 51 of 108

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 31, 2017

Investment Company Accounting

(Dollars in thousands)	Obligor Name/Interest Rate Range	Security Type (all restricted unless otherwise noted)	Acquisition Date		Maturity Date		No. of Invest.		% of Net Assets			Interest Rate (1)			Original Cost of 2017 Acquisitions (5)		Principal Outstanding		Cost (4)		Fair Value
	AA Plush Holdings, LLC (interest rate includes PIK interest of 6.00%)(capitalized interest of $397 per footnote 2)	Term Loan		08/15/14		08/15/19		1		1	%		14.00	%			$	3,397	$	3,397	$	3,393
	Pinnacle Products International, Inc. (interest rate includes PIK interest of 3.00%)(capitalized interest of $449 per footnote 2)	Term Loan		10/09/15		10/09/20		1		1	%		15.00	%			$	3,249	$	3,249	$	3,249
	Liberty Paper Products Acquisition, LLC (interest rate includes PIK interest of 2.00%)(capitalized interest of $101 per footnote 2)	Term Loan		06/09/16		06/09/21		1		1	%		14.00	%			$	3,096	$	3,096	$	3,096
	EMI Porta Opco, LLC (interest rate includes PIK interest of 1.00%)(capitalized interest of $2 per footnote 2)	Term Loan		12/11/17		03/11/23		1		1	%		13.00	%	$	3,000	$	3,002	$	3,002	$	3,002
	BB Opco, LLC d/b/a BreathableBaby, LLC (interest rate includes PIK interest of 3.00%)(capitalized interest of $218 per footnote 2)	Term Loan		08/01/14		08/01/19		1		1	%		15.00	%			$	2,718	$	2,718	$	2,718
	EGC Operating Company, LLC (interest rate includes PIK interest of 1.00%)(capitalized interest of $49 per footnote 2)	Term Loan		09/30/14		09/30/19		1		1	%		13.00	%			$	1,959	$	1,959	$	1,959
	American Cylinder, Inc. d/b/a All Safe (interest rate includes PIK interest of 7.00%)(capitalized interest of $282 per footnote 2)	Term Loan		07/03/13		09/30/18		1		1	%		19.00	%			$	1,782	$	1,782	$	1,782
	Tri-Tech Forensics, Inc. (interest rate includes PIK interest of 2.00%)	Term Loan		06/15/17		06/15/22		1		1	%		14.00	%	$	1,500	$	1,500	$	1,500	$	1,500
	Orchard Holdings, Inc. &	Term Loan		03/10/99		03/31/10		1		*			13.00	%			$	1,390	$	1,390	$	1,390
	Filter Holdings, Inc. (interest rate includes PIK interest of 2.00%)	Term Loan		05/05/17		05/05/22		1		*			14.00	%	$	1,250	$	1,250	$	1,250	$	1,250
	Various Other 10.00%	Term Loan	��	03/28/17		03/28/22		1		*			10.00	%	$	200	$	200	$	200	$	200
Arts, Entertainment, and Recreation (19% of the total)	RPAC Racing LLC & (interest rate includes PIK interest of 2.00%)(capitalized interest of $15 per footnote 2)	Term Loan		11/27/17		03/31/20		1		3	%		2.00	%	$	7,827	$	7,827	$	7,827	$	7,827
	RPAC Racing LLC & (interest rate includes PIK interest of 2.00%)(capitalized interest of $278 per footnote 2)	Term Loan		06/22/16		03/31/20		1		1	%		2.00	%			$	2,034	$	2,034	$	2,034
	RPAC Racing LLC & (interest rate includes PIK interest of 2.00%)(capitalized interest of $120 per footnote 2)	Term Loan		09/14/16		03/31/20		1		*			2.00	%			$	1,000	$	1,000	$	1,000
	RPAC Racing LLC & (interest rate includes PIK interest of 2.00%)(capitalized interest of $2,572 per footnote 2)	Term Loan		11/19/10		03/30/20		1		2	%		2.00	%			$	5,611	$	5,611	$	5,611

Page 52 of 108

(Dollars in thousands)	Obligor Name/Interest Rate Range	Security Type (all restricted unless otherwise noted)	Acquisition Date		Maturity Date		No. of Invest.		% of Net Assets			Interest Rate (1)			Original Cost of 2017 Acquisitions (5)		Principal Outstanding		Cost (4)		Fair Value
Professional, Scientific, and Technical Services (18% of the total)	Weather Decision Technologies, Inc. (interest rate includes PIK interest of 9.00%)(capitalized interest of $721 per footnote 2)	Term Loan		12/11/15		12/11/20		1		1	%		18.00	%			$	4,221	$	4,221	$	4,214
	Weather Decision Technologies, Inc. (interest rate includes PIK interest of 7.00%)(capitalized interest of $2 per footnote 2)	Term Loan		11/08/17		06/30/18		1		*			14.00	%	$	325	$	327	$	327	$	327
	ADSCO Opco, LLC (interest rate includes PIK interest of 2.00%)(capitalized interest of $87 per footnote 2)	Term Loan		10/25/16		10/25/21		1		1	%		13.00	%			$	3,687	$	3,687	$	3,677
	Northern Technologies, LLC (interest rate includes PIK interest of 1.00%)(capitalized interest of $70 per footnote 2)	Term Loan		01/29/16		01/29/23		1		1	%		13.00	%			$	3,670	$	3,670	$	3,670
+	DPIS Engineering, LLC	Term Loan		12/01/14		06/30/20		1		1	%		12.00	%			$	2,000	$	2,000	$	1,998
+	Portu-Sunberg Marketing LLC	Term Loan		10/21/16		02/21/22		1		*			12.00	%			$	1,250	$	1,250	$	1,245
	Various Other 14.00%(capitalized interest of $11 per footnote 2)	Term Loan		05/21/15		05/21/22		1		*			14.00	%			$	1,156	$	1,156	$	1,156
Information (9% of the total)	US Internet Corp.	Term Loan		03/14/17		03/14/22		1		1	%		14.50	%	$	5,650	$	4,075	$	4,075	$	4,062
	US Internet Corp. (interest rate includes PIK interest of 17.00%)(capitalized interest of $147 per footnote 2)	Term Loan		03/14/17		03/14/22		1		*			19.00	%	$	1,000	$	1,147	$	1,147	$	1,147
	Centare Holdings, Inc. (interest rate includes PIK interest of 2.00%)	Term Loan		08/30/13		08/30/18		1		1	%		14.00	%			$	2,500	$	2,500	$	2,497
Wholesale Trade (6% of the total) +	Classic Brands, LLC	Term Loan		01/08/16		04/30/23		1		1	%		12.00	%			$	2,880	$	2,880	$	2,880

Page 53 of 108

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 31, 2017

Investment Company Accounting

(Dollars in thousands)	Obligor Name/ Interest Rate Range	Security Type (all restricted unless otherwise noted)	Acquisition Date		Maturity Date		No. of Invest.		% of Net Assets			Interest Rate (1)			Original Cost of 2017 Acquisitions (5)		Principal Outstanding		Cost (4)		Fair Value
	Harrell’s Car Wash Systems, Inc. (interest rate includes PIK interest of 3.00%)(capitalized interest of $32 per footnote 2)	Term Loan		07/03/17		09/03/22		1		1	%		15.00	%	$	2,000	$	2,532	$	2,532	$	2,529
Mining, Quarrying, and Oil and Gas Extraction (5% of the total)	Green Diamond Performance Materials, Inc. (interest rate includes PIK interest of 4.50%)(capitalized interest of $57 per footnote 2)	Term Loan		09/08/17		09/08/24		1		1	%		16.50	%	$	4,000	$	4,057	$	4,057	$	4,057
Transportation and Warehousing (4% of the total)	LLL Transport, Inc. (interest rate includes PIK interest of 3.00%)(capitalized interest of $410 per footnote 2)	Term Loan		10/23/15		04/23/21		1		1	%		15.00	%			$	3,914	$	3,914	$	3,912
Construction (2% of the total)	HighlandCrossing-M, LLC (interest rate includes PIK interest of 11.50%)	Term Loan		01/07/15		02/01/25		1		1	%		11.50	%			$	1,445	$	1,445	$	1,444
Accommodation and Food Services (0% of the total)	Various Other 9.25%	Term Loan		11/05/10		11/05/20		1		*			9.25	%			$	241	$	241	$	241
Total secured mezzanine(2)								33		31	%		12.09	%	$	31,752	$	88,334	$	88,334	$	88,226
Other secured commercial (51% New York, 42% New Jersey and 7% all other states)
Retail Trade (81% of the total)	Medallion Fine Art Inc (interest rate includes PIK interest of 12%)	Term Loan		12/17/12		03/17/18		1		*			12.00	%			$ $	999 835	$ $	999 795	$ $	999 604
	Various Other && 4.75% to 10.50%	Term Loan		10/28/08 to 12/23/15		05/09/18 to 03/03/20		5		*			7.74	%
Accommodation and Food Services (12% of the total)	Various Other && 6.75% to 9.00%	Term Loan		11/29/05 to 06/06/14		04/18/17 to 09/06/19		3		*			8.26	%			$	644	$	544	$	228
Transportation and Warehousing (4% of the total)	Various Other && 4.25%	Term Loan		03/17/15		09/10/18		1		*			4.25	%			$	75	$	74	$	75
Real Estate and Rental and Leasing (3% of the total)	Various Other && 5.00%	Term Loan		03/31/15		03/31/20		1		*			5.00	%			$	69	$	65	$	56
Total Other Commercial Loans(2)								11		1	%		9.39	%			$	2,622	$	2,477	$	1,962
Total commercial loans (2)								44		31	%		12.02	%	$	31,752	$	90,956	$	90,811	$	90,188
Investment in Medallion Bank and other controlled subsidiaries
Commercial Banking	Medallion Bank **	100% of common stock		05/16/02		None		1		101	%		0.00	%					$	138,282	$	290,548
NASCAR Race Team	Medallion MotorSports, LLC	75% of LLC units		11/24/10		None		1		2	%		42.40	%					$	2,820	$	4,623
Art Dealer	Medallion Fine Art, Inc.	100% of common stock		12/03/12		None		1		1	%		0.00	%					$	1,777	$	3,878
Loan Servicing	Medallion Servicing Corp.	100% of common stock		11/05/10		None		1		*			0.00	%					$	97	$	97
Professional Sports Team	LAX Group LLC	44.97% of membership interests		05/23/12		None		1		1	%		0.00	%					$	251	$	3,001
Media	Medallion Taxi Media, Inc.	100% of common stock		01/01/17		None		1		*			0.00	%					$	0	$	0
Investment in Medallion Bank and other controlled subsidiaries, net								6		105	%		0.83	%	$	0	$	0	$	143,227	$	302,147
Equity investments
Commercial Finance	Convergent Capital, Ltd **	7% of limited partnership interest		07/20/07		None		1		*			0.00	%					$	733	$	456
NASCAR Race Team	Rpac Racing LLC	1,000 shares of Series D		08/25/15		None		1		1	%		0.00	%					$	0	$	2,193
Loan Servicing	Upgrade, Inc.	666,668 shares ofSeries A-1 preferred stock		09/30/16		None		1		1	%		0.00	%					$	250	$	1,455
Stuffed Toy Manufacturer	AA Plush Holdings, LLC d/b/a Animal Adventures	1.6% Common Units		08/15/14		None		1		*			0.00	%					$	300	$	300
Advertising Services	ADSCO Opco, LLC	7.9% Class ASeries A-2 Units		10/25/16		None		1		*			0.00	%					$	400	$	400

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Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 31, 2017

Investment Company Accounting

(Dollars in thousands)	Obligor Name/ Interest Rate Range	Security Type (all restricted unless otherwise noted)	Acquisition Date		Maturity Date		No. of Invest.		% of Net Assets			Interest Rate (1)			Original Cost of 2017 Acquisitions (5)		Principal Outstanding		Cost (4)		Fair Value
Baby Sleep Products	BB Opco, LLC d/b/a BreathableBaby, LLC	3.6% Units		08/01/14		None		1		*			0.00	%					$	250	$	250
IT Services	Centare Holdings, Inc.	7.23% of common stock, 3.88% of preferred stock		08/30/13		None		1		*			0.00	%					$	103	$	103
Wholesale Hobbyists’ Supplies	Classic Brands, LLC	Warrant for 300,000 Class A units		01/08/16		01/08/26		1		*			0.00	%					$	0	$	0
Engineering Design Services	DPIS Engineering LLC	Warrant for 180,000 Class C units		12/01/14		5th anniversary of note paid in full		1		*			0.00	%					$	0	$	0
Elevator Parts Manufacturer	EMI Porta HoldCo, LLC	3.56% of SeriesA-2 Preferred Units		12/11/17		None		1		*			0.00	%	$	500			$	500	$	500
Industrial Filters Manufacturer	Filter Holdings, Inc.	7.14% of Common Stock, 7.14% of Preferred Stock		05/05/17		None		2		*			0.00	%	$	207			$	207	$	207
Specialty Sand Products	Green Diamond Performance Materials, Inc.	4.26% of Series A Preferred Stock		09/08/17		None		1		*			0.00	%	$	200			$	200	$	200
Car Wash Equipment Manufacturer	Harrell’s Car Wash Systems, Inc.	0.89% of Common Stock		07/03/17		None		1		*			0.00	%	$	104			$	104	$	104
Sheet Metal Manufacturer	SWDP Acquisition Co., LLC	9.9875% of LLC Units		04/06/17		None		1		*			0.00	%	$	400			$	400	$	400
Paper Tapes Manufacturer	Liberty Paper Products Acquisition, LLC	100% of Series A Preferred Units—12% TOTAL		06/09/16		None		1		*			0.00	%					$	350	$	350
Environmental Consulting Services	Northern Technologies, LLC	8.27% of LLC units		01/29/2016,12/5/16 &6/12/17		None		3		*			0.00	%	$	58			$	408	$	408
Space Heater Manufacturer	Pinnacle Products International, Inc.	0.5% common stock		10/09/15		None		1		*			0.00	%					$	135	$	135
Marketing Services	Portu-Sunberg Marketing LLC	0.86% LLC units		10/19/16		None		1		*			0.00	%					$	50	$	50
	Portu-Sunberg Marketing LLC	Warrant for 2.85% of the outstanding stock		12/31/12		07/24/20		1		*			0.00	%					$	0	$	0
Hand Tool Manufacturer	Stride Tool Holdings, LLC	7.14% of LLC units		04/05/16		None		1		*			0.00	%					$	500	$	500
Forensic Supplies	Tri-Tech Forensics, Inc.	4.91% of Common Stock; 4.61% of Preferred Stock		06/15/17		None		3		*			0.00	%	$	192			$	192	$	192
Weather Forecasting Services	Weather Decision Technologies, Inc.	2.2% preferred stock		12/11/15		None		1		*			0.00	%					$	500	$	500
Various Other #	+    **	* Various		08/04/08 to 12/12/14		None to 2/5/23		5		*			0.00	%					$	818	$	818
Equity investments, net								32		3	%		0.00	%	$	1,661	$	0	$	6,400	$	9,521
Investment securities
Investment securities, net								0		0	%		0.00	%	$	0	$	0	$	0	$	0
Net Investments ($183,529 pledged as collateral under borrowing arrangements) (3)
								730		212	%		4.73	%	$	45,991	$	322,068	$	468,854	$	610,135

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(1) Represents the actual or weighted average interest or dividend rate of the respective security or portfolio as of the date indicated. Investments without an interest rate or with a rate of 0.00% are considerednon-income producing.

(2) Included in secured mezzanine commercial loans and other commercial loans was $6,237 of interest income capitalized into the outstanding investment balances, and $1,579 of deferred interest income, in accordance with the terms of the investment contract.

(3) The ratio of restricted securities fair value to net assets is 212%.

(4) Gross unrealized appreciation, gross unrealized depreciation, and net appreciation for federal income tax purposes totaled $220,597, $21,306 and $199,291, respectively. The tax cost of investments was $410,844.

(5) For revolving lines of credit the amount shown is the cost at December 31, 2017.

* Less than 1.0%

** Not an eligible portfolio company as such term is defined in Section 2(a)(46) of the 1940 Act. The percentage value of allnon-eligible portfolio companies to total assets of Medallion Financial on an unconsolidated basis was up to 59% and up to 48% on a consolidated basis. Under the 1940 Act, we were not allowed to acquire anynon-qualifying assets, unless at the time such acquisition is made, qualifying assets, which include securities of eligible portfolio companies, represent at least 70% of our total assets. The status of these assets under the 1940 Act are subject to change. We monitor the status of these assets on an ongoing basis.

& Loan is on nonaccrual status, or past due on contractual payments, and is therefore considerednon-income producing.

&& Some or all of the securities arenon-income producing as per & above.

# Publicly traded but sales subject to applicable Rule 144 limitations.

## Pledged as collateral under borrowing arrangements.

+ Includes various warrants, all of which have a cost and fair value of zero at December 31, 2017.

The Summary Schedule of Investments does not reflect the Company’s complete portfolio holdings. It includes the Company’s 50 largest holdings and each investment of any issuer that exceeds 1% of the Company’s net assets. “Various Other” represents all issues not required to be disclosed under the rules adopted by the U.S. Securities and Exchange Commission (“SEC”). Footnotes above may apply to securities that are included in “Various Other”. For further detail, the complete schedule of portfolio holdings is available (i) without charge, upon request, by calling (877) MEDALLION; and (ii) on the SEC’s website at http://www.sec.gov. Filed as Exhibit 99.1 to the Annual Report on Form10-K for the fiscal year ended December 31, 2017, filed on March 14, 2018 (FileNo. 814-00188).

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Medallion Financial Corp.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFIILIATES

As of and for the year ended December 31, 2017 under Investment Company Accounting

Name of issuer and title of issue (Dollarsin thousands)	Number of shares (all restricted unless otherwise noted)	Equity in net profit and (loss)			Amount of dividends or interest (1)		Value as of 12/31/17
Medallion Bank – common stock	1,000,000 shares – 100% of common stock	$	10,193		$	0	$	290,548
Medallion Motorsports, LLC – membership interest(2)	75% of membership interest		(2,357	)		1,201		4,623
Medallion Fine Art, Inc. – common stock(3)	1,000 shares – 100% of common stock		231			0		3,878
LAX Group LLC – membership interest	45% of membership interest		870			0		3,001
Medallion Servicing Corp. – common stock	1,000 shares – 100% of common stock		546			0		97
Medallion Taxi Media, Inc. – common stock	1,000 shares – 100% of common stock		0			77		0
Total investments in Medallion Bank and other controlled subsidiaries			9,483			1,278		302,147
RPAC Racing LLC(2)	100% of Series D units		0			0		2,193
Stride Tool Holdings LLC(4) – membership interest	7.14% of membership interest		0			0		500
Northern Technologies LLC – membership interest(5)	8.3% of membership interest		0			0		408
ADSCO Holdco LLC – membership interest(6)	7.7% of Class A Series A-2 LLC units		0			0		400
SWDP Acquisition Co., LLC(7)	10% of membership interest		0			0		400
Appliance Recycling Centers of America Inc. – common stock	0% of common stock		0			0		0
Filter Holdings INC.(8)	7.14% of common & preferred stock		0			0		207
Third Century JRT, Inc.(9)	13% of common stock		0			0		200
Total equity investments in affiliates		$	0		$	0	$	4,308

(1) Investments with an amount of $0 are considerednon-income producing.

(2) The Company and a controlled subsidiary of the Company have 4 loans due from RPAC Racing LLC, an affiliate of Medallion Motorsports, LLC, in the amount of $16,472 as of December 31, 2017, and on which $56 of interest income was earned during the year ended December 31, 2017 as the loans are onnon-accrual status.

(3) The Company has a loan due from Medallion Fine Art, Inc. in the amount of $999 as of December 31, 2017, and on which $165 of interest income was earned during the year ended December 31, 2017.

(4) The Company has a loan due from Stride Tool Holding LLC in the amount of $4,217 as of December 31, 2017, and on which $631 of interest income was earned during the year ended December 31, 2017.

(5) The Company has a loan due from Northern Technologies LLC in the amount of $3,670 as of December 31, 2017, on which $477 of interest income was earned during the year ended December 31, 2017.

(6) The Company has a loan due from ADSCO Holdco LLC in the amount of $ 3,687 as of December 31, 2017, and on which $475 of interest income was earned during the year ended December 31, 2017.

(7) The Company has a loan due from Innovative Metal Inc., an affiliate of SWDP Acquisition Co., LLC in the amount of $5,000 as of December 31, 2017, on which $523 of interest income was earned during the year ended December 31, 2017.

(8) The Company has a loan due from Filter Holdings Inc. in the amount of $1,250 as of December 31, 2017, on which $117 of interest income was earned during the year ended December 31, 2017.

(9) The Company has a loan due from JR Thompson Company LLC, an affiliate of Third Century JRT, Inc., in the amount of $1,156 as of December 31, 2017, on which $204 of interest income was earned during the year ended December 31, 2017.

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The table below provides a summary of the changes in the investment in the respective issuers for the year ended December 31, 2017.

Name of Issuer	Medallion Bank			Medallion Fine Art, Inc. (1)		Medallion Motorsports, LLC (2)			Appliance Recycling Centers of America, Inc.			Medallion Servicing Corp.			LAX Group, LLC		Medallion Taxi Media, Inc.			Third Century JRT, Inc. (3)		Northern Technologies, LLC (4)		Stride Tool Holding LLC (5)		ADSCO Holdco LLC (6)		RPAC Racing LLC (2)		Filter Holdings Inc.(7)		SWDP ACQUISITION Co LLC(8)
Title of Issue	Common Stock			Common Stock		Membership Interest			Common Stock			Common Stock			Membership Interest		Common Stock			Common Stock		Membership Interest		Membership Interest		Membership Interest		Membership Interest		Common & Preferred Stock		Membership Interest
(Dollars in thousands)
Value as of 12/31/16	$	280,589		$	3,647	$	6,980		$	475		$	454		$	1,690	$	—		$	200	$	351	$	500	$	400	$	1,351	$	—	$	—
Gross additions / investments		—			—		—			—			—			441		—			—		57		—		—		—		207		400
Gross reductions / distributions		(234	)		—		(1,201	)		(351	)		(903	)		—		(77	)		—		—		—		—		—		—		—
Net equity in profit and loss, and unrealized appreciation and (depreciation)		10,193			231		(1,156	)		(124	)		546			870		77			—		—		—		—		842		—		—
Value as of 12/31/17	$	290,548		$	3,878	$	4,623		$	—		$	97		$	3,001	$	—		$	200	$	408	$	500	$	400	$	2,193	$	207	$	400

(1) The Company has a loan due from Medallion Fine Art, Inc. in the amount of $999 as of December 31, 2017, $0 of which was advanced during 2017, and for which $2,325 was repaid.

(2) In addition to the equity ownership, the Company and a controlled subsidiary of the Company have four loans due from RPAC Racing LLC, an affiliate of Medallion Motorsports, LLC, in the amount of $16,472, $7,883 of which was advanced during 2017.

(3) The Company has a loan due from J. R. Thompson Company, LLC, an affiliate of Third Century JRT, Inc. in the amount of $1,156 as of December 31, 2017, $469 of which was repaid during 2017.

(4) The Company has a loan due from Northern Technologies LLC in the amount of $3,670 as of December 31, 2017, $137 of which was advanced during 2017.

(5) The Company has a loan due from Stride Tool Holdings LLC in the amount of $4,217 as of December 31, 2017, $126 of which was advanced during 2017.

(6) The Company has a loan due from ADSCO Holdco LLC in the amount of $3,687 as of December 31, 2017, $74 of which was advanced during 2017.

(7) The Company has a loan due from Filter Holdings Inc. in the amount of $1,250 as of December 31, 2017, all of which was advanced during 2017.

(8) The Company has a loan due from Innovative Metals, Inc., an affiliate of SWDP Acquisition Co., LLC in the amount of $5,000 as of December 31, 2017, all of which was advanced during 2017.

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

GENERAL

We are a finance company that historically has had a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. Recently, our strategic growth has been through a wholly-owned subsidiary of ours, Medallion Bank, which originates consumer loans for the purchase of recreational vehicles, boats, and trailers, and to finance small-scale home improvements.

Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 16% (20% if there had been no loan sales during 2016, 2017, and 2018). We are transitioning away from medallion lending and placing our strategic focus on our growing consumer finance business. As a result of our change in strategy, as of September 30, 2018, our consumer loans represented 70% of our loan portfolio, with medallion loans representing 22% and commercial loans representing 8%. Total assets under management were $1,598,000,000 as of September 30, 2018, and were $1,593,000,000 and $1,646,000,000 as of December 31, 2017 and September 30, 2017, and have grown at a compound annual growth rate of 10% from $215,000,000 at the end of 1996.

Our loan-related earnings depend primarily on our level of net interest income. Net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds. We fund our operations through a wide variety of interest-bearing sources, such as bank certificates of deposit issued to customers, revolving bank facilities, debentures issued to and guaranteed by the SBA, and bank term debt. Net interest income fluctuates with changes in the yield on our 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 us. 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 our lending activities. We, like other financial institutions, are subject to interest rate risk to the degree that our interest-earning assets reprice on a different basis than our interest-bearing liabilities.

We also provide debt, mezzanine, and equity investment capital to companies in a variety of industries, consistent with our investment objectives. These investments may be venture capital style investments which may not be fully collateralized. Our investments are typically in the form of secured debt instruments with fixed interest rates accompanied by an equity stake or 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 instruments.

On March 7, 2018, a majority of the Company’s shareholders authorized the Company’s Board of Directors to withdraw the Company’s election to be regulated as a BDC under the 1940 Act, and we withdrew such election effective April 2, 2018. At that point, we were no longer a BDC or subject to the provisions of the 1940 Act applicable to BDCs. Historically, the composition of the Company’s assets caused it to meet the definition of an “investment company,” and the Company made a corresponding election to be treated as a BDC. Now that the Company hasde-elected BDC status, it operates so as to fall outside the definition of an “investment company” or within an applicable exception.

As a result of this change in status, commencing with the three months ended June 30, 2018:

• we consolidate the results of Medallion Bank and our other subsidiaries in our financial statements, which, as an investment company, we were previously precluded from doing; and

• with the consolidation of Medallion Bank, given its significance to our overall financial results, we now report as a bank holding company for accounting purposes under Article 9 and Guide 3 of RegulationS-X (but we are not a bank holding company for regulatory purposes).

As we are making this change to our financial reporting prospectively, in this report we refer to both accounting in accordance with US generally accepted accounting principles (GAAP) applicable to bank holding companies (Bank Holding Company Accounting), which applies commencing April 2, 2018, and to that applicable to investment companies under the 1940 Act (Investment Company Accounting), which applies to prior periods.

We are subject to taxation as a corporation under Subchapter C of the Internal Revenue Code, and therefore file a consolidated tax return for federal and state purposes with all of our operating entities. See Note 8 for more information.

Our wholly-owned subsidiary, Medallion Bank, is a bank regulated by the FDIC and the Utah Department of Financial Institutions which originates consumer loans, raises deposits, and conducts other banking activities. Medallion Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit. To take advantage of this low cost of

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funds, historically we referred a portion of our taxicab medallion loans to Medallion Bank, which originated these loans that were then serviced by MSC. However, at this time, Medallion Bank is not originating any new taxi medallion loans and is working with MSC to service its existing portfolio. The FDIC restricts the amount of taxicab medallion loans that Medallion Bank may finance to three times Tier 1 capital, although it is less than one times Tier 1 capital as of September 30, 2018. MSC earns referral and servicing fees for these activities.

The assets of Taxi Medallion Loan Trust III (Trust III), aggregating $63,512,000 as of September 30, 2018, were not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party were not available to pay obligations of Trust III. Trust III’s loans are serviced by Medallion Funding LLC (MFC). As of September 30, 2018, Trust III had liabilities of $98,491,000 and a deficit of $34,979,000, as a result of losses taken on the medallion loans in Trust III. This amount exceeded our maximum exposure to Trust III, which was solely due to a limited guaranty by MFC of $5,987,000, by $28,992,000. On November 8, 2018, such limited guaranty in favor of DZ Bank was terminated in exchange for a $1.4 million note. As a result, effective as of such date, the results of Trust III will not be consolidated in our financial statements.

Average Balances and Rates (Bank Holding Company Accounting)

The following table shows the Company’s consolidated average balance sheets, interest income and expense, and the average interest rates on those interest earning/bearing average assets and liabilities, for the three and six months ended September 30, 2018.

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	Three Months Ended September 30, 2018							Six Months Ended September 30, 2018
(dollars in thousands)	Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost
Interest-earning assets:
Interest-earning cash and cash equivalents	$	54,777	$	128		0.93	%	$	42,674	$	223		1.04	%
Investment securities		45,835		292		2.53			44,522		561		2.51
Loans
Recreation		600,160		24,001		15.87			579,456		46,133		15.88
Home improvement		194,466		3,968		8.10			191,970		8,605		8.94
Commercial loans		81,312		2,637		12.87			80,834		5,315		12.24
Medallion loans		247,409		2,126		3.41			263,090		4,959		4.03
Total loans		1,123,347		32,732		11.56			1,115,350		65,012		11.63
Total interest-earning assets	$	1,223,959	$	33,152		10.75		$	1,202,546	$	65,796		10.91
Non-interest-earning assets
Cash	$	10,347						$	10,349
Equity investments		10,888							10,934
Loan collateral in process of foreclosure		60,871							60,841
Deferred tax asset		1,243							1,873
Goodwill and intangible assets		210,972							211,191
Other assets		40,148							37,352
Totalnon-interest-earning assets		334,469							332,540
Total assets	$	1,558,428						$	1,535,086
Interest-bearing liabilities
Deposits	$	936,724	$	5,064		2.14	%	$	900,941	$	9,264		2.05	%
DZ loan		96,585		1,001		4.11			97,050		1,885		3.87
SBA debentures and borrowings		78,786		769		3.87			78,634		1,521		3.86
Notes payable to banks		69,629		762		4.34			71,077		1,583		4.44
Retail notes		33,625		875		10.32			33,625		1,750		10.38
Preferred securities		33,000		375		4.51			33,000		728		4.40
Other borrowings		7,596		41		2.14			8,550		81		1.89
Total interest-bearing liabilities	$	1,255,945	$	8,887		2.81		$	1,222,877	$	16,812		2.74
Non-interest-bearing liabilities
Other liabilities	$	19,586						$	23,081
Totalnon-interest-bearing liabilities		19,586							23,081
Total liabilities	$	1,275,531						$	1,245,958
Non controlling interest		27,246							27,227
Total stockholders’ equity		255,651							261,901
Total liabilities and stockholders equity	$	1,558,428						$	1,535,086
Net interest income			$	24,265						$	48,984
Net interest margin						7.94	%						8.17	%

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During the quarter and six months, our net loans receivable had a yield of 11.56% and 11.63%, which was driven by the recreation loans partly offset by the medallion loan yield driven by the market. The recreation loans are consumer loans used in large part to purchase recreational vehicles, boats and trailers and the recreation loan portfolio produces the majority of our interest income. Of our debt, we use certificates of deposit to provide the funding for our consumer loans (recreation and home improvement) and a portion of our medallion loans. During the quarter there was an overall increase in the cost of borrowing largely due to market rate adjustments affecting those certificates of deposit.

Rate/Volume Analysis (Bank Holding Company Accounting)

The following table presents the change in interest income and expense due to changes in the average balances (volume) and average rates by calculating for the periods indicated.

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	Three Months Ended September 30, 2018									Six Months Ended September 30, 2018
(dollars in thousands)	Increase (Decrease) In Volume			Increase (Decrease) in Rate			Net Change			Increase (Decrease) In Volume			Increase (Decrease) In Rate			Net Change
Interest-earning assets
Interest-earning cash and cash equivalents	$	108		($	35	)	$	73		$	100		($	68	)	$	32
Investment securities		23			(15	)		8			32			13			45
Loans
Recreation		1,994			(201	)		1,793			2,923			(1,103	)		1,820
Home improvement		202			(767	)		(565	)		407			(530	)		(123	)
Commercial		41			(184	)		(143	)		36			245			281
Medallion		(278	)		(381	)		(659	)		(429	)		(689	)		(1,118	)
Total loans	$	1,959		($	1,533	)	$	426		$	2,937		($	2,077	)	$	860
Total interest-earning assets	$	2,090		($	1,583	)	$	507		$	3,069		($	2,132	)	$	937
Interest-bearing liabilities
Deposits	$	363		$	508		$	871		$	442		$	965		$	1,407
DZ loan		(10	)		132			122			(21	)		216			195
SBA debentures and borrowings		6			2			8			1			2			3
Notes payable to banks		(42	)		(15	)		(57	)		(107	)		51			(56	)
Retail notes		—			(10	)		(10	)		—			(19	)		(19	)
Preferred securities		—			23			23			—			61			61
Other borrowings		(8	)		12			4			1			6			7
Total interest-bearing liabilities	$	309		$	652		$	961		$	316		$	1,282		$	1,598
Net	$	1,781		($	2,235	)	($	454	)	$	2,753		($	3,414	)	($	661	)

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Our interest expense is driven by the interest rates payable on our bank certificates of deposit, short-term credit facilities with banks, fixed-rate, long-term debentures issued to the SBA, and other short-term notes payable. Medallion Bank began issuing brokered bank certificates of deposit during 2004, which were at our lowest borrowing costs. Medallion Bank is able to bid on these deposits at a wide variety of maturity levels which allows for improved interest rate management strategies.

Our cost of funds is primarily driven by the rates paid on our various debt instruments and their relative mix, and changes in the levels of average borrowings outstanding. See Note 7 to the consolidated financial statements for details on the terms of our outstanding debt. Our debentures issued to the SBA typically have terms of ten years.

We measure our borrowing costs as our aggregate interest expense for all of our interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The following tables show the average borrowings and related borrowing costs for the three and nine months ended September 30, 2018 and 2017. Our average balances increased during the current quarter, reflecting the growth in consumer loans, partly offset by decreased in the medallion loan funding sourced as that business line continues to shrink. The increase in borrowing costs primarily reflected the repricing of term borrowings and increased deposit balances reflecting a lengthening of their maturity profile.

(Dollars in thousands)	Bank Holding Company Accounting							Combined
	Three Months Ended							Nine Months Ended(1)
	Interest Expense		Average Balance		Average Borrowing Costs			Interest Expense		Average Balance		Average Borrowing Costs
September 30, 2018
Deposits	$	5,064	$	936,724		2.14	%	$	9,263	$	900,941		2.05	%
DZ loan		1,001		96,585		4.11			2,687		97,734		3.68
SBA debentures and borrowings		769		78,786		3.87			2,269		78,543		3.86
Notes payable to banks		762		69,629		4.34			2,398		74,503		4.30
Retail notes		875		33,625		10.32			2,625		33,625		10.44
Preferred securities		375		33,000		4.51			1,040		33,000		4.21
Other borrowings		41		7,596		2.14			81		8,550		1.89
Total borrowings	$	8,887	$	1,255,945		2.81		$	20,363	$	1,226,896		2.22

(1) Balance includes the six months ended September 30, 2018 under Bank Holding Company Accounting and three months ended March 31, 2018 under Investment Company Accounting.

	Investment Company Accounting
	Three Months Ended							Nine Months Ended
(Dollars in thousands)	Interest Expense		Average Balance		Average Borrowing Costs			Interest Expense		Average Balance		Average Borrowing Costs
September 30, 2017
DZ loan	$	764	$	102,125		2.97	%	$	2,137	$	103,683		2.76	%
Notes payable to banks		846		82,315		4.08			2,376		85,093		3.73
SBA debentures and other borrowings		773		79,820		3.84			2,328		80,506		3.87
Retail notes		875		33,625		10.32			2,629		33,625		10.45
Preferred securities		285		33,000		3.43			815		33,000		3.30
Total	$	3,543	$	330,885		4.25		$	10,285	$	335,907		4.09
Medallion Bank borrowings	$	3,660	$	920,528		1.58		$	9,952	$	901,507		1.48
Total managed borrowings	$	7,203	$	1,251,413		2.28		$	20,237	$	1,237,414		2.19

We will continue to seek SBA funding through Medallion Capital to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the

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Small Business Act of 1958, or the SBIA, and SBA regulations. We believe that financing operations primarily with short-term floating rate secured bank debt has generally decreased our interest expense, but has also increased our exposure to the risk of increases in market interest rates, which we mitigate with certain interest rate strategies. At September 30, 2018 and 2017, short-term adjustable rate debt constituted 13% and 59% (15% on a managed basis including borrowings of Medallion Bank) of total debt.

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Provision and Allowance for Loan Losses (Bank Holding Company Accounting)

The below is based upon activity beginning on April 2, 2018. During the quarter ended September 30, 2018, the New York medallion values were unchanged from the prior quarter and were slightly decreased to a net realizable value of $181,000, from $183,500 at March 31, 2018. The provision also included $4,897,000 and $15,587,000 of a general reserve, for the three and six months ended, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses.

(Dollars in thousands)	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Allowance for loan losses – beginning balance(1)	$	21,425		$	—
Charge-offs
Recreation		(4,825	)		(9,471	)
Home improvement		(659	)		(1,220	)
Commercial		—			—
Medallion		(6,457	)		(12,737	)
Total charge-offs		(11,941	)		(23,428	)
Recoveries
Recreation		1,318			3,217
Home improvement		367			606
Commercial		—			4
Medallion		110			304
Total recoveries		1,795			4,131
Net charge-offs		(10,146	)		(19,297	)
Provision for loan losses		18,205			48,781
Allowance for loan losses – ending balance	$	29,484		$	29,484

(1) Beginning balance for the six months September 30, 2018 ended reflects the transition to Bank Holding Company Accounting by netting previously established unrealized depreciation against the gross loan balances resulting in a starting point of zero for this table.

The following table presents the allowance by segment as a percent of loans as of September 30, 2018 under Bank Holding Company Accounting.

(Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	2,880		10	%		0.51	%
Home improvement		861		3			0.50
Commercial		100		—			0.12
Medallion		25,643		87			9.81
Total	$	29,484		100	%		2.71	%

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The following tables set forth thepre-tax changes in our unrealized appreciation (depreciation) on investments, for the three months ended March 31, 2018 and September 30, 2017, and the nine months ended September 30, 2017 under Investment Company Accounting.

(Dollars in  thousands)	Medallion Loans			Commercial Loans			Investments in Subsidiaries		Equity Investments			Investments Other Than Securities			Total
Balance December 31, 2017	($	20,338	)	($	513	)	$	158,920	$	3,121		($	1,490	)	$	139,700
Net change in unrealized
Appreciation on investments		—			—			38,795		(998	)		—			37,797
Depreciation on investments		(38,170	)		18			—		—			(1,915	)		(40,067	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—		—			—			—
Losses on investments		34,747			—			—		—			—			34,747
Balance March 31, 2018	($	23,761	)	($	495	)	$	197,715	$	2,123		$	(3,405	)	$	172,177

(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Subsidiaries			Equity Investments			Investments Other Than Securities			Total
Balance December 31, 2016	($	28,523	)	($	1,378	)	$	152,750		$	3,934		$	584		$	127,367
Net change in unrealized
Appreciation on investments		—			—			3,751			1,261			—			5,012
Depreciation on investments		(8,670	)		(332	)		—			—			—			(9,002	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			(2,093	)		—			(2,093	)
Losses on investments		825			—			—			486			—			1,311
Balance March 31, 2017		(36,368	)		(1,710	)		156,501			3,588			584			122,595
Net change in unrealized
Appreciation on investments		—			—			(771	)		120			—			(651	)
Depreciation on investments		(12,425	)		(118	)		—			—			—			(12,543	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			—			—			—
Losses on investments		337			636			—			—			—			973
Balance June 30, 2017		(48,456	)		(1,192	)		155,730			3,708			584			110,374
Net change in unrealized
Appreciation on investments		—			—			(2,771	)		(361	)		—			(3,132	)
Depreciation on investments		(6,669	)		75			—			—			(15	)		(6,609	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			(272	)		—			(272	)
Losses on investments		311			60			—			—			—			371
Balance September 30, 2017	($	54,814	)	($	1,057	)	$	152,959		$	3,075		$	569		$	100,732

Under Investment Company Accounting, we generally followed a practice of discontinuing the accrual of interest income on our loans that are in arrears as to payments for a period of 90 days or more. We deliver a default notice and begin foreclosure and

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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 and principal payments are brought fully current. For credit that is collateral based, we evaluate the anticipated net residual value we would receive upon foreclosure of such loans, if necessary. There can be no assurance, however, that the collateral securing these loans will be adequate in the event of foreclosure. For credit that is cash flow-based, we assess our collateral position, and evaluate most of these relationships as ongoing businesses, expecting to locate and install a new operator to run the business and reduce the debt.

For the consumer loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged off. If the collateral is repossessed, a charge off is recorded to write the collateral 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 charged off, and any excess proceeds are recorded as a recovery. Proceeds collected on charged off accounts are recorded as a recovery. All collection, repossession, and recovery efforts are handled on behalf of Medallion Bank by the servicer.

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The following table shows the trend in loans 90 days or more past due as of the dates indicated.

	Bank Holding Company Accounting										Investment Company Accounting
	September 30, 2018					June 30, 2018					March 31, 2018					December 31, 2017					September 30, 2017
(Dollars in  thousands)	Amount		%(1)			Amount		%(1)			Amount		%(1)			Amount		%(1)			Amount		%(1)
Recreation	$	3,164		0.3	%	$	2,402		0.2	%		N/A		N/A			N/A		N/A			N/A		N/A
Home improvement		175		0.0	%		115		0.0	%		N/A		N/A			N/A		N/A			N/A		N/A
Secured mezzanine		—		0.0			—		0.0		$	—		0.0	%	$	—		0.0	%	$	2,117		0.6	%
Other secured commercial		—		0.0			—		0.0			730		0.3			749		0.2			758		0.2
Total commercial		421		0.0			215		0.0			730		0.3			749		0.2			2,875		0.8
Medallion		10,301		1.0			12,429		1.1			38,354		13.7	%		59,701		18.7	%		98,442		27.1	%
Total loans 90 days or more past due	$	14,061		1.3	%	$	15,161		1.3	%	$	39,084		14.0	%	$	60,450		18.9	%	$	101,317		27.9	%
Total Medallion Bank loans(2)		N/A		N/A			N/A		N/A		$	17,710		1.9	%	$	16,115		1.8	%	$	22,925		2.2	%
Total managed loans 90 days or more past due		N/A		N/A			N/A		N/A		$	56,794		4.7	%	$	76,565		6.2	%	$	124,242		8.9	%

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

(2) Includes medallion and consumer loans held at Medallion Bank.

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The following table presents the credit-related information for the investment portfolios as of the dates shown under Investment Company Accounting.

(Dollars in  thousands)	March 31, 2018			December 31, 2017			September 30, 2017
Total loans
Medallion loans	$	161,155		$	208,279		$	224,580
Commercial loans		93,620			90,188			82,760
Total loans		254,775			298,467			307,340
Investments in Medallion Bank and other controlled subsidiaries		331,169			302,147			303,861
Equity investments(1)		9,458			9,521			9,984
Investment securities		—			—			—
Net investments	$	595,402		$	610,135		$	621,185
Net investments in Medallion Bank and other controlled subsidiaries	$	918,904		$	908,297		$	1,032,149
Managed net investments	$	1,384,449		$	1,380,054		$	1,507,526
Unrealized appreciation (depreciation) on investments
Medallion loans	($	23,761	)	($	20,338	)	($	54,814	)
Commercial loans		(495	)		(513	)		(1,057	)
Total loans		(24,256	)		(20,851	)		(55,871	)
Investments in Medallion Bank and other controlled subsidiaries		197,715			158,920			152,959
Equity investments		2,123			3,121			3,075
Investment securities		—			—			—
Total unrealized appreciation on investments	$	175,582		$	141,190		$	100,163
Net unrealized depreciation on investments at Medallion Bank and other controlled subsidiaries	($	69,561	)	($	63,785	)	($	55,527	)
Managed total unrealized appreciation (depreciation) on investments	$	106,021		$	77,405		$	44,636
Unrealized appreciation (depreciation) as a % of balances outstanding(2)
Medallion loans		(12.86	%)		(8.90	%)		(19.63	%)
Commercial loans		(0.53	)		(0.57	)		(1.26	)
Total loans		(8.70	)		(6.53	)		(15.39	)
Investments in Medallion Bank and other controlled subsidiaries		148.15			110.96			101.36
Equity investments		28.95			48.77			44.51
Investment securities		—			—			—
Net investments		41.83			30.11			19.23
Net investments at Medallion Bank and other controlled subsidiaries		(7.12	%)		(6.64	%)		(5.17	%)
Managed net investments		8.36	%		5.99	%		3.08	%

(1) Represents common stock, warrants, preferred stock, and limited partnership interests held as investments.

(2) Unlike other lending institutions, we were not permitted to establish reserves for loan losses. Instead, the valuation of our portfolio was adjusted quarterly to reflect estimates of the current realizable value of the investment portfolio. These percentages represented the discount or premium that investments were carried on the books at, relative to their par or gross value.

The following table sets forth the gain/loss experience on the investment portfolio for the three months ended March 31, 2018 and the three and nine months ended September 30, 2017 under Investment Company Accounting.

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	Three Months Ended,						Nine Months Ended,
(Dollars in  thousands)	March 31, 2018			September 30, 2017			September 30, 2017
Realized gains (losses) on loans and equity investments
Medallion loans	($	34,747	)	($	306	)	($	1,443	)
Commercial loans		2			(209	)		(838	)
Total loans		(34,745	)		(515	)		(2,281	)
Investments in Medallion Bank and other controlled subsidiaries		—			—			—
Equity investments		—			1,459			6,066
Investment securities		—			—			—
Total realized gains (losses) on loans and equity investments	($	34,745	)	$	944		$	3,785
Net realized losses on investments at Medallion Bank and other controlled subsidiaries	($	23,073	)	($	10,193	)	($	34,331	)
Total managed realized losses on loans and equity investments	($	57,818	)	($	9,249	)	($	30,546	)
Realized gains (losses) as a % of average balances outstanding
Medallion loans		(65.74	%)		(0.43	%)		(0.68	%)
Commercial loans		0.01			(1.02	)		(1.39	)
Total loans		(45.96	)		(0.57	)		(0.83	)
Investments in Medallion Bank and other controlled subsidiaries		—			—			—
Equity investments		—			85.96			136.20
Investment securities		—			—			—
Net investments		(30.89	)		0.72			0.98
Net investments at Medallion Bank and other controlled subsidiaries		(9.66	%)		(3.83	%)		(4.46	%)
Managed net investments		(18.22	%)		(2.57	%)		(2.91	%)

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The following table sets forth thepre-tax changes in our unrealized and realized gains and losses in the investment portfolio, for the three months ended March 31, 2018 and the three and nine months ended September 30, 2017 under Investment Company Accounting.

	Three Months Ended
(Dollars in thousands)	March 31, 2018			September 30, 2017			Nine Months Ended September 30, 2017
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	($	998	)	($	361	)	$	1,132
Unrealized depreciation		(38,152	)		(6,594	)		(28,253	)
Net unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries		29,115			2,035			11,089
Realized gains		—			(272	)		(2,363	)
Realized losses		34,747			371			2,656
Net unrealized losses on investments other than securities and other assets		(1,915	)		(15	)		(15	)
Total	$	22,797		$	(4,836	)	$	(15,754	)
Net realized gains (losses) on investments
Realized gains	$	—		$	272		$	2,363
Realized losses		(34,747	)		(371	)		(2,656	)
Other gains		—			1,187			4,189
Direct recoveries (charge offs)		2			(144	)		(111	)
Realized gains on investments other than securities and other assets		—			—			—
Total	($	34,745	)	$	944		$	3,785

SEGMENT RESULTS

We manage our financial results under four operating segments and report like a bank holding company; recreation lending, home improvement lending, commercial lending, and medallion lending, as well as twonon-operating segments; RPAC and corporate and other investments. Prior to April 2, 2018, we operated as one segment. All results are for the three and six months ended September 30, 2018.

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Recreation Lending

The recreation lending segment is a high-growth prime andnon-prime consumer finance business which is a significant source of income for us, accounting for 72.4% and 70.1% of our interest income for the three and six months ended September 30, 2018. During the quarter, there was a sale of $55,979,000 of recreational loans for a gain of $3,093,000. The loans are secured primarily by RVs, and boats with RV loans making up 59% of the portfolio and marine lending making up 19% of total lending portfolio at the end of the period. Recreation lending is conducted in all fifty states, with the highest concentrations in Texas, California, and Florida, at 18%, 11%, and 10% of loans outstanding, with no other states over 10%.

(dollars in thousands)	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Selected Earnings Data
Total interest income	$	24,001		$	46,133
Total interest expense		2,306			4,442
Net interest income		21,695			41,691
Provision for loan losses		4,423			9,133
Net interest income after loss provision		17,272			32,558
Totalnon-interest income (expense)		(3,160	)		(8,680	)
Net income before taxes		14,112			23,878
Income tax (provision)		(3,979	)		(6,141	)
Net income	$	10,133		$	17,737
Balance Sheet Data
Total loans, gross	$	575,875
Total loan allowance		2,880
Total loans, net		572,995
Total assets		582,610
Total borrowings		431,868
Selected Financial Ratios
Return on average assets		6.80	%		6.14	%
Return on average equity		27.77			25.84
Interest yield		15.87			15.88
Net interest margin		14.34			14.35
Reserve coverage		0.50			0.50
Delinquency ratio(1)		0.55			0.55
Charge off ratio		3.19			3.26

(1) Loans 90 days or more past due.

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Home Improvement Lending

The home improvement lending segment works with contractors and financial service providers to finance residential home improvements and is concentrated in pools, solar panels, roofing, and windows at 34%, 18%, 13%, and 10% of total loans outstanding, with no other collateral types over 10%. Home improvement lending is conducted in all fifty states, with the highest concentrations in Texas, Florida, and California at 15%, 11%, and 10% of loans outstanding, with no other states over 10%. There was a sale of $44,909,000 of home improvement loans during the quarter for a gain of $2,079,000.

(dollars in thousands)	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Selected Earnings Data
Total interest income	$	3,968		$	8,605
Total interest expense		709			1,448
Net interest income		3,259			7,157
Provision for loan losses		598			1,475
Net interest income after loss provision		2,661			5,682
Totalnon-interest income (expense)		400			(1,285	)
Net income before taxes		3,061			4,397
Income tax (provision)		(863	)		(1,159	)
Net income	$	2,198		$	3,328
Balance Sheet Data
Total loans, gross	$	169,642
Total loan allowance		861
Total loans, net		168,781
Total assets		175,333
Total borrowings		132,914
Selected Financial Ratios
Return on average assets		4.57	%		3.42	%
Return on average equity		19.99			15.22
Interest yield		8.10			8.94
Net interest margin		6.65			7.44
Reserve coverage		0.51			0.51
Delinquency ratio(1)		0.10			0.10
Charge off ratio		1.34			1.27

(1) Loans 90 days or more past due.

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Commercial Lending

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 54% of which are located in the Midwest and Northeast regions, with the rest scattered across the country. These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $1,000,000 to $5,000,000 at origination, and typically included an equity component as part of the financing. The commercial lending business has concentrations in manufacturing, professional, scientific, and technical services; and information making up 44%, 18% and 10% of total business.

(dollars in thousands)	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Selected Earnings Data
Total interest income	$	2,637		$	4,959
Total interest expense		681			1,336
Net interest income		1,956			3,623
Provision for loan losses		(75	)		100
Net interest income after loss provision		2,031			3,523
Totalnon-interest income (expense)		(934	)		(2,044	)
Net income before taxes		1,097			1,479
Income tax (provision)		(254	)		(339	)
Net income	$	843		$	1,140
Balance Sheet Data
Total loans, gross	$	82,558
Total loan allowance		100
Total loans, net		82,458
Total assets		90,380
Total borrowings		71,655
Selected Financial Ratios
Return on average assets		3.35	%		2.15	%
Return on average equity		6.99			4.81
Interest yield		12.87			12.24
Net interest margin		9.54			8.94
Reserve coverage		0.12			0.12
Delinquency ratio(1)		0.51			0.51
Charge off ratio		0.00			0.00

(1) Loans 90 days or more past due.

Geographic Concentrations	Total Gross Loans		% of Market
Minnesota	$	13,569		16	%
Kansas		8,527		10	%
Colorado		6,890		8	%
Delaware		5,594		7	%
Illinois		5,459		7	%
California		4,982		6	%
Other(1)		37,537		46	%
Total	$	82,558		100	%

(1) Includes 13 other states within the US with none greater than 6%.

Page 75 of 108

Medallion Lending

The medallion lending segment operates mainly in the New York, Newark, and Chicago markets. We have a long history of owning, managing, and financing taxicab fleets, taxicab medallions, and corporate car services. For the past three and six months, we have seen a leveling off in the medallion values while transfer activity and demand has increased in the current year leading to us being hopeful they are signals of stabilization within the industry. However, we have continued to see a decline in interest income due to loan aging greater than 90 days and being placed on nonaccrual. All the loans are secured by the medallions and enhanced by personal guarantees of the shareholders and owners.

(dollars in thousands)	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Selected Earnings Data
Total interest income	$	2,126		$	5,315
Total interest expense		3,672			7,045
Net interest income		(1,546	)		(1,730	)
Provision for loan losses		13,259			38,073
Net interest income after loss provision		(14,805	)		(39,803	)
Totalnon-interest income (expense)		(4,077	)		(6,888	)
Net income before taxes		(18,882	)		(46,691	)
Income tax benefit		4,371			10,528
Net income	($	14,511	)	($	36,163	)
Balance Sheet Data
Total loans, gross	$	261,470
Total loan allowance		25,643
Total loans, net		235,827
Total assets		369,763
Total borrowings		399,750
Selected Financial Ratios
Return on average assets		(15.23	%)		(18.49	%)
Return on average equity		NM			NM
Interest yield		3.41			4.03
Net interest margin		(2.48	)		(1.31	)
Reserve coverage		9.81			9.81
Delinquency ratio(1)		4.06			4.06
Charge off ratio		10.35			9.66

(1) Loans 90 days or more past due.

Geographic Concentration	Total Gross Loans		% of Market
New York City	$	229,943		88	%
Newark		22,112		8	%
Chicago		7,502		3	%
All Other		1,913		1	%
Total	$	261,470		100	%

Page 76 of 108

RPAC

We are the majority owner and managing member of RPAC Racing, LLC, a performance and marketing company for NASCAR. Revenues are mainly earned through sponsorships and race winnings over the nine month race season (February through November) during the year.

(Dollars in thousands)	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Selected Earnings Data
Sponsorship, race winnings, and other income	$	5,371		$	10,599
Race and other expenses		4,763			9,540
Interest expense		40			81
Total expenses		4,803			9,621
Net income before taxes		568			978
Income tax (provision)		(107	)		(150	)
Net income	$	461		$	828
Balance Sheet Data
Total assets	$	36,237
Total borrowings		7,614
Selected Financial Ratios
Return on average assets		4.92	%		4.46	%
Return on average equity		42.83			38.67

Corporate and Other Investments

This nonoperating segment relates to our equity and investment securities as well as other assets, liabilities, revenues, and expenses not allocated to the other main operating segments. This activity also includes the elimination of all intercompany activity amongst the entities.

(Dollars in thousands)	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Selected Earnings Data
Interest income	$	420		$	784
Interest expense		1,479			2,460
Net interest loss		(1,059	)		(1,676	)
Total non interest income (expense)		(2,860	)		(4,233	)
Net loss before taxes		(3,919	)		(5,909	)
Income tax benefit		949			1,399
Net loss	($	2,970	)	($	4,510	)
Balance Sheet Data
Total assets	$	317,084
Total borrowings		221,273
Selected Financial Ratios
Return on average assets		(4.60	%)		(3.67	%)
Return on average equity		(16.79	)		(11.85	)

Page 77 of 108

Trends in Investment Portfolio under Investment Company Accounting

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

	March 31, 2018						December 31, 2017						September 30, 2017
(Dollars in  thousands)	Interest Rate (1)			Investment Balances			Interest Rate (1)			Investment Balances			Interest Rate (1)			Investment Balances
Medallion loans
New York		4.33	%	$	140,661			4.23	%	$	167,226			4.25	%	$	190,324
Newark		5.38			21,316			5.34			21,935			5.31			22,483
Chicago		4.72			15,718			4.74			19,436			4.81			35,675
Boston		4.41			6,304			4.51			18,564			4.48			25,374
Cambridge		4.49			309			4.55			773			4.47			4,389
Other		7.93			421			7.95			482			7.24			944
Total medallion loans		4.50			184,729			4.41			228,416			4.44			279,189
Deferred loan acquisition costs					187						201						205
Unrealized depreciation on loans					(23,761	)					(20,338	)					(54,814	)
Net medallion loans				$	161,155					$	208,279					$	224,580
Commercial loans
Secured mezzanine		12.14	%	$	92,782			12.09	%	$	88,334			13.02	%	$	81,190
Other secured commercial		7.37			1,434			9.39			2,477			9.51			2,728
Total commercial loans		12.07			94,216			12.02			90,811			12.91			83,918
Deferred loan acquisition income					(101	)					(110	)					(101	)
Unrealized depreciation on loans					(495	)					(513	)					(1,057	)
Net commercial loans				$	93,620					$	90,188					$	82,760
Investment in Medallion Bank and other controlled subsidiaries		0.90	%	$	133,454			0.83	%	$	143,227			0.83	%	$	150,902
Unrealized appreciation on subsidiary investments					197,715						158,920						152,959
Investment in Medallion Bank and other controlled subsidiaries, net				$	331,169					$	302,147					$	303,861
Equity investments		0.00	%	$	7,335			0.00	%	$	6,400			0.00	%	$	6,909
Unrealized appreciation on equities					2,123						3,121						3,075
Net equity investments				$	9,458					$	9,521					$	9,984
Investment securities		—	%	$	—			—	%	$	—			—	%	$	—
Unrealized depreciation on investment securities					—						—						—
Net investment securities				$	—					$	—					$	—
Investments at cost(2)		4.97	%	$	419,733			4.73	%	$	468,854			4.70	%	$	520,918
Deferred loan acquisition costs					86						91						104
Unrealized appreciation on controlled subsidiaries, equity investments, and investment securities					199,839						162,041						156,034
Unrealized depreciation on loans					(24,256	)					(20,851	)					(55,871	)
Net investments				$	595,402					$	610,135					$	621,185
Medallion Bank investments
Consumer loans		14.86	%	$	726,838			15.02	%	$	693,289			14.47	%	$	796,230
Medallion loans		4.34			204,570			4.30			222,252			4.32			237,913
Commercial loans		2.52			3,180			2.28			1,598			2.47			1,753
Investment securities		2.40			42,036			2.40			43,582			2.34			38,182
Medallion Bank investments at cost(2)		12.08			976,624			11.94			960,721			11.77			1,074,078
Deferred loan acquisition costs					11,597						11,097						13,347
Unrealized depreciation on investment securities					(986	)					(368	)					(9	)
Premiums paid on purchased securities					244						265						250
Unrealized depreciation on loans					(68,575	)					(63,417	)					(55,517	)
Medallion Bank net investments				$	918,904					$	908,298					$	1,032,149

Page 78 of 108

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

(2) The weighted average interest rate for the entire managed loan portfolio (medallion, commercial, and consumer loans) was 11.26%, 10.89%, and 10.63% at March 31, 2018, December 31, 2017, and September 30, 2017.

Investment Activity

The following table sets forth the components of investment activity in the investment portfolio for the periods indicated under Investment Company Accounting.

	Three Months Ended,						Nine Months Ended,
(Dollars in thousands)	March 31, 2018			September 30, 2017			September 30, 2017
Net investments at beginning of period	$	610,135		$	623,642		$	652,278
Investments originated(1)		8,684			7,782			16,775
Repayments of investments(1)		(13,371	)		(6,345	)		(35,858	)
Net realized gains (losses) on investments		(34,745	)		944			3,785
Net increase in unrealized appreciation (depreciation)(2)		24,712			(4,821	)		(15,740	)
Accretion of net origination fees		(13	)		(17	)		(55	)
Net decrease in investments		(14,733	)		(2,457	)		(31,093	)
Net investments at end of period	$	595,402		$	621,185		$	621,185

(1) Includes refinancings.

(2) Excludes net unrealized depreciation of $1,915 and $15 for the three months ended March 31, 2018 and September 30, 2017, and $15 for the nine months ended September 30, 2017, related to investments other than securities and other assets.

Total Portfolio Yield

The weighted average yield (which is calculated by dividing the aggregate yield of each investment in the portfolio by the aggregate portfolio balance and does not include expenses and sales load for any offering) of the total managed portfolio under Investment Company Accounting at March 31, 2018 was 10.96%, an increase of 35 basis points from 10.61% at December 31, 2017, and an increase of 55 basis points from 10.41% at September 30, 2017.

Medallion Loan Portfolio

The medallion loan portfolio decreased $69,137,000 or 18% on a managed basis from December 31, 2017 to March 31, 2018, primarily reflecting increased realized and unrealized losses and net amortization of loan principal, especially in the New York, Boston, and Chicago markets.

The weighted average yield of the managed medallion loan portfolio at March 31, 2018 was 4.42%, an increase of 6 basis points from 4.36% at December 31, 2017, and an increase of 4 basis points from 4.38% at September 30, 2017. The fluctuation in yield primarily reflected the repricing of the existing portfolio to current market interest rates. At March 31, 2018, 15% of the managed medallion loan portfolio represented loans outside New York, compared to 19% at December 31, 2017 and 22% at September 30, 2017.

Commercial Loan Portfolio

Our commercial loans represented 7%, 7%, and 6% of the net managed investment portfolio as of March 31, 2018, December 31, 2017, and September 30, 2017. Commercial loans increased by $4,986,000 or 5% on a managed basis, primarily reflecting growth in the mezzanine loan portfolio from December 31, 2017 to March 31, 2018.

The weighted average yield of the managed commercial loan portfolio at March 31, 2018 was 11.76%, a decrease of 9 basis points from 11.85% at December 31, 2017, and a decrease of 93 basis points from 12.69% at September 30, 2017. The decreases from the prior periods primarily reflected the recent lower rates on certain mezzanine loans.

Consumer Loan Portfolio

Medallion Bank originates fixed rate consumer loans secured by recreational vehicles, boats, trailers and home improvements located in all 50 states. The weighted average gross yield of the managed consumer loan portfolio was 14.86% at March 31, 2018, a decrease of 16 basis points from 15.02% at December 31, 2017, and an increase of 39 basis points from 14.47% at September 30, 2017. The changes in yield primarily reflect the changes in the mix of loans originated.

Page 79 of 108

Investment in Medallion Bank and Other Controlled Subsidiaries

As an investment company prior to April 2, 2018, our investment in Medallion Bank was previously subject to quarterly assessments of fair value. We conducted a thorough valuation analysis, and determined whether any factors give rise to a valuation different than recorded book value, including various regulatory restrictions that were established at Medallion Bank’s inception, by the FDIC and State of Utah, and also by additional marketplace restrictions, such as the ability to transfer industrial bank charters. Because of these restrictions and other factors, our Board of Directors had previously determined that Medallion Bank had little value beyond its recorded book value. As a result of this valuation process, we had previously used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the 2015 second quarter, we first became aware of external interest in Medallion Bank and its portfolio assets at values in excess of their book value. Expression of interest in Medallion Bank from both investment bankers and interested parties has continued. We incorporated these new factors in the Medallion Bank’s fair value analysis and the Board of Directors determined that Medallion Bank had a fair value in excess of book value. In addition, in the 2016 third quarter there was a court ruling involving a marketplace lender that we believe heightens the interest of marketplace lenders to acquire or merge with Utah industrial banks. We also engaged a valuation specialist to assist the Board of Directors in its determination of Medallion Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $128,918,000 was recorded in 2016, $7,849,000 was recorded in 2017, and $39,826,000 was recorded in the 2018 first quarter.

SELECTED FINANCIAL DATA

Summary Consolidated Financial Data

You should read the consolidated financial information below with the Consolidated Financial Statements and Notes thereto included in this report. As described therein, for the quarter and six months ended September 30, 2018, for the Company reported under Bank Holding Company Accounting.

(Dollars in thousands, except per share data)	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Statement of operations
Net interest income	$	24,265		$	48,984
Provision for loan losses		18,205			48,781
Non-interest income (expense), net		(10,023	)		(22,071	)
Net loss before taxes		(3,963	)		(21,868	)
Income tax benefit		117			4,138
Lessnon-controlling interest		851			1,614
Net loss after taxes		(4,697	)		(19,344	)
Per share data
Net loss after taxes		(0.19	)		(0.80	)
Distribution per share		0.00			0.00
Weighted average common shares outstanding
Diluted		24,235,242			24,233,029
Balance sheet data at September 30, 2018
Net loans receivable	$	1,060,061
Total assets		1,571,407
Total borrowings		1,265,074
Total liabilities		1,290,992
Total equity(1)		280,415
	Three Months Ended September 30, 2018			Six Months Ended September 30, 2018
Selected financial ratios
Return on average assets (ROA)		(1.19	%)		(2.51	%)
Return on average equity (ROE)		(6.59	%)		(13.34	%)
Dividend payout ratio		0.00	%		0.00	%
Equity to assets(1)		17.84	%		17.84	%
Net charge offs		10,146			19,297
Net charge offs as a % of average loans receivable		3.54	%		3.37	%
Allowance coverage ratio		2.71	%		2.71	%

(1) Includes $27,495 related tonon-controlling interests in consolidated subsidiaries.

Page 80 of 108

You should read the consolidated financial information below with the Consolidated Financial Statements and Notes thereto included in this report. As described therein, for the three months ended March 31, 2018 and September 30, 2017 and the nine months ended September 30, 2017, the Company reported under Investment Company Accounting.

	Three Months Ended,						Nine Months Ended ,
(Dollars in  thousands, exceptshare and per sharedata)	March 31, 2018			September 30, 2017			September 30, 2017
Statement of operations
Investment income	$	4,033		$	5,567		$	13,604
Interest expense		3,551			3,543			10,285
Net interest income		482			2,024			3,319
Noninterest income		60			8			22
Operating expenses		4,108			3,676			9,583
Net investment loss before income taxes		(3,566	)		(1,644	)		(6,242	)
Income tax benefit (provision)		336			(846	)		2,024
Net investment loss after income taxes		(3,230	)		(2,490	)		(4,218	)
Net realized gains (losses) on investments		(34,745	)		944			3,785
Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries(1)		29,115			2,035			11,089
Net change in unrealized depreciation on investments other than securities		(1,915	)		—			—
Net change in unrealized depreciation on investments (1)		(4,403	)		(6,871	)		(26,843	)
Income tax benefit		304			7,001			13,120
Net increase (decrease) in net assets resulting from operations	($	14,874	)	$	619		($	3,067	)
Per share data
Net investment loss	($	0.15	)	($	0.07	)	($	0.26	)
Income tax benefit		0.03			0.26			0.63
Net realized gains (losses) on investments		(1.44	)		0.04			0.16
Net change in unrealized appreciation (depreciation) on investments (1)		0.94			(0.20	)		(0.66	)
Net increase (decrease) in net assets resulting from operations	($	0.62	)	$	0.03		($	0.13	)
Distributions declared per share	$	0.00		$	0.00		$	0.00
Weighted average common shares outstanding
Basic		24,154,879			23,930,086			23,916,334
Diluted		24,154,879			24,083,919			23,916,334

	December 31, 2017
Balance sheet data
Net investments	$	610,135
Total assets		635,522
Total funds borrowed		327,623
Total liabilities		348,363
Total shareholders’ equity		287,159
Managed balance sheet data(2)
Net investments	$	1,380,054
Total assets		1,565,889
Total funds borrowed		1,234,371
Total liabilities		1,278,730

Page 81 of 108

	Three Months Ended,						Nine Months Ended,
	March 31, 2018			September 30, 2017			September 30, 2017
Selected financial ratios and other data
Return on average assets (ROA)(3)
Net investment loss after taxes		(2.08	%)		(1.50	%)		(0.84	%)
Net increase (decrease) in net assets resulting from operations		(9.55	)		0.37			(0.61	)
Return on average equity (ROE)(4)
Net investment loss after taxes		(4.62	)		(3.48	)		(1.97	)
Net increase (decrease) increase in net assets resulting from operations		(21.24	)		0.86			(1.44	)
Weighted average yield		2.70	%		3.55	%		2.88	%
Weighted average cost of funds		2.38			2.26			2.18
Net interest margin(5)		0.32			1.29			0.70
Noninterest income ratio(6)		0.01	%		0.01	%		0.00	%
Total expense ratio(7)		1.16			0.68			1.00
Operating expense ratio(8)		0.68			2.34			2.03

	December 31, 2017
As a percentage of net investment portfolio
Medallion loans		34	%
Commercial loans		15
Investment in Medallion Bank and other controlled subsidiaries		49
Equity investments		2
Investment securities		—
Investments to assets(9)		96	%
Equity to assets(10)		45
Debt to equity(11)		114

(1) Unrealized appreciation (depreciation) on investments represents the increase (decrease) for the period in the fair value of our investments, including the results of operations for Medallion Bank and other controlled subsidiaries, where applicable.

(2) Includes the balances of wholly-owned, unconsolidated portfolio companies, primarily Medallion Bank.

(3) ROA represents the net investment income after taxes or net increase in net assets resulting from operations, divided by average total assets.

(4) ROE represents the net investment income (losses) after taxes or net increase (decrease) in net assets resulting from operations, divided by average shareholders’ equity.

(5) Net interest margin represents net interest income for the period divided by average interest earning assets, and included dividends from Medallion Bank and other controlled subsidiaries of $28, $0 and $0 in the respective periods. On a managed basis, combined with Medallion Bank, the net interest margin was 6.96% and 7.47% for the quarters ended March 31, 2018 and September 30, 2017 and was 6.96% for the nine months ended September 30, 2017.

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

(7) Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average interest earning assets.

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

(9) Represents net investments divided by total assets as of the date indicated.

(10) Represents total shareholders’ equity divided by total assets as of the date indicated.

(11) Represents total funds borrowed divided by total shareholders’ equity as of the date indicated.

Page 82 of 108

Consolidated Results of Operations

2018 Third Quarter and Second Quarter under Bank Holding Company Accounting

Net loss attributable to shareholders was $4,697,000 or ($0.19) per diluted common share in the 2018 third quarter compared to a net loss of $14,647,000 or ($0.60) per diluted common share in the 2018 second quarter.

Total interest income was $33,152,000 in the 2018 third quarter compared to $32,644,000 in the 2018 second quarter. The yield on interest earning assets was 10.75% in the third quarter compared to 11.23% in the second quarter. Average interest earning assets were $1,223,959,000 at the third quarter, up from $1,179,410,000 during the second quarter.

Gross loans were $1,089,545,000 as of September 30, 2018 and were comprised of recreation ($575,875,000), home improvement ($169,642,000), medallion ($261,470,000), and commercial ($82,558,000) loans. Loans decreased from $1,150,123,000 at June 30, 2018 mainly due to the sale of $100,887,000 of consumer loans in the quarter along with continuing charge offs of medallion loans and principal repayments, partly offset by new loan originations in the recreational and home improvement segments. The Company had an allowance for loan losses as of the end of the 2018 third quarter of $29,484,000, up from the $21,425,000 at the end of the second quarter, mainly attributable to an increase in the general reserve, as well as the continued aging of medallion loans. The allowance was attributable to the medallion (87%), recreation (10%), and home improvement (3%) loan portfolios. The provision for loan losses was $18,205,000 in the third quarter compared to $30,576,000 in the 2018 second quarter, reflecting lower overall specific reserves for impaired loans as lowernon-specific general reserves for medallion loans in the quarter. See Note 4 for additional information on loans and the allowance for loan losses.

Interest expense was $8,887,000 in the 2018 third quarter compared to $7,925,000 in the second quarter, and the cost of borrowed funds was 2.81% compared to 2.65%. Average debt outstanding was $1,255,945,000 at the third quarter compared to $1,197,450,000 for the second quarter. See page 64 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $24,265,000 at the third quarter, compared to $24,719,000 in the prior quarter, and the net interest margin was 7.94% a slight increase from 7.93% for the second quarter.

Noninterest income, which is comprised of sponsorship and race winnings, gain on sale of loans, prepayment fees, servicing fee income, late charges, write-downs of loan collateral, impairment of equity investments and other miscellaneous income, was $9,441,000 at the 2018 third quarter compared to $4,878,000 in the second quarter and was mainly driven by a $5,172,000 gain on the sale of consumer loans as well as sponsorship and race winnings.

Operating expenses were $19,464,000 in the 2018 third quarter compared to $16,926,000 in the second quarter. The change was primarily reflective of an increase in legal costs of $1,705,000, attributable to a variety of corporate and investment related matters, along with a $544,000 increase in collection costs.

Total income tax benefit was $117,000 in the third quarter compared to $4,021,000 in the second quarter. See Note 8 for more information.

Loan collateral in process of foreclosure was $59,761,000 at the end of the 2018 third quarter which was a slight decline from $60,052,000 at the second quarter. The decline primarily reflects a write down attributable to decreasing values of a portion of the medallion loans in process of foreclosure and to a lesser extent cash recoveries offset by there-classification of nonperforming loans that reached 120 days past due and were charged down to collateral value and reclassified.

Goodwill and intangible assets were $210,761,000 at the end of the 2018 third quarter compared to $211,123,000 at the end of the second quarter and arose during the prior quarter almost entirely in connection with the consolidation of Medallion Bank and RPAC. See Note 2 for further information regarding goodwill and intangible assets.

2018 First Quarter under Investment Company Accounting

Net decrease in net assets resulting from operations was $14,874,000 or ($0.62) per diluted common share in the 2018 first quarter primarily reflecting an increase in net realized/unrealized losses on the investment portfolio, increased operating expenses and higher income taxes. Net investment loss after income taxes was $3,230,000 or ($0.13) per share in the 2018 quarter.

Investment income was $4,033,000 in the 2018 first quarter and included $1,643,000 of interest reversals related to nonaccrual loans in 2018. The yield on the investment portfolio was 2.69% in the 2018 quarter.

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Interest expense was $3,551,000 in the 2018 first quarter. The increase in interest expense was primarily due to increased borrowing costs. The cost of borrowed funds was 4.44% in 2018 reflecting the continuing increase in market interest rates. Average debt outstanding was $324,322,000 for the 2018 quarter primarily reflecting decreased borrowings required to fund the contracting loan portfolio.

Net interest income was $482,000 and the net interest margin was 0.32% for the 2018 quarter.

Noninterest income, which is comprised of prepayment fees, servicing fee income, late charges, and other miscellaneous income, was $60,000 in the 2018 quarter primarily reflecting the reversal of a previously earned management fee due from a portfolio company in the prior year quarter.

Operating expenses were $4,108,000 in the 2018 first quarter. Salaries and benefits expense was $2,349,000 in the 2018 quarter primarily due to executive and employee bonus accrual. Professional fees were $723,000 in 2018 primarily reflecting higher legal expenses for a variety of corporate and investment-related matters. Occupancy and other operating expenses of $1,036,000 in 2018 primarily reflecting higher road or miscellaneous taxes, collection costs related to the medallion loan portfolio and directors’ fees.

Total income tax benefit was $640,000 in 2018, and was comprised of three components, a $336,000 benefit related to the net investment loss, a $8,426,000 benefit related to realized losses, and a provision of $8,122,000 related to net unrealized gains on investments.

Net change in unrealized appreciation (depreciation) on investments before income tax was appreciation of $22,797,000 in the 2018 first quarter. Net change in unrealized appreciation other than the portion related to Medallion Bank and the other controlled subsidiaries, was depreciation of $6,318,000 in 2018, resulting in decreased depreciation of $2,205,000 and related almost entirely to the medallion portfolio. Unrealized appreciation (depreciation) arises when we make 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 current quarter activity resulted from net appreciation on Medallion Bank and other controlled subsidiaries of $29,115,000 and by reversals of unrealized depreciation on loans which were charged off of $34,747,000, offset by unrealized depreciation on loans and other investments of $40,067,000 mainly due to the continuing declining values of the medallions.

Our net realized losses on investments before taxes were $34,745,000 in the 2018 quarter. The 2018 activity reflected the realized losses in the loan portfolio.

Our net realized/unrealized loss on investments before income taxes was $11,948,000 in the 2018 first quarter reflecting the above.

2017 Third Quarter and Nine Months under Investment Company Accounting

Net increase (decrease) in net assets resulting from operations was $619,000 or $0.03 per diluted common share and ($3,067,000) or ($0.13) in the 2017 third quarter and nine months, primarily reflecting higher unrealized depreciation on the investment portfolio, lower interest income from the medallion loan portfolio, lower dividend income from controlled subsidiaries, higher interest expenses and lower realized gains, offset by lower operating expenses, and higher income tax benefits. Net investment loss after income taxes was ($2,490,000) or ($0.10) per share and ($4,218,000) or ($0.18) in the 2017 quarter and nine months.

Investment income was $5,567,000 and $13,604,000 in the 2017 third quarter and nine months, which included $1,845,000 and $4,691,000 of interest reversals related to nonaccrual loans in the 2017 quarter and nine months as well as $1,256,000 in dividends from controlled subsidiaries in the 2017 quarter and nine months. The yield on the investment portfolio was 3.55% in the 2017 quarter, and was 2.88% in the 2017 nine months. Excluding the dividends, the 2017 third quarter and nine month yields were unchanged. Average investments outstanding were $622,908,000 in the 2017 quarter and $631,832,000 in the nine months, primarily reflecting portfolio growth.

Medallion loans were $224,580,000 at quarter end, representing 36% of the investment portfolio and were yielding 4.44%, reflecting portfolio shrinkage and the repricing of the existing portfolio to higher current market interest rates. The decrease in outstandings was primarily concentrated in the New York market, although all markets declined, and reflected increased realized and unrealized losses and net amortization of loan principal. The managed medallion loan portfolio, which includes loans at Medallion Bank and those serviced for third parties, was $456,504,000 at quarter end, reflecting the above. The commercial loan portfolio was $82,760,000 at quarter end and represented 13% of the investment portfolio. The increase reflects growth in the secured mezzanine portfolio. The net managed commercial loan portfolio, which includes loans at Medallion Bank and those serviced for or by third parties, was $85,817,000 at quarter end. Investments in Medallion Bank and other controlled subsidiaries were $303,861,000 at

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quarter end, primarily reflecting appreciation of Medallion Bank and to a lesser extent other portfolio company investments, and which represented 49% of the investment portfolio and which yielded 0.83% at quarter end, primarily reflecting the reduced dividends from Medallion Bank offset by increased dividends from other controlled subsidiaries. See Notes 6 and 13 of the consolidated financial statements for additional information about Medallion Bank and the other controlled subsidiaries. Equity investments were $9,984,000 at quarter end, primarily reflecting increased investments and represented 2% of the investment portfolio at quarter end and had a dividend yield of 0.00%.

Interest expense was $3,543,000 and $10,285,000 in the 2017 quarter and nine months. The increase in interest expense was primarily due to increased borrowing costs. The cost of borrowed funds was 4.25% and 4.09% in the 2017 quarter and nine months, reflecting the adjustable rate nature of much of our borrowings, and changes in our funding mix. Average debt outstanding was $330,885,000 for the 2017 quarter, and was $335,907,000 in the nine months, primarily reflecting decreased borrowings required to fund the contracting loan and investment securities portfolios. See page 65 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $2,024,000 and $3,319,000 and the net interest margin was 1.29% and 0.70% for the 2017 third quarter and nine months reflecting the items discussed above.

Noninterest income, which is comprised of management fees, late charges, servicing fees, prepayment fees, and other miscellaneous income was $8,000 and $22,000 in the 2017 third quarter and nine months primarily reflecting lower servicing and other fees generated from the portfolio base at Medallion Bank.

Operating expenses were $3,676,000 and $9,583,000 in the 2017 third quarter and nine months. Salaries and benefits expense was $2,224,000 and $5,086,000 in the third quarter and nine months, primarily due to a reduction in bonus costs recorded in the current period. Professional fees were $567,000 and $1,875,000 in the quarter and nine months, primarily reflecting higher legal expenses for a variety of corporate and investment-related matters. Occupancy and other operating expense was $885,000 and $2,622,000 in the quarter and nine months, primarily reflecting higher lease costs in the nine month period and offset by higher business development reimbursements from Medallion Bank in the current periods.

Total income tax benefit was $6,155,000 and $15,144,000 in the 2017 third quarter and nine months and was comprised of two components, a $846,000 provision and $2,024,000 benefit related to the net investment loss in the 2017 third quarter and nine months, and benefits of $7,001,000 and $13,120,000 related to unrealized losses on investments. The tax benefit recorded in 2017 reflected the change in the Company’s tax status that was determined at the end of 2016.

Net change in unrealized appreciation on investments before tax was depreciation of $4,836,000 and $15,754,000 in the 2017 third quarter and nine months. Net change in unrealized appreciation other than the portion related to Medallion Bank and the other controlled subsidiaries, was depreciation of $6,871,000 and $26,843,000 in the 2017 quarter and nine months. Unrealized appreciation (depreciation) arises when we make 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 2017 activity resulted from net appreciation on Medallion Bank and other controlled subsidiaries of $2,035,000 ($11,089,000 in the nine months) and by reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $371,000 ($2,656,000 in the nine months), offset by net unrealized depreciation on equity investments, investment securities and loans of $6,955,000 ($27,122,000 of net depreciation in the nine months).

Our net realized gains on investments were $944,000 and $3,785,000 in the 2017 quarter and nine months. The 2017 activity reflected $1,187,000 ($4,189,000 in the nine months) of other gains, offset by net realized losses and recoveries of $243,000 ($404,000 in the nine months).

Our net realized/unrealized losses on investments before tax were $3,892,000 and $11,969,000 in the 2017 quarter and nine months reflecting the above.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

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

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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, we anticipate that approximately 40% of the taxicab medallion portfolio will mature or be prepaid each year. We believe that the average life of our 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, we manage our exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing on certificates of deposit, for terms of up to five years. We had outstanding SBA debentures and borrowings of $80,498,000 with a weighted average interest rate of 3.40%, constituting 6% of our total indebtedness, and retail notes of $33,625,000 with a weighted average interest rate of 9.00%, constituting 3% of total indebtedness as of September 30, 2018. Also, as of September 30, 2018, certain of the certificates of deposit were for terms of up to 58 months, further mitigating the immediate impact of changes in market interest rates.

A relative measure of interest rate risk can be derived from our 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.

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The following table presents our interest rate sensitivity gap at September 30, 2018. The principal amounts of interest earning assets are assigned to the time frames in which such principal amounts are contractually obligated to be repriced. We have not reflected an assumed annual prepayment rate for such assets in this table.

September 30, 2018 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		Total
Earning assets
Floating-rate	$	132,882		$	—		$	—		$	—		$	—		$	—		$	—	$	132,882
Adjustable rate		42,641			25,150			10,693			13,271			3,090			704			2,672		98,221
Fixed-rate		124,729			36,071			68,294			60,684			75,032			47,523			626,049		1,038,382
Cash		10,778			—			—			—			—			—			—		10,778
Total earning assets	$	311,030		$	61,221		$	78,987		$	73,955		$	78,122		$	48,227		$	628,721	$	1,280,263
Interest bearing liabilities
Deposits	$	417,151		$	218,514		$	130,218		$	140,394		$	40,698		$	—		$	—	$	946,975
DZ loan		96,058			—			—			—			—			—			—		96,058
Notes payable to banks		60,039			—			7,265			—			—			—			—		67,304
SBA debentures and borrowings		1,250			29,498			8,500			—			5,000			5,000			31,250		80,498
Retail notes		—			—			33,625			—			—			—			—		33,625
Preferred securities		33,000			—			—			—			—			—			—		33,000
Other borrowings		500			7,114			—			—			—			—			—		7,614
Total liabilities	$	607,998		$	255,126		$	179,608		$	140,394		$	45,698		$	5,000		$	31,250	$	1,265,074
Interest rate gap	($	296,968	)	($	193,905	)	($	100,621	)	($	66,439	)	$	32,424		$	43,227		$	597,471	$	15,189
Cumulative interest rate gap (2)	($	296,968	)	($	490,873	)	($	591,494	)	($	657,933	)	($	625,509	)	($	582,282	)	$	15,189		—
December 31, 2017(3)	($	172,208	)	($	324,049	)	($	361,494	)	($	425,785	)	($	411,672	)	($	379,286	)	$	168,501		—
December 31, 2016(3)	($	160,931	)	($	229,981	)	($	304,974	)	($	301,658	)	($	334,577	)	($	301,596	)	$	219,452		—

(1) The ratio of the cumulative one year gap to total interest rate sensitive assets was (23%) as of September 30, 2018.

(2) Adjusted for the medallion loan 40% prepayment assumption results in a cumulative one year negative interest rate gap and related ratio of ($259,762) or (20%) for September 30, 2018.

(3) Represents the cumulative rate gap on a combined basis with Medallion Bank for the years noted.

Our interest rate sensitive assets were $1,280,263,000 and interest rate sensitive liabilities were $1,265,074,000 at September 30, 2018. Theone-year cumulative interest rate gap was a negative $296,968,000 or 23% of interest rate sensitive assets. However, using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative gap of $259,762,000 or 20% at September 30, 2018. We seek to manage interest rate risk by originating adjustable-rate loans, by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, and by other options consistent with managing interest rate risk.

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Interest Rate Cap Agreements

We manage our exposure to increases in market rates of interest by periodically purchasing interest rate caps to lock in the cost of funds of our variable-rate debt in the event of a rapid run up in interest rates. We entered into contracts to purchase interest rate caps on $20,000,000 of notional value of principal from various multinational banks, with termination dates ranging to December 2018. The caps provide for payments to us if various LIBOR thresholds are exceeded during the cap terms. Total cap purchases were generally fully expensed when paid, including $0 for the three and nine months ended September 30, 2018, and $0 and $19,000 for the comparable 2017 periods, and all are carried at $0 on the balance sheet at September 30, 2018.

Liquidity and Capital Resources

Our sources of liquidity are with a variety of local and regional banking institutions, unfunded commitments to sell debentures to the SBA, loan amortization and prepayments, private issuances of debt securities, participations or sales of loans to third parties, the disposition of other assets of the Company, and dividends from Medallion Bank and Medallion Capital. Additionally, there were $3,000,000 of unfunded commitments from the SBA as of September 30, 2018.

Additionally, Medallion Bank has access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. Medallion Bank has $45,000,000 available under Fed Funds lines with several commercial banks as of September 30, 2018. In addition, Medallion Bank is allowed to retain all earnings in the business to fund future growth.

The components of our debt were as follows at September 30, 2018. See Note 7 to the consolidated financial statements for details of the contractual terms of our borrowings.

(Dollars in  thousands)	Balance		Percentage			Rate (1)
Deposits	$	946,975		75	%		2.04	%
DZ loan		96,058		7			3.86
SBA debentures and borrowings		80,498		6			3.40
Notes payable to banks		67,304		5			4.47
Retail notes		33,625		3			9.00
Preferred securities		33,000		3			4.45
Other borrowings		7,614		1			2.00
Total outstanding debt	$	1,265,074		100	%		2.64	%

(1) Weighted average contractual rate as of September 30, 2018.

Our contractual obligations expire on or mature at various dates through September 2037. The following table shows our contractual obligations at September 30, 2018.

	Payments due by period
(Dollars in  thousands)	Less than 1 year		1 – 2 years		2 – 3 years		3 – 4 years		4 – 5 years		More than 5 years		Total
Deposits	$	417,151	$	213,514	$	135,218	$	140,394	$	40,698	$	—	$	946,975
DZ loan		96,058		—		—		—		—		—		96,058
SBA debentures and borrowings		3,621		25,877		8,500		—		5,000		37,500		80,498
Notes payable to banks		60,039		—		7,265		—		—		—		67,304
Retail notes		—		—		33,625		—		—		—		33,625
Preferred securities		—		—		—		—		—		33,000		33,000
Other borrowings		500		7,114		—		—		—		—		7,614
Total	$	577,369	$	246,505	$	184,608	$	140,394	$	45,698	$	70,500	$	1,265,074

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Most of our borrowing relationships have maturity dates from 2018 through 2021. We have been in active and ongoing discussions with each of these lenders and have extended each of the facilities. The lenders have worked with us to extend and change the terms of the borrowing agreements. We have arranged for changes to the terms of the notes and payment and borrowing base calculations which we anticipate will facilitate our operations for the foreseeable future.

In addition, the illiquidity of portions of our loan portfolio and investments may adversely affect our ability to dispose of them 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 our 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 short-term floating-rate debt, and to a lesser extent by term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. We have analyzed the potential impact of changes in interest rates on net interest income. 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% increase in interest rates would result in an increase to the line item net income as of September 30, 2018 by $1,603,000 on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been ($1,204,000) at September 30, 2018. Although management believes that this measure is indicative of our 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 income 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.

We continue 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.

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The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at September 30, 2018 and December 31, 2017. See Note 7 to the consolidated financial statements for additional information about each credit facility.

	Bank Holding Company Accounting																					Investment Company Accounting
(Dollars in  thousands)	The Company			MFC			MCI			FSVC			The Bank			RPAC			September 30, 2018			December 31, 2017
Cash(1)	$	5,871		$	676		$	2,396		$	574		$	133,000		$	1,043	(1)	$	143,560		$	122,923
Bank loans		47,621			19,683			—			—			—			—			67,304			81,450
Average interest rate		4.87	%		3.50	%		—			—			—			—			4.47	%		3.94	%
Maturity		11/18-7/19			6/19-9/21			—			—			—			—			11/18-9/21			10/16-11/18
Preferred securities		33,000			—			—			—			—			—			33,000			33,000
Average interest rate		4.45	%		—			—			—			—			—			4.45	%		3.63	%
Maturity		9/37			—			—			—			—			—			9/37			9/37
Retail notes		33,625			—			—			—			—			—			33,625			33,625
Average interest rate		9.00	%																	9.00	%		9.00	%
Maturity		4/21																		4/21			4/21
DZ loan		—			96,058			—			—			—			—			96,058			99,984
Average interest rate		—			3.86	%		—			—			—			—			3.86	%		3.02	%
Maturity		—			12/18			—			—			—			—			12/18			3/18
SBA debentures and other borrowings		—			—			54,000			29,498			—			—			83,498			85,064
Amounts undisbursed		—			—			3,000			—			—			—			3,000			5,500
Amounts outstanding		—			—			51,000			29,498			—			—			80,498			79,564
Average interest rate		—			—			3.48	%		3.25	%		—			—			3.40	%		3.39	%
Maturity		—			—			3/19-9/28			2/20			—			—			3/19-9/28			2/20-3/27
Brokered CDs & other funds borrowed														946,975			—			946,975			906,748
Average interest rate		—			—			—			—			2.04	%		—			2.04	%		1.51	%
Maturity		—			—			—			—			10/18-07/23			—			10/18-07/23			1/18-10/22
Other borrowings		—			—			—			—			—			7,614			7,614			—
Average interest rate		—			—			—			—			—			2.00	%		2.00	%		—	%
Maturity		—			—			—			—			—			12/18-3/20			12/18-3/20			—
Total cash	$	5,871		$	676		$	2,396		$	574		$	133,000		$	1,043		$	143,560		$	122,923
Total debt outstanding	$	114,246		$	115,741		$	51,000		$	29,498		$	946,975		$	7,614		$	1,265,074		$	1,234,371

(1) Includes $36,000 of cash related to consolidated subsidiaries other than RPAC.

Loan amortization, prepayments, and sales also provide a source of funding for us. Prepayments on loans are influenced significantly by general interest rates, medallion loan market values, economic conditions, and competition.

We also generate liquidity through deposits generated at Medallion Bank, borrowing arrangements with other banks, and through the issuance of SBA debentures, as well as from cash flow from operations. In addition, we may choose to participate a greater portion of our loan portfolio to third parties. We are actively seeking additional sources of liquidity, however, given current market conditions, we cannot assure you that we will be able to secure additional liquidity on terms favorable to us or at all. If that occurs, we may decline to underwrite lower yielding loans in order to conserve capital until credit conditions in the market become more favorable; or we may be required to dispose of assets when we would not otherwise do so, and at prices which may be below the net book value of such assets in order for us to repay indebtedness on a timely basis.

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Recently Issued Accounting Standards

In August 2018, the FASB issued ASU2018-13 Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value. The objective of this update is to modify the disclosure requirements as it relates to the fair value of assets and liabilities. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its financial disclosures.

In January 2017, the FASB issued ASU2017-04 Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of this update is to simplify the subsequent measurement of goodwill, by eliminating step 2 from the goodwill impairment test. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not believe this update will have a material impact on its financial condition.

In June 2016, the FASB issuedASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The main objective of this new standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit held by a reporting entity at each reporting date. The aftermath of the global economic crisis and the delayed recognition of credit losses associated with loans (and other financial instruments) was identified as a weakness in the application of existing accounting standards. Specifically, because the existing “incurred” loss model delays recognition until it is probable a credit loss was incurred, the FASB explored alternatives that would use more forward-looking information. Under the FASB’s new standard, the concepts used by entities to account for credit losses on financial instruments will fundamentally change. The existing “probable” and “incurred” loss recognition threshold is removed. Loss estimates are based upon lifetime “expected” credit losses. The use of past and current events must now be supplemented with “reasonable and supportable” expectations about the future to determine the amount of credit loss. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL (current expected credit loss) model.ASU 2016-13 applies to all entities and is effective for fiscal years beginning after December 15, 2019 for public entities and is effective for fiscal years beginning after December 15, 2020 for all other entities, with early adoption permitted. The Company is assessing the impact the update will have on its financial statement, but expects the update to have a significant impact on how the Company expects to account for estimated credit losses on its loans.

In February 2016, the FASB issued ASU2016-02, Leases (Topic 842). ASU2016-02 requires the recognition of lease assets and lease liabilities by lessees for leases classified as operating under GAAP. ASU2016-02 applies to all entities and is effective for fiscal years beginning after December 15, 2018 for public entities. The Company has assessed the impact the update will have on its financial condition and does not believe this update will have a material impact on its financial condition.

Common Stock

Our common stock is quoted on NASDAQ under the symbol “MFIN.” Our common stock commenced trading on May 23, 1996. As of November 9, 2018, there were approximately 313 holders of record of our common stock.

On November 9, 2018, the last reported sale price of our common stock was $7.04 per share. Since our initial public offering, our common stock has traded at a premium to net asset value per share more frequently than at a discount to net asset value per share, but there can be no assurance that our stock will trade at a premium in the future.

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The following table sets forth, for the periods indicated, the range of high and low closing prices for our common stock on the Nasdaq Global Select Market.

2018	DISTRIBUTIONS DECLARED		HIGH		LOW
Third Quarter	$	0.00	$	6.83	$	5.14
Second Quarter		0.00		5.77		3.64
First Quarter		0.00		5.43		3.65
2017
Fourth Quarter	$	0.00	$	4.09	$	2.12
Third Quarter		0.00		2.64		2.10
Second Quarter		0.00		2.93		1.84
First Quarter		0.00		3.33		1.68

We are subject to federal and applicable state corporate income taxes on our taxable ordinary income and capital gains, and are not subject to the annual distribution requirements under Subchapter M of the Code. Thus, there can be no assurance that we will pay any cash distributions as we may retain our earnings in certain circumstances to facilitate the growth of our business, to finance our investments, to provide liquidity or for other corporate purposes.

We have adopted a dividend reinvestment plan pursuant to which shareholders may elect to have distributions reinvested in additional shares of common stock. When we declare a 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 distribution is declared plus brokerage commissions. The automatic reinvestment of distributions will not release plan participants of any income tax that may be payable on the distribution. Shareholders may terminate their participation in the dividend reinvestment plan by providing written notice to the Plan Agent at least 10 days before any given distribution payment date. Upon termination, we will issue to a shareholder 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. Shareholders may obtain additional information about the dividend reinvestment plan by contacting the American Stock Transfer & Trust Company, LLC at 6201 15^th Avenue, Brooklyn, NY, 11219.

Control Statutes

Because Medallion Bank is an “insured depository institution” within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act and we are a “financial institution holding company” within the meaning of the Utah Financial Institutions Act, federal and Utah law and regulations prohibit any person or company from acquiring control of us and, indirectly, Medallion Bank, without, in most cases, prior written approval of the FDIC or the Commissioner of Financial Institutions, as applicable. Under the Change in Bank Control Act, control is conclusively presumed if, among other things, a person or company acquires 25% or more of any class of our voting stock. A rebuttable presumption of control arises if a person or company acquires 10% or more of any class of voting stock and is subject to a number of specified “control factors” as set forth in the applicable regulations.AlthoughMedallionBankisan“insureddepositoryinstitution”withinthemeaningoftheFederalDepositInsuranceActandtheChangeinBankControlAct,yourinvestmentinMedallionFinancialCorp.isnotguaranteedbytheFDICandissubjecttoloss. Under the Utah Financial Institutions Act, control is defined as the power to vote 20% or more of any class of our voting securities by an individual or to vote more than 10% of any class of our voting securities by a person other than an individual. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our common stock in excess of the amount which can be acquired without regulatory approval.

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 we filed our Annual Report on Form10-K for the year ended December 31, 2017.

ITEM 4. CONTROLS AND PROCEDURES

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting pursuant to Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, and have concluded that they are effective as of September 30, 2018. In addition, based on our evaluation as of September 30, 2018, there have been no changes that occurred during the three months ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are currently involved in various legal proceedings incident to the ordinary course of our business, including collection matters with respect to certain loans. We intend to vigorously defend any outstanding claims and pursue our legal rights. In the opinion of our management and based upon the advice of legal counsel, other than as set forth in the following paragraph there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision could result in a material adverse effect on our results of operations or financial condition.

We obtain financing under lending facilities extended by various banks and other financial institutions, some of which are secured by loans, taxi medallions and other assets. Where these facilities are extended to our subsidiaries, we and certain of our subsidiaries may guarantee the obligations of the relevant borrower. Five of our smallest subsidiaries are borrowers under promissory notes extended to them by a bank that total $8.8 million that came due on October 17, 2016. These loans are secured by Chicago taxi medallions owned by our subsidiaries. These subsidiaries had not repaid the amounts due under the notes and the bank filed a suit seeking payment of these amounts. In September 2018 the parties settled the action and the suit was dismissed.

On December 20, 2017, a stockholder derivative action was filed in the Supreme Court of the State of New York, County of New York (Shields v. Murstein, et al.). The complaint names us as a nominal defendant and purports to assert claims derivatively on our behalf against certain of our current directors, one of our former directors, and a former independent contractor for one of our subsidiaries. The complaint alleges that the director defendants breached their fiduciary duties with respect to certain alleged misconduct by the former independent contractor involving postings about us under an alleged pseudonym. On January 25, 2018, we and the director defendants filed a motion to dismiss the action. Plaintiff filed his opposition to the motion on March 1, 2018. We and the director defendants filed reply papers in further support of the motion on March 22, 2018. A hearing on the motion to dismiss was held on June 27, 2018, and the parties are awaiting a ruling on the motion. We believe the case is without merit and intend to defend it vigorously.

ITEM 1A. RISK FACTORS

Risks Relating to Our Business and Structure

Our business is heavily concentrated in consumer lending, which carries a high risk of loss and could be adversely affected by an economic downturn.

Our business is heavily concentrated in consumer lending. As a result, we are more susceptible to fluctuations and risks particular to consumer credit than a more diversified company. For example, our business is particularly sensitive to macroeconomic conditions that affect the US economy, consumer spending and consumer credit. We are also more susceptible to the risks of increased regulations and legal and other regulatory actions that are targeted at consumer credit or the specific consumer credit products that we offer (including promotional financing). Our business concentration could have a material adverse effect on our results of operations.

By its nature, lending to consumers carries with it different risks and typically a higher risk of loss than commercial lending. Although the net interest margins are intended to be higher to compensate us for this increased risk, an economic downturn could result in higher loss rates and lower returns than expected, and could affect the profitability of our consumer loan portfolio. During periods of economic slowdown such as the 2007-2009 recession, delinquencies, defaults, repossessions, and losses generally increase, and consumers are likely to reduce their discretionary spending in areas such as recreation and home improvement. These periods may also be accompanied by increasing unemployment rates and declining values of consumer products securing outstanding accounts, which weaken collateral coverage and increase the amount of a loss in the event of default.

Additionally, higher gasoline prices, volatile real estate values, reset of adjustable rate mortgages to higher interest rates, general availability of consumer credit, or other factors that impact consumer confidence or disposable income could increase loss frequency and decrease consumer demand for RVs, boats, trailers and other consumer products (including in connection with home improvement projects), as well as weaken collateral values on certain types of consumer products. Any decrease in consumer demand for those products could have a material adverse effect on our ability to originate new loans and, accordingly, on our business, financial condition, and results of operations.

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Although declines in commodity prices, and more particularly gasoline prices, generally are financially beneficial to the individual consumer, such declines may also have a negative impact on unemployment rates in geographic areas that are highly dependent upon the oil and natural gas industry, which could adversely affect the credit quality of consumers in those areas.

Our balance sheet consists of a significant percentage of nonprime consumer loans, which are associated with higher than average delinquency rates. The actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic downturn. In addition, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in our net interest income.

Furthermore, our business is significantly affected by monetary and regulatory policies of the US federal government and its agencies. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control and could have a material adverse effect on us through interest rate changes, costs of compliance with increased regulation, and other factors. Although market conditions have improved since the 2007-2009 recession, conditions remain challenging for financial institutions.

The process we use to estimate losses inherent in our credit exposure requires complex judgments, including forecasts of economic conditions and how those economic conditions might impair the ability of our borrowers to repay their loans. The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the quality of our assets.

Changes in the taxicab andfor-hire vehicle industries have resulted in significantly increased competition and have had a material adverse effect on our business, financial condition, and operations.

There have been recent changes in the taxicab andfor-hire vehicle industries that have resulted in significantly increased competition in all of our taxi medallion markets. Ridesharing applications, or ridesharing apps, utilized byfor-hire vehicles were introduced in New York City in 2011 and continue to expand domestically and globally. Many of thesefor-hire vehicle operators operate outside of the regulatory regime with which we and our borrowers operate, which poses an increased risk of competition because such operators are able to pass the cost savings of not having to comply with certain regulations to its passengers. In August 2018, the New York City Council passed afor-hire vehicle reform package, which included, among other things, capping ride-hailing services and giving authority to the TLC to set minimum standards for those drivers; however, we are not yet aware of the impact of these changes. According to the TLC, between January 2018 and October 2018 approximately 11,900 newfor-hire vehicle licenses were issued, increasing the total number offor-hire vehicles to approximately 117,028 as of November 2, 2018, a 11.3% increase from January 2018.

In addition, the New York State legislature enacted a law on December 21, 2011, which was amended on February 17, 2012, to permit carsfor-hire to pickup street hails in boroughs outside of Manhattan. Pursuant to this law the TLC has issued approximately 8,300 Street Hail Livery licenses since June 2013, of which approximately 3,500 are active.

TLC annualized data through December 2017 has shown a 13.9% reduction in total New York City taxicab fares, compared to the same period in 2016, and a 13.5% reduction in the total number of New York City taxicab trips. Such reductions in fare totals and taxicab trips are likely the result of a combination of ridesharing apps, Street Hail Livery licenses, and other forms of public transportation.

As of September 30, 2018, 3.9% of our medallion loan portfolio was 90 days or more past due. As discussed in further detail below, there have also been recent decreases in the values of our medallion loan collateral and our Chicago medallions purchased out of foreclosure. Increased competition from ridesharing apps and Street Hail Livery licenses has reduced our market share, the overall market for taxicab services, the supply of taxicab drivers, income from operating medallions, and the value of taxicab medallions. If these trends continue and intensify, there would be a further material increase to our loan to value ratios, loan delinquencies, and loan defaults resulting in a material adverse effect on our business, financial condition, and results of operations.

Decreases in the value of our medallion loan collateral and our Chicago medallions purchased out of foreclosure have had a material adverse effect on our business.

A significant portion of our loan revenue is derived from loans collateralized by New York City taxicab medallions. According to TLC data, from 2001 through 2014, New York City taxicab medallions had appreciated in value from under $200,000 to $1,320,000 for corporate medallions and $1,050,000 for individual medallions. As reported by the TLC, individual (owner-driver) medallions and corporate medallions sold for a wide range of prices during 2017 and 2018. In March 2017, the New York City Council made changes to the medallion classes, eliminating the distinction between individual and corporate medallions. Until the market fully stabilizes we will not be able to determine the ultimate impact of this change, however, we believe it will allow for

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greater economic investment over time as these rules were a significant barrier of entry into the industry. Like many other financial institutions, we have evaluated the transactions and cash flows of our underlying borrowers performance and determined that a market value of $186,400, $181,000 net of liquidation costs, was appropriate. Medallion transfer activity and demand has increased considerably in 2018 compared to 2017.

We own 159 Chicago taxicab medallions that were purchased out of foreclosure in 2003. Additionally, a portion of our loan revenue is derived from loans collateralized by Chicago taxicab medallions. The Chicago medallions had appreciated in value from $50,000 in 2003 to a high of approximately $370,000 in 2013. Since that time, however, there has been a decline in the value of Chicago taxicab medallions. We have determined that a market value of $36,000, $34,900 net of liquidation costs, as of September 30, 2018, was appropriate.

Decreases in the value of our medallion loan collateral have resulted in an increase in theloan-to-value ratios of our medallion loans. We estimate that the weighted averageloan-to-value ratio of our medallion loans was approximately 224% as of September 30, 2018. If taxicab medallion values continue to decline, there could be an increase in medallion loan delinquencies, foreclosures, and borrower bankruptcies. Our ability to recover on defaulted medallion loans by foreclosing on and selling the medallion collateral could be diminished, which could result in material losses on defaulted medallion loans which could have a material adverse effect on our business. A substantial decrease in the value of our Chicago medallions purchased out of foreclosure could adversely affect our ability to dispose of such medallions at times when it may be advantageous for us to do so. If we are required to liquidate all or a portion of our medallions quickly, we could realize less than the value at which we had previously recorded such medallions.

Our financial condition, liquidity and results of operations depend on the credit performance of our loans.

As of September 30, 2018, more than half of our recreation consumer loans are nonprime receivables with obligors who do not qualify for conventional consumer finance products as a result of, among other things, a lack of or adverse credit history. While our underwriting guidelines are designed to confirm that, notwithstanding such factors, the obligor would be a reasonable credit risk, the receivables nonetheless are expected to experience higher default rates than a portfolio of obligations of prime obligors. The weakening of our underwriting guidelines for any reason, such as in response to the competitive environment, in an effort to originate higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans or our inability to adequately adapt policies and procedures to changes in economic or other conditions, may result in loan defaults and charge-offs that may necessitate increases to our allowance for loan losses, each of which could adversely affect our net income. In the event of a default on a recreation loan, generally the most practical recovery method is repossession of the financed vehicle, although the collateral value of the vehicle usually does not fully cover the outstanding account balance and costs of recovery. Repossession sales that do not yield sufficient proceeds to repay the receivables in full typically result in losses on those receivables.

In addition, our prime portfolio has grown in proportion to our overall portfolio over the past several years. While prime portfolios typically have lower default rates than nonprime portfolios, we have less ability to make risk adjustments to the pricing of prime loans compared to nonprime loans. As a result, to the extent our prime portfolio continues to grow, a larger proportion of our business will consist of loans with respect to which we will have less flexibility to adjust pricing to absorb losses. As a result of these factors, we may sustain higher losses than anticipated in our prime portfolio. Additionally, if our prime loan losses are higher than expected then we may also be at risk with regards to our forecasted losses, which could impact our loss reserves and results of operations.

Our business, financial condition and results of operations could be negatively impacted if we are unsuccessful in developing and maintaining relationships with dealerships, contractors and financial service providers (FSPs).

We originate loans by working with third-party sellers of consumer products and not working directly with consumers. As a result, our ability to originate consumer loans depends on our relationships with dealerships, contractors and FSPs. Although we have relationships with various dealerships, contractors and FSPs, none of our relationships are exclusive and each may be terminated at any time. In particular, there is significant competition for the contractor and FSP relationships we depend on in connection with our Home Improvement Lending business. The loss of any of these relationships, our failure to develop additional relationships, and circumstances in which our existing base experiences decreased sales and loan volume all may have a material adverse effect on our business, financial condition and results of operations.

We borrow money, which magnifies the potential for gain or loss on amounts invested, and may increase the risk of investing in us.

Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested, and therefore increase the risk associated with investing in us. We borrow from and issue senior debt securities to banks and other lenders, and through long-term subordinated SBA debentures. These creditors have fixed dollar claims on our assets that are superior to the claims of our shareholders. If the value of our assets increases, then leveraging would cause the net asset value to increase more sharply than it

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would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could reduce the amount available for distribution payments.

As of September 30, 2018, we had $1,265,074,000 of outstanding indebtedness, with a weighted average borrowing cost of 2.64%.

Most of our borrowing relationships have maturity dates during 2018 through 2021. We have been in active and ongoing discussions with each of these lenders and have extended each of the facilities. Certain lenders have worked with us to extend and change the terms of the borrowing agreements. See Note 7 of our consolidated financial statements for a discussion of the current and new lending arrangements to date.

Failure to obtain an extension of our existing credit facilities or failure to obtain additional revolving credit facilities could have a material adverse effect on our results of operations and financial position.

We utilize secured revolving credit facilities and other facilities to fund our investments. We cannot guarantee that our credit facilities will continue to be available beyond their current maturity dates on reasonable terms or at all or that we will be able to otherwise obtain funds by selling assets or raising equity to make required payments on maturing indebtedness. Our revolving credit facilities have converted to term loans. Obtaining additional revolving credit facilities or other alternative sources of financing may be difficult and we cannot guarantee that we will be able to do so on terms favorable to us or at all. The availability of revolving credit facilities depends, in part, on factors outside of our control, including regulatory capital treatment for unfunded bank lines of credit, the financial strength and strategic objectives of the banks that participate in our credit facilities and the availability of bank liquidity in general. If the credit facilities are not renewed or extended by our lenders by their maturity dates, we will not be able to make further borrowings under the facilities after they mature and the outstanding principal balances under such facilities will be due and payable at maturity. If we are unable to refinance our indebtedness at maturity or meet our payment obligations, our financial condition would be adversely affected and our lenders may foreclose on the property securing such indebtedness. If we are unable to extend or replace these facilities or arrange new credit facilities or other types of interim financing, we may need to curtail or suspend loan origination and funding activities which could have a material adverse effect on our results of operations and financial position.

Our use of brokered deposits for our deposit-gathering activities may not be available when needed. The inability to accept and renew brokered deposits would have a material adverse effect on our business, financial condition, liquidity and results of operations.

We rely on the established brokered deposit market to originate deposits to fund our operations. Additionally, our business, strategy and prospects are dependent on our ability to accept and renew brokered deposits without limitation and, therefore, dependent on our ability to be “well-capitalized” under the FDIC’s regulatory framework.

Our brokered deposits consist of deposits raised through the brokered deposit market rather than through retail branches. Although we have 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 brokered deposits. In addition, our ability to rely on brokered deposits as a source of funding is subject to capitalization requirements set forth in the FDIC’s prompt corrective action framework. We may not accept or renew brokered deposits unless we are “well-capitalized” or we are “adequately capitalized” and we receive a waiver from the FDIC. A bank that is “adequately capitalized” and that accepts or renews brokered deposits under a waiver from the FDIC is subject to additional restrictions on the interest rates it may offer. See “Supervision and Regulation” for additional information.

If our capital levels fall below the “well-capitalized” level as defined by the FDIC our ability to raise brokered deposits would be materially impaired. If our capital levels fall below the “adequately-capitalized” level as defined by the FDIC, we would be unable to raise brokered deposits. Any impairment or inability to raise brokered deposits would have a material adverse effect on our business, financial condition, liquidity and results of operations. Brokered deposits may also not be as stable as other types of deposits, and if we experience a period of sustained operating losses, the cost of attracting deposits from the brokered deposit market could increase significantly. Our ability to manage our growth to stay within the “well-capitalized” level is critical to our ability to retain open access to this funding source.

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We are subject to certain financial covenants and other restrictions under our loan and credit arrangements, which could affect our ability to finance future operations or capital needs or to engage in other business activities.

Our loan and credit agreements contain financial covenants and other restrictions relating to borrowing base eligibility, tangible net worth, net income, leverage ratios, stockholders’ equity, and collateral values. Our ability to meet these financial covenants and restrictions could be affected by events beyond our control, such as a substantial decline in collateral values or a rise in borrower delinquencies. A breach of these covenants could result in an event of default under the applicable debt instrument. Such a default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision. Certain other events can constitute an event of default. Furthermore, if we were unable to repay the amounts due and payable under our credit facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or holders of the related notes accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. Based on the foregoing factors, the operating and financial restrictions and covenants in our current credit agreements and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage in other business activities.

We were not in compliance with a financial covenant in the DZ loan agreement. We are currently in the process of working with DZ Bank to amend such covenant in the DZ loan agreement and there can be no assurance that we will be successful.

The issuance of debt securities or preferred stock and our borrowing money from banks or other financial institutions may affect holders of our common stock.

Our business may periodically require capital. We may issue debt securities or preferred stock, and/or borrow money from banks or other financial institutions, which we refer to collectively as senior securities. Any amounts that we use to service our debt or make payments on preferred stock will not be available for distributions to our common shareholders. It is likely that any senior securities we issue will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, some of these securities or other indebtedness may be rated by rating agencies, and in obtaining a rating for such securities and other indebtedness, we may be required to abide by operating and investment guidelines that further restrict operating and financial flexibility. We and, indirectly, our shareholders will bear the cost of issuing and servicing such securities and other indebtedness. Preferred stock or any convertible or exchangeable securities that we issue in the future may have rights, preferences, and privileges more favorable than those of our common stock, including separate voting rights, and could delay or prevent a transaction or a change in control to the detriment of the holders of our common stock.

If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our shareholders at that time would decrease and they may experience dilution. Moreover, we can offer no assurance that we will be able to issue and sell additional equity securities in the future, on favorable terms or at all.

We are dependent upon our key investment personnel for our future success.

We depend on the diligence, skill, and network of business contacts of the investment professionals we employ for sourcing, evaluating, negotiating, structuring, and monitoring our investments. Our future success will also depend, to a significant extent, on the continued service and coordination of our senior management team, particularly, Alvin Murstein, our Chairman and Chief Executive Officer, Andrew M. Murstein, our President, Larry D. Hall, our Chief Financial Officer, Donald Poulton and his management team for Medallion Bank, and Dean Pickerell and his management team at Medallion Capital. The departure of Messrs. Murstein or Mr. Hall, or any other member of our senior management team, could have a material adverse effect on our ability to achieve our investment objective.

Changes in taxicab industry regulations that result in the issuance of additional medallions or increases in the expenses involved in operating a medallion would lead to a decrease in the value of our medallion loan collateral and our Chicago medallions purchased out of foreclosure.

Every city in which we originate medallion loans, and most other major cities in the United States, 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 would be adversely affected. 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 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, such as rising gas prices and an increase in interest rates, can render taxicab operations less profitable, could cause borrowers to default on loans from us and would adversely affect the value of our collateral.

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We operate in a highly regulated environment, and if we are found to be in violation of any of the federal, state, or local laws or regulations applicable to us, our business could suffer.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted in 2010. The Dodd-Frank Act significantly changed federal financial services regulation and affects, among other things, the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. In addition to the statutory requirements under the Dodd-Frank Act, the legislation also delegated authority to US banking, securities and derivatives regulators to impose additional restrictions through required rulemaking. The Dodd-Frank Act requires a company that owns an industrial bank to serve as a “source of strength” to the institution. We believe that we have historically served, and will serve in the future, as a source of strength to our industrial bank subsidiary, Medallion Bank. We do not believe that the codification of this requirement under the Dodd-Frank Act materially impacts our obligations. A company that owns an industrial bank is also subject to the Dodd-Frank Act “Volcker Rule.” We do not believe that the “Volcker Rule” materially impacts our operations as presently conducted.

Other changes in the laws or regulations applicable to us more generally, may negatively impact the profitability of our business activities, require us to change certain of our business practices, materially affect our business model, limit the activities in which we may engage, affect retention of key personnel, require us to raise additional regulatory capital, increase the amount of liquid assets that we hold, or otherwise affect our funding profile or expose us to additional costs (including increased compliance costs). Any such changes may also require us to invest significant management attention and resources to make any necessary changes and may adversely affect our ability to conduct our business as previously conducted or our results of operations or financial condition.

We are also subject to a wide range of federal, state, and local laws and regulations, such as local licensing requirements, and retail financing, debt collection, consumer protection, environmental, health and safety, creditor, wage-hour, anti-discrimination, whistleblower and other employment practices laws and regulations and we expect these costs to increase going forward. The violation of these or future requirements or laws and regulations could result in administrative, civil, or criminal sanctions against us, which may include fines, a cease and desist order against the subject operations or even revocation or suspension of our license to operate the subject business. As a result, we have incurred and will continue to incur capital and operating expenditures and other costs to comply with these requirements and laws and regulations.

Changes in laws, regulations, or policies may adversely affect our business.

The post-financial crisis era has been marked by an increase in regulation, regulatory intensity, and enforcement. We are unable to predict all of the ways in which this change in the regulatory environment could impact our business models or objectives. The laws and regulations governing our lending, servicing, and debt collection activities or the regulatory or enforcement environment at the federal level or in any of the states in which we operate may change at any time which may have an adverse effect on our business.

We expect, however, to see an increase over time in regulatory scrutiny and enforcement in the area of consumer financial products regulation, as a result of the establishment of the Consumer Financial Protection Bureau, or the CFPB, by the Dodd-Frank Act. The CFPB is responsible for interpreting and enforcing a broad range of consumer protection laws that govern the provision of deposit accounts and the making of loans, including the regulation of mortgage lending and servicing and automobile finance. While Medallion Bank’s size currently falls below the threshold that would give the CFPB direct authority over it, Medallion Bank’s existing bank supervisors may pursue similar policies and make similar information requests to those of the CFPB with respect to consumer financial products and other matters within the scope of the CFPB’s authority. We believe that the CFPB’s regulatory reforms, together with other provisions of the Dodd-Frank Act, and increased regulatory supervision, may increase our cost of doing business, impose new restrictions on the way in which we conduct our business, or add significant operational constraints that might impair our profitability.

We are unable to predict how these or any other future legislative proposals or programs will be administered or implemented or in what form, or whether any additional or similar changes to statutes or regulations, including the interpretation or implementation thereof, will occur in the future. Any such action could affect us in substantial and unpredictable ways and could have an adverse effect on our results of operations and financial condition.

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Our inability to remain in compliance with regulatory requirements in a particular jurisdiction could have a material adverse effect on our operations in that market and on our reputation generally. No assurance can be given that applicable laws or regulations will not be amended or construed differently or that new laws and regulations will not be adopted, either of which could materially adversely affect our business, financial condition, or results of operations.

Federal and state law may discourage certain acquisitions of our common stock which could have a material adverse effect on our shareholders.

Because Medallion Bank is an “insured depository institution” within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act and we are a “financial institution holding company” within the meaning of the Utah Financial Institutions Act, federal and Utah law and regulations prohibit any person or company from acquiring control of us and, indirectly Medallion Bank, without, in most cases, prior written approval of the FDIC or the Commissioner of the Utah Department of Financial Institutions, as applicable. Under the Change in Bank Control Act, control is conclusively presumed if, among other things, a person or company acquires 25% or more of any class of our voting stock. A rebuttable presumption of control arises if a person or company acquires 10% or more of any class of voting stock and is subject to a number of specified “control factors” as set forth in the applicable regulations. Under the Utah Financial Institutions Act, control is defined as the power to vote 20% or more of any class of our voting securities by an individual or to vote more than 10% of any class of our voting securities by a person other than an individual. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our common stock in excess of the amount which can be acquired without regulatory approval. These provisions could delay or prevent a third party from acquiring us, despite the possible benefit to our shareholders, or otherwise adversely affect the market price of our common stock. AlthoughMedallionBankisan“insureddepositoryinstitution”withinthemeaningoftheFederalDepositInsuranceActandtheChangeinBankControlAct,yourinvestmentinMedallionFinancialCorp.isnotinsuredorguaranteedbytheFDIC,oranyotheragency,andissubjecttoloss.

The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our operations.

The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds, and the banking system as a whole, not for the protection of our shareholders and creditors. We are subject to regulation and supervision by the FDIC and the Utah Department of Financial Institutions. The laws and regulations applicable to us govern a variety of matters, including permissible types, amounts, and terms of loans and investments we may make, the maximum interest rate that may be charged, the amount of reserves we must hold against deposits we take, the types of deposits we may accept, maintenance of adequate capital and liquidity, changes in the control of Medallion Bank and us, restrictions on dividends, and establishment of new offices. As long as we remain well-capitalized under federal regulatory standards, there are no restrictions on the rates we may pay on brokered deposits. We must obtain approval from our regulators before engaging in certain activities or acquisitions, and there is the risk that such approvals may not be obtained, either in a timely manner or at all. Our regulators also have the ability to compel us to take, or restrict us from taking, certain actions entirely, such as actions that our regulators deem to constitute an unsafe or unsound banking practice. Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies, civil money penalties, or damage to our reputation, all of which could have a material adverse effect our business, financial condition or results of operations.

Since the 2007-2009 recession, federal and state banking laws and regulations, as well as interpretations and implementations of these laws and regulations, have undergone substantial review and change. In particular, the Dodd-Frank Act drastically revised the laws and regulations under which we operate. Financial institutions generally have also been subjected to increased scrutiny from regulatory authorities. These changes and increased scrutiny have resulted and may continue to result in increased costs of doing business and may in the future result in decreased revenues and net income, reduce our ability to effectively compete to attract and retain customers, or make it less attractive for us to continue providing certain products and services. Any future changes in federal and state law and regulations, as well as the interpretations and implementations, or modifications or repeals, of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations.

Our SBIC subsidiaries are licensed by the SBA, and are therefore subject to SBA regulations.

Our SBIC subsidiaries are licensed to operate as SBICs and are regulated by the SBA. The SBA also places certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for certain purposes or to businesses in a few prohibited industries. Compliance with SBA requirements may cause the SBIC subsidiaries to forego attractive investment opportunities that are not permitted under SBA regulations.

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Further, SBA regulations require that a licensed SBIC be periodically examined and audited by the SBA to determine its compliance with the relevant SBA regulations. The SBA prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers that would result in any person (or a group of persons acting in concert) owning 10% or more of a class of capital stock of an SBIC. If the SBIC subsidiaries fail to comply with applicable SBIC regulations, the SBA could, depending on the severity of the violation, limit or prohibit their use of debentures, declare outstanding debentures immediately due and payable, and/or limit them from making new investments. In addition, the SBA could revoke or suspend an SBIC license or bring a suit for the appointment of a receiver for the SBIC and for its liquidation for willful or repeated violation of, or willful or repeated failure to observe, any provision of the SBIA or any rule or regulation promulgated thereunder. Such actions by the SBA would, in turn, negatively affect us.

Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations could result in fines or sanctions against us.

The USA PATRIOT Act of 2001 and the Bank Secrecy Act require financial institutions to design and implement programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the US Treasury Department’s Office of Financial Crimes Enforcement Network (FinCEN). These rules require financial institutions to establish procedures for identifying and verifying the identity of customers and beneficial owners of certain legal entity customers seeking to open new financial accounts. Federal and state bank regulators also have focused on compliance with Bank Secrecy Act and anti-money laundering regulations. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or expanding activities. During the last several years, a number of banking institutions have received large fines fornon-compliance with these laws and regulations. Although we have policies and procedures designed to assist in compliance with the Bank Secrecy Act and other anti-money laundering laws and regulations, there can be no assurance that such policies or procedures will work effectively all of the time or protect us against liability for actions taken by our employees, agents, and intermediaries with respect to our business or any businesses that we may acquire. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us, which could have a material adverse effect on our business, financial condition or results of operations.

Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.

We are subject to various privacy, information security, and data protection laws, including requirements concerning security breach notification, and we could be negatively affected by these laws. For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing safeguards appropriate based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Moreover, legislators and regulators in the United States are increasingly adopting or revising privacy, information security, and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection, and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities. This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission, as well as at the state level.

Compliance with current or future privacy, data protection, and information security laws (including those regarding security breach notification) affecting customer or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions or results of operations. Our failure to comply with privacy, data protection, and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions, and damage to our reputation, which could have a material adverse effect on our business, financial condition, or results of operations.

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Having withdrawn our election to be regulated as a BDC, we must maintain an exception from registration under the 1940 Act which could limit our ability to take advantage of attractive investment opportunities, and the failure to maintain that exception could have material adverse consequences on our business.

A company that meets the definition of an “investment company” under the 1940 Act, in the absence of an exception or exemption, must either register with the SEC as an investment company or elect BDC status. Historically, the composition of the Company’s assets caused us to meet the definition of an “investment company,” and the Company made a corresponding election to be treated as a BDC. The Company hasde-elected BDC status, and now operates so as to fall outside the definition of an “investment company” or within an applicable exception. The Company expects to fall within the exception from the definition of an “investment company” provided under Section 3(c)(6) of the 1940 Act as a company primarily engaged, directly or through majority-owned subsidiaries, in the business of, among other things, (i) banking, (ii) purchasing and otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance and services, and (iii) making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services. The Company is required to monitor its continued compliance with this exception, which could limit our ability to take advantage of attractive investment opportunities that would cause us to be out of compliance with its limitations and could have a material adverse effect on our business. For example, we could be limited in growing Medallion Capital, Inc., which is currently engaged in a business that generally does not qualify for the exception.

If the SEC or a court were to find that we were required, but failed, to register as an investment company in violation of the 1940 Act, we may have to cease business activities, we would breach representations and warranties and/or be in default as to certain of our contracts and obligations, civil or criminal actions could be brought against us, our contracts would be unenforceable unless a court were to require enforcement and a court could appoint a receiver to take control of us and liquidate our business, any or all of which could have a material adverse effect on our business.

We operate in a highly competitive market for investment opportunities.

We compete for investments with other business development companies and other investment funds, as well as traditional financial services companies such as commercial banks and credit unions. Many of our competitors are substantially larger and have considerably greater financial, technical, and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships, and offer better pricing and more flexible structuring than us. We may be unwilling to match our competitors’ pricing, terms, and structure of certain loans and investments opportunities due to potential risks, which may result in us earning less income than our competitors. If we are forced to match our competitors’ pricing, terms, and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss.

We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition, and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time.

Changes in interest rates may affect our cost of capital and net investment income.

Because we borrow to fund our investments, a portion of our income is dependent upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds. A portion of our investments, such as taxi medallion loans, will have fixed interest rates, while a portion of our borrowings will likely have floating interest rates. As a result, a significant change in market interest rates could have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds could increase, which would reduce our net investment income. We may hedge against interest rate fluctuations by using standard hedging instruments, subject to applicable legal requirements. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition, and results of operations. Also, we will have to rely on our counterparties to perform their obligations under such hedges.

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

Our commercial borrowers generally have the right to prepay their loans upon payment of a fee ranging from 1% to 2% for standard loans, and for higher amounts, as negotiated, for larger more custom loan arrangements. 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 difficultyre-lending prepaid funds at comparable rates, which may reduce the net interest income that we receive. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid, and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if a substantial number of our portfolio companies elect to prepay amounts owed to us and we are not able to reinvest the proceeds for comparable yields in a timely fashion. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock.

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An increase in prevailing interest rates could adversely affect our business.

The majority of our loan portfolio is comprised of fixed-rate loans. An abrupt increase in market rates of interest may have an adverse impact on our earnings until we are able to originate new loans at higher prevailing interest rates.

We depend on cash flow from our subsidiaries to make distribution payments 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 distribution payments to our shareholders. Funds are provided to us by our subsidiaries through dividends and payments on intercompany indebtedness, but we cannot assure you that our subsidiaries will be in a position to continue to make these dividend or debt payments. The Utah Department of Financial Institutions and FDIC have the authority to prohibit or to limit the payment of dividends by Medallion Bank. In addition, as a condition to receipt of FDIC insurance, Medallion Bank entered into a capital maintenance agreement with the FDIC requiring it to maintain a 15% leverage ratio (Tier 1 capital to average assets). As of September 30, 2018 Medallion Bank’s leverage ratio was 15.1%.

Medallion Bank’s use of brokered deposit sources for its deposit-gathering activities may not be available when needed.

Medallion Bank relies on the established brokered deposit market to originate deposits to fund its operations. Medallion Bank’s brokered deposits consist of deposits raised through the brokered deposit market rather than through retail branches. While Medallion Bank 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. Applicable statutes and regulations restrict the use of brokered deposits and the interest rates paid on such deposits for institutions that are less than “well- capitalized”. If the capital levels at Medallion Bank fall below the “well-capitalized” level as defined by the FDIC or the capital level currently required by the FDIC pursuant to its capital maintenance agreement, or if Medallion Bank experiences a period of sustained operating losses, the cost of attracting deposits from the brokered deposit market could increase significantly, and the ability of Medallion Bank to raise deposits from this source could be impaired. Brokered deposits may also not be as stable as other types of deposits. Medallion Bank’s ability to manage its growth to stay within the “well-capitalized” level, and the capital level currently required by the FDIC pursuant to its capital maintenance agreement, which is also considerably higher than the level required to be classified as “well-capitalized”, is critical to Medallion Bank’s retaining open access to this funding source.

Uncertainty relating to the reporting of collateral values for our loans may adversely affect the value of our portfolio.

Medallion loans are primarily collateral-based lending, whereby the collateral value exceeds the amount of the loan, providing sufficient excess collateral to protect us against losses. Despite our reliance on collateral values, medallions are income producing assets that generate cash flow which is utilized to repay our loans. We rely on the integrity of the collateral value benchmarks obtained by the applicable regulatory agencies and other third parties. If these benchmarks are artificially influenced by market participants we could suffer losses. We have experienced a significant downward movement in medallion collateral values which may continue, and has caused a negative impact on our valuation analysis and could result in further significant lower fair market value measurements of our portfolio.

We require an objective benchmark in determining the fair value of our portfolio. If the benchmarks that we currently use are deemed to be unreliable, we will need to use other intrinsic factors in determining the collateral values for our loans.

Our allowance for loan losses may prove to be insufficient to cover losses on our loans.

We maintain an allowance for loan losses (a reserve established through a provision for losses that decreases our earnings and that, accordingly, affects our financial condition) that we believe is appropriate to provide for incurred losses in our loan portfolio.

The process for establishing an allowance for loan losses is critical to our results of operations and financial condition, and requires complex models and judgments, including forecasts of economic conditions. Changes in economic conditions affecting borrowers, growth in our loan portfolio, changes in the credit characteristics of our loan portfolio, new information regarding our loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. We may underestimate our incurred losses and fail to maintain an allowance for loan losses sufficient to account for these losses. In cases where we modify a loan, if the modified loans do not perform as anticipated, we may be required to establish additional allowances on these loans.

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We periodically review and update our methodology, models and the underlying assumptions, estimates and assessments we use to establish our allowance for loan losses to reflect our view of current conditions. Moreover, our regulators, as part of their supervisory function, periodically review the methodology, models and the underlying assumptions, estimates and assessments we use for calculating, and the adequacy of, our allowance for loan losses. Our regulators, based on their judgment, may conclude that we should modify our methodology, models or the underlying assumptions, estimates and assessments, increase our allowance for loan losses, and/or recognize further losses. We continue to review and evaluate our methodology, models and the underlying assumptions, estimates, and assessments we use and we will implement further enhancements or changes to them, as needed. We cannot assure you that our loan loss reserves will be sufficient to cover actual losses. Future increases in the allowance for loan losses or recognized losses (as a result of any review, update, regulatory guidance, changes in accounting standards or otherwise) will result in a decrease in net earnings and capital and could have a material adverse effect on our business, results of operations, and financial condition.

The lack of liquidity in our investments may adversely affect our business.

We generally make investments in private companies. Substantially all of these securities are subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded our investments. We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we have materialnon-public information regarding such portfolio company.

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 short-term floating-rate debt, and to a lesser extent by 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. We have analyzed the potential impact of changes in interest rates on net interest income. 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% increase in interest rates would result in an increase to the line item “net income” as of September 30, 2018 by approximately $1,603,000 on an annualized basis, and the impact of such an immediate increase of 1% over a one year period would have been approximately ($1,204,000) at September 30, 2018. Although management believes that this measure is indicative of our 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 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.

We may experience fluctuations in our quarterly results.

We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets, and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

A reduction in demand for our products and failure by us to adapt to such reduction could adversely affect our business, financial condition and results of operations.

The demand for the products we offer may be reduced due to a variety of factors, such as demographic patterns, changes in customer preferences or financial conditions, regulatory restrictions that decrease customer access to particular products or the availability of competing products. If we fail to adapt to significant changes in our customers’ demand for, or access to, our products, our revenues could decrease and our operations could be adversely affected. Even if we do make changes to our product offerings to fulfill customer demand, customers may resist such changes or may reject such products. Moreover, the effect of any product change on the results of our business may not be fully ascertainable until the change has been in effect for some time, and, by that time, it may be too late to make further modifications to such product without causing further adverse effects to our business, results of operations and financial condition.

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Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and that of our customers and personally identifiable information of our customers and employees, in our data centers, and on our networks. The secure processing, maintenance, and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information and regulatory penalties, disrupt our operations and damage our reputation, which could adversely affect our business.

Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations.

We depend to a significant extent on relationships with third parties that provide services, primarily information technology services that are critical to our operations. Currently, we obtain services from third parties that include information technology infrastructure and support, plus loan origination, loan servicing, and accounting systems and support. If any of our third party service providers experience difficulties or terminate their services and we are unable to replace our service providers with other service providers, our operations could be interrupted. It may be difficult for us to replace some of our third-party vendors, particularly vendors providing our loan origination, loan servicing and accounting services, in a timely manner if they are unwilling or unable to provide us with these services in the future for any reason. If an interruption were to continue for a significant period of time, it could have a material adverse effect on our business, financial condition or results of operations. Even if we are able to replace these third parties, it may be at higher cost to us, which could have a material adverse effect on our business, financial condition or results of operations. In addition, if a third-party provider fails to provide the services we require, fails to meet contractual requirements, such as compliance with applicable laws and regulations, or suffers a cyber-attack or other security breach, our business could suffer economic and reputational harm that could have a material adverse effect on our business, financial condition or results of operations.

We continually encounter technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new, technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to serve customers better and to reduce costs. Our future success depends, in part, upon our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we do. We may not be able to effectively implement new, technology-driven products and services or be successful in marketing these products and services to our customers. In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction processing errors and system conversion delays and may cause us to fail to comply with applicable laws. Failure to successfully keep pace with technological change affecting the financial services industry and failure to avoid interruptions, errors and delays could have a material adverse effect on our business, financial condition or results of operations.

We expect that new technologies and business processes applicable to the banking industry will continue to emerge, and these new technologies and business processes may be better than those we currently use. Because the pace of technological change is high and our industry is intensely competitive, we may not be able to sustain our investment in new technology as critical systems and applications become obsolete or as better ones become available. A failure to maintain current technology and business processes could cause disruptions in our operations or cause our products and services to be less competitive, all of which could have a material adverse effect on our business, financial condition or results of operations.

Terrorist attacks, other acts of violence or war, and natural disasters may affect any market for our securities, impact the businesses in which we invest, and harm our operations and profitability.

Terrorist attacks and natural disasters may harm our results of operations and your investment. We cannot assure you that there will not be further terrorist attacks against the US or US businesses or major natural disasters hitting the United States. Such attacks or natural disasters in the US or elsewhere may impact the businesses in which we directly or indirectly invest by undermining economic conditions in the United States. In addition, a substantial portion of our business is focused in the New York City metropolitan area, which suffered a terrorist attack in 2001. Another terrorist attack in New York City or elsewhere could severely impact our results of operations. Losses resulting from terrorist attacks are generally uninsurable.

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Our financial condition and results of operations will depend on our ability to manage growth effectively.

Our ability to achieve our investment objective will depend on our ability to grow, which will depend, in turn, on our management team’s ability to identify, evaluate, and monitor, and our ability to finance and invest in, companies that meet our investment criteria.

Accomplishing this result on a cost-effective basis will be largely a function of our management team’s handling of the investment process, its ability to provide competent, attentive, and efficient services, and our access to financing on acceptable terms. In addition to monitoring the performance of our existing investments, members of our management team and our investment professionals may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time may distract them or slow the rate of investment. In order to grow, we will need to hire, train, supervise, and manage new employees. However, we cannot assure you that any such employees will contribute to the success of our business. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition, and results of operations.

Our ability to enter into transactions with our affiliates is restricted.

The SBA restricts the ability of SBICs to lend money to any of their officers, directors, and employees, or invest in any affiliates thereof.

Medallion Bank is subject to certain federal laws that restrict and control its ability to engage in transactions with its affiliates. Sections 23A and 23B of the Federal Reserve Act and applicable regulations restrict the transfer of funds by Medallion Bank to certain of its affiliates, including us, in the form of loans, extensions of credit, investments, or purchases of assets and restrict its ability to provide services to, or receive services from, its affiliates. Sections 23A and 23B also require generally that Medallion Bank’s transactions with its affiliates be on terms no less favorable to Medallion Bank than comparable transactions with unrelated third parties.

Our Board of Directors may change our operating policies and strategies without prior notice or shareholder approval, the effects of which may be adverse.

Our Board of Directors has the authority to modify or waive our current operating policies and strategies without prior notice and without shareholder approval. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results, and value of our stock. However, the effects might be adverse, which could negatively impact our ability to pay you distributions and cause you to lose all or part of your investment.

Risks Relating to Our Investments

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 may have limited resources and that are generally unable to obtain 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.

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Our portfolio is and may continue to be concentrated in a limited number of portfolio companies, and industries and sectors, which will subject us to a risk of significant loss if any of these companies defaults on its obligations to us or by a downturn in the particular industry or sector.

Our portfolio is and may continue to be concentrated in a limited number of portfolio companies, and industries and sectors. In addition, taxicab companies that constitute separate issuers may have related management or guarantors and constitute larger business relationships to us. As of September 30, 2018, investments in New York City taxi medallion loans represented approximately 88% of our taxi medallion loans, which in turn represented 22% of our net loan portfolio. We do not have fixed guidelines for diversification, and while we are not targeting any specific industries, our investments are, and could continue to be, concentrated in relatively few industries. As a result, the aggregate returns we realize may be adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. If our larger borrowers were to significantly reduce their relationships with us and seek financing elsewhere, the size of our loan portfolio and operating results could decrease. In addition, larger business relationships may also impede our ability to immediately foreclose on a particular defaulted portfolio company as we may not want to impair an overall business relationship with either the portfolio company management or any related funding source. Additionally, a downturn in any particular industry or sector in which we are invested could also negatively impact the aggregate returns we realize.

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

A significant portion of our loan revenue is derived from medallion loans collateralized by New York City taxicab medallions. An economic downturn in New York City could lead to an additional increase in defaults on our medallion loans. We cannot assure you that we will be able to sufficiently diversify our operations geographically.

An economic downturn could result in additional commercial and consumer loan customers experiencing declines in business activities and/or personal resources, 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 and consumer loan portfolios.

Laws and regulations implemented in response to climate change could result in increased operating costs for our portfolio companies.

Congress and other governmental authorities have either considered or implemented various laws and regulations in response to climate change and the reduction of greenhouse gases. Existing environmental regulations could be revised or reinterpreted, new laws and regulations could be adopted, and future changes in environmental laws and regulations could occur, which could impose additional costs on the operation of our portfolio companies. For example, regulations to cut gasoline use and control greenhouse gas emissions from new cars could adversely affect our medallion portfolio companies. Our portfolio companies may have to make significant capital and other expenditures to comply with these laws and regulations. Changes in, or new, environmental restrictions may force our portfolio companies to incur significant expenses or expenses that may exceed their estimates. There can be no assurance that such companies would be able to recover all or any increased environmental costs from their customers or that their business, financial condition or results of operations would not be materially and adversely affected by such expenditures or any changes in environmental laws and regulations, in which case the value of these companies could be adversely affected.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

We invest in our portfolio companies primarily through senior secured loans, junior secured loans, and subordinated debt issued by small- tomid-sized companies. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization, or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization, or bankruptcy of the relevant portfolio company.

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There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

Even though we may have structured most of our investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over the borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerial assistance.

We may not control many of our portfolio companies.

We may not control many of our portfolio companies, even though we may have board representation or board observation rights, and our debt agreements may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree, and the management of such company may take risks or otherwise act in ways that do not serve our interests as debt investors.

We may not realize gains from our equity investments.

Certain investments that we have made in the past and may make in the future include warrants or other equity securities. In addition, we may from time to time makenon-control, equityco-investments in companies in conjunction with private equity sponsors. Our goal is ultimately to realize gains upon our disposition of such equity interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization, or public offering, which would allow us to sell the underlying equity interests.

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

We did not repurchase any of our shares during the three months ended September 30, 2018. Accordingly, under our Stock Repurchase Program previously authorized by our Board of Directors, up to 22,874,509 shares remain authorized for repurchase under the program.

ITEM 5. OTHER INFORMATION

On November 8, 2018, MFC’s limited recourse guaranty of the obligations of Trust III to DZ Bank was terminated. As consideration for the termination of such guaranty, MFC issued to DZ Bank a promissory note in the amount of $1.4 million, payable in quarterly installments over the next five years. This restructuring resulted in the deconsolidation of Trust III in our financial results effective November 8, 2018; subsequent to such date, we will not include any additional losses incurred by Trust III.

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ITEM 6. EXHIBITS

EXHIBITS

Number	Description
10.1	Termination of Limited Recourse Guaranty and Amendment No. 6 to the Amended and Restated Loan and Security Agreement, dated as of November  8, 2018, by and among Taxi Medallion Loan Trust III, Medallion Funding LLC, Medallion Financial Corp., Medallion Capital, Inc., Freshstart Venture Capital Corp., and DZ Bank AG DeutscheZentral-Genossenschaftsbank, Frankfurt am Main.
31.1	Certification of Alvin Murstein pursuant to Rule13a-14(a) and15d-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 Rule13a-14(a) and15d-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.
99.1	Consolidated Schedules of Investments as of December 31, 2017. Filed herewith.
101.INS	XBRL Instance
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation
101.DEF	XBRL Taxonomy Extension Definition
101.LAB	XBRL Taxonomy Extension Labels
101.PRE	XBRL Taxonomy Extension Presentation

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 Form10-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 Form10-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 Form10-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 Form10-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 Form10-Q. The inclusion of the forward-looking statements contained in this Form10-Q should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form10-Q will be achieved. In light of the foregoing, readers of this Form10-Q are cautioned not to place undue reliance on the forward-looking statements contained herein. These risks and others that are detailed in this Form10-Q and other documents that the Company files from time to time with the Securities and Exchange Commission, including annual reports on Form10-K, quarterly reports on Form10-Q, and any current reports on Form8-K must be considered by any investor or potential investor in the Company.

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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 13, 2018
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.