MEDALLION FINANCIAL CORP - Quarter Report: 2015 March (Form 10-Q)

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2015

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

For the transition period from to

Commission file number 814-00188

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 x NO ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files). YES ¨ NO ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of May 6, 2015 was 24,740,702.

MEDALLION FINANCIAL CORP.

FORM 10-Q

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION			3

ITEM 1. FINANCIAL STATEMENTS			3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			38

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			55

ITEM 4. CONTROLS AND PROCEDURES			55

PART II - OTHER INFORMATION			55

ITEM 1. LEGAL PROCEEDINGS			55

ITEM 1A. RISK FACTORS			56

ITEM 6. EXHIBITS			68

SIGNATURES			69

CERTIFICATIONS

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BASIS OF PREPARATION

We, Medallion Financial Corp. or the Company, are a closed-end, non-diversified management investment company organized as a Delaware corporation. We have elected to be treated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. We are a specialty finance company that has a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. A wholly-owned portfolio company of ours, Medallion Bank, also originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and trailers and to finance small-scale home improvements. Since 1996, the year in which we became a public company, we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 5%, and our commercial loan portfolio at a compound annual growth rate of 3% (9% and 6% on a managed basis when combined with Medallion Bank). Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 17%. Total assets under our management and the management of our unconsolidated wholly-owned subsidiaries, which includes our managed net investment portfolio, as well as assets serviced for third party investors, were $1,500,000,000 as of March 31, 2015, and $1,497,000,000 and $1,363,000,000 as of December 31, 2014 and March 31, 2014, and have grown at a compound annual growth rate of 11% from $215,000,000 at the end of 1996. Since our initial public offering in 1996, we have paid/declared distributions in excess of $236,327,000 or $13.56 per share.

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

•

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 and a regulated investment company, or RIC, which conducts a mezzanine financing business; and

•

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

We have formed a wholly-owned portfolio company, Medallion Servicing Corporation, or MSC, to provide loan services to Medallion Bank, also a portfolio company wholly-owned by us. We have assigned all of our loan servicing rights for Medallion Bank, which consists of servicing taxi medallion and commercial 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 us for MSC’s share of these servicing costs.

We also conduct business through our asset-based lending division, Medallion Business Credit, an originator of loans to small businesses for the purpose of financing inventory and receivables.

In addition, we conduct business through a wholly-owned portfolio company, Medallion Bank, a bank regulated by the FDIC and the Utah Department of Financial Institutions which originates taxicab medallion, commercial, and consumer loans, raises deposits, and conducts other banking activities. Medallion Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers. To take advantage of this low cost of funds, we refer a portion of our taxicab medallion and commercial loans to Medallion Bank, which then originates these loans, which are then serviced by MSC. However, the FDIC restricts the amount of taxicab medallion loans that Medallion Bank may finance to three times Tier 1 capital, or $450,543,000 as of March 31, 2015. MSC earns referral and servicing fees for these activities. As a non-investment company, Medallion Bank is not consolidated with the Company, which is an investment company under the 1940 Act.

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 March 31, 2015.

Our consolidated balance sheet as of March 31, 2015, and the related consolidated statements of operations, changes in net assets, and cash flows for the quarters ended March 31, 2015 and 2014 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 quarters ended March 31, 2015 and 2014, or for any other interim period, may not be indicative of future performance. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Page 3 of 69

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended March 31,
(Dollars in thousands, except per share data)	2015			2014
Dividends and interest income on short-term investments⁽¹⁾	$	5,902		$	3,191
Interest income on investments		5,583			5,415
Medallion lease income		346			429

Total investment income		11,831			9,035

Total interest expense⁽²⁾		2,212			1,975

Net interest income		9,619			7,060

Total noninterest income		56			191

Salaries and benefits		3,343			2,560
Professional fees		412			258
Occupancy expense		230			192
Other operating expenses⁽³⁾		786			791

Total operating expenses		4,771			3,801

Net investment income before income taxes^{(1) (4)}		4,904			3,450
Income tax (provision) benefit		—			—

Net investment income after income taxes		4,904			3,450

Net realized gains (losses) on investments⁽⁵⁾		7,899			(172	)

Net change in unrealized appreciation (depreciation) on investments		(3,309	)		1,062
Net change in unrealized appreciation (depreciation) on Medallion Bank and other controlled subsidiaries		(2,426	)		2,426

Net unrealized appreciation (depreciation) on investments		(5,735	)		3,488

Net realized/unrealized gains on investments		2,164			3,316

Net increase in net assets resulting from operations	$	7,068		$	6,766

Net increase in net assets resulting from operations per common share
Basic	$	0.29		$	0.27
Diluted		0.29			0.27

Distributions declared per share	$	0.25		$	0.24

Weighted average common shares outstanding
Basic		24,446,419			24,792,489
Diluted		24,542,727			25,092,826

(1)	Includes $5,889 and $3,000 of dividend income for the three months ended March 31, 2015 and 2014 from Medallion Bank, and other controlled subsidiaries.

(2)	Average borrowings outstanding were $343,282 and $291,856, and the related average borrowing costs were 2.61% and 2.74% for the 2015 and 2014 first quarters.

(3)	See Note 7 for the components of other operating expenses.

(4)	Includes $146 and $217 of net revenues received from Medallion Bank for the three months ended March 31, 2015 and 2014, primarily for servicing fees, loan origination fees, and expense reimbursements. See Notes 3 and 10 for additional information.

(5)	Represents net losses on investment securities of unaffiliated issuers.

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

Page 4 of 69

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS


	UNAUDITED
(Dollars in thousands, except per share data)	March 31, 2015			December 31, 2014
Assets
Medallion loans, at fair value	$	311,305		$	311,894
Commercial loans, at fair value ⁽¹⁾		73,559			71,149
Investment in Medallion Bank and other controlled subsidiaries, at fair value		128,858			136,848
Equity investments, at fair value		7,600			7,710
Investment securities, at fair value		—			—

Net investments ($247,230 at March 31, 2015 and $250,684 at December 31, 2014 pledged as collateral under borrowing arrangements)		521,322			527,601
Cash and cash equivalents ($1,900 at March 31, 2015 and December 31, 2014 restricted as to use by lender)		58,148			47,083
Accrued interest receivable		1,016			988
Fixed assets, net		271			256
Foreclosed properties		44,063			47,502
Goodwill, net		5,099			5,099
Other assets, net		3,531			3,758

Total assets	$	633,450		$	632,287

Liabilities
Accounts payable and accrued expenses	$	3,209		$	6,651
Accrued interest payable		882			2,171
Funds borrowed		353,342			348,795

Total liabilities		357,433			357,617

Commitments and contingencies		—			—
Shareholders’ equity (net assets)
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 – 26,962,610 shares at March 31, 2015 and 26,797,499 shares at December 31, 2014 issued)		270			268
Treasury stock at cost (2,221,876 shares at March 31, 2015 and 2,176,876 shares at December 31, 2014)		(20,641	)		(20,184	)
Capital in excess of par value		271,444			270,775
Accumulated undistributed net investment loss		(10,951	)		(19,191	)
Accumulated undistributed net realized gains on investments		—			—
Net unrealized appreciation on investments		35,895			43,002

Total shareholders’ equity (net assets)		276,017			274,670

Total liabilities and shareholders’ equity	$	633,450		$	632,287

Number of common shares outstanding		24,740,734			24,620,623
Net asset value per share	$	11.16		$	11.16

(1)	Includes $11,424 and $13,293 of loans to controlled subsidiaries or entities under their control at March 31, 2015 and December 31, 2014.

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

Page 5 of 69

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(UNAUDITED)


	Three Months Ended March 31,
(Dollars in thousands, except per share data)	2015			2014
Net investment income after income taxes	$	4,904		$	3,450
Net realized gains (losses) on investments		7,899			(172	)
Net unrealized appreciation (depreciation) on investments		(5,735	)		3,488

Net increase in net assets resulting from operations		7,068			6,766

Investment income, net		(3,757	)		(763	)
Return of capital		(2,178	)		(5,011	)
Realized gains from investment transactions, net		—			—

Distributions to shareholders⁽¹⁾		(5,935	)		(5,774	)

Treasury stock acquired		(457	)		—
Stock-based compensation expense		390			351
Exercise of stock options		281			334
Capitalized stock issuance costs⁽²⁾		—			(117	)

Capital share transactions		214			568

Total increase in net assets		1,347			1,560
Net assets at the beginning of the period		274,670			273,495

Net assets at the end of the period⁽³⁾	$	276,017		$	275,055

Capital share activity
Common stock issued, beginning of period		26,797,499			26,570,355
Exercise of stock options		30,449			36,966
Issuance of restricted stock, net		134,662			101,113

Common stock issued, end of period		26,962,610			26,708,434

Treasury stock, beginning of period		(2,176,876	)		(1,600,733	)
Treasury stock acquired		(45,000	)		—

Treasury stock, end of period		(2,221,876	)		(1,600,733	)

Common stock outstanding		24,740,734			25,107,701

(1)	Distributions declared were $0.25 and $0.24 per share for the quarters ended March 31, 2015 and 2014.

(2)	Represents additional costs associated with the December 2013 equity offering applied to capital.

(3)	Includes $0 of undistributed net investment income, $0 of undistributed net realized gains on investments, and $1,686 and $9,010 of capital loss carryforwards at March 31, 2015 and 2014.

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

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MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended March 31,
(Dollars in thousands)	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	7,068		$	6,766
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Depreciation and amortization		104			123
Accretion of origination fees, net		(17	)		(25	)
Net change in unrealized (appreciation) depreciation on investments		3,309			(1,062	)
Increase in unrealized (appreciation) depreciation on Medallion Bank and other controlled subsidiaries		2,426			(2,426	)
Net realized (gains) losses on investments		(7,899	)		172
Stock-based compensation expense		390			351
(Increase) decrease in accrued interest receivable		(28	)		57
(Increase) decrease in other assets, net		160			(4,214	)
Decrease in accounts payable and accrued expenses		(3,442	)		(2,235	)
Decrease in accrued interest payable		(1,289	)		(373	)

Net cash provided by (used for) operating activities		782			(2,866	)

CASH FLOWS FROM INVESTING ACTIVITIES
Investments originated		(17,198	)		(32,846	)
Proceeds from principal receipts, sales, and maturities of investments		15,870			20,857
Capital returned by Medallion Bank and other controlled subsidiaries, net		1,258			783
Net cash received on disposition of other controlled subsidiaries		11,969			—
Capital expenditures		(52	)		5

Net cash provided by (used for) investing activities		11,847			(11,201	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from funds borrowed		14,400			37,800
Repayments of funds borrowed		(7,353	)		(30,783	)
Issuance of SBA debentures		—			—
Repayments of SBA debentures		(2,500	)		(6,000	)
Proceeds from exercise of stock options		281			334
Capitalized stock issuance costs		—			(117	)
Purchase of treasury stock at cost		(457	)		—
Payments of declared distributions		(5,935	)		(5,774	)

Net cash used for financing activities		(1,564	)		(4,540	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		11,065			(18,607	)
Cash and cash equivalents, beginning of period		47,083			52,172

Cash and cash equivalents, end of period	$	58,148		$	33,565

SUPPLEMENTAL INFORMATION
Cash paid during the period for interest	$	3,434		$	2,266
Cash paid during the period for income taxes		—			—
Non-cash investing activities – net transfer to (from) other assets		—			—

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

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MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015

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

Medallion Financial Corp. (the Company), is a closed-end management investment company organized as a Delaware corporation. The Company has elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Funding LLC (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans.

The Company formed a wholly-owned portfolio company, Medallion Servicing Corporation (MSC), to provide loan services to Medallion Bank, also a portfolio company wholly-owned by the Company. The Company has assigned all of its loan servicing rights for Medallion Bank, which consists of servicing taxi medallion and commercial loans originated by Medallion Bank, to MSC, who 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.

The Company also conducts business through 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 also conducts business through its asset-based lending division, Medallion Business Credit (MBC), an originator of loans to small businesses for the purpose of financing inventory and receivables.

MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust III (Trust III), for the purpose of owning medallion loans originated by MFC or others. Trust III is a separate legal and corporate entity with its own creditors who, 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 $181,604,000 at March 31, 2015, 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.

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 $36,153,000 at March 31, 2015, 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 fair value of $44,063,000 on the consolidated balance sheet at March 31, 2015, compared to $47,502,000 and $50,403,000 at December 31, 2014 and March 31, 2014, and are considered non-qualifying assets under the 1940 Act.

A wholly-owned portfolio investment, Medallion Bank, a Federal Deposit Insurance Corporation (FDIC) insured industrial bank, originates medallion loans, commercial loans, and consumer loans, raises deposits, and conducts other banking activities (see Note 3). 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 is not an investment company, and therefore, is not consolidated with the Company, but instead is treated as a portfolio investment. It 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 who have extensive prior experience in these asset groups. Subsequent to its formation, Medallion Bank began originating consumer loans to finance the purchases of RV’s, boats, and other related items, and to finance small scale home improvements.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the US 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, foreclosed properties, loans held for sale, and investments, among other effects.

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Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, except for Medallion Bank and other portfolio investments. All significant intercompany transactions, balances, and profits have been eliminated in consolidation. As a non-investment company, Medallion Bank is not consolidated with the Company, which is an investment company under the 1940 Act. See Note 3 for the presentation of financial information for Medallion Bank and other controlled subsidiaries.

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 frequently exceed the federally insured limits, and includes $1,600,000 related to compensating balance requirements of several regional banking institutions.

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 2, 11, and 12 to the consolidated financial statements.

Investment Valuation

The Company’s loans, net of participations and any unearned discount, are considered investment securities under the 1940 Act and are recorded at fair value. As part of the fair value methodology, loans are valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market exists for these loans, the fair value is determined in good faith by the Board of Directors. In determining the fair value, the Board of Directors considers factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience, and the relationships between current and projected market rates and portfolio rates of interest and maturities. Foreclosed properties, which represent collateral received from defaulted borrowers, are valued similarly.

Equity investments (common stock and stock warrants, including certain controlled subsidiary portfolio investments) and investment securities (US Treasuries and mortgage backed bonds), in total representing 26% and 27% of the investment portfolio at March 31, 2015 and December 31, 2014, are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. The fair value of investments that have no ready market are 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 equity investments were marketable securities of $1,183,000 and $1,408,000 at March 31, 2015 and December 31, 2014, and non-marketable securities of $6,417,000 and $6,302,000 in the comparable periods. The $128,858,000 and $136,848,000 related to portfolio investments in controlled subsidiaries at March 31, 2015 and December 31, 2014 were all non-marketable in each period. 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.

The Company’s investment in Medallion Bank, as a wholly owned portfolio investment, is also subject to quarterly assessments of fair value. The Company conducts a thorough valuation analysis as described previously, and also receives 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 an annual basis. The Company determines 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 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 from non-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 has determined that Medallion Bank has little value beyond its recorded book value. As a result of this valuation process, the Company 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, although changes in these restrictions and other applicable factors could change these conclusions in the future. See Note 3 for additional information about Medallion Bank.

A majority of the Company’s investments consist of long-term loans to persons defined by SBA regulations as socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 60% and 59% of the Company’s investment portfolio at March 31, 2015 and December 31, 2014 had arisen in connection with the financing of taxicab medallions, taxicabs, and related assets, of which 68% were in New York City at March 31, 2015 and December 31, 2014. These loans are secured by

Page 9 of 69

the medallions, taxicabs, and related assets, and are personally guaranteed by the borrowers, or in the case of corporations, are generally guaranteed personally by the owners. A portion of the Company’s portfolio (14% at March 31, 2015 and December 31, 2014) represents loans to various commercial enterprises in a wide variety of industries, including manufacturing, retail trade, information, and recreation and various other industries. Approximately 38% of these loans are made primarily in the Midwest and 29% in the metropolitan New York City area, with the balance widely scattered across the United States. Investments in controlled unconsolidated subsidiaries, equity investments, and investment securities were 25%, 1%, and 0% and 26%, 1%, and 0% at March 31, 2015 and December 31, 2014.

On a managed basis, which includes the investments of Medallion Bank after eliminating the Company’s investment in Medallion Bank, medallion loans were 51% and 52% at March 31, 2015 and December 31, 2014 (74% in New York City), commercial loans were 9%, and 37% and 36% were consumer loans in all 50 states collateralized by recreational vehicles, boats, motorcycles, trailers, and home improvements. Investment securities were 2% at March 31, 2015 and December 31, 2014, and equity investments (including investments in controlled subsidiaries) were 1% at both period ends.

Investment Transactions and Income Recognition

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At March 31, 2015 and December 31, 2014, net loan origination costs were $297,000 and $275,000. Net accretion to income for the three months ended March 31, 2015 and 2014 was $17,000 and $25,000.

Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized as an adjustment to the yield of the related investment. At March 31, 2015 and December 31, 2014, there were no premiums or discounts on investment securities, and their related income accretion or amortization was immaterial for 2015 and 2014.

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. At March 31, 2015, December 31, 2014, and March 31, 2014, total nonaccrual loans were $10,123,000, $11,092,000, and $14,899,000, and represented 3%, 3%, and 4% of the gross medallion and commercial loan portfolio at each period end, and were primarily concentrated in the secured mezzanine portfolio. The amount of interest income on nonaccrual loans that would have been recognized if the loans had been paying in accordance with their original terms was $7,505,000, $8,444,000, and $9,647,000 as of March 31, 2015, December 31, 2014, and March 31, 2014, of which $384,000 and $499,000 would have been recognized in the quarters ended March 31, 2015 and 2014. The reduction in nonaccrual interest foregone and principal balances reflects the repayment of or the recognition of certain loans as realized losses, and hence removal from the nonaccrual disclosures.

Loan Sales and Servicing Fee Receivable

The Company accounts 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 has 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 $428,431,000 and $438,455,000 at March 31, 2015 and December 31, 2014, and included $401,094,000 and $410,915,000 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 exists as of March 31, 2015 and December 31, 2014. The Company has assigned its servicing rights to the Medallion Bank portfolio to MSC, a wholly-owned unconsolidated portfolio investment. The costs of servicing are allocated to MSC by the Company, and the servicing fee income is billed to and collected from Medallion Bank by MSC.

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

Unrealized appreciation (depreciation) on investments is the amount by which the fair value estimated by the Company is greater (less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and writeoffs of loans or assets acquired in satisfaction of loans, net of recoveries. Unrealized appreciation (depreciation) on investments was $35,895,000, $43,002,000, and $35,579,000 as of March 31, 2015, December 31, 2014, and March 31, 2014. The Company’s investment in Medallion Bank, a wholly owned portfolio investment, is a also subject to quarterly assessments of fair value. The Company conducts a thorough valuation analysis as described previously, and also receives 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. The Company determines whether any factors give rise to 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 on the ability to transfer industrial bank charters. As a result of this valuation process, the Company 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, although changes in these restrictions and other applicable factors could change these conclusions in the future. See Note 3 for the presentation of financial information for Medallion Bank.

Page 10 of 69

The following tables set forth the changes in the Company’s unrealized appreciation (depreciation) on investments for the 2015 and 2014 quarters shown below.


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Subsidiaries			Equity Investments			Foreclosed Properties			Total
Balance December 31, 2014	$	—		($	2,949	)	$	5,698		$	1,608		$	38,645		$	43,002
Net change in unrealized
Appreciation on investments		—			—			1,087			(244	)		(3,439	)		(2,596	)
Depreciation on investments		(159	)		514			(76	)		19			—			298
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			(4,809	)		—			—			(4,809	)
Losses on investments		—			—			—			—			—			—

Balance March 31, 2015	($	159	)	($	2,435	)	$	1,900		$	1,383		$	35,206		$	35,895


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Subsidiaries			Equity Investments			Foreclosed Properties			Total
Balance December 31, 2013	$	—		($	6,992	)	$	814		$	381		$	40,404		$	34,607
Net change in unrealized
Appreciation on investments		—			—			(90	)		100			—			10
Depreciation on investments		—			74			—			195			381			650
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			—			—			—
Losses on investments		—			312			—			—			—			312

Balance March 31, 2014	$	—		($	6,606	)	$	724		$	676		$	40,785		$	35,579

The table below summarizes components of unrealized and realized gains and losses in the investment portfolio for the quarters ended March 31, 2015 and 2014.


	Three Months Ended March 31,
(Dollars in thousands)	2015			2014
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	($	168	)	$	100
Unrealized depreciation		298			269
Net unrealized appreciation (depreciation) on investment in Medallion Bank and other controlled subsidiaries		2,383			2,426
Realized gains		(4,809	)		—
Realized losses		—			312
Net unrealized gains (losses) on foreclosed properties and other assets		(3,439	)		381

Total	($	5,735	)	$	3,488

Net realized gains (losses) on investments
Realized gains	$	4,809		$	—
Realized losses		—			(312	)
Other gains		3,088			49
Direct recoveries		2			91
Realized gains on foreclosed properties and other assets		—			—

Total	$	7,899		($	172	)

Page 11 of 69

The following table provides additional information on attributes of the nonperforming loan portfolio as of March 31, 2015, December 31, 2014, and March 31, 2014.


(Dollars in thousands)	Recorded Investment ^(1) (2)		Unpaid Principal Balance		Average Recorded Investment
March 31, 2015
Medallion ⁽³⁾	$	1,206	$	1,208	$	1,208
Commercial ⁽³⁾		8,917		14,978		9,006
December 31, 2014
Medallion ⁽³⁾	$	—	$	—	$	—
Commercial ⁽³⁾		11,106		17,953		11,224
March 31, 2014
Medallion ⁽³⁾	$	—	$	—	$	—
Commercial ⁽³⁾		14,899		22,376		15,017

(1)	As of March 31, 2015, December 31, 2014, and March 31, 2014, $2,594, $2,898, and $5,946 of unrealized depreciation had been recorded as a valuation allowance on these loans.

(2)	Interest income of $10 and $1 was recognized on loans for the quarters ended March 31, 2015 and 2014.

(3)

Included in the unpaid principal balance is unearned paid-in-kind interest on nonaccrual loans of $6,061, $7,180, and $7,477, which is included in the nonaccrual disclosures in the section titled “Investment Transactions and Income Recognition” on page 10 as of March 31, 2015, December 31, 2014, and March 31, 2014.

The following tables show the aging of medallion and commercial loans as of March 31, 2015 and December 31, 2014.


March 31, 2015	Days Past Due												Recorded Investment > 90 Days and Accruing
(Dollars in thousands)	31 - 60		61 - 90		91 +		Total		Current		Total		Recorded Investment > 90 Days and Accruing
Medallion loans	$	7,906	$	2,986	$	1,743	$	12,635	$	298,426	$	311,061	$	—

Commercial loans
Secured mezzanine		—		—		1,390		1,390		57,344		58,734		—
Asset-based receivable		—		—		303		303		3,145		3,448		—
Other secured commercial		372		356		377		1,105		12,813		13,918		—

Total commercial loans		372		356		2,070		2,798		73,302		76,100		—

Total	$	8,278	$	3,342	$	3,813	$	15,433	$	371,728	$	387,161	$	—


December 31, 2014	Days Past Due												Recorded Investment > 90 Days and Accruing
(Dollars in thousands)	31 - 60		61 - 90		91 +		Total		Current		Total		Recorded Investment > 90 Days and Accruing
Medallion loans	$	4,279	$	2,463	$	—	$	6,742	$	304,777	$	311,519	$	—

Commercial loans
Secured mezzanine		—		—		1,391		1,391		53,668		55,059		—
Asset-based receivable		—		—		303		303		3,330		3,633		—
Other secured commercial		263		390		—		653		14,853		15,506		—

Total commercial loans		263		390		1,694		2,347		71,851		74,198		—

Total	$	4,542	$	2,853	$	1,694	$	9,089	$	376,628	$	385,717	$	—

A third party finance company sold various participations in asset based loans to Medallion Business Credit and Medallion Bank. In April 2013 the aggregate balance of the participations was approximately $13.8 million, $12.9 million of which were held by Medallion Bank. That amount was divided between seven separate borrowers operating in a variety of industries. In April 2013, the third party finance company became the subject of an involuntary bankruptcy petition filed by its bank lenders. Among other things, the bank lenders alleged that the third party finance company fraudulently misrepresented its borrowing availability under its credit facility with the bank lenders and are seeking the third party finance company’s liquidation. In May 2013, the bankruptcy court presiding over the third party finance company’s case entered an order converting the involuntary chapter 7 case to a chapter 11 case. The Company and Medallion Bank have placed these loans on nonaccrual, and reversed interest income. In addition, the Company and Medallion Bank have established valuation allowances against the outstanding balances. On May 31, 2013, the Company and Medallion Bank commenced an adverse proceeding against the third party finance company and the bank lenders seeking declaratory judgment that the Company’s and Medallion Bank’s loan participations are true participations and not subject to the bankruptcy estate or to the bank lender’s security interest in the third party finance company’s assets. The third party finance company and bank lenders are contesting the Company’s and Medallion Bank’s position. In April 2014, the Company and Medallion Bank received a decision from the court granting summary judgment in their favor with respect to the issue of whether the Company’s and Medallion Bank’s loan participations are true participations. In March 2015, the Company and Medallion Bank received a decision from the court finding that the bank lenders generally held a first lien on the Company’s and Medallion Bank’s loan participations subject to, among other things, defenses still pending prosecution by the parties and adjudication by the court. The Company and Medallion Bank are appealing the decision. The remaining issues are still being litigated.

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Although the Company and Medallion Bank believe the claims raised by the third party finance company and the bank lenders are without merit and will vigorously defend against them, the Company and Medallion Bank cannot at this time predict the outcome of this litigation or determine their potential exposure. At March 31, 2015, five of the seven secured borrowers had refinanced their loans in full with third parties, and the related proceeds are held in escrow pending resolution of the bankruptcy proceedings. One loan was charged off in September 2014. The one remaining loan is still outstanding. The balances related to the paid off loans have been reclassified to other assets on the consolidated balance sheet. The table below summarizes these receivables and their status with the Company and Medallion Bank as of March 31, 2015.


(Dollars in thousands)	The Company			Medallion Bank			Total
Loans outstanding	$	289		$	2,291		$	2,580
Loans charged off ⁽¹⁾		(190	)		(940	)		(1,130	)
Valuation allowance		(50	)		(675	)		(725	)

Net loans outstanding		49			676			725

Other receivables		560			10,642			11,202
Valuation allowance		(168	)		(3,193	)		(3,361	)

Net other receivables		392			7,449			7,841
Total net outstanding		441			8,125			8,566

Income foregone in 2015		8			12			20
Total income foregone	$	66		$	96		$	162

(1)	The income foregone on the charged off loan was $20 for the Company and $96 for Medallion Bank.

The following table shows troubled debt restructurings which the Company entered into during the quarter ended March 31, 2015.


							Troubled Debt Restructuring that Subsequently Defaulted
(Dollars in thousands)	Number of Loans		Pre-Modification Investment		Post-Modification Investment		Number of Loans		Recorded Investment
Medallion loans		11	$	7,469	$	8,996		—	$	—

Commercial loans
Secured mezzanine		—		—		—		—		—
Asset-based receivable		—		—		—		—		—
Other secured commercial		—		—		—		—		—

Total commercial loans		—		—		—		—		—

Total		11	$	7,469	$	8,996		—	$	—

The Company had no troubled debt restructurings during the quarter ended March 31, 2014.

Goodwill

In accordance with ASC Topic 350, “Intangibles – Goodwill and Other,” the Company has determined that it is more likely than not that the relevant reporting unit’s fair value is greater than its carrying amount as of March 31, 2015 and December 31, 2014, and that impairment testing of goodwill is not required. The results of this evaluation demonstrated no impairment in goodwill for any period evaluated, and management believes, and the Board of Directors concurs, that there is no impairment as of March 31, 2015. The Company conducts annual, and if necessary, more frequent, appraisals of its goodwill, and will recognize any impairment in the period any impairment is identified as a charge to operating expenses.

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 $37,000 and $41,000 for the quarters ended March 31, 2015 and 2014.

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. Amortization expense was $67,000 and $82,000 for the quarters ended March 31, 2015 and 2014. In addition, the Company capitalizes certain costs for transactions in the

Page 13 of 69

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 will be amortized against income over an appropriate period, or written off. The amounts on the balance sheet for all of these purposes were $1,749,000, $1,815,000, and $1,474,000 as of March 31, 2015, December 31, 2014, and March 31, 2014.

Federal Income Taxes

The Company and each of its major subsidiaries other than Medallion Bank and Medallion Funding LLC (the RIC subsidiaries) have qualified to be treated for federal income tax purposes as regulated investment companies (RICs) under the Internal Revenue Code of 1986, as amended (the Code). As RICs, the Company and each of the RIC subsidiaries are not subject to US federal income tax on any gains or investment company taxable income (which includes, among other things, dividends and interest income reduced by deductible expenses) that it distributes to its shareholders, if at least 90% of its investment company taxable income for that taxable year is distributed. It is the Company’s and the RIC subsidiaries’ policy to comply with the provisions of the Code. The Company’s RIC qualification is determined on an annual basis, and it qualified and filed its federal tax returns as a RIC for 2013 and 2012, and anticipates qualifying and filing as a RIC for 2014. As a result, no provisions for income taxes have been recorded for the quarters ended March 31, 2015 and 2014. State and local tax treatment follows the federal model.

The Company has filed tax returns in many states. Federal, New York State, and New York City tax filings of the Company for the tax years 2011 through the present are the more significant filings that are open for examination.

Medallion Bank is not a RIC and is taxed as a regular corporation. Fin Trust, Medallion Funding LLC, and Trust III are not subject to federal income taxation, instead their taxable income is treated as having been earned by the Company.

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

Basic earnings per share are computed by dividing net increase 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 March 31,
(Dollars in thousands)	2015		2014
Net increase in net assets resulting from operations available to common shareholders	$	7,068	$	6,766

Weighted average common shares outstanding applicable to basic EPS		24,446,419		24,792,489
Effect of dilutive stock options		20,616		163,219
Effect of restricted stock grants		75,692		137,118

Adjusted weighted average common shares outstanding applicable to diluted EPS		24,542,727		25,092,826

Basic earnings per share	$	0.29	$	0.27
Diluted earnings per share		0.29		0.27

Potentially dilutive common shares excluded from the above calculations aggregated 180,184 and 18,000 shares as of March 31, 2015 and 2014.

Stock Compensation

The Company follows FASB Accounting Standard Codification Topic 718 (ASC 718), “Compensation – Stock Compensation”, for its 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 increase 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 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 three months ended March 31, 2015 and 2014, the Company issued 155,118 and 101,113 restricted shares of stock-based compensation awards, and no shares of other stock-based compensation awards, and recognized $390,000 and $351,000, or $0.02 and $0.01 per diluted common share for each period, of non-cash stock-based compensation expense related to the grants. As of March 31, 2015, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $2,135,000, which is expected to be recognized over the next 12 quarters (see Note 5).

Page 14 of 69

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 $180,000,000 of notional value of principal from various multinational banks, with termination dates ranging to September 2017. 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 and $14,000 for the quarters ended March 31, 2015 and 2014, and all are carried at $0 on the balance sheet at March 31, 2015.

Reclassifications

Certain reclassifications have been made to prior year balances to conform with the current quarter’s presentation. These reclassifications have no effect on the previously reported results of operations.

(3) INVESTMENT IN MEDALLION BANK AND OTHER CONTROLLED SUBSIDIARIES

The following table presents information derived from Medallion Bank’s statement of comprehensive income and other valuation adjustments on other controlled subsidiaries for the quarters ended March 31, 2015 and 2014.


	Three Months Ended March 31,
(Dollars in thousands)	2015			2014
Statement of comprehensive income
Investment income	$	20,678		$	17,109
Interest expense		2,027			1,445

Net interest income		18,651			15,664
Noninterest income		76			80
Operating expenses		5,051			4,634

Net investment income before income taxes		13,676			11,110
Income tax provision		(4,501	)		(3,359	)

Net investment income after income taxes		9,175			7,751
Net realized/unrealized losses of Medallion Bank		(2,410	)		(1,779	)

Net increase in net assets resulting from operations of Medallion Bank		6,765			5,972
Unrealized depreciation on Medallion Bank ⁽¹⁾		(5,066	)		(3,066	)
Net realized/unrealized losses on controlled subsidiaries other than Medallion Bank		(4,125	)		(480	)

Net decrease in net assets resulting from operations of Medallion Bank and other controlled subsidiaries	($	2,426	)	$	2,426

(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.

The following table presents Medallion Bank’s balance sheets and the net investment in other controlled subsidiaries as of March 31, 2015 and December 31, 2014.


(Dollars in thousands)	2015		2014
Loans	$	887,829	$	881,075
Investment securities, at fair value		29,672		27,900

Net investments ⁽¹⁾		917,501		908,975
Cash		23,577		30,372
Other assets, net		23,922		24,696

Total assets	$	965,000	$	964,043

Other liabilities	$	6,985	$	2,730
Due to affiliates		561		3,032
Deposits and other borrowings, including accrued interest payable		806,311		808,837

Total liabilities		813,857		814,599
Medallion Bank equity ⁽²⁾		151,143		149,444

Total liabilities and equity	$	965,000	$	964,043

Investment in other controlled subsidiaries	$	4,501	$	11,821
Total investment in Medallion Bank and other controlled subsidiaries		128,858		136,848

(1)	Included in Medallion Bank’s net investments is $12 and $15 for purchased loan premium at March 31, 2015 and December 31, 2014.

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

The following paragraphs summarize the accounting and reporting policies of Medallion Bank, and provide additional information relating to the tables presented above.

Page 15 of 69

Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized on a level yield basis as an adjustment to the yield of the related investment. At March 31, 2015 and December 31, 2014, the net premium on investment securities totaled $253,000 and $272,000, and $18,000 and $16,000 was amortized into interest income for the quarters ended March 31, 2015 and 2014.

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At March 31, 2015 and December 31, 2014, net loan origination costs were $9,924,000 and $9,937,000. Net amortization expense for the quarters ended March 31, 2015 and 2014 was $704,000 and $700,000.

Medallion Bank’s policies regarding nonaccrual of medallion and commercial loans are similar to those of the Company. The consumer portfolio has different characteristics compared to commercial loans, typified by a larger number of lower dollar loans that have similar characteristics. 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. At March 31, 2015, $2,761,000 or 1% of consumer loans, $1,351,000 or 3% of commercial and $711,000 or less than 1% medallion loans were on nonaccrual, compared to $2,536,000 or 1% of consumer loans, $1,351,000 or 3% of commercial loans, and no medallion loans on nonaccrual at December 31, 2014, and $2,383,000 or 1% of consumer loans, $2,291,000 or 5% of commercial loans and no medallion loans on nonaccrual at March 31, 2014. The amount of interest income on nonaccrual loans that would have been recognized if the loans had been paying in accordance with their original terms was $96,000, $90,000, and $113,000 as of March 31, 2015, December 31, 2014, and March 31, 2014. See also the paragraph and table on page 41 following the delinquency table for a discussion of other past due amounts.

Medallion Bank’s loan and investment portfolios are assessed for collectability on a monthly basis, and a loan loss allowance is established for any realizability concerns on specific investments, and general reserves have also been established for any unknown factors. Adjustments to the value of this portfolio are based on the Company’s own historical loan loss data developed since 2004, adjusted for changes in delinquency trends and other factors as described previously in Note 2.

Medallion Bank raises deposits to fund loan originations. The deposits were raised through the use of investment brokerage firms who package deposits qualifying for FDIC insurance into pools that are sold to Medallion Bank. The rates paid on the deposits are highly competitive with market rates paid by other financial institutions, and include a brokerage fee depending on the maturity of the deposit, which averages less than 0.20%, and which is capitalized and amortized to interest expense over the life of the respective pool. The total amount capitalized at March 31, 2015 and December 31, 2014 was $1,966,000 and $2,205,000, and $313,000 and $296,000 was amortized to interest expense during the quarters ended March 31, 2015 and 2014. Interest on the deposits is accrued daily and paid monthly, quarterly, semiannually, or at maturity.

The outstanding balances of fixed rate borrowings were as follows.


	Payments Due for the Fiscal Year Ending March 31,												March 31,		December 31,		Interest
(Dollars in thousands)	2016		2017		2018		2019		2020		Thereafter		2015		2014		Rate ⁽¹⁾
Deposits and other borrowings	$	316,027	$	245,359	$	132,542	$	79,539	$	32,000	$	—	$	805,467	$	807,940		0.88	%

(1)	Weighted average contractual rate as of March 31, 2015.

Medallion Bank is subject to various regulatory capital requirements administered by the FDIC and State of Utah Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Medallion Bank’s and the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Medallion Bank must meet specific capital guidelines that involve quantitative measures of Medallion Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Medallion Bank’s capital amounts and classification are also subject to qualitative judgments by Medallion 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 Medallion Bank to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting Medallion Bank’s application for federal deposit insurance, the FDIC ordered that the leverage capital ratio (Tier 1 capital to average assets) be not less than 15%, and that an adequate allowance for loan losses be maintained. As a result, to facilitate maintenance of the capital ratio requirement and to provide the necessary capital for continued growth, the Company periodically makes capital contributions to Medallion Bank, including $10,000,000 in 2014. Separately, Medallion Bank declared dividends to the Company of $5,000,000 and $3,000,000 in each of the 2015 and 2014 first quarters.

Page 16 of 69

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 rate non-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 of Senior Non-Cumulative Perpetual Preferred Stock, Series E (Series E) for an aggregate purchase price of $26,303,000 under the Small Business Lending Fund Program (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 1% on the Series E.

The following table represents Medallion Bank’s actual capital amounts and related ratios as of March 31, 2015 and December 31, 2014, compared to required regulatory minimum capital ratios and the ratios required to be considered well capitalized. As of March 31, 2015, Medallion Bank meets all capital adequacy requirements to which it is subject, and is well-capitalized.


	Regulatory
(Dollars in Thousands)	Minimum			Well-capitalized			March 31, 2015			December 31, 2014
Common equity tier 1 capital⁽³⁾		—			—		$	123,878			NA
Tier 1 capital		—			—			150,181		$	148,510
Total capital		—			—			162,077			160,220
Average assets		—			—			955,323			961,944
Risk-weighted assets		—			—			945,453			930,737
Leverage ratio ⁽¹⁾		4	%		5	%		15.7	%		15.5	%
Common equity tier 1 capital ratio⁽³⁾		5			7			13.1			NA
Tier 1 capital ratio ⁽²⁾		6			8			15.9			16.0
Total capital ratio ⁽²⁾		8			10			17.1			17.2

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

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

(3)	Not required until 2015.

(4) FUNDS BORROWED

The outstanding balances of funds borrowed were as follows.


	Payments Due for the Fiscal Year Ending March 31,												March 31,		December 31,		Interest
(Dollars in thousands)	2016		2017		2018		2019		2020		Thereafter		2015		2014		Rate ⁽¹⁾
Revolving lines of credit	$	—	$	120,618	$	—	$	—	$	—	$	—	$	120,618	$	122,794		1.87	%
Notes payable to banks		44,965		88,679		95		—		—		—		133,739		124,516		2.50	%
SBA debentures		4,000		—		—		3,000		—		58,985		65,985		68,485		3.92	%
Preferred securities		—		—		—		—		—		33,000		33,000		33,000		2.39	%

Total	$	48,965	$	209,297	$	95	$	3,000	$	—	$	91,985	$	353,342	$	348,795		2.54	%

(1)	Weighted average contractual rate as of March 31, 2015.

(A) REVOLVING LINES OF CREDIT

In December 2008, Trust III entered into a revolving line of credit 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 line), which was extended in December 2013 until December 2016, and the line reduced to $150,000,000, and of which $120,618,000 was outstanding at March 31, 2015. Borrowings under Trust III’s revolving line of credit are collateralized by Trust III’s assets. MFC is the servicer of the loans owned by Trust III. The DZ line includes a borrowing base covenant and rapid amortization in certain circumstances. In addition, if certain financial tests are not met, MFC can be replaced as the servicer. The interest rate with the 2013 extension is a pooled short-term commercial paper rate which approximates LIBOR (30 day LIBOR was 0.18% at March 31, 2015) plus 1.65%, and previously was the lesser of a pooled short-term commercial paper rate, plus 0.95%.

(B) SBA DEBENTURES

In September 2014, the SBA approved $10,000,000 of commitments for MCI for a four year term and a 1% fee, which was paid. In 2013, the SBA approved $23,000,000 and $5,000,000 of commitments for FSVC and MCI, respectively, for a four year term and a 1% fee, which was paid, and of which FSVC issued $23,000,000 of debentures, $18,150,000 of which was used to repay maturing debentures, and MCI issued $2,500,000 of debentures. In September 2010, the SBA approved a $5,000,000 commitment for MCI to issue additional debentures during a four year period upon payment of a 1% fee. The SBA also approved a $7,485,000 commitment for FSVC to issue additional debentures during a four year period upon payment of a 1% fee, for the purpose of repaying $7,485,000 of debentures which matured in September 2011, which were issued on March 1, 2011 and used to prepay the September 2011 maturing debentures. In September 2006, the SBA approved a $6,000,000 commitment for FSVC to issue additional debentures to the SBA during a four year period upon payment of a 1% fee and the infusion of $2,000,000 of additional capital. In March 2006, the SBA approved a $13,500,000 commitment for MCI to issue additional debentures to the SBA during a four year period upon payment of a 1% fee and the infusion of $6,750,000 of additional capital. In November 2003, the SBA approved an $8,000,000 commitment for FSVC, and during 2001, the SBA approved $36,000,000 each in commitments for FSVC and MCI. As of March 31, 2015, $149,985,000 of commitments had been fully utilized, there were $0 commitments available, and $65,985,000 was outstanding.

Page 17 of 69

The notes are collateralized by substantially all of FSVC’s and MCI’s assets and are subject to the terms and conditions of agreements with the SBA which, among other things, restrict stock redemptions, disposition of assets, new indebtedness, distributions, and changes in management, ownership, investment policy, or operations. The debentures have been issued in various tranches for terms of ten years with interest payable semiannually.

(C) NOTES PAYABLE TO BANKS/OTHER LENDERS

The Company and its subsidiaries have entered into (i) note agreements and (ii) participation agreements with a variety of local and regional banking institutions over the years, as well as other non-bank lenders. The notes are typically secured by various assets of the underlying borrower. The Company believes the participation agreements represent legal true sales of the loans to the lender, but for accounting purposes these participations are treated as financings, and are included in funds borrowed as shown on the Company’s consolidated balance sheets.

The table below summarizes the key attributes of the Company’s various borrowing arrangements with these lenders as of March 31, 2015.

(Dollars in thousands)

Borrower

# of Lenders
/ Notes

Note
Dates

Maturity
Dates

Type

Note
Amounts

Balance
Outstanding at
March 31,
2015

Monthly Payment

Average Interest
Rate at March 31,
2015

Interest
Rate
Index⁽¹⁾

The Company

8/8

4/11 - 9/14

7/15 - 7/16

Revolving
line of
credit
secured by
pledged
loans

142,500

⁽²⁾

105,400

Interest only

2.34%
(includes
unused
fee)

Various⁽²⁾

Medallion Chicago

3/28

11/11 - 12/11

12/16

Term loans
secured by
owned
Chicago
medallions⁽³⁾

25,708

24,026

$121
principal &
interest

3.12%

N/A

The Company

1/1

1/11

11/16

Participated
loans
treated as
financings

3,915

3,909

Proportionate
to the
payments
received on
the
participated
loans

2.50%

N/A

FSVC

3/3

2/12 - 4/14

11/15 - 2/18

Participated
loans
treated as
financings

256

251

Proportionate
to the
payments
received on
the
participated
loans

7.22%

N/A

MFC

2/3

2/13 -3/13

2/16 - 3/16

Participated
loans
treated as
financings

160

153

Proportionate
to the
payments
received on
the
participated
loans

9.79%

N/A

MFC

1/1

1/05

5/15

Revolving
line of
credit
secured by
pledged
loans

8,000

—

Interest only

—

Prime +
0.50%

180,539

133,739

(1)	At March 31, 2015, 30 day LIBOR was 0.18%, 360 day LIBOR was 0.70%, and the prime rate was 3.25%.

(2)

$92,500 of these lines can also be used by MFC ($30,500 which is available) of which $30,000 of such usage would be guaranteed by the Company. Interest rates on these lines range from LIBOR plus 2% to LIBOR + 2.125%, and all contain prime rate options from prime minus 0.25% to prime, and one note has a floor, and three notes have an unused fee.

(3)	$14,808 guaranteed by the Company.

(D) 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 bore a fixed rate of interest of 7.68% to September 2012, and thereafter a variable rate of interest of 90 day LIBOR (0.27% at March 31, 2015) 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 March 31, 2015, $33,000,000 was outstanding on the preferred securities.

(E) COVENANT COMPLIANCE

In the normal course of business, the Company and its subsidiaries enter into agreements, or are subject to regulatory requirements, that result in loan restrictions. Certain of the Company’s debt agreements contain restrictions that require the Company to maintain certain financial ratios, including debt to equity and minimum net worth. In addition, the Company’s wholly-owned subsidiary Medallion Bank is subject to various regulatory requirements (see Note 3).

(5) 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 shareholders on June 16, 2006, provides for the issuance of a maximum of 800,000 shares of common stock of the Company. At March 31, 2015, 140,999 shares of the Company’s common stock remained available for future grants. 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.

Page 18 of 69

The Company’s Board of Directors approved the 2009 Employee Restricted Stock Plan (the Employee Restricted Stock Plan) on April 16, 2009. The Employee Restricted Stock Plan became effective upon the Company’s receipt of exemptive relief from the SEC and approval of the Employee Restricted Stock Option Plan by the Company’s shareholders on June 11, 2010. The terms of the Employee 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 800,000 shares of the Company’s common stock are issuable under the Employee Restricted Stock Plan, and as of March 31, 2015, 228,256 shares of the Company’s common stock remained available for future grants. Awards under the 2009 Employee Plan are subject to certain limitations as set forth in the Employee Restricted Stock Plan. The Employee Restricted Stock Plan will terminate when all shares of common stock authorized for delivery under the Employee 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 Employee Restricted Stock Plan, whichever first occurs.

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 are issuable under the Amended Director Plan, and as of March 31, 2015, 64,000 shares of the Company’s common stock remained available for future grants. 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.

The Company’s 1996 Stock Option Plan and 1996 Director Plan terminated on May 21, 2006 and no additional shares are available for future issuance. At March 31, 2015, 428,438 options on the Company’s common stock were outstanding under the 1996 and 2006 plans, of which 383,438 options were exercisable, and there were 280,617 unvested shares of the Company’s common stock outstanding under the Employee 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. There were no options granted during the three months ended March 31, 2015 and 2014. The following assumption categories are used to determine the value of any option grants.


	Three Months Ended March 31,
	2015		2014
Risk free interest rate		NA		NA
Expected dividend yield		NA		NA
Expected life of option in years ⁽¹⁾		NA		NA
Expected volatility⁽²⁾		NA		NA

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

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

The following table presents the activity for the stock option program under the 1996 and 2006 Stock Option Plans and the Amended Director Plan for the periods ended March 31, 2015 and December 31, 2014.


	Number of Options			Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2013		578,217		$	7.17-13.84	$	9.85
Granted		32,000			11.42-13.53		12.61
Cancelled		(50,000	)		8.51		8.51
Exercised ⁽¹⁾		(98,396	)		7.17-11.21		8.96

Outstanding at December 31, 2014		461,821			7.49-13.84		10.38
Granted		—			—		—
Cancelled		(2,934	)		9.22-13.06		10.64
Exercised⁽¹⁾		(30,449	)		9.22		9.22

Outstanding at March 31, 2015⁽²⁾		428,438		$	7.49-13.84	$	10.46
Options exercisable at March 31, 2015⁽²⁾		383,438		$	7.49-13.84	$	10.17

(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 $33,000 and $197,000 for the 2015 and 2014 first quarters.

(2)

The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at March 31, 2015 and the related exercise price of the underlying options, was $29,000 for outstanding options and $29,000 for exercisable options as of March 31, 2015. The remaining contractual life was 3.42 years for outstanding options and 2.76 years for exercisable options at March 31, 2015.

Page 19 of 69

The following table presents the activity for the restricted stock program under the 2009 Employee Restricted Stock Plan for the periods ended March 31, 2015 and December 31, 2014.


	Number of Shares			Grant Price Per Share		Weighted Average Grant Price
Outstanding at December 31, 2013		234,268		$	7.99-15.61	$	10.72
Granted		129,126			10.08-13.46		12.82
Cancelled		(378	)		11.08-15.16		12.65
Vested ⁽¹⁾		(153,651	)		7.99-15.61		10.11

Outstanding at December 31, 2014		209,365			10.08-15.61		12.47
Granted		155,118			9.92		9.91
Cancelled		(20,455	)		9.92-15.61		11.33
Vested⁽¹⁾		(63,411	)		11.08-13.46		12.35

Outstanding at March 31, 2015⁽²⁾		280,617		$	9.92-15.61	$	11.18

(1)	The aggregate fair value of the restricted stock vested was $624,000 and $1,397,000 for the 2015 and 2014 first quarters.

(2)	The aggregate fair value of the restricted stock was $2,599,000 as of March 31, 2015. The remaining vesting period was 2.32 years at March 31, 2015.

The following table presents the activity for the unvested options outstanding under the plans for the 2015 first quarter.


	Number of Options		Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2014		45,000	$	11.42-13.84	$	12.93
Granted		—		—		—
Cancelled		—		—		—
Vested		—		—		—

Outstanding at March 31, 2015		45,000	$	11.42-13.84	$	12.93

The intrinsic value of the options vested was $0 for the 2015 first quarter.

(6) SEGMENT REPORTING

The Company has one business segment, its lending and investing operations. This segment originates and services medallion, secured commercial, and consumer loans, and invests in both marketable and nonmarketable securities.

(7) NONINTEREST INCOME AND OTHER OPERATING EXPENSES

The major components of noninterest income were as follows:


	Three Months Ended March 31,
(Dollars in thousands)	2015		2014
Late charges	$	22	$	8
Servicing fees		13		52
Prepayment fees		5		23
Management fees		—		75
Other		16		33

Total noninterest income	$	56	$	191

Late charges increased as delinquencies grew in some business units. The decreases in servicing fees in 2015 reflected the fluctuations in the servicing and loan origination activities performed for Medallion Bank. There were no management fees earned on a portfolio investment company in the 2015 first quarter.

The major components of other operating expenses were as follows:


	Three Months Ended March 31,
(Dollars in thousands)	2015		2014
Travel, meals, and entertainment	$	229	$	218
Directors’ fees		108		101
Computer expense		102		25
Miscellaneous taxes		78		95
Office expense		60		67
Insurance		50		55
Depreciation and amortization		37		41
Telephone		14		44
Other expenses		108		145

Total other operating expenses	$	786	$	791

Page 20 of 69

Computer expense increased in 2015 due to upgrades of desktop hardware and network redundancy equipment in the data centers. Other operating expenses were lower, reflecting expense reduction efforts and reversals of accrued liabilities.

(8) SELECTED FINANCIAL RATIOS AND OTHER DATA

The following table provides selected financial ratios and other data:


	Three Months Ended March 31,
(Dollars in thousands, except per share data)	2015			2014
Net share data
Net asset value at the beginning of the period	$	11.16		$	10.95
Net investment income		0.20			0.14
Income tax (provision) benefit		—			—
Net realized gains (losses) on investments		0.32			(0.01	)
Net change in unrealized appreciation on investments		(0.23	)		0.14

Net increase in net assets resulting from operations		0.29			0.27
Issuance of common stock		(0.02	)		(0.05	)
Repurchase of common stock		(0.01	)		—
Distribution of net investment income		(0.15	)		(0.03	)
Return of capital		(0.09	)		(0.20	)
Distribution of net realized gains on investments		—			—

Total distributions		(0.24	)		(0.23	)
Other		(0.02	)		0.01

Total increase (decrease) in net asset value		0.00			0.00

Net asset value at the end of the period ⁽¹⁾	$	11.16		$	10.95

Per share market value at beginning of period	$	10.01		$	14.35
Per share market value at end of period		9.26			13.21
Total return ⁽²⁾		(21	%)		(26	%)

Ratios/supplemental data
Total shareholders’ equity (net assets)	$	276,017		$	275,055
Average net assets		277,447			275,158
Total expense ratio ^{(3) (4)}		10.21	%		8.51	%
Operating expenses to average net assets ⁽⁴⁾		6.97			5.60
Net investment income after income taxes to average net assets⁽⁴⁾		7.17			5.08

(1)	Includes $0.00 of undistributed net investment income per share and $0.00 of undistributed net realized gains per share as of March 31, 2015 and 2014.

(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 $1,421 and $1,404 and operating expenses of $1,696 and $1,455, which formerly were the Company’s, were now MSC’s for the quarters ended March 31, 2015 and 2014. Excluding the impact of the MSC amounts, the total expense ratio, operating expense ratio, and net investment income ratio would have been 13% and 11%, 9.45% and 7.75%, and 6.77% and 5.01%, for the first quarters of 2015 and 2014.

(9) RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, “Interest – Imputation of Interest (Subtopic 835-30)” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not believe this update will have a material impact on its financial condition.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis.” ASU 2014-02 updates consolidation guidance for legal entities such as limited partnerships, limited liability companies and securitization structures in an attempt to simplify consolidation accounting. The update eliminates the presumption that a general partner should consolidate a limited partnership, it modifies the evaluation of whether limited partnerships are variable interest entities or voting interest entities and adds requirements that limited partnerships must meet to qualify as voting interest entities. The update is effective for fiscal years beginning after December 15, 2015. The Company does not believe adoption of the new standards will have a material impact on its financial condition or results of operations.

In January 2015, the FASB issued ASU 2015-01, “Income Statement —Extraordinary and Unusual Items (Subtopic 225-20)”. This Update eliminates from GAAP the concept of extraordinary items, simplifying income statement presentation. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company does not believe this update will have an impact on its financial condition or results of operations.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40)”. ASU 2014-15 provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of a company’s ability to continue as a going concern within one year of the date the financial statements are issued. The company must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. As the update impacts disclosures only, it will have no impact on the Company’s financial condition or results of operations.

Page 21 of 69

In August 2014, the FASB issued ASU 2014-13, “Consolidation – (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing”. ASU 2014-13 provides an alternative to Topic 820 for measuring the financial assets and the financial liabilities of a consolidated collateralized financing entity to eliminate any differences between their respective fair values. In the event a reporting entity does not elect to utilize the measurement alternative, the update clarifies that the fair value of the financial assets and liabilities of the consolidated collateralized financing entity should be measured using the requirements of Topic 820 and any differences should be reflected in earnings and attributed to the reporting entity in the consolidated statement of income (loss). This update is effective for periods beginning after December 15, 2015. The Company does not believe this update will have an impact on its financial condition or results of operations.

In June 2014, FASB issued ASU 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite service Period (a consensus of the FASB Emerging Issues Task Force).” The update requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and would be accounted for under existing guidance in Topic 718. The update is effective for periods beginning after December 15, 2015. The Company does not believe the adoption of the standard will have a material impact on its financial condition or results of operations.

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 defines how companies report revenues from contracts with customers, and also requires enhanced disclosures. The update is effective for annual reporting periods beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method nor has it determined the effect of the standard on its financial statements and related disclosures.

(10) RELATED PARTY TRANSACTIONS

Certain directors, officers, and shareholders of the Company are also directors and officers of its wholly-owned subsidiaries, MFC, MCI, FSVC, and Medallion Bank, as well as of certain portfolio investment companies. Officer salaries are set by the Board of Directors of the Company.

A member of the Board of Directors of the Company from 1996 through 2014 was also of counsel in the Company’s primary law firm. Amounts paid to the law firm were $20,000 and $45,000 for the 2015 and 2014 first quarters.

Jeffrey Rudnick, the son of one of the Company’s directors, is an officer of LAX Group, LLC (LAX), one of the Company’s portfolio companies. Mr. Rudnick receives a salary from LAX of $162,000 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.

At March 31, 2015, December 31, 2014, and March 31, 2014, MSC serviced $401,094,000, $410,915,000, and $409,141,000 of loans for Medallion Bank. 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 has assigned its servicing rights to the Medallion Bank portfolio to MSC, a wholly-owned unconsolidated portfolio investment. 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 2015 and 2014 first quarters, $1,421,000 and $1,404,000 of servicing fee income was earned by MSC.

The following table summarizes the net revenues received from Medallion Bank.


	Three Months Ended March 31,
(Dollars in thousands)	2015		2014
Reimbursement of operating expenses	$	105	$	115
Loan origination fees		37		98
Servicing fees		4		4

Total other income	$	146	$	217

(11) FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC Topic 825, “Financial Instruments,” requires disclosure of fair value information about certain financial instruments, whether assets, liabilities, or off-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.

Page 22 of 69

(a) Investments - The Company’s investments are recorded at the estimated fair value of such investments.

(b) Floating rate borrowings - Due to the short-term nature of these instruments, the carrying amount approximates fair value.

(c) Commitments to extend credit - 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 March 31, 2015 and December 31, 2014, the estimated fair value of these off-balance-sheet instruments was not material.

(d) Fixed rate borrowings - The fair value of the debentures payable to the SBA is estimated based on current market interest rates for similar debt.

March 31, 2015

December 31, 2014

(Dollars in thousands)

Carrying
Amount

Fair Value

Carrying
Amount

Fair Value

Financial assets

Investments

521,322

527,601

Cash ⁽¹⁾

58,148

47,083

Accrued interest receivable ⁽²⁾

1,016

988

Financial liabilities

Funds borrowed ⁽²⁾

353,342

348,795

Accrued interest payable ⁽²⁾

882

2,171

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

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

(12) 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. The Company accounts for substantially all of its financial instruments at fair value or considers fair value in its measurement, in accordance with the accounting guidance for investment companies. See Note 2 sections “Fair Value of Assets and Liabilities” and “Investment Valuation” for a description of the Company’s valuation methodology which is unchanged during 2015.

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). The Company’s 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.

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:

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

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

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

Page 23 of 69

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, 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.

Medallion loans and the asset-based portion of the commercial loan portfolio 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 almost always 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). Collateral values for asset based loans are confirmed through daily borrowing base analysis of borrower availability, confirmations obtained from a borrower’s underlying customers, and field examinations by us or third parties engaged by us. These portfolios are generally at very low loan to collateral value ratios, and as a result, are generally not highly sensitive to changes in collateral values as only a very significant downward movement would have an impact on the Company’s valuation analysis, potentially resulting in a significantly lower fair market 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 is subject to a thorough valuation analysis as described previously, and the Company also receives an opinion regarding the valuation from an independent third party to assist the Board of Directors in its determination of the fair value on an annual basis. The Company determines 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 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 from non-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 has determined that Medallion Bank has little value beyond its recorded book value. As a result of this valuation process, the Company uses the actual results of operations as the best estimate of changes in fair value, and records the results as a component of unrealized appreciation (depreciation) on investments.

Investments in controlled subsidiaries, other than Medallion Bank, and equity investments are 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 uses 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 and equity positions, the result of the analysis results in changes to the value of the position if there is clear evidence that it’s 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.

Page 24 of 69

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014.


*(Dollars in thousands)*	Level 1		Level 2		Level 3		Total
2015 Assets
Medallion loans	$	—	$	—	$	311,305	$	311,305
Commercial loans		—		—		73,559		73,559
Investment in Medallion Bank and other controlled subsidiaries		—		—		128,858		128,858
Equity investments		197		—		7,403		7,600
Foreclosed properties		—		44,063		—		44,063
Other assets		—		—		392		392
2014 Assets
Medallion loans	$	—	$	—	$	311,894	$	311,894
Commercial loans		—		—		71,149		71,149
Investment in Medallion Bank and other controlled subsidiaries		—		—		136,848		136,848
Equity investments		178		—		7,532		7,710
Foreclosed properties		—		47,502		—		47,502
Other assets		—		—		392		392

Included in level 3 investments in Medallion Bank and other controlled subsidiaries is primarily the investment in Medallion Bank, as well as other consolidated subsidiaries such as MSC, a start-up business engaged in media-buying consulting, and other securities detailed in the 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 in non-marketable securities.

The following tables provide a summary of changes in fair value of the Company’s level 3 assets and liabilities for the quarters ended March 31, 2015 and 2014.


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Medallion Bank & Other Controlled Subs			Equity Investments			Other Assets
December 31, 2014	$	311,894		$	71,149		$	136,848		$	7,532		$	392
Gains (losses) included in earnings		(159	)		516			11,129			(11	)		—
Purchases, investments, and issuances		8,820			8,128			883			250			—
Sales, maturities, settlements, and distributions		(9,250	)		(6,234	)		(20,002	)		(368	)		—

March 31, 2015	$	311,305		$	73,559		$	128,858		$	7,403		$	392

Amounts related to held assets⁽¹⁾	($	159	)	($	86	)	$	7,899		($	245	)	$	—

(1)	Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of March 31, 2015.


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Medallion Bank & Other Controlled Subs			Equity Investments			Other Assets
December 31, 2013	$	297,861		$	60,168		$	108,623		$	6,225		$	392
Gains (losses) included in earnings		—			165			5,426			475			—
Purchases, investments, and issuances		30,715			2,131			1,202			—			—
Sales, maturities, settlements, and distributions		(17,234	)		(3,549	)		(4,985	)		(49	)		—

March 31, 2014	$	311,342		$	58,915		$	110,266		$	6,651		$	392

Amounts related to held assets⁽¹⁾	$	—		$	74		$	5,426		$	426		$	—

(1)	Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of March 31, 2014.

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 be all-inclusive, but rather to provide information on significant unobservable inputs and valuation techniques used by the Company.

Page 25 of 69

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and liabilities as of March 31, 2015 and December 31, 2014 were as follows.

(Dollars in thousands)

Fair Value
at 3/31/15

Valuation Techniques

Unobservable Inputs

Range
(Weighted Average)

Medallion Loans

311,305

Precedent market transactions

Adequacy of collateral (loan to value)

0% - 153% (70%)

Commercial Loans - Asset-Based

3,207

Borrower collateral analysis

Adequacy of collateral (loan to value)

0% - 81% (53%) ⁽¹⁾

Commercial Loans – Mezzanine and Other

70,352

Borrower financial analysis

Financial condition and operating performance of the borrower

N/A

Portfolio yields

0% -
17.00% (12.61%)

Investment in Medallion Bank

124,357

Investee book value and equity pickup

Financial condition and operating performance of the investee

N/A

Investment in Other Controlled Subsidiaries

2,838

Investee book value and equity pickup, adjusted for asset appreciation

Financial condition and operating performance of the investee

Third party valuation/offer to purchase assets

N/A

1,663

Investee book value and equity pickup

Collateral support

N/A

Financial condition and operating performance of the investee

N/A

Equity Investments

2,599

Investee book value

Valuation indicated by investee filings

N/A

985

Market comparables

Discount for lack of marketability

10% (10%)

3,819

Investee financial analysis

Financial condition and operating performance of the borrower

N/A

Collateral support

N/A

Other Assets

392

Borrower collateral analysis

Adequacy of collateral (loan to value)

(1)	As of March 31, 2015, the Company had one asset based loan in the amount of $102 which had $0 collateral.

(Dollars in thousands)

Fair Value
at 12/31/14

Valuation Techniques

Unobservable Inputs

Range
(Weighted Average)

Medallion Loans

311,894

Precedent market transactions

Adequacy of collateral (loan to value)

0% - 111% (60%)

Commercial Loans -Asset-Based

3,467

Borrower collateral analysis

Adequacy of collateral (loan to value)

2% - 80% (52%) ⁽¹⁾

Commercial Loans – Mezzanine and Other

67,682

Borrower financial analysis

Financial condition and operating performance of the borrower

N/A

Portfolio yields

3.00% - 17.00% (12.22%)

Investment in Medallion Bank

125,027

Investee book value and equity pickup

Financial condition and operating performance of the investee

N/A

Investment in Other Controlled Subsidiaries

9,463

Market comparables

Valuation indicated by private company offers

N/A

2,358

Investee book value and equity pickup

Collateral support

N/A

Financial condition and operating performance of the investee

N/A

Equity Investments

2,599

Investee book value

Valuation indicated by investee filings

N/A

1,230

Market comparables

Discount for lack of marketability

10% (10%)

3,703

Investee financial analysis

Financial condition and operating performance of the borrower

N/A

Collateral support

N/A

Other Assets

392

Borrower collateral analysis

Adequacy of collateral (loan to value)

(1)	As of December 31, 2014, the Company had one asset based loan in the amount of $205 which had $0 collateral.

Page 26 of 69

(13) INVESTMENTS OTHER THAN SECURITIES

The following table presents the Company’s investments other than securities as of March 31, 2015 and December 31, 2014.


Investment Type (Dollars in thousands)	Number of Investments			Investment Cost		Value as of 3/31/15			Value as of 12/31/14
City of Chicago Taxicab Medallions		154	⁽¹⁾	$	8,411	$	42,812	⁽²⁾	$	46,154	⁽²⁾
City of Chicago Taxicab Medallions (handicap accessible)		5	⁽¹⁾		278		1,251	⁽³⁾		1,348	⁽³⁾

Total Foreclosed Properties				$	8,689	$	44,063		$	47,502

⁽¹⁾	Investment is not readily marketable, is considered income producing, is not subject to option and is a non-qualifying asset under the 1940 Act.

⁽²⁾

Gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation for Federal income tax purposes is $39,825, $0, and $39,825 as of March 31, 2015 and was $43,027, $0, and $43,027 as of December 31, 2014. The aggregate cost for Federal income tax purposes was $2,987 at March 31, 2015 and $3,127 at December 31, 2014.

⁽³⁾

Gross unrealized appreciation, gross unrealized depreciation and net unrealized appreciation for Federal income tax purposes was $1,151, $0, and $1,151 as of March 31, 2015 and was $1,244, $0, and $1,244 as of December 31, 2014. The aggregate cost for Federal income tax purposes is $98 at March 31, 2015 and $103 at December 31, 2014.

(14) SUBSEQUENT EVENTS

We have evaluated subsequent events that have occurred through the date of financial statement issuance.

In May 2015, a revolving line of credit for $8,000,000 that matured May 1, 2015 was extended to May 1, 2016.

On April 27, 2015, the Company’s board of directors declared a $0.25 per share common stock distribution, payable on May 21, 2015 to shareholders of record on May 14, 2015.

In April 2015, MCI accepted a $5,500,000 commitment from the SBA to purchase debentures until September 30, 2019 upon payment of a 1% fee, which was paid, and upon the infusion of $2,750,000 of capital from the Company, which was infused in April 2015.

In April 2015, a revolving line of credit for $15,000,000 that matured November 15, 2015 was paid in full and terminated by the Company.

Page 27 of 69

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

March 31, 2015


*(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 2015 Acquisitions ⁽⁵⁾		Cost ⁽⁴⁾		Fair Value
Medallion Loans
New York						373		77	%		3.61	%	$	4,399	$	211,594	$	211,660
	Real Cab Corp ##	Term Loan	07/20/07	07/20/17		1		1	%		2.81	%			$	2,545	$	2,545
	Real Cab Corp ##	Term Loan	08/19/14	07/20/17		1		*			3.31	%			$	1,314	$	1,314
	Real Cab Corp ##	Term Loan	07/20/07	07/20/17		1		*			2.81	%			$	350	$	350
	Sean Cab Corp ##	Term Loan	12/09/11	12/08/15		1		1	%		3.60	%			$	3,453	$	3,446
	Slo Cab Corp ##	Term Loan	07/20/07	07/20/17		1		1	%		2.81	%			$	1,527	$	1,527
	Slo Cab Corp ##	Term Loan	08/19/14	07/20/17		1		*			3.31	%			$	788	$	788
	Slo Cab Corp ##	Term Loan	07/20/07	07/20/17		1		*			2.81	%			$	210	$	210
	Whispers Taxi Inc ##	Term Loan	05/28/13	05/28/16		1		1	%		3.35	%			$	2,091	$	2,088
	Esg Hacking Corp ##	Term Loan	03/12/14	03/12/17		1		1	%		3.50	%			$	1,795	$	1,801
	Sag Taxi LLC ##	Term Loan	03/28/14	03/28/17		1		1	%		3.50	%			$	1,789	$	1,791
	Pontios Taxi LLC ##	Term Loan	03/28/14	03/28/17		1		1	%		3.50	%			$	1,789	$	1,791
	Kos Taxi LLC ##	Term Loan	03/28/14	03/28/17		1		1	%		3.50	%			$	1,787	$	1,789
	Ikaria Taxi LLC ##	Term Loan	03/28/14	03/28/17		1		1	%		3.50	%			$	1,787	$	1,789
	Yosi Transit Inc ##	Term Loan	07/20/07	07/20/17		1		*			2.81	%			$	1,018	$	1,018
	Yosi Transit Inc ##	Term Loan	08/19/14	07/20/17		1		*			3.31	%			$	526	$	526
	Yosi Transit Inc ##	Term Loan	07/20/07	07/20/17		1		*			2.81	%			$	140	$	140
	Silke Hacking Corp ##	Term Loan	03/26/14	03/26/17		1		1	%		3.38	%			$	1,534	$	1,536
	Hamilton Transit LLC ##	Term Loan	03/26/14	03/26/17		1		1	%		3.38	%			$	1,530	$	1,535
	Kaderee M & G Corp ##	Term Loan	03/26/14	03/26/17		1		1	%		3.38	%			$	1,530	$	1,532
	Daytona Hacking Corp ##	Term Loan	03/26/14	03/26/17		1		1	%		3.38	%			$	1,529	$	1,531
	Nancy Transit Inc ##	Term Loan	03/11/13	03/11/16		1		1	%		3.50	%			$	1,503	$	1,501
	Christian Cab Corp	Term Loan	11/27/12	11/27/15		1		1	%		4.00	%			$	1,500	$	1,500
	Bunty & Jyoti Inc ##	Term Loan	03/13/13	03/13/16		1		1	%		3.75	%			$	1,498	$	1,496
	Lety Cab Corp ##	Term Loan	10/21/10	10/20/15		1		1	%		3.13	%			$	1,494	$	1,491
	Junaid Trans Corp ##	Term Loan	04/30/13	04/30/16		1		1	%		3.75	%			$	1,480	$	1,478
	Ocean Hacking Corp ##	Term Loan	12/20/13	12/20/16		1		1	%		3.50	%			$	1,451	$	1,452
	Jacal Hacking Corp ##	Term Loan	12/20/13	12/20/16		1		1	%		3.50	%			$	1,451	$	1,451
	Penegali Taxi LLC ##	Term Loan	12/11/14	12/10/17		1		1	%		3.75	%			$	1,392	$	1,394
	Avi Taxi Corporation ##	Term Loan	04/11/14	04/11/17		1		1	%		3.25	%			$	1,394	$	1,393
	Kby Taxi Inc ##	Term Loan	04/11/14	04/11/17		1		1	%		3.25	%			$	1,394	$	1,393
Various New York && ##	2.75% to 10.00%	Term Loan	03/23/01 to 03/31/15	02/22/15 to 09/10/23		343		61	%		3.67	%	$	4,399	$	168,005	$	168,064
Chicago						112		15	%		5.09	%	$	1,459	$	40,349	$	40,425
	Sweetgrass Peach &Chadwick Cap ##	Term Loan	08/28/12	08/28/15		1		1	%		5.50	%			$	1,654	$	1,651
Various Chicago && ##	3.75% to 12.00%	Term Loan	01/22/10 to 03/25/15	04/12/15 to 02/05/20		111		14	%		5.07	%	$	1,459	$	38,695	$	38,774
Newark && ##	4.50% to 7.00%	Term Loan	04/09/10 to 02/23/15	05/12/15 to 01/10/23		113		9	%		5.26	%	$	215	$	24,791	$	24,883
Boston						58		10	%		4.67	%	$	456	$	26,840	$	26,883
	Chiso Trans Inc &	Term Loan	11/26/13	11/26/16		1		*			4.25	%			$	820	$	821
	Chiso Trans Inc &	Term Loan	04/20/12	04/20/15		1		*			5.50	%			$	582	$	582
Various Boston && ##	4.00% to 6.15%	Term Loan	06/12/07 to 02/27/15	04/13/15 to 10/08/18		56		9	%		4.66	%	$	456	$	25,438	$	25,480
Cambridge						14		2	%		4.63	%	$	2,140	$	6,692	$	6,655
	Gcf Taxi Inc, Et Al	Term Loan	03/25/15	03/25/18		1		1	%		5.00	%	$	2,140	$	2,140	$	2,142
Various Cambridge && ##	4.00% to 5.50%	Term Loan	05/06/11 to 07/01/14	11/09/15 to 01/26/20		13		2	%		4.46	%	$	0	$	4,552	$	4,513
Various Other && ##	4.75% to 11.50%	Term Loan	04/28/08 to 01/03/14	07/01/15 to 09/01/23		9		0	%		6.57	%	$	0	$	795	$	799

Total medallion loans ($244,674 pledged as collateral under borrowing arrangements)						679		113	%		4.05	%	$	8,669	$	311,061	$	311,305

Page 28 of 69

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

March 31, 2015


*(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 2015 Acquisitions ⁽⁵⁾		Cost ⁽⁴⁾		Fair Value
Commercial Loans
Secured mezzanine (30% Minnesota, 10% Ohio, 9% Texas, 8% North Carolina, 6% New York, 6% Oklahoma,
6% Pennsylvania, 5% Rhode Island, 5% Wisconsin, 5% Illinois, 4% Delaware, 4% Arizona and 2% all other states) ⁽²⁾
Manufacturing (62% of the total)		Tech Cast Holdings, LLC (interest rate includes PIK interest of 3%) (capitalized interest of $20 per footnote 2)		Term Loan	12/12/14	12/12/19		1		1	%		15.00	%			$	3,370	$	3,335

		EGC Operating Company, LLC (interest rate includes PIK interest of 3%) (capitalized interest of $48 per footnote 2)		Term Loan	09/30/14	09/30/19		1		1	%		15.00	%			$	3,148	$	3,158

		AA Plush Holdings, LLC (interest rate includes PIK interest of 2%) (capitalized interest of $38 per footnote 2)		Term Loan	08/15/14	08/15/19		1		1	%		14.00	%			$	3,038	$	3,027

	+	Bluff Holdings, Inc. (interest rate includes PIK interest of 3.50%)		Term Loan	12/14/12	12/14/17		1		1	%		15.50	%			$	3,000	$	3,006
		Production Services Associates LLC (d/b/a American Card Services) (interest rate includes PIK interest of 2%) (capitalized interest of $6 per footnote 2)		Term Loan	02/17/15	02/17/20		1		1	%		16.00	%	$	2,600	$	2,606	$	2,580

		BB Opco, LLC d/b/a BreathableBaby, LLC (interest rate includes PIK interest of 2%) (capitalized interest of $34 per footnote 2)		Term Loan	08/01/14	08/01/19		1		1	%		14.00	%			$	2,534	$	2,538

		American Cylinder, Inc. d/b/a All Safe (interest rate includes PIK interest of 6%) (capitalized interest of $142 per footnote 2)		Term Loan	07/03/13	01/03/18		1		1	%		17.00	%			$	1,642	$	1,642

		American Cylinder, Inc. d/b/a All Safe		Term Loan	07/03/13	07/03/17		1		*			10.00	%			$	800	$	797
		WRWP, LLC (interest rate includes PIK interest of 3%) (capitalized interest of $17 per footnote 2)		Term Loan	12/30/14	12/30/19		1		1	%		15.00	%			$	2,259	$	2,269

		Dynamic Systems, Inc. (interest rate includes PIK interest of 3.50%) (capitalized interest of $187 per footnote 2)		Term Loan	12/23/10	12/23/17		1		1	%		15.50	%			$	2,012	$	2,012

	+	Packaging Specialists, Inc. Southwest (interest rate includes PIK interest of 6%)		Term Loan	04/01/08	06/30/15		1		1	%		14.00	%			$	2,000	$	2,000
	+	GAF Manufacturing, LLC (interest rate includes PIK interest of 2%) (capitalized interest of $33 per footnote 2)		Term Loan	03/06/14	03/06/19		1		1	%		14.00	%			$	1,533	$	1,540

	+	Respiratory Technologies, Inc.		Term Loan	04/25/12	04/25/17		1		1	%		12.00	%			$	1,500	$	1,505
	+	Various Other && 12.00% to 17.00%		Term Loan	03/10/99 to 07/17/12	03/31/10 to 01/31/19		5		2	%		13.94	%			$	5,642	$	5,644
Information (10% of the total)		US Internet Corp.		Term Loan	06/12/13	09/18/20		1		1	%		14.50	%			$	3,000	$	3,015
		US Internet Corp.		Term Loan	03/18/15	09/18/20		1		*			14.50	%	$	1,750	$	250	$	239
		Centare Holdings, Inc. (interest rate includes PIK interest of 2%)		Term Loan	08/30/13	08/30/18		1		1	%		14.00	%			$	2,500	$	2,487
Professional, Scientific, and Technical Services (8% of the total)	+	DPIS Engineering, LLC		Term Loan	12/01/14	06/30/20		1		1	%		12.00	%			$	2,000	$	1,996
	+	Portu-Sunberg Marketing, LLC		Term Loan	12/31/12	12/31/17		1		1	%		12.00	%			$	2,500	$	2,508
Arts, Entertainment, and Recreation (8% of the total)		RPAC Racing, LLC & (interest rate includes PIK interest of 10 %) (capitalized interest of $1,446 per footnote 2)		Term Loan	11/19/10	11/19/15		1		2	%		10.00	%			$	4,485	$	4,485

Administrative and Support Services (6% of the total)	+	Staff One, Inc.		Term Loan	06/30/08	03/31/16		1		1	%		3.00	%			$	2,964	$	2,964
	+	Staff One, Inc.		Term Loan	09/15/11	03/31/16		1		*			3.00	%			$	485	$	485
Wholesale Trade (5% of the total)		Fit & Fresh, Inc (interest rate includes PIK interest of 2%) (capitalized interest of $5 per footnote 2)		Term Loan	03/02/15	03/02/20		1		1	%		14.00	%	$	3,000	$	3,005	$	3,013

Accommodation and Food Services (1% of the total)		Various Other && 9.25% to 10.00%		Term Loan	06/30/00 to 11/05/10	10/01/15 to 11/05/15		3		*			9.83	%			$	2,114	$	590
Retail Trade (0% of the total)		Various Other && 10.00%		Term Loan	06/30/00	10/01/15		1		*			10.00	%			$	347	$	37

Total secured mezzanine ⁽²⁾								31		21	%		13.09	%	$	7,350	$	58,734	$	56,872

Page 29 of 69

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

March 31, 2015

(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 2015
Acquisitions ⁽⁵⁾

Cost ⁽⁴⁾

Fair
Value

Asset-based (61% New York, 31% New Jersey, 4% Rhode Island and 4% all other states)

Wholesale Trade (28% of the total)

Various Other 4.50% to 6.50% ##

Revolving line of credit

01/23/99 to
06/30/14

06/30/15
to
03/27/16

5.09

940

909

Transportation and Warehousing (25% of the total)

Various Other && 6.00% to 8.00% ##

Revolving line
of credit

12/31/01 to
05/02/06

05/02/15
to
12/31/15

6.46

898

785

Retail Trade (20% of the total)

Various Other 4.75% to 7.25% ##

Revolving line
of credit

10/19/98 to
08/31/06

07/24/15
to
10/19/15

5.25

671

653

Construction (9% of the total)

Various Other 5.75% ##

Revolving line
of credit

07/20/99

07/20/15

5.75

308

302

Manufacturing (7% of the total)

Various Other 5.75% to 7.25% ##

Revolving line
of credit

07/07/04 to
01/27/14

06/22/15
to
01/27/16

6.41

247

230

Health Care and Social Assistance (5% of the total)

Various Other 5.50% to 5.75% ##

Revolving line
of credit

10/02/07 to 11/09/12

10/02/15 to 11/09/15

5.63

179

166

Professional, Scientific, and Technical Services (3% of the total)

Various Other 6.75% ##

Revolving line
of credit

12/22/14

12/22/15

6.75

Finance and Insurance (2% of the total)

Various Other && 5.50%

Revolving line
of credit

02/14/08

02/14/16

5.50

Administrative and Support Services (1% of the total)

Various Other 5.50%

Revolving
line of credit

06/30/07

06/30/15

5.50

Total asset-based ($2,556 pledged as collateral under borrowing arrangements)

5.71

3,448

3,207

Other secured commercial Other secured commercial (65% New York, 22% New Jersey, 11% North Carolina and 2% all other states)

Retail Trade (80% of the total)

Medallion Fine Art Inc (interest rate includes PIK interest of 12.00%)

Term Loan

12/17/12

12/17/17

12.00

6,939

(capitalized interest of $1,339 per footnote 2)

Various Other && 0.00% to 10.50%

Term Loan

09/13/06 to
03/03/15

03/03/15
to
08/13/20

8.99

250

4,297

3,959

Construction (11% of the total)

Highland Crossing-M, LLC

Term Loan

01/07/15

02/01/25

11.50

2,200

1,450

1,448

Accommodation and Food Services (5% of the total)

Various Other && 6.75% to 9.00%

Term Loan

11/29/05 to
06/06/14

03/16/16
to
09/06/19

8.32

808

706

Real Estate and Rental and Leasing (2% of the total)

Various Other 4.00% to 6.00%

Term Loan

04/22/99 to
03/31/15

04/01/15
to
03/31/20

5.27

100

202

203

Transportation and Warehousing (1% of the total)

Various Other 4.25%

Term Loan

03/17/15

09/10/18

4.25

120

122

Health Care and Social Assistance (1% of the total)

Various Other 7.50%

Term Loan

05/14/13

05/14/18

7.50

102

103

Total Other Commercial Loans

10.61

2,670

13,918

13,480

Total commercial loans ($2,556 pledged as collateral under borrowing arrangements)⁽²⁾

12.30

10,020

76,100

73,559

Investment in Medallion Bank and other controlled subsidiaries

Commercial Banking

Medallion Bank **

100% of
common stock

05/16/02

None

13.67

124,357

Art Dealer

Medallion Fine Art, Inc.

100% of
common stock

12/03/12

None

0.00

938

2,838

Loan Servicing

Medallion Servicing Corp.

100% of
common stock

11/05/10

None

0.00

879

Professional Sports Team

Lax Group LLC

42% of
membership
interests

05/23/12

None

0.00

784

Investment in Medallion Bank and other controlled subsidiaries, net

13.39

126,958

128,858

Equity investments

Page 30 of 69

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

March 31, 2015

(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 2015
Acquisitions ⁽⁵⁾

Cost ⁽⁴⁾

Fair
Value

Commercial Finance

Convergent Capital, Ltd **

7% of limited partnership interest

07/20/07

None

0.00

968

2,600

NASCAR Race Team

Medallion MotorSports, LLC

75% of LLC units

11/24/10

None

0.00

2,054

1,600

Employee Leasing Services

Staff One, Inc.

46.4% preferred stock

06/30/08

None

0.00

472

IT Services

Centare Holdings, Inc.

7.23% of common stock, 3.88% of preferred stock

08/30/13

None

0.00

104

103

Gift card service & marketing

Production Services Associates d/b/a American Card Services

5.65% of LLC units

02/17/15

None

0.00

250

Stuffed Toy Manufacturer

AA Plush Holdings, LLC

1.6% LLC common units

08/15/14

None

0.00

300

Baby Sleep Products

BB Opco, LLC d/b/a BreathableBaby, LLC

3.6% LLC units

08/01/14

None

0.00

250

Investment Castings

Tech Cast Holdings LLC

4.14% LLC units

12/12/14

12/12/19

0.00

300

Wire Manufacturer

WRWP LLC

10.3% preferred LLC units, 7.23% common LLC units

12/30/14

12/30/19

224

Various Other #

* Various

09/10/98
to
3/30/12

None

3.29

1,295

1,501

0.69

250

6,217

7,600

Investment securities

Investment securities, net

0.00

Net Investments ($247,230 pledged as collateral under borrowing arrangements)⁽³⁾

781

189

7.50

18,939

520,336

521,322

(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 considered non-income producing.

(2)	Included in secured mezzanine commercial loans and other commercial loans was $3,315 of interest income capitalized into the outstanding investment balances, in accordance with the terms of the investment contract.

(3)	The ratio of restricted securities fair value to net assets is 188%.

(4)	Gross unrealized appreciation, gross unrealized depreciation, and net appreciation for federal income tax purposes totaled $59,040, $4,123 and $54,917, respectively. The tax cost of investments was $466,405

(5)	For revolving lines of credit the amount shown is the cost at March 31, 2015.

*	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 all non-eligible portfolio companies to totaled assets of Medallion Financial on an unconsolidated basis was up to 26% and up to 28% on a consolidated basis. Under the 1940 Act, we may not acquire any non-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 considered non-income producing.

&&	Some or all of the securities are non-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 March 31, 2015.

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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015 (File No. 814-00188)

Page 31 of 69

Medallion Financial Corp

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFIILIATES

As of and for the quarter ended March 31, 2015

Name of issuer and title of issue
(Dollars in thousands)

Number of shares (all restricted
unless otherwise noted)

Equity in net profit and
(loss)

Amount of dividends or interest ⁽¹⁾

Value as of
3/31/15

Medallion Bank -
common stock

1,000,000 shares - 100% of common stock

6,699

5,000

124,357

Medallion Fine Art, Inc. -
common stock ⁽²⁾

1,000 shares - 100% of common stock

1,681

2,838

Medallion Servicing Corp. -
common stock

1,000 shares - 100% of common stock

(283

)

879

LAX Group LLC - membership interest

42% of membership interest

(198

)

784

Generation Outdoor, Inc.

3,206

889

Medallion Hamptons Holding LLC - membership interest

Total investments in Medallion Bank and other controlled subsidiaries

11,129

5,899

128,858

Medallion Motorsports, LLC - membership interest ⁽³⁾

75% of membership interest

1,600

Appliance Recycling Centers of America Inc. - common stock

8.86% of common stock

985

Production Services Associates LLC ⁽⁴⁾

5.65% of membership interest

250

Western Reserve Wire – membership interest ⁽⁵⁾

7.23% of membership interest

224

Summit Medical, Inc. - common stock

Other equity investments other than in investments in and advances to affiliates

—

4,541

Total equity investments

—

7,600

Total investments in Medallion Bank and other controlled subsidiaries and equity investments

5,889

136,458

Other interest and dividend income other than from investments in and advances to affiliates

Total dividend and interest income on short term investments

5,902

Total investments in and advances to affiliates

131,917

Other equity investments other than in investments in and advances to affiliates

4,541

Total investments in Medallion Bank and other controlled subsidiaries and equity investments

136,458

(1)	Investments with an amount of 0 are considered non-income producing.

(2)	Additionally, the Company has a loan due from Medallion Fine Art, Inc. in the amount of $5,600 which is carried at $6,939 as of March 31, 2015, and on which $203 of interest income was earned during the three months ended March 31, 2015.

(3)	In addition to the equity ownership, a controlled subsidiary of the Company has a $3,039 loan to an affiliate of Medallion Motorsports, LLC which is carried at $4,485, and on which $0 of interest income was earned during the three months ended March 31, 2015.

(4)	Additionally, the Company has a loan due from Production Services Associates LLC in the amount of $2,606 as of March 31, 2015, on which $49 of interest income was earned during the three months ended March 31, 2015.

(5)	Additionally, the Company has a loan due from Western Reserve Wire in the amount of $2,259 as of March 31, 2015, on which $86 of interest income was earned during the three months ended March 31, 2015.

The table below provides a recap of the changes in the investment in the respective issuers for the quarter ended March 31, 2015.


Name of Issuer	Medallion Bank		Medallion Fine Art, Inc.		Medallion Motorsports, LLC		Appliance Recycling Centers of America, Inc.			Medallion Servicing Corp.			LAX Group, LLC			Production Services Associates, LLC ⁽³⁾		Western Reserve Wire		Generation Outdoor, Inc.		Medallion Hamptons Holding, LLC		Summit Medical, Inc.
Title of Issue	Common Stock		Common Stock ⁽¹⁾		Membership Interest⁽²⁾		Common Stock			Common Stock			Membership Interest			Membership Interest		Membership Interest ⁽⁴⁾		Common Stock		Membership Interest		Common Stock
(Dollars in thousands)
Value as of 12/31/14	$	125,027	$	1,157	$	1,600	$	1,231		$	852		$	349		$	0	$	224	$	5,063	$	4,400	$	135
Gross additions / investments		—		—		—		—			170			633			250		—		—		80		—
Gross reductions / distributions		7,369		—		—		—			(140	)		—			—		—		8,269		4,504		369
Net equity in profit and loss, and unrealized appreciation and (depreciation)		6,699		1,681		—		(246	)		(283	)		(198	)		—		—		3,206		24		234
Other adjustments		—		—		—		—			—			—			—		—		—		—		—

Value as of 3/31/15	$	124,357		2,838	$	1,600	$	985		$	879		$	784		$	250	$	224	$	—	$	—	$	—

(1)	Additionally, the Company has a loan due from Medallion Fine Art, Inc. in the amount of $6,939 as of March 31, 2015, $203 of which was advanced during 2014.

(2)	In addition to the equity ownership, a controlled subsidiary of the Company has a $3,039 loan to an affiliate of Medallion Motorsports, LLC which is carried at $4,485, and on which there were no earnings during the three months ended March 31, 2015.

(3)	Additionally, the Company has a loan due from Production Services Associates LLC in the amount of $2,606 as of March 31, 2015, all of which was advanced during 2015, on which there were $49 of earning during the three months ended March 31, 2015.

(4)	Additionally, the Company has a loan due from Western Reserve Wire in the amount of $2,259 as of March 31, 2015, on which there were $86 of earnings during the three months ended March 31, 2015.

Page 32 of 69

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 31, 2014


*(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 2014 Acquisitions (5)		Cost (4)		Fair Value
Medallion Loans
New York									368		78	%		3.60	%	$	73,250	$	213,099	$	213,248
	Real Cab Corp ##		Term Loan		07/20/07		07/20/17		1		1	%		2.81	%			$	2,545	$	2,545
	Real Cab Corp ##		Term Loan		08/19/14		07/20/17		1		1	%		3.31	%	$	1,627	$	1,449	$	1,449
	Real Cab Corp ##		Term Loan		07/20/07		07/20/17		1		*			2.81	%			$	350	$	350
	Sean Cab Corp ##		Term Loan		12/09/11		12/08/15		1		1	%		3.60	%			$	3,480	$	3,471
	Slo Cab Corp ##		Term Loan		07/20/07		07/20/17		1		1	%		2.81	%			$	1,527	$	1,527
	Slo Cab Corp ##		Term Loan		08/19/14		07/20/17		1		*			3.31	%	$	976	$	870	$	870
	Slo Cab Corp ##		Term Loan		07/20/07		07/20/17		1		*			2.81	%			$	210	$	210
	Whispers Taxi Inc ##		Term Loan		05/28/13		05/28/16		1		1	%		3.35	%			$	2,107	$	2,102
	Esg Hacking Corp ##		Term Loan		03/12/14		03/12/17		1		1	%		3.50	%	$	1,842	$	1,806	$	1,812
	Pontios Taxi LLC ##		Term Loan		03/28/14		03/28/17		1		1	%		3.50	%	$	1,828	$	1,798	$	1,800
	Ikaria Taxi LLC ##		Term Loan		03/28/14		03/28/17		1		1	%		3.50	%	$	1,828	$	1,797	$	1,799
	Kos Taxi LLC ##		Term Loan		03/28/14		03/28/17		1		1	%		3.50	%	$	1,828	$	1,797	$	1,799
	Sag Taxi LLC ##		Term Loan		03/28/14		03/28/17		1		1	%		3.50	%	$	1,828	$	1,793	$	1,795
	Yosi Transit Inc ##		Term Loan		07/20/07		07/20/17		1		*			2.81	%			$	1,018	$	1,018
	Yosi Transit Inc ##		Term Loan		08/19/14		07/20/17		1		*			3.31	%	$	651	$	580	$	580
	Yosi Transit Inc ##		Term Loan		07/20/07		07/20/17		1		*			2.81	%			$	140	$	140
	Sifnos, Kitriani Incs ##		Term Loan		06/08/10		05/01/15		1		1	%		4.00	%			$	1,558	$	1,554
	Hamilton Transit LLC ##		Term Loan		03/26/14		03/26/17		1		1	%		3.38	%	$	1,570	$	1,540	$	1,546
	Kaderee M & G Corp ##		Term Loan		03/26/14		03/26/17		1		1	%		3.38	%	$	1,570	$	1,540	$	1,542
	Daytona Hacking Corp ##		Term Loan		03/26/14		03/26/17		1		1	%		3.38	%	$	1,570	$	1,540	$	1,542
	Silke Hacking Corp ##		Term Loan		03/26/14		03/26/17		1		1	%		3.38	%	$	1,570	$	1,540	$	1,542
	Nancy Transit Inc ##		Term Loan		03/11/13		03/11/16		1		1	%		3.50	%			$	1,513	$	1,511
	Bunty & Jyoti Inc ##		Term Loan		03/13/13		03/13/16		1		1	%		3.75	%			$	1,508	$	1,505
	Lety Cab Corp ##		Term Loan		10/21/10		10/20/15		1		1	%		3.13	%			$	1,507	$	1,503
	Christian Cab Corp		Term Loan		11/27/12		11/27/15		1		1	%		4.00	%			$	1,501	$	1,501
	Junaid Trans Corp ##		Term Loan		04/30/13		04/30/16		1		1	%		3.75	%			$	1,485	$	1,482
	Ocean Hacking Corp ##		Term Loan		12/20/13		12/20/16		1		1	%		3.50	%			$	1,461	$	1,463
	Jacal Hacking Corp ##		Term Loan		12/20/13		12/20/16		1		1	%		3.50	%			$	1,461	$	1,461
	Penegali Taxi LLC		Term Loan		12/11/14		12/10/17		1		1	%		3.75	%	$	1,400	$	1,400	$	1,402
Various New York && ##	2.75% to 10.00%		Term Loan		12/20/00 to 12/18/14		01/09/15 to 09/10/23		339		62	%		3.65	%	$	53,162	$	170,278	$	170,427
Chicago									108		14	%		4.97	%	$	11,638	$	39,280	$	39,355
	Sweetgrass Peach &Chadwick Cap ##		Term Loan		08/28/12		08/28/15		1		1	%		5.50	%			$	1,663	$	1,659
Various Chicago && ##	3.75% to 7.25%		Term Loan		01/22/10 to 12/08/14		01/18/15 to 12/08/19		107		14	%		4.95	%	$	11,638	$	37,617	$	37,696
Newark && ##	4.50% to 8.00%		Term Loan		07/25/08 to 12/11/14		02/17/15 to 01/10/23		114		9	%		5.28	%	$	8,446	$	25,043	$	25,138
Boston									57		10	%		4.69	%	$	9,549	$	27,277	$	27,317
	Chiso Trans Inc		Term Loan		11/26/13		11/26/16		1		*			4.25	%			$	820	$	822
	Chiso Trans Inc		Term Loan		04/20/12		04/20/15		1		*			5.50	%			$	582	$	582
Various Boston && ##	4.00% to 6.15%		Term Loan		06/12/07 to 11/17/14		02/17/15 to 10/08/18		55		9	%		4.68	%	$	9,549	$	25,875	$	25,913
Cambridge									15		2	%		4.80	%	$	1,184	$	6,006	$	6,021
	Gcf Taxi Inc, Et Al		Term Loan		12/30/13		12/30/16		1		*			6.00	%			$	1,365	$	1,365
	Gcf Taxi Inc Et Al/Note 2		Term Loan		12/29/14		09/29/15		1		*			4.00	%	$	97	$	61	$	63
Various Cambridge && ##	4.00% to 5.50%		Term Loan		05/06/11 to 07/01/14		01/26/15 to 10/08/18		13		2	%		4.46	%	$	1,087	$	4,580	$	4,593
Various Other && ##	4.75% to 11.50%		Term Loan		04/28/08 to 01/03/14		07/01/15 to 09/01/23		9		0	%		6.59	%	$	278	$	814	$	815

Total medallion loans ($247,525 pledged as collateral under borrowing arrangements)									671		114	%		4.03	%	$	104,345	$	311,519	$	311,894

Commercial Loans
Secured mezzanine (32% Minnesota, 10% Ohio, 10% Texas, 9% North Carolina, 7% New York, 7% Oklahoma, 6% Pennsylvania, 5% Wisconsin, 5% Delaware, 4% Arizona and 5% all other states) (2)

Page 33 of 69

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 31, 2014


(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 2014 Acquisitions ⁽⁵⁾		Cost ⁽⁴⁾		Fair Value
Manufacturing (65% of the total)
	Tech Cast Holdings LLC (interest rate includes PIK interest of 3 %)		Term Loan		12/12/14		12/12/19		1		1	%		15.00	%	$	3,350	$	3,353	$	3,318

	EGC Operating Company, LLC (interest rate includes PIK interest of 3 %)		Term Loan		09/30/14		09/30/19		1		1	%		15.00	%	$	3,100	$	3,124	$	3,135
	(capitalized interest of $24 per footnote 2)
	AA Plush Holdings, LLC (interest rate includes PIK interest of 2 %)		Term Loan		08/15/14		08/15/19		1		1	%		14.00	%	$	3,000	$	3,023	$	3,011
	(capitalized interest of $23 per footnote 2)
+	Bluff Holdings, Inc. (interest rate includes PIK interest of 3.5 %)		Term Loan		12/14/12		12/14/17		1		1	%		15.50	%			$	3,000	$	3,007
	BB Opco, LLC d/b/a BreathableBaby, LLC (interest rate includes PIK interest of 2 %)		Term Loan		08/01/14		08/01/19		1		1	%		14.00	%	$	2,500	$	2,521	$	2,526
	(capitalized interest of $21 per footnote 2)
	American Cylinder, Inc. d/b/a All Safe (interest rate includes PIK interest of 5 %)		Term Loan		07/03/13		01/03/18		1		1	%		17.00	%			$	1,618	$	1,618
	(capitalized interest of $118 per footnote 2)
	American Cylinder, Inc. d/b/a All Safe		Term Loan		07/03/13		07/03/17		1		*			10.00	%			$	800	$	797
	WRWP LLC (interest rate includes PIK interest of 3 %)		Term Loan		12/30/14		12/30/19		1		1	%		15.00	%	$	2,242	$	2,242	$	2,252
+	Packaging Specialists, Inc. Southwest (interest rate includes PIK interest of 6 %)		Term Loan		04/01/08		06/30/15		1		1	%		14.00	%			$	2,000	$	2,000
	Dynamic Systems, Inc. (interest rate includes PIK interest of 3.5 %)		Term Loan		12/23/10		12/23/17		1		1	%		15.50	%			$	1,994	$	1,994
	(capitalized interest of $170 per footnote 2)
+	GAF Manufacturing, LLC (interest rate includes PIK interest of 2 %)		Term Loan		03/06/14		03/06/19		1		1	%		14.00	%	$	1,500	$	1,525	$	1,532
	(capitalized interest of $25 per footnote 2)
+	PACA Foods, LLC &		Term Loan		12/31/10		12/31/15		1		1	%		13.00	%			$	2,127	$	1,526
+	Respiratory Technologies, Inc.		Term Loan		04/25/12		04/25/17		1		1	%		12.00	%			$	1,500	$	1,505
+	Various Other && 12.00% to 17.00%		Term Loan		03/10/99 to 07/17/12		03/31/10 to 01/31/19		5		2	%		13.93	%	$	0	$	5,670	$	5,671
Information (10% of the total)	US Internet Corp.		Term Loan		06/12/13		06/12/20		1		1	%		14.50	%			$	3,000	$	3,016
	Centare Holdings, Inc. (interest rate includes PIK interest of 2 %)		Term Loan		08/30/13		08/30/18		1		1	%		14.00	%			$	2,500	$	2,486
Professional, Scientific, and Technical Services (9% of the total) +	Portu-Sunberg Marketing, LLC		Term Loan		12/31/12		12/31/17		1		1	%		12.00	%			$	2,500	$	2,508
+	DPIS Engineering, LLC		Term Loan		12/01/14		06/30/20		1		1	%		12.00	%	$	2,000	$	2,000	$	1,996
Arts, Entertainment, and Recreation (9% of the total)	RPAC Racing, LLC & (interest rate includes PIK interest of 10 %)		Term Loan		11/19/10		11/19/15		1		2	%		10.00	%			$	4,485	$	4,485
	(capitalized interest of $1,446 per footnote 2)
Administrative and Support Services (7% of the total) +	Staff One, Inc.		Term Loan		06/30/08		03/31/16		1		1	%		3.00	%			$	2,964	$	2,964
+	Staff One, Inc.		Term Loan		09/15/11		03/31/16		1		*			3.00	%			$	485	$	485
Accommodation and Food Services (0% of the total)	Various Other && 9.25% to 10.00%		Term Loan		06/30/00 to 11/05/10		10/01/15 to 11/05/15		3		*			9.83	%	$	0	$	2,245	$	609
Retail Trade (0% of the total)	Various Other && 10.00%		Term Loan		06/30/00		10/01/15		1		*			10.00	%	$	0	$	383	$	36

Total secured mezzanine (2)									29		19	%		12.88	%	$	17,692	$	55,059	$	52,477

Page 34 of 69

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 31, 2014


(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 2014 Acquisitions (5)		Cost (4)		Fair Value
Asset-based (67% New York, 24% New Jersey, 6% Florida and 3% all other states)
Wholesale Trade (29% of the total)	Various Other 4.50% to 6.50% ##	Revolving line of credit		01/23/99 to 06/30/14		01/14/15 to 11/30/15		9		*			5.17	%	$	15	$	1,047	$	992
Transportation and Warehousing (26% of the total)	Various Other && 6.00% to 8.00% ##	Revolving line of credit		12/31/01 to 05/02/06		05/02/15 to 12/31/15		2		*			6.45	%	$	0	$	914	$	890
Health Care and Social Assistance (12% of the total)	Various Other 5.75% to 5.78% ##	Revolving line of credit		10/02/07 to 11/09/12		10/02/15 to 11/09/15		2		*			5.77	%	$	0	$	456	$	425
Retail Trade (9% of the total)	Various Other 4.75% to 7.25% ##	Revolving line of credit		10/19/98 to 08/31/06		07/24/15 to 12/21/15		5		*			5.49	%	$	0	$	342	$	320
Construction (9% of the total)	Various Other 5.75% to 6.75% ##	Revolving line of credit		07/20/99 to 07/23/13		07/20/15 to 07/23/15		2		*			5.77	%	$	0	$	311	$	303
Professional, Scientific, and Technical Services (6% of the total)	Various Other 6.75%	Revolving line of credit		12/22/14		12/22/15		1		*			6.75	%	$	202	$	202	$	206
Manufacturing (6% of the total)	Various Other 5.75% to 7.25% ##	Revolving line of credit		07/07/04 to 01/27/14		01/27/15 to 11/29/15		5		*			6.38	%	$	10	$	223	$	200
Finance and Insurance (3% of the total)	Various Other && 5.50%	Revolving line of credit		02/14/08		02/14/15		1		*			5.50	%	$	0	$	99	$	96
Administrative and Support Services (0% of the total)	Various Other 5.50%	Revolving line of credit		06/30/07		06/30/15		1		*			5.50	%	$	0	$	39	$	35

Total asset-based ($2,889 pledged as collateral under borrowing arrangements)								28		1	%		5.82	%	$	227	$	3,633	$	3,467


Other secured commercial (74% New York, 22% New Jersey and 4% all other states)
Retail Trade (77% of the total)	Medallion Fine Art Inc (interest rate includes PIK interest of 12.00%)	Term Loan		12/17/12		12/17/17		1		2	%		12.00	%			$	6,737	$	6,737
	(capitalized interest of $1,137 per footnote 2)
	Various Other && 0.00% to 10.50%	Term Loan		09/13/06 to 08/13/14		12/17/14 to 08/13/20		17		2	%		8.97	%	$	1,640	$	5,098	$	4,897
Accommodation and Food Services (18% of the total)	Dune Deck Owners Corp ##	Term Loan		04/24/07		03/31/16		1		1	%		7.00	%			$	2,071	$	2,071
	Various Other && 6.75% to 9.00%	Term Loan		11/29/05 to 06/06/14		03/16/16 to 09/06/19		3		*			8.33	%	$	375	$	837	$	734
Arts, Entertainment, and Recreation (3% of the total)	Various Other 8.00%	Term Loan		10/31/14		12/31/14		1		*			8.00	%	$	500	$	503	$	504
	(capitalized interest of $3 per footnote 2)
Real Estate and Rental and Leasing (1% of the total)	Various Other 4.00% to 6.00%	Term Loan		04/22/99 to 07/15/13		04/01/15 to 07/15/16		3		*			5.27	%	$	0	$	151	$	152
Health Care and Social Assistance (1% of the total)	Various Other 7.50%	Term Loan		05/14/13		05/14/18		1		*			7.50	%	$	0	$	109	$	110

Total other secured commercial loans ($2,071 pledged as collateral under borrowing arrangements)								27		6	%		9.91	%	$	2,515	$	15,506	$	15,205

Total commercial loans ($4,960 pledged as collateral under borrowing arrangements) (2)								84		26	%		11.91	%	$	20,434	$	74,198	$	71,149

Investment in Medallion Bank and other controlled subsidiaries
Commercial Banking	Medallion Bank **	100% of common stock		05/16/02		None		1		46	%		12.00	%			$	125,027	$	125,027
Art Dealer	Medallion Fine Art, Inc.	100% of common stock		12/03/12		None		1		*			0.00	%			$	1,157	$	1,157
Real Estate	Medallion Hamptons Holding LLC	100% of membership interests		06/21/05		None		1		2	%		0.00	%			$	3,014	$	4,400
Advertising	Generation Outdoor, Inc.	100% of common stock		12/20/04		None		1		2	%		0.00	%			$	751	$	5,063
Various Other				11/05/10 to 5/23/12		None		2		*			0.00	%			$	1,201	$	1,201

Investment in Medallion Bank and other controlled subsidiaries, net								6		50	%		11.44	%	$	0	$	131,150	$	136,848

Equity investments

Page 35 of 69

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 31, 2014

(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 2014
Acquisitions ⁽⁵⁾

Cost ⁽⁴⁾

Fair
Value

Commercial Finance

Convergent Capital, Ltd **

7% of limited partnership interest

07/20/07

None

0.00

968

2,600

NASCAR Race Team

Medallion MotorSports, LLC

75% of limited liability interest

11/24/10

None

0.00

2,054

1,600

Employee Leasing Services

Staff One, Inc.

46.4% preferred stock

06/30/08

None

0.00

472

Investment Castings

Tech Cast Holdings LLC

4.14% LLC units

12/12/14

12/12/19

0.00

300

Stuffed Toy Manufacturer

AA Plush Holdings, LLC

1.6% LLC common units

08/15/14

None

0.00

300

Baby Sleep Products

BB Opco, LLC d/b/a BreathableBaby, LLC

3.6% LLC units

08/01/14

None

0.00

250

IT Services

Centare Holdings, Inc.

7.23% of common stock, 3.88% of preferred stock

08/30/13

None

0.00

103

Wire Manufacturer

WRWP LLC

10.3% preferred LLC units, 7.23% common stock

12/30/14

12/30/19

0.00

224

Various Other # +

* Various

09/10/98
to
3/30/12

None

3.68

1,431

1,861

0.86

6,102

7,710

Investment securities

Investment securities, net

0.00

Net Investments ($252,485 pledged as collateral under borrowing arrangements) ⁽³⁾

775

192

6.97

124,779

522,969

527,601

(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 considered non-income producing.

(2)	Included in secured mezzanine commercial loans and other commercial loans was $2,971 of interest income capitalized into the outstanding investment balances, in accordance with the terms of the investment contract.

(3)	The ratio of restricted securities fair value to net assets is 192%.

(4)	Gross unrealized appreciation, gross unrealized depreciation, and net appreciation for federal income tax purposes totaled $62,743, $5,370 and $57,373, respectively. The tax cost of investments was $470,228.

(5)	For revolving lines of credit the amount shown is the cost at December 31, 2014.

*	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 all non-eligible portfolio companies to totaled assets of Medallion Financial on an unconsolidated basis was up to 25% and up to 29% on a consolidated basis. Under the 1940 Act, we may not acquire any non-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 considered non-income producing.

&&	Some or all of the securities are non-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, 2014.

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 Form 10-K for the fiscal year ended December 31, 2014, filed on March 11, 2015 (File No. 814-00188)

Page 36 of 69

Medallion Financial Corp

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of and for the year ended December 31, 2014


Name of issuer and title of issue	Number of shares (all restricted unless otherwise noted)	Equity in net profit and (loss)			Amount of dividends or interest ⁽¹⁾		Value as of 12/31/14
(Dollars in thousands)
Medallion Bank – common stock	1,000,000 shares -100% of common stock	$	26,658		$	15,000	$	125,027
Generation Outdoor, Inc. – common stock	1,000 shares - 100% of common stock		4,803			7		5,063
Medallion Hamptons Holding LLC – membership interest	100% of membership interest		572			0		4,400
Medallion Fine Art, Inc. – common stock (2)	1,000 shares - 100% of common stock		(723	)		0		1,157
Medallion Servicing Corp. – common stock	1,000 shares - 100% of common stock		(110	)		0		852
LAX Group LLC – membership interest	42% of membership interest		(557	)		0		349

Total investments in Medallion Bank and other controlled subsidiaries			30,643			15,007		136,848

Medallion Motorsports, LLC – membership interest (3)	75% of membership interest		0			0		1,600
Appliance Recycling Centers of America Inc. – common stock	8.86% of common stock		0			0		1,230
Western Reserve Wire – membership interest ⁽⁴⁾	7.23% of membership interest		0			0		224
Summit Medical, Inc. – common stock	9.25% of common stock		0			0		135
Other equity investments other than in investments in and advances to affiliates			—			—		4,521

Total equity investments			—			0		7,710

Total investments in Medallion Bank and other controlled subsidiaries and equity investments						15,007	$	144,558

Other interest and dividend income other than from investments in and advances to affiliates						433

Total dividend and interest income on short term investments					$	15,440

Total investments in and advances to affiliates								140,037
Other equity investments other than in investments in and advances to affiliates								4,521

Total investments in Medallion Bank and other controlled subsidiaries and equity investments							$	144,558

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

(2)	The Company has a loan due from Medallion Fine Art, Inc. in the amount of $5,600 which is carried at $6,737 as of December 31, 2014, and on which $764 of interest income was earned in 2014.

(3)	In addition to the equity ownership, a controlled subsidiary of the Company has a $3,039 loan to an affiliate of Medallion Motorsports, LLC which is carried at $4,485, and on which $355 of interest income was earned in 2014.

(4)	The Company has a loan due from Western Reserve Wire in the amount of $2,242 as of December 31, 2014, on which there were no earnings in 2014.

The table below provides a recap of the changes in the investment in the respective issuers for the year ended December 31, 2014.


Name of Issuer	Medallion Bank			Medallion Hamptons Holding LLC			Medallion Motorsports, LLC			Medallion Fine Art, Inc.			Appliance Recycling Centers of America Inc.			Medallion Servicing Corp.			Generation Outdoor, Inc.			Western Reserve Wire		LAX Group LLC
Title of Issue	Common Stock			Membership Interest			Membership Interest⁽¹⁾			Common Stock ⁽²⁾			Common Stock			Common Stock			Common Stock			Membership Interest ⁽³⁾		Membership Interest
*(Dollars in thousands)*
Value as of 12/31/13	$	101,478		$	3,750		$	1,954		$	1,880		$	1,299		$	822		$	439		$	—	$	254
Gross additions / investments		10,000			90			100			—			—			331			1,220			224		652
Gross reductions / distributions		(13,109	)		(12	)		—			—			—			(192	)		(1,399	)		—		—
Net equity in profit and loss, and unrealized appreciation and (depreciation)		26,658			572			(454	)		(723	)		(68	)		(110	)		4,803			—		(557	)
Other adjustments		—			—			—			—			—			1			—			—		—

Value as of 12/31/14	$	125,027		$	4,400		$	1,600		$	1,157		$	1,231		$	852		$	5,063		$	224	$	349

(1)	In addition to the equity ownership, a controlled subsidiary of the Company has a $3,039 loan to an affiliate of Medallion Motorsports, LLC which is carried at $4,485, and on which $355 of interest income was earned in 2014.

(2)	The Company has a loan due from Medallion Fine Art, Inc. in the amount of $5,600, which is carried at $6,737 as of December 31, 2014, $761, and on which $764 of interest income was earned in 2014.

(3)	The Company has a loan due from Western Reserve Wire in the amount of $2,242 as of December 31, 2014, on which there were no earnings in 2014.

Page 37 of 69

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

GENERAL

We are a specialty finance company that has a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. A wholly-owned portfolio company of ours, Medallion Bank, also originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and trailers, and to finance small-scale home improvements.

Since 1996, the year in which we became a public company, we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 5%, and our commercial loan portfolio at a compound annual growth rate of 3% (9% and 6% on a managed basis when combined with Medallion Bank). Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 17%. Total assets under our management and the management of our unconsolidated wholly-owned subsidiaries, which includes our managed net investment portfolio, as well as assets serviced for third party investors, were $1,500,000,000 as of March 31, 2015, and $1,497,000,000 and $1,363,000,000 as of December 31, 2014 and March 31, 2014, and have grown at a compound annual growth rate of 11% 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 revolving bank facilities, bank certificates of deposit issued to customers, 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. Medallion Capital’s investments are typically in the form of secured debt instruments with fixed interest rates accompanied by warrants to purchase an equity interest for a nominal exercise price (such warrants are included in equity investments on the consolidated balance sheets). Interest income is earned on the debt instruments.

We are a closed-end, management investment company under the 1940 Act. We have elected to be treated as a BDC under the 1940 Act. We have also elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, we generally do not have to pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to our shareholders as distributions if we meet certain source-of-income and asset diversification requirements. Medallion Bank is not a RIC and must pay corporate-level US federal and state income taxes.

Our wholly-owned portfolio company, Medallion Bank, is a bank regulated by the FDIC and the Utah Department of Financial Institutions which originates taxicab medallion, commercial, and consumer loans, raises deposits, and conducts other banking activities. Medallion Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers. To take advantage of this low cost of funds, we refer a portion of our taxicab medallion and commercial loans to Medallion Bank, which then originates these loans. However, the FDIC restricts the amount of taxicab medallion loans that Medallion Bank may finance to three times Tier 1 capital, or $450,543,000 as of March 31, 2015. We earn referral fees for these activities. All of these servicing activities have been assigned to MSC. As a non-investment company, Medallion Bank is not consolidated with the Company.

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

Our investment in Medallion Bank, as a wholly owned portfolio investment, is also subject to quarterly assessments of fair value. We conduct a thorough valuation analysis as described previously, and determine 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. As a result of this valuation process, we 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, although changes in these restrictions and other applicable factors could change these conclusions in the future.

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Trends in Investment Portfolio

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


	March 31, 2015						December 31, 2014						March 31, 2014
(Dollars in thousands)	Interest Rate ⁽¹⁾			Investment Balances			Interest Rate ⁽¹⁾			Investment Balances			Interest Rate ⁽¹⁾			Investment Balances
Medallion loans
New York		3.61	%	$	211,594			3.60	%	$	213,099			3.54	%	$	211,864
Chicago		5.09			40,349			4.97			39,280			4.93			41,896
Boston		4.67			26,840			4.69			27,277			4.77			26,494
Newark		5.26			24,791			5.28			25,043			5.45			23,693
Cambridge		4.63			6,692			4.80			6,006			5.07			6,000
Other		6.57			795			6.59			814			6.30			1,140

Total medallion loans		4.05			311,061			4.03			311,519			4.02			311,087

Deferred loan acquisition costs					403						375						255
Unrealized depreciation on loans					(159	)					—						—

Net medallion loans				$	311,305					$	311,894					$	311,342

Commercial loans
Secured mezzanine		13.09	%	$	58,734			12.88	%	$	55,059			11.89	%	$	46,498
Asset based		5.71			3,448			5.82			3,633			5.22			5,481
Other secured commercial		10.61			13,918			9.91			15,506			9.97			13,583

Total commercial loans		12.30			76,100			11.91			74,198			10.93			65,562

Deferred loan acquisition income					(106	)					(100	)					(41	)
Unrealized depreciation on loans					(2,435	)					(2,949	)					(6,606	)

Net commercial loans				$	73,559					$	71,149					$	58,915

Investment in Medallion Bank and other controlled subsidiaries		13.39	%	$	126,958			11.44	%	$	131,150			10.95	%	$	109,542

Unrealized appreciation on subsidiary investments					1,900						5,698						724

Investment in Medallion Bank and other controlled subsidiaries, net				$	128,858					$	136,848					$	110,266

Equity investments		0.69	%	$	6,217			0.86	%	$	6,102			0.58	%		6,125

Unrealized appreciation on equities					1,383						1,608						676

Net equity investments				$	7,600					$	7,710					$	6,801

Investment securities		—	%	$	—			—	%	$	—			—	%	$	—

Investments at cost ⁽²⁾		7.50	%	$	520,336			6.97	%	$	522,969			6.44	%	$	492,316

Deferred loan acquisition costs					297						275						214
Unrealized appreciation on controlled subsidiaries and equity investment					3,283						7,306						1,400
Unrealized depreciation on loans					(2,594	)					(2,949	)					(6,606	)

Net investments				$	521,322					$	527,601					$	487,324

Medallion Bank investments
Consumer loans		14.58	%	$	494,933			14.71	%	$	478,027			15.49	%	$	373,478
Medallion loans		3.82			359,545			3.84			366,397			3.78			366,998
Commercial loans		4.63			41,550			4.68			44,499			4.73			42,143
Investment securities		2.52			29,121			2.53			27,376			2.55			25,108

Medallion Bank investments at cost ⁽²⁾		9.57			925,149			9.51			916,299			9.20			807,727

Deferred loan acquisition costs					9,923						9,937						9,632
Unrealized appreciation (depreciation) on investment securities					297						252						(405	)
Premiums paid on purchased securities					254						272						326
Unrealized depreciation on loans					(18,134	)					(17,797	)					(16,966	)


Medallion Bank net investments				$	917,489					$	908,963					$	800,314

(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 8.38%, 8.46%, and 8.05% at March 31, 2015, December 31, 2014, and March 31, 2014.

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Investment Activity

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


	Three Months Ended March 31,
(Dollars in thousands)	2015			2014
Net investments at beginning of period	$	527,601		$	473,157
Investments originated ⁽¹⁾		17,198			32,846
Repayments of investments ⁽¹⁾		(17,128	)		(21,639	)
Net cash received on disposition of other controlled subsidiaries		(11,969	)		—
Net realized gains (losses) on investments		7,899			(172	)
Net increase in unrealized appreciation (depreciation)⁽²⁾		(2,296	)		3,107
Amortization of origination (costs) fees		17			25

Net increase (decrease) in investments		(6,279	)		14,167

Net investments at end of period	$	521,322		$	487,324

(1)	Includes refinancings.

(2)	Excludes net unrealized appreciation (depreciation) of ($3,439) and $381 for the quarter ended March 31, 2015 and 2014, related to foreclosed properties and other assets.

PORTFOLIO SUMMARY

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 portfolio at March 31, 2015 was 7.50% (5.68% for the loan portfolio), an increase of 53 basis points from 6.97% at December 31, 2014, and an increase of 106 basis points from 6.44% at March 31, 2014. The weighted average yield of the total managed portfolio at March 31, 2015 was 8.38% (8.56% for the loan portfolio), an increase of 11 basis points from 8.27% at December 31, 2014, and an increase of 52 basis points from 7.86% at March 31, 2014. The increase in 2015 primarily reflected changes in the portfolio mix.

Medallion Loan Portfolio

Our medallion loans comprised 60% of the net portfolio of $521,322,000 at March 31, 2015, compared to 59% of the net portfolio of $527,601,000 at December 31, 2014, and 64% of $487,324,000 at March 31, 2014. Our managed medallion loans of $669,612,000 comprised 51% of the net managed portfolio of $1,313,574,000 at March 31, 2015, compared to 52% of the net managed portfolio of $1,310,685,000 at December 31, 2014, and 57% of $1,184,257,000 at March 31, 2014. The medallion loan portfolio decreased by $594,000 or less than 1% in 2015 (a decrease of $7,543,000 or 1% on a managed basis), primarily reflecting strong portfolio growth in the major markets and increases in loan participations sold. Total medallion loans serviced for third parties were $27,485,000, $27,658,000, and $28,049,000 at March 31, 2015, December 31, 2014, and March 31, 2014.

The weighted average yield of the medallion loan portfolio at March 31, 2015 was 4.05%, an increase of 2 basis points from 4.03% at December 31, 2014, and an increase of 3 basis points from 4.02% at March 31, 2014. The weighted average yield of the managed medallion loan portfolio at March 31, 2015 was 3.93%, unchanged from December 31, 2014, and an increase of 4 basis points from 3.89% at March 31, 2014. The increase in yield primarily reflected the repricing of the existing portfolio to current market interest rates, which have been stable in 2014. At March 31, 2015, 32% of the medallion loan portfolio represented loans outside New York, compared to 32% unchanged from December 31, 2014 and March 31, 2014. At March 31, 2015, 26% of the managed medallion loan portfolio represented loans outside New York, compared to 26% at December 31, 2014 unchanged from March 31, 2014. We continue to focus our efforts on originating higher yielding medallion loans outside the New York market.

Commercial Loan Portfolio

Our commercial loans represented 14%, 14%, and 12% of the net investment portfolio as of March 31, 2015, December 31, 2014, and March 31, 2014, and were 9%, 9%, and 8% on a managed basis. Commercial loans increased by $2,410,000 or 3% during the quarter ended March 31, 2015 (decreased $504,000 or less than 1% on a managed basis), primarily reflecting decreases in the asset-based portfolio. Net commercial loans serviced by third parties were $149,000 at March 31, 2015, $118,000 at December 31, 2014, and $63,000 at March 31, 2014.

The weighted average yield of the commercial loan portfolio at March 31, 2015 was 12.30%, an increase of 39 basis points from 11.91% at December 31, 2014, an increase of 137 basis points from 10.93% at March 31, 2014. The weighted average yield of the managed commercial loan portfolio at March 31, 2015 was 9.59%, an increase of 39 basis points from 9.20% at December 31, 2014, and an increase of 109 basis points from 8.50% at March 31, 2014. The increases primarily reflect changes in the portfolio mix and changes in the rates earned. We continue to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate our interest rate risk in a rising interest rate environment. At March 31, 2015, variable-rate loans represented approximately 5% of the commercial portfolio, compared to 6% and 9% at December 31, 2014 and March 31, 2014, and were 35%, 38%, and 42% on a managed basis. Although this strategy initially produces a lower yield, we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources.

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Consumer Loan Portfolio

Our managed consumer loans, all of which are held in the portfolio managed by Medallion Bank, represented 37%, 36%, and 31% of the managed net investment portfolio as of March 31, 2015, December 31, 2014, and March 31, 2014. Medallion Bank originates adjustable rate consumer loans secured by recreational vehicles, boats, motorcycles, trailers and home improvements located in all 50 states. The portfolio is serviced by a third party subsidiary of a major commercial bank.

The weighted average gross yield of the managed consumer loan portfolio was 14.58% at March 31, 2015, compared to 14.71% and 15.49% at December 31, 2014 and March 31, 2014. The decrease in yield reflects changes in the portfolio mix, as a greater proportion of consumer lending is in lower yield home improvement loan. Adjustable rate loans represented 33% of the managed consumer portfolio at March 31, 2015, compared to 37% and 61% at December 31, 2014 and March 31, 2014.

Delinquency and Loan Loss Experience

We generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to payments for a period of 90 days or more. We deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances. A loan is considered to be delinquent if the borrower fails to make a payment on time; however, during the course of discussion on delinquent status, we may agree to modify the payment terms of the loan with a borrower that cannot make payments in accordance with the original loan agreement. For loan modifications, the loan will only be returned to accrual status if all past due interest 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 to realized losses. If the collateral is repossessed, a realized loss 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 written off as a realized loss, and any excess proceeds are recorded as a realized gain. Proceeds collected on charged off accounts are recorded as realized gains. All collection, repossession, and recovery efforts are handled on behalf of Medallion Bank by the servicer.

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


	March 31, 2015					December 31, 2014					March 31, 2014
(Dollars in thousands)	Amount		%⁽¹⁾			Amount		%⁽¹⁾			Amount		%⁽¹⁾
Medallion loans	$	1,743		0.5	%	$	—		0.0	%	$	—		0.0	%

Commercial loans
Secured mezzanine		1,390		0.3			1,391		0.3			2,018		0.6
Asset-based receivable		303		0.1			303		0.1			494		0.1
Other secured commercial		377		0.1			—		0.0			—		0.0

Total commercial loans		2,070		0.5			1,694		0.4			2,512		0.7

Total loans 90 days or more past due	$	3,813		1.0	%	$	1,694		0.4	%	$	2,512		0.7	%

Total Medallion Bank loans	$	3,144		0.4	%	$	3,113		0.4	%	$	3,721		0.5	%

Total managed loans 90 days or more past due	$	6,957		0.5	%	$	4,807		0.4	%	$	6,233		0.5	%

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

A third party finance company sold various participations in asset based loans to Medallion Business Credit and Medallion Bank. In April 2013, the aggregate balance of the participations was approximately $13.8 million, $12.9 million of which were held by Medallion Bank. That amount was divided between seven separate borrowers operating in a variety of industries. In April 2013, the third party finance company became the subject of an involuntary bankruptcy petition filed by its bank lenders. Among other things, the bank lenders alleged that the third party finance company fraudulently misrepresented its borrowing availability under its credit facility with the bank lenders and are seeking the third party finance company’s liquidation. In May 2013, the bankruptcy court presiding over the third party finance company’s case entered an order converting the involuntary chapter 7 case to a chapter 11 case. We and Medallion Bank have placed these loans on nonaccrual, and reversed interest income. In addition, we have established valuation allowances against the outstanding balances. On May 31, 2013, we commenced an adverse proceeding against the third party finance company and the bank lenders seeking declaratory judgment that our loan participations are true participations and not subject to the bankruptcy estate or to the bank lender’s security interest in the third party finance company’s assets. The third party finance company and bank lenders are contesting our position. In April 2014, we and Medallion Bank received a decision from the court granting summary judgment in our favor with respect to the issue of whether our loan participations are true participations. In March 2015, we and Medallion Bank received a decision from the court finding that the bank lenders generally held a first lien on our and Medallion Bank’s loan participations subject to, among other things, defenses still pending prosecution by the parties and adjudication by the court. We and Medallion Bank are appealing

Page 41 of 69

the decision. The remaining issues are still being litigated. Although we believe the claims raised by the third party finance company and the bank lenders are without merit and will vigorously defend against them, we cannot at this time predict the outcome of this litigation or determine our potential exposure. At March 31, 2015, five of the seven secured borrowers had refinanced their loans in full with third parties, and the related proceeds are held in escrow pending resolution of the bankruptcy proceedings. One loan was charged off in September 2014. The one remaining loan is still outstanding. The balances related to the paid off loans have been reclassified to other assets on the consolidated balance sheet. The table below summarizes these receivables and their status with the Company and Medallion Bank.


(Dollars in thousands)	The Company			Medallion Bank			Total
Loans outstanding	$	289		$	2,291		$	2,580
Loans charged off ⁽¹⁾		(190	)		(940	)		(1,130	)
Valuation allowance		(50	)		(675	)		(725	)

Net loans outstanding		49			676			725

Other receivables		560			10,642			11,202
Valuation allowance		(168	)		(3,193	)		(3,361	)

Net other receivables		392			7,449			7,841
Total net outstanding		441			8,125			8,566

Income foregone in 2015		8			12			20
Total income foregone	$	66		$	96		$	162

(1)	The income foregone on the charged off loan was $20 for the Company and $96 for Medallion Bank

In general, collection efforts since the establishment of our collection department have contributed to the reduction in overall delinquencies of medallion and other secured commercial loans to very low levels. Increase in medallion loan delinquencies reflected winter issues in the Northeast. Secured mezzanine delinquencies remained unchanged from the prior quarter and at lower level than at the recent past. Medallion Bank delinquencies declined from a year ago due to strong consumer portfolio performance reflective of the improved economic environment. We are actively working with each delinquent borrower/obligor to bring them current, and believe that any potential loss exposure is reflected in our mark-to-market estimates on each investment. Although there can be no assurances as to changes in the trend rate and further negative changes in the economy, management believes that any loss exposures are properly reflected in reported asset values.

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

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

The following tables set forth the changes in our unrealized appreciation (depreciation) on investments, for the 2015 and 2014 quarters shown below.


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Subsidiaries			Equity Investments			Foreclosed Properties			Total

Balance December 31, 2014	$	—		($	2,949	)	$	5,698		$	1,608		$	38,645		$	43,002
Net change in unrealized
Appreciation on investments		—			—			1,087			(244	)		(3,439	)		(2,596	)
Depreciation on investments		(159	)		514			(76	)		19			—			298
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			(4,809	)		—			—			(4,809	)
Losses on investments		—			—			—			—			—			—

Balance March 31, 2015	($	159	)	($	2,435	)	$	1,900			1,383		$	35,206		$	35,895


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Subsidiaries			Equity Investments			Foreclosed Properties			Total
Balance December 31, 2013	$	—		($	6,992	)	$	814		$	381		$	40,404		$	34,607
Net change in unrealized
Appreciation on investments		—			—			(90	)		100			—			10
Depreciation on investments		—			74			—			195			381			650
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			—			—			—
Losses on investments		—			312			—			—			—			312

Balance March 31, 2014	$	—		($	6,606	)	$	724		$	676		$	40,785		$	35,579

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


(Dollars in thousands)	March 31, 2015			December 31, 2014			March 31, 2014
Total loans
Medallion loans	$	311,305		$	311,894		$	311,342
Commercial loans		73,559			71,149			58,915

Total loans		384,864			383,043			370,257
Investment in Medallion Bank and other controlled subsidiaries		128,858			136,848			110,266
Equity investments ⁽¹⁾		7,600			7,710			6,801
Investment securities		—			—			—

Net investments	$	521,322		$	527,601		$	487,324

Net investments at Medallion Bank and other controlled subsidiaries	$	917,489		$	908,963		$	800,314
Managed net investments	$	1,313,574		$	1,310,685		$	1,184,257

Unrealized appreciation (depreciation) on investments
Medallion loans	($	159	)	$	—		$	—
Commercial loans		(2,435	)		(2,949	)		(6,606	)

Total loans		(2,594	)		(2,949	)		(6,606	)
Investment in Medallion Bank and other controlled subsidiaries		1,900			5,698			724
Equity investments		1,383			1,608			676
Investment securities		—			—			—

Total unrealized appreciation (depreciation) on investments	$	689		$	4,357		($	5,206	)

Net unrealized depreciation on investments at Medallion Bank and other controlled subsidiaries	($	17,837	)	($	17,545	)	($	17,371	)
Managed total unrealized depreciation on investments	($	17,148	)	($	13,188	)	($	22,577	)

Unrealized appreciation (depreciation) as a % of balances outstanding ⁽²⁾
Medallion loans		(0.05	%)		—	%		—	%
Commercial loans		(3.20	)		(3.97	)		(10.08	)
Total loans		(0.67	)		(0.76	)		(1.75	)
Investment in Medallion Bank and other controlled subsidiaries		1.50			4.34			0.66
Equity investments		22.24			26.35			11.04
Investment securities		—			—			—
Net investments		0.13			0.83			(1.06	)

Net investments at Medallion Bank and other controlled subsidiaries		(1.93	%)		(1.91	%)		(2.15	%)
Managed net investments		(1.30	%)		(1.00	%)		(1.89	%)

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

(2)

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

The following table presents the gain/loss experience on the investment portfolios for the quarters ended March 31, 2015 and 2014.


	Three Months Ended March 31,
Dollars in thousands)	2015			2014
Realized gains (losses) on loans and equity investments
Medallion loans	$	—		$	—
Commercial loans		2			(221	)

Total loans		2			(221	)
Investment in Medallion Bank and other controlled subsidiaries		7,663			—
Equity investments		234			49
Investment securities		—			—

Total realized gains (losses) on loans and equity investments	$	7,899		($	172	)

Net realized losses on investments at Medallion Bank and other controlled subsidiaries	($	2,101	)	($	1,496	)

Total managed realized gains (losses) on loans and equity investments	$	5,798		($	1,668	)

Realized gains (losses) as a % of average balances outstanding
Medallion loans		—	%		—	%
Commercial loans		0.01			(1.36	)
Total loans		0.00			(0.24	)
Investment in Medallion Bank and other controlled subsidiaries		23.71			—
Equity investments		15.32			3.26
Investment securities		—			—
Net investments		6.12			(0.14	)

Net investments at Medallion Bank and other controlled subsidiaries		(0.93	%)		(0.77	%)
Managed net investments		1.79	%		(0.58	%)

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The table below summarizes components of unrealized and realized gains and losses in the investment portfolio for the quarters ended March 31, 2015 and 2014.


	Three Months Ended March 31,
(Dollars in thousands)	2015			2014
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	($	168	)	$	100
Unrealized depreciation		298			269
Net unrealized appreciation (depreciation) on investment in Medallion Bank and other controlled subsidiaries		2,383			2,426
Realized gains		(4,809	)		—
Realized losses		—			312
Net unrealized gains on foreclosed properties and other assets		(3,439	)		381

Total	($	5,735	)	$	3,488

Net realized gains (losses) on investments
Realized gains	$	4,809		$	—
Realized losses		—			(312	)
Other gains		3,088			49
Direct recoveries		2			91
Realized gains on foreclosed properties and other assets		—			—

Total	$	7,899		($	172	)

Investment in Medallion Bank and Other Controlled Subsidiaries

Investment in Medallion Bank and other controlled subsidiaries were 25%, 26%, and 23% of our total portfolio at March 31, 2015, December 31, 2014, and March 31, 2014. The portfolio company investments primarily represent the wholly-owned unconsolidated subsidiaries of ours, substantially all of which is represented by our investment in Medallion Bank, a non-pass-through, taxpaying entity. In addition, to facilitate maintenance of Medallion Bank’s capital ratio requirement and to provide the necessary capital for continued growth, we periodically make capital contributions to Medallion Bank, including $10,000,000 in 2014. Separately, Medallion Bank declared dividends to us of $5,000,000 and $3,000,000 in the 2015 and 2014 first quarters. See Note 3 of the consolidated financial statements for additional information about these investments.

Equity Investments

Equity investments were 1% of our total portfolio at March 31, 2015, December 31, 2014, and March 31, 2014. Equity investments were 1% of our total managed portfolio at March 31, 2015, December 31, 2014, and March 31, 2014. Equity investments are comprised of common stock, partnership interests, and warrants.

Investment Securities

Investment securities were 0% of our total portfolio at March 31, 2015, December 31, 2014, and March 31, 2014. Investment securities were 2% of our total managed portfolio at March 31, 2015, December 31, 2014, and March 31, 2014. The investment securities are primarily adjustable-rate mortgage-backed securities purchased by Medallion Bank to better utilize required cash liquidity.

Trend in Interest Expense

Our interest expense is driven by the interest rates payable on our short-term credit facilities with banks, bank certificates of deposit, fixed-rate, long-term debentures issued to the SBA, and other short-term notes payable. We established a medallion lending relationship with DZ Bank in December 2008 that provides for growth in the portfolio at generally lower rates than under prior facilities. In addition, Medallion Bank began raising brokered bank certificates of deposit during 2004, which were at our lowest borrowing costs. As a result of Medallion Bank raising funds through certificates of deposit as previously noted, we were able to realign the ownership of some of our medallion loans and related assets to Medallion Bank allowing us and our subsidiaries to use cash generated through these transactions to retire debt with higher interest rates. In addition, 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 4 to the consolidated financial statements for details on the terms of all 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 table shows the average borrowings and related borrowing costs for the quarters ended March 31, 2015 and 2014. Our average balances decreased reflecting the recent equity offering and Medallion Bank’s average balances increased, reflecting the strong growth in the consumer loan portfolio. The decrease in borrowing costs primarily reflected the repricing of term borrowings, and Medallion Bank’s increased borrowing costs reflecting a lengthening of their maturity profile.

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	Three Months Ended
(Dollars in thousands)	Interest Expense		Average Balance		Average Borrowing Costs
March 31, 2015
Revolving lines of credit	$	578	$	121,585		1.93	%
Notes payable to banks		772		121,073		2.58
SBA debentures		666		67,624		4.00
Preferred securities		196		33,000		2.41

Total	$	2,212	$	343,282		2.61

Medallion Bank borrowings		2,027		799,469		1.03

Total managed borrowings	$	4,239	$	1,142,751		1.50

March 31, 2014
Revolving lines of credit	$	618	$	130,654		1.92	%
Notes payable to banks		503		68,284		2.99
SBA debentures		658		59,918		4.45
Preferred securities		196		33,000		2.41

Total	$	1,975	$	291,856		2.74

Medallion Bank borrowings		1,445		684,130		0.86

Total managed borrowings	$	3,420	$	975,986		1.42

We will continue to seek SBA funding to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under Small Business Investment Act, or 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 March 31, 2015 and 2014, short-term adjustable rate debt constituted 68% and 72% of total debt, and was 21% and 22% on a fully managed basis including the borrowings of Medallion Bank.

Factors Affecting Net Assets

Factors that affect our net assets include net realized gain or loss on investments and change in net unrealized appreciation or depreciation on investments. Net realized gain or loss on investments is the difference between the proceeds derived upon sale or foreclosure of a loan or an equity investment and the cost basis of such loan or equity investment. Change in net unrealized appreciation or depreciation on investments is the amount, if any, by which our estimate of the fair value of our investment portfolio is above or below the previously established fair value or the cost basis of the portfolio. Under the 1940 Act and the SBIA, our loan portfolio and other investments must be recorded at fair value.

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

Our investment in Medallion Bank, as a wholly-owned portfolio investment, is also subject to quarterly assessments of fair value. We conduct a thorough valuation analysis as described previously, and also receive 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 annual basis. We determine whether any factors give rise to 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 from non-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, our Board of Directors has determined that Medallion Bank has little value beyond its recorded book value. As a result of this valuation process, we 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, although changes in these restrictions and other applicable factors could change these conclusions in the future.

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SELECTED FINANCIAL DATA

Summary Consolidated Financial Data

You should read the consolidated financial information below with the Consolidated Financial Statements and Notes thereto for the quarters ended March 31, 2015 and 2014.


	Three Months Ended March 31,
(Dollars in thousands, except per share data)	2015			2014
Statement of operations
Investment income	$	11,831		$	9,035
Interest expense		2,212			1,975

Net interest income		9,619			7,060
Noninterest income		56			191
Operating expenses		4,771			3,801

Net investment income before income taxes		4,904			3,450
Income tax (provision) benefit		—			—

Net investment income after income taxes		4,904			3,450
Net realized gains (losses) on investments		7,899			(172	)
Net change in unrealized appreciation (depreciation) on Medallion Bank and other controlled subsidiaries ⁽¹⁾		(2,426	)		2,426
Net change in unrealized appreciation (depreciation) on investments ⁽¹⁾		(3,309	)		1,062

Net increase in net assets resulting from operations	$	7,068		$	6,766

Per share data
Net investment income	$	0.20		$	0.14
Income tax (provision) benefit		—			—
Net realized gains (losses) on investments		0.32			(0.01	)
Net change in unrealized appreciation (depreciation) on investments ⁽¹⁾		(0.23	)		0.14

Net increase in net assets resulting from operations	$	0.29		$	0.27

Distribution declared per share	$	0.25		$	0.24

Weighted average common shares outstanding
Basic		24,446,419			24,792,489
Diluted		24,542,727			25,092,826


	March 31, 2015			December 31, 2014
Balance sheet data
Net investments	$	521,322		$	527,601
Total assets		633,450			632,287
Total funds borrowed		353,342			348,795
Total liabilities		357,433			357,617
Total shareholders’ equity		276,017			274,670

Managed balance sheet data⁽²⁾
Net investments	$	1,313,574		$	1,310,685
Total assets		1,473,291			1,469,751
Total funds borrowed		1,158,809			1,156,735
Total liabilities		1,197,274			1,195,081

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	Three Months Ended March 31,
	2015			2014
Selected financial ratios and other data
Return on average assets (ROA) ⁽³⁾
Net investment income after taxes		3.15	%		2.40	%
Net increase in net assets resulting from operations		4.54			4.70
Return on average equity (ROE) ⁽⁴⁾
Net investment income after taxes		7.17			5.08
Net increase in net assets resulting from operations		10.33			9.97

Weighted average yield		9.15	%		7.67	%
Weighted average cost of funds		1.71			1.68

Net interest margin ⁽⁵⁾		7.44			5.99

Noninterest income ratio ⁽⁶⁾		0.04	%		0.16	%
Total expense ratio⁽⁷⁾		5.40			4.90
Operating expense ratio ⁽⁸⁾		3.69			3.23


	March 31, 2015			December 31, 2014
As a percentage of net investment portfolio
Medallion loans		60	%		59	%
Commercial loans		14			14
Investment in Medallion Bank and other controlled subsidiaries		25			26
Equity investments		1			1
Investment securities		—			—

Investments to assets⁽⁹⁾		82	%		83	%
Equity to assets ⁽¹⁰⁾		44			43
Debt to equity ⁽¹¹⁾		128			127

(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 after taxes or net increase 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 interest recoveries and bonuses of $266 and $737 in the quarters ended March 31, 2015 and 2014, and also included dividends from Medallion Bank and other controlled subsidiaries of $5,889 and $3,000 in the respective periods. On a managed basis, combined with Medallion Bank, the net interest margin was 7.20% and 6.92% for the quarters ended March 31, 2015 and 2014.

(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 period indicated.

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

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

Consolidated Results of Operations

2015 First Quarter compared to the 2014 First Quarter

Net increase in net assets resulting from operations was $7,068,000 or $0.29 per diluted common share in the 2015 first quarter, up $302,000 or 4% from $6,766,000 or $0.27 per share in the 2014 first quarter, primarily reflecting higher net interest income, partially offset by higher operating expenses and lower net realized/unrealized gains and noninterest income. Net investment income after income taxes was $4,904,000 or $0.20 per share in the 2015 quarter, up $1,454,000 or 42% from $3,450,000 or $0.14 per share in the 2014 quarter.

Investment income was $11,831,000 in the 2015 first quarter, up $2,796,000 or 31% from $9,035,000 a year ago, and included $266,000 from bonuses on certain investments in 2015, compared to $737,000 in 2014. Also included in the 2015 and 2014 quarters were $5,889,000 and $3,000,000 in dividends from Medallion Bank and other controlled subsidiaries. Excluding those items, investment income increased $378,000 or 7%, primarily reflecting portfolio growth, partially offset by the repricing of the portfolios to lower current market interest rates, and the sourcing of loans to Medallion Bank. The yield on the investment portfolio was 9.15% in the 2015 quarter, up 19% from 7.67% in the 2014 quarter. Excluding the extra interest and dividends, the 2015 yield was down 2% to 4.39% from 4.50% in 2014, reflecting changes in the portfolio mix. Average investments outstanding were $524,386,000 in 2015, up 10% from $477,969,000 a year ago, primarily reflecting portfolio growth, offset by loan participations sold and loan payments received.

Medallion loans were $311,305,000 at quarter end, down $38,000 from $311,342,000 a year ago, representing 60% of the investment portfolio, compared to 64% a year ago, and were yielding 4.05% compared to 4.02% a year ago, an increase of 1%, reflecting the repricing of the existing portfolio to higher current market interest rates. Outstandings were relatively unchanged in all markets, reflecting

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stabilization of lending activities across the medallion marketplace. The managed medallion portfolio, which includes loans at Medallion Bank and those serviced for third parties, was $697,097,000 at quarter end, down $8,356,000 or 1% from $705,453,000 a year ago, reflecting the above, and a reduction in the New York market. The commercial loan portfolio was $73,559,000 at quarter end, compared to $58,915,000 a year ago, an increase of $14,644,000 or 25%, and represented 14% of the investment portfolio compared to 12% a year ago. The increase primarily reflected growth in the high-yield mezzanine portfolio. Commercial loans yielded 12.30% at quarter end, up 13% from 10.93% a year ago, reflecting the change in portfolio mix and higher yields on the mezzanine portfolio. The net managed commercial loan portfolio, which includes loans at Medallion Bank and those serviced for or by third parties, was $113,751,000 at quarter end, up $14,455,000 or 15% from $99,296,000 a year ago, primarily reflecting the changes described above, and further decreases and reserve increases in the asset-based loan portfolio at Medallion Bank. Approximately $11,202,000 of managed asset-based loans ($7,841,000 after valuation adjustments) has been reclassified to other assets awaiting the outcome of legal proceeding as described further on page 55. Investments in Medallion Bank and other controlled subsidiaries were $128,858,000 at quarter end, up $18,592,000 or 17% from $110,266,000 a year ago, primarily reflecting our equity in the earnings of Medallion Bank and other portfolio company investments, capital contributions made, portfolio sales, and net appreciation, and which represented 25% of the investment portfolio, compared to 23% a year ago, and which yielded 13.39% at quarter end, compared to 10.95% a year ago, primarily reflecting the dividends from Medallion Bank. See Notes 3 and 10 of the consolidated financial statements for additional information about Medallion Bank and the other controlled subsidiaries. Equity investments were $7,600,000 at quarter end, up $799,000 or 12% from $6,801,000 a year ago, primarily reflecting increased equity investment and portfolio appreciation, and represented 1% of the investment portfolio at both quarter ends, and had a dividend yield of 0.69%, compared to 0.58% a year ago. Investment securities were zero at both quarter ends. See page 39 for a table that shows balances and yields by type of investment.

Interest expense was $2,212,000 in the 2015 first quarter, up $237,000 or 12% from $1,975,000 in the 2014 first quarter. The increase in interest expense was primarily due to increased borrowing levels, partially offset by lower borrowing costs. The cost of borrowed funds was 2.61% in 2015, compared to 2.74% a year ago, a decrease of 5%, reflecting the adjustable rate nature of much of our borrowings, and changes in our funding mix. Average debt outstanding was $343,282,000 for the 2015 quarter, compared to $291,856,000 a year ago, an increase of 18%, primarily reflecting increased borrowings required to fund portfolio growth and investment activity. See page 45 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $9,619,000 and the net interest margin was 7.44% for the 2015 quarter, up $2,559,000 or 36% from $7,060,000 a year ago, which represented a net interest margin of 5.99%, all reflecting the items discussed above.

Noninterest income, which is comprised of prepayment fees, servicing fee income, late charges, and other miscellaneous income was $56,000 in the 2015 quarter, down $135,000 or 71% from $191,000 a year ago, primarily reflecting lower management fee income, servicing and other fees generated from the portfolio base at Medallion Bank, and prepayment fees, partially offset by higher late charges.

Operating expenses were $4,771,000 in the 2015 first quarter, up $970,000 or 26% from $3,801,000 in the 2014 first quarter. Salaries and benefits expense was $3,343,000 in the 2015 quarter, up $783,000 or 31% from $2,560,000 in the 2014 quarter, primarily reflecting higher salaries and bonus accruals, partially related to new hires for business development, and severance for closed operations. Professional fees were $412,000 in 2015, up $154,000 or 60% from $258,000 a year ago, primarily reflecting higher legal expenses for a variety of corporate and investment-related matters. Occupancy expense was $230,000 in the quarter, up $38,000 or 20% from $192,000 in 2014, primarily reflecting rent previously allocated to a sold unconsolidated portfolio company. Other operating expenses of $786,000 in 2015 were down $5,000 or 1% from $791,000 a year ago, primarily reflecting higher computer and loan collection expenses, partially offset by lower telephone and other operating expenses.

Income tax expense was $0 in both the 2015 and 2014 first quarters.

Net change in unrealized appreciation on investments was depreciation of $5,735,000 in the 2015 first quarter, compared to appreciation of $3,488,000 in the 2014 first quarter, a decrease in appreciation of $9,223,000. Net change in unrealized appreciation other than the portion related to Medallion Bank and the other controlled subsidiaries, was depreciation of $3,309,000 in 2015, compared to appreciation of $1,062,000 in 2014, resulting in decreased appreciation of $4,371,000 in 2014. 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 2015 activity resulted from net depreciation on foreclosed property of $3,439,000, net depreciation on Medallion Bank and other controlled subsidiaries of $2,426,000, and net unrealized depreciation on equity investments of $225,000, partially offset by unrealized appreciation on loans of $355,000. The 2014 activity resulted from net appreciation on Medallion Bank and other controlled subsidiaries of $2,426,000, net appreciation on other assets of $381,000, reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $312,000, net unrealized appreciation on equity investments of $295,000, and net unrealized appreciation on loans of $74,000. The net appreciation on Medallion Bank and other controlled subsidiaries described above is net of the dividends declared by them to us of $5,889,000 and $3,000,000 in the 2015 and 2014 first quarters.

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Our net realized gains on investments were $7,899,000 in the 2015 quarter, compared to losses of $172,000 in the 2014 quarter, an increase in realized gains of $8,071,000 in the quarter. The 2015 activity reflected reversals of $4,809,000 of unrealized appreciation related to sales of other controlled subsidiaries, $2,854,000 of other gains from the other controlled subsidiaries sales, other gains on equity investments of $234,000, and net direct recoveries of loans of $2,000. The 2014 activity reflected the reversals described in the unrealized paragraph above, partially offset by net direct recoveries of loans of $91,000 and other gains on equity investments of $49,000.

Our net realized/unrealized gains on investments were $2,164,000 in the 2015 first quarter, compared to $3,316,000 in the 2014 first quarter, a decrease of $1,152,000 or 35% in net gains in 2015, 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 credit facilities with banks and other lenders, bank certificates of deposit, and SBA debentures).

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

The effect of changes in interest rates is mitigated by regular turnover of the portfolio. Based on past experience, 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 intervals or the maturities of tranches drawn under the revolving lines of credit or issued as certificates of deposit, for terms of up to five years. We had outstanding SBA debentures of $65,985,000 with a weighted average interest rate of 3.62%, constituting 19% of our total indebtedness as of March 31, 2015. Also, as of March 31, 2015, portions of the adjustable rate debt with banks repriced at intervals of as long as two months, and certain of the certificates of deposit were for terms of up to 53 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 March 31, 2015, compared to the respective positions at the end of 2014 and 2013. 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.


March 31, 2015 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	$	3,448		$	—		$	—	$	—	$	—	$	—		$	—		$	3,448
Adjustable rate		3,020			508			—		—		—		—			—			3,528
Fixed-rate		71,607			143,872			105,201		25,748		23,762		7,246			2,749			380,185
Cash		58,148			—			—		—		—		—			—			58,148

Total earning assets	$	136,223		$	144,380		$	105,201	$	25,748	$	23,762	$	7,246		$	2,749		$	445,309

Interest bearing liabilities
Revolving lines of credit	$	120,618		$	—		$	—	$	—	$	—	$	—		$	—		$	120,618
Notes payable to banks		105,619			28,025			95		—		—		—			—			133,739
SBA debentures		4,000			—			—		3,000		—		15,985			43,000			65,985
Preferred securities		33,000			—			—		—		—		—			—			33,000

Total liabilities	$	263,237		$	28,025		$	95	$	3,000	$	—	$	15,985		$	43,000		$	353,342

Interest rate gap	($	127,014	)	$	116,355		$	105,106	$	22,748	$	23,762	($	8,739	)	($	40,251	)	$	91,967

Cumulative interest rate gap ⁽²⁾	($	127,014	)	($	10,659	)	$	94,447	$	117,195	$	140,957	$	132,218		$	91,967			—

December 31, 2014 ⁽²⁾	($	160,108	)	($	47,283	)	$	73,765	$	108,360	$	124,790	$	131,736		$	84,006			—
December 31, 2013 ⁽²⁾	($	143,126	)	($	72,980	)	$	78,325	$	122,575	$	146,584	$	143,584		$	102,071			—

(1)	The ratio of the cumulative one year gap to total interest rate sensitive assets was (29%), (37%), and (34%), as of March 31, 2015 and December 31, 2014 and 2013, and was (17%), (19%), and (28%) on a combined basis with Medallion Bank.

(2)

Adjusted for the medallion loan 40% prepayment assumption results in a cumulative one year negative interest rate gap and related ratio of ($28,189) or (6%) for March 31, 2015, compared to ($53,066) or (12%) and ($30,301) or (7%) for December 31, 2014 and 2013, and was ($32,307) or (2%), ($28,650) or (2%), and ($97,043) or (8%) on a combined basis with Medallion Bank.

Our interest rate sensitive assets were $445,309,000 and interest rate sensitive liabilities were $353,342,000 at March 31, 2015. The one-year cumulative interest rate gap was a negative $127,014,000 or 29% of interest rate sensitive assets, compared to a negative $160,108,000 or 37% at December 31, 2014 and $143,126,000 or 34% at December 31, 2013. However, using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative gap of $28,189,000 or 6% at March 31, 2015. 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.

On a combined basis with Medallion Bank, our interest rate sensitive assets were $1,394,035,000 and interest rate sensitive liabilities were $1,158,809 at March 31, 2015. The one year cumulative interest rate gap was a negative $242,158,000 or 17% of interest rate sensitive assets, compared to a negative $257,578,000 or 19% and $341,843,000 or 28% at December 31, 2014 and 2013. Using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative gap of $32,307,000 or 2% at March 31, 2015.

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 $180,000,000 of notional value of principal from various multinational banks, with termination dates ranging to September 2017. 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 and $14,000 for the quarters ended March 31, 2015 and 2014, and all are carried at $0 on the balance sheet at March 31, 2015.

Liquidity and Capital Resources

Our sources of liquidity are the revolving lines of credit with DZ Bank and 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, and participations or sales of loans to third parties. As a RIC, we are required to distribute at least 90% of our investment company taxable income; consequently, we have primarily relied upon external sources of funds to finance growth. Trust III’s $150,000,000 revolving line of credit with DZ Bank had $29,382,000 of availability, $45,100,000 was available under revolving credit agreements with commercial banks, and there were $0 unfunded commitments from the SBA.

Additionally, Medallion Bank, our wholly-owned, unconsolidated portfolio company has access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. At the current required capital levels, it is expected, although there can be no guarantee, that deposits of approximately $36,000,000 could be raised by Medallion Bank to fund future loan origination activities, and Medallion Bank also has $25,000,000 available under Fed Funds lines with several commercial banks. In addition, Medallion Bank, as a non-RIC subsidiary of ours, is allowed to retain all earnings in the business to fund future growth.

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The components of our debt were as follows at March 31, 2015. See Note 4 to the consolidated financial statements on page 18 for details of the contractual terms of our borrowings.


(Dollars in thousands)	Balance		Percentage			Rate ⁽¹⁾
Revolving lines of credit	$	120,618		34	%		1.87	%
Notes payable to banks		133,739		38			2.50
SBA debentures		65,985		19			3.92
Preferred securities		33,000		9			2.39

Total outstanding debt	$	353,342		100	%		2.54

Deposits and other borrowings at Medallion Bank		805,467		—			0.88	%

Total outstanding debt, including Medallion Bank	$	1,158,809		—			1.38

(1)	Weighted average contractual rate as of March 31, 2015.

Our contractual obligations expire on or mature at various dates through September 2037. The following table shows all contractual obligations at March 31, 2015.


	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
Revolving lines of credit	$	—	$	120,618	$	—	$	—	$	—	$	—	$	120,618
Notes payable to banks		44,965		88,679		95		—		—		—		133,739
SBA debentures		4,000		—		—		3,000		—		58,985		65,985
Preferred securities		—		—		—		—		—		33,000		33,000

Total	$	48,965	$	209,297	$	95	$	3,000	$	—	$	91,985	$	353,342

Deposits and other borrowings at Medallion Bank		316,027		245,359		132,542		79,539		32,000		—		805,467

Total, including Medallion Bank	$	364,992	$	454,656	$	132,637	$	82,539	$	32,000	$	91,985	$	1,158,809

We value our portfolio at fair value as determined in good faith by the Board of Directors in accordance with our valuation policy. Unlike certain lending institutions, we are not permitted to establish reserves for loan losses. Instead, we must value each individual investment and portfolio loan on a quarterly basis. We record unrealized depreciation on investments and loans when we believe that an asset has been impaired and full collection is unlikely. We record unrealized appreciation on equities if we have a clear indication that the underlying portfolio company has appreciated in value and, therefore, our equity investment has also appreciated in value. Without a readily ascertainable market value, the estimated value of our portfolio of investments and loans may differ significantly from the values that would be placed on the portfolio if there existed a ready market for the investments. We adjust the valuation of the portfolio quarterly to reflect our Board of Directors’ estimate of the current fair value of each investment in the portfolio. Any changes in estimated fair value are recorded in our statement of operations as net unrealized appreciation (depreciation) on investments. Our investment in Medallion Bank, as a wholly-owned portfolio investment, is also subject to quarterly assessments of its fair value. We conduct a thorough valuation analysis, and also receive 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. We determine whether any factors give rise to valuation different than recorded book value. As a result of this valuation process, we used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the result as a component of unrealized appreciation (depreciation) on investments, although changes in the restrictions described previously, including the expiration in July 2013 of the prior moratorium on the acquisition of control of an industrial bank such as Medallion Bank by a “commercial firm,” and other applicable factors could change these conclusions in the future. For more information, see “Risk Factors – Risks Relating to Our Business and Structure – Our investment portfolio is, and will continue to be, recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is, and will continue to be, uncertainty as to the value of our portfolio investments which could adversely affect our net asset value.”

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 to the extent permitted by the 1940 Act. 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, and including the impact on Medallion Bank, a hypothetical immediate 1% increase in interest rates would result in an increase to the line item “net increase in net assets resulting from operations” as of March 31, 2015 by $1,287,000 on an annualized basis, compared to a positive impact of $1,279,000 at December 31, 2014, and the impact of such an immediate increase of 1% over a one year period would have been ($1,812,000) at March 31, 2015,

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compared to ($1,634,000) at December 31, 2014. 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 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.

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 March 31, 2015. See Note 4 to the consolidated financial statements for additional information about each credit facility.


(Dollars in thousands)	The Company			MFC			MCI			MBC		FSVC			MB			3/31/2015 Total			12/31/2014
Cash	$	36,790		$	8,600		$	1,910		$	2,829	$	8,019		$	—		$	58,148		$	47,083
Bank loans		146,409			32,179			—			—		251			—			178,839		$	179,016
Amounts undisbursed		37,100	⁽¹⁾		8,000			—			—		—			—			45,100			54,500
Amounts outstanding		109,309			24,179			—			—		251			—			133,739			124,516
Average interest rate		2.34	%		3.16	%		—			—		7.22	%		—			2.50	%		2.51	%
Maturity		7/15-11/16			5/15-12/16			—			—		11/15-2/18			—			7/15-2/18			1/15-4/17
Preferred securities		33,000			—			—			—		—			—			33,000		$	33,000
Average interest rate		2.39	%		—			—			—		—			—			2.39	%		2.36	%
Maturity		9/37			—			—			—		—			—			9/37			9/37
Lines of credit		—			150,000			—			—		—			—			150,000		$	150,000
Amounts undisbursed		—			29,382			—			—		—			—			29,382			27,206
Amounts outstanding		—			120,618			—			—		—			—			120,618			122,794
Average interest rate		—			1.87	%		—			—		—			—			1.87	%		1.84	%
Maturity		—			12/16			—			—		—			—			12/16			12/16
SBA debentures		—			—			30,500			—		35,485			—			65,985		$	68,485
Amounts undisbursed ⁽²⁾		—			—			—			—		—			—			—			—
Amounts outstanding		—			—			30,500			—		35,485			—			65,985			68,485
Average interest rate		—			—			3.79	%		—		4.03	%		—			3.92	%		3.71	%
Maturity		—			—			9/15-3/25			—		9/15-9/23			—			9/15-3/25			3/15-3/25

Total cash and amounts remaining undisbursed under credit facilities	$	73,890		$	45,982		$	1,910		$	2,829	$	8,019		$	—		$	132,630		$	128,789

Total debt outstanding	$	142,309		$	144,797		$	30,500		$	—	$	35,736		$	—		$	353,342		$	348,795

Including Medallion Bank
Cash		—			—			—			—		—		$	23,577		$	23,577		$	30,372
Deposits and other borrowings		—			—			—			—		—			805,467			805,467			807,940
Average interest rate		—			—			—			—		—			0.88	%		0.88	%		0.86	%
Maturity		—			—			—			—		—			4/15-9/19			4/15-9/19			1/15-9/19

Total cash and amounts remaining undisbursed under credit facilities	$	73,890		$	45,982		$	1,910		$	2,829	$	8,019		$	23,577		$	156,207		$	159,161

Total debt outstanding	$	142,309		$	144,797		$	30,500		$	—	$	35,736		$	805,467		$	1,158,809		$	1,156,735

(1)	$30,500 of this availability can also be used by MFC.

(2)	In 2015 MCI received a $5,500 commitment from the SBA.

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 have available liquidity of $29,382,000 under our revolving credit agreement with DZ Bank as of March 31, 2015. We also generate liquidity through deposits generated at Medallion Bank, borrowing arrangements with other banks, and through the issuance of

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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. Also, Medallion Bank is not a RIC, and therefore is able to retain earnings to finance growth.

Recently Issued Accounting Standards

In April 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, “Interest – Imputation of Interest (Subtopic 835-30)”. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not believe this update will have a material impact on our financial condition.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis.” ASU 2014-02 updates consolidation guidance for legal entities such as limited partnerships, limited liability companies and securitization structures in an attempt to simplify consolidation accounting. The update eliminates the presumption that a general partner should consolidate a limited partnership, it modifies the evaluation of whether limited partnerships are variable interest entities or voting interest entities and adds requirements that limited partnerships must meet to qualify as voting interest entities. The update is effective for fiscal years beginning after December 15, 2015. We do not believe adoption of the new standards will have a material impact on our financial condition or results of operations.

In January 2015, the FASB issued ASU 2015-01, “Income Statement —Extraordinary and Unusual Items (Subtopic 225-20)”. This Update eliminates from GAAP the concept of extraordinary items, simplifying income statement presentation. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not believe this update will have an impact on our financial condition or results of operations.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40)”. ASU 2014-15 provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of a company’s ability to continue as a going concern within one year of the date the financial statements are issued. We must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. As the update impacts disclosures only, it will have no impact on our financial condition or results of operations.

In August 2014, the FASB issued ASU 2014-13, “Consolidation – (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing”. ASU 2014-13 provides an alternative to Topic 820 for measuring the financial assets and the financial liabilities of a consolidated collateralized financing entity to eliminate any differences between their respective fair values. In the event a reporting entity does not elect to utilize the measurement alternative, the update clarifies that the fair value of the financial assets and liabilities of the consolidated collateralized financing entity should be measured using the requirements of Topic 820 and any differences should be reflected in earnings and attributed to the reporting entity in the consolidated statement of income (loss). This update is effective for periods beginning after December 15, 2015. We do not believe this update will have an impact on our financial condition or results of operations.

In June 2014, FASB issued ASU 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite service Period (a consensus of the FASB Emerging Issues Task Force).” The update requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and would be accounted for under existing guidance in Topic 718. The update is effective for periods beginning after December 15, 2015. We do not believe the adoption of the standard will have a material impact on our financial condition or results of operations.

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 defines how companies report revenues from contracts with customers, and also requires enhanced disclosures. The update is effective for annual reporting periods beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. We have not yet selected a transition method nor has it determined the effect of the standard on our financial statements and related disclosures.

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Common Stock

Our common stock is quoted on NASDAQ under the symbol “TAXI.” Our common stock commenced trading on May 23, 1996. As of May 6, 2015, there were approximately 175 holders of record of our common stock.

On May 6, 2015, the last reported sale price of our common stock was $10.62 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.

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.


	DISTRIBUTIONS DECLARED		HIGH		LOW
2015
First Quarter	$	0.25	$	10.80	$	9.06

2014
Fourth Quarter	$	0.24	$	11.84	$	9.70
Third Quarter		0.24		12.73		11.14
Second Quarter		0.24		14.23		11.58
First Quarter		0.24		14.56		13.08

As a RIC, we intend to distribute at least 90% of our investment company taxable income to our shareholders. Distributions of our income are generally required to be made within the calendar year the income was earned as a RIC; however, in certain circumstances distributions can be made up to a full calendar year after the income has been earned. Investment company taxable income includes, among other things, interest, dividends, and capital gains reduced by deductible expenses. Our ability to make distributions as a RIC is restricted by certain asset coverage requirements under the 1940 Act and has been dependent upon maintenance of our status as a RIC under the Code in the past, by SBA regulations, and under the terms of the SBA debentures. There can be no assurances, however, that we will have sufficient earnings to pay such distributions in the future.

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.

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Issuer Purchases of Equity Securities⁽¹⁾


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs
November 5 through December 31, 2003		10,816	$	9.20		10,816	$	9,900,492
January 1 through December 31, 2004		952,517		9.00		952,517		11,329,294
January 1 through December 31, 2005		389,900		9.26		389,900		7,720,523
January 1 through December 31, 2006		—		—		—		7,720,523
January 1 through December 31, 2007		33,200		9.84		33,200		7,393,708
January 1 through December 31, 2008		7,691		9.66		7,691		7,319,397
January 1 through December 31, 2009		—		—		—		7,319,397
January 1 through December 31, 2010		177,844		6.82		177,844		6,106,354
January 1 through December 31, 2011		8,647		9.06		8,647		6,028,027
January 1 through December 31, 2012		—		—		—		6,028,027
January 1 through December 31, 2013		—		—		—		6,028,027
January 1 through December 31, 2014		576,143		10.21		576,143		14,120,043
January 1 through March 31, 2015		45,000		10.11		45,000		13,662,859

Total		2,201,758		9.22		2,201,758

(1)

We publicly announced our Stock Repurchase Program in a press release dated November 5, 2003, after the Board of Directors approved the repurchase of up to $10,000,000 of our outstanding common stock, which was increased by an additional $10,000,000 authorization on November 3, 2004, and which was further increased to a total of $20,000,000 in July 2014. The stock repurchase program expires 180 days after the commencement of the purchases. If we have not repurchased the common stock remaining in the repurchase authorization by the end of such period, we are permitted to extend the stock repurchase program for additional 180-day periods until we have repurchased the total amount authorized. In April 2015, we extended the terms of the Stock Repurchase Program. Purchases were to commence no earlier than May 2015 and were to conclude 180 days after the commencement of the purchases.

Regulatory

In the ordinary course of business, the Company and its subsidiaries are subject to inquiries from certain regulators. During 2014, FSVC was examined by the SBA. The SBA issued a report related to such examination in February 2015 and discussed the report with FSVC. FSVC has responded to the SBA’s report. The ultimate outcome of the foregoing regulatory examination cannot be predicted with any certainty at this time.

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. Although Medallion Bank is an “insured depository institution” within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act, your investment in Medallion Financial Corp. is not guaranteed by the FDIC and is subject to loss. 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 Form 10-K for the year ended December 31, 2014.

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 March 31, 2015. In addition, based on our evaluation as of March 31, 2015, there have been no changes that occurred during the 2015 three months that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We and our subsidiaries 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, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision would result in a material adverse effect on our results of operations or financial condition.

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ITEM 1A. RISK FACTORS

Risks Relating to Our Business and Structure

We experienced a period of capital markets disruption and severe recession beginning in 2008, and the impact of resulting changes on the financial markets may not be fully known for some time.

The global financial crisis that began in 2008 materially and adversely affected the debt and equity capital markets in the United States. The US capital markets experienced extreme volatility and disruption for an extended period of time as evidenced by a lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the repricing of credit risk in the broadly syndicated credit market, and the failure of major financial institutions. These events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of credit and equity capital for the markets as a whole, and financial services firms in particular. In response to the crisis, the US and other governments and the Federal Reserve and certain foreign central banks took steps to support financial markets, including by keeping interest rates at historically low levels. More recently, the Federal Reserve has reduced its market support activities. Further reduction or withdrawal of this support, failure of efforts in response to the crisis, or investor perception that such efforts are not succeeding could negatively affect financial markets generally as well as the value and liquidity of certain securities. While recent market conditions have improved, there have been continuing periods of volatility and there can be no assurance that adverse market conditions will not repeat themselves or worsen in the future. A prolonged period of market volatility or illiquidity could have an adverse effect on our business, financial condition, and results of operations. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. Equity capital may be difficult to raise because, subject to some limited exceptions, we generally are not able to issue and sell our common stock at a price below net asset value per share. In addition, the debt capital that will be available, if at all, may be at a higher cost and on less favorable terms and conditions.

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 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 March 31, 2015, we had $353,342,000 of outstanding indebtedness, which had a weighted average borrowing cost of 2.54% at March 31, 2015, and our wholly-owned unconsolidated portfolio companies, primarily Medallion Bank, had $805,467,000 of outstanding indebtedness at a weighted average borrowing cost of 0.88%.

Consumer lending by Medallion Bank carries a higher risk of loss and could be adversely affected by an economic downturn.

By its nature, lending to consumers carries with it a higher risk of loss than commercial lending. Although the net interest margins should be higher to compensate Medallion Bank for this increased risk, an economic downturn could result in higher loss rates and lower returns than expected, and could affect the profitability of Medallion Bank’s consumer loan portfolio.

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, and Larry D. Hall, our Chief Financial Officer. The departure of Messrs. Murstein or Mr. Hall, or any member of our senior management team, could have a material adverse effect on our ability to achieve our investment objective.

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 1940 Act imposes numerous constraints on the operations of BDC’s. For example, BDC’s are required to invest at least 70% of their total assets in qualifying assets, primarily securities of “eligible portfolio companies” (as defined under the 1940 Act), cash, cash equivalents, US government securities, and other high quality debt investments that mature in one year or less. Our regulatory

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requirements may hinder our ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objective. In addition, we rely upon several exemptive orders from the SEC permitting us to consolidate our financial reporting and operate our business as presently conducted. Our failure to satisfy the conditions set forth in those exemptive orders could result in our inability to rely upon such orders or to cause the SEC to revoke the orders which could result in material changes in our financial reporting or the way in which we conduct our business. Furthermore, any failure to comply with the requirements imposed on BDC’s by the 1940 Act could have material adverse consequences to us or our investors, including possible enforcement action by the SEC and the possible loss of our ability to qualify as a RIC that is exempt from corporate-level income tax under the Code. If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would further significantly decrease our operating flexibility.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was signed into law on July 21, 2010. The Dodd-Frank Act significantly changes federal financial services regulation and affects, among other things, the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires extensive rulemaking by various regulatory agencies. 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 will materially impact 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” will materially impact our operations as presently conducted. The Dodd-Frank Act rulemaking process is ongoing and any changes resulting from such process, as well as any 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, 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. As such, we cannot predict and may not be able to anticipate all the effects of the Dodd-Frank Act on our financial condition or operations.

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. The CFPB undertook numerous rulemaking and other initiatives in 2012 and 2013. 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.

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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.

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. Although Medallion Bank is an “insured depository institution” within the meaning of the Federal Deposit Insurance Act and the Change in Bank Control Act, your investment in Medallion Financial Corp. is not guaranteed by the FDIC and is subject to loss.

Regulations governing our operation as a BDC may affect our ability to, and the way in which, we raise additional capital.

Our business may periodically require capital. We may acquire additional capital from the following sources:

Senior Securities and Other Indebtedness. 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, up to the maximum amount permitted by the 1940 Act. If we issue senior securities, including debt or preferred stock, we will be exposed to additional risks, including the following:

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Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be restricted from issuing additional debt, may be limited in making distributions on our stock, and may be required to sell a portion of our investments and, depending on the nature of our leverage, to repay a portion of our debt at a time when such sales and/or repayments may be disadvantageous. In addition to the 1940 Act, we are subject to two exemptive orders which govern how we calculate our senior securities and under which we have agreed that we will meet the applicable asset coverage ratios both individually and on a consolidated basis.

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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.

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It is likely that any senior securities or other indebtedness 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.

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We and, indirectly, our shareholders will bear the cost of issuing and servicing such securities and other indebtedness.

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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.

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Additional Common Stock. We are not generally able to issue and sell our common stock at a price below net asset value (less any distributing commission or discount) per share. We may, however, sell our common stock, warrants, options, or rights to acquire our common stock, at a price below the current net asset value of the common stock if our Board of Directors determines that such sale is in our best interests and that of our shareholders, and our shareholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount). We may also make rights offerings to our shareholders at prices per share less than the net asset value per share, subject to applicable requirements of the 1940 Act. 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.

If our investments in assets that are not “qualifying assets” are determined to exceed 30% of our total assets, we could be deemed to be in violation of the 1940 Act or could be precluded from investing in what we believe are attractive investments, which could have a material adverse effect on our business.

As a business development company, we are not permitted to acquire any assets other than “qualifying assets” unless, at the time of such acquisition, at least 70% of our total assets are qualifying assets. Our investment in Medallion Bank and City of Chicago taxicab medallions purchased out of foreclosure, which are carried in foreclosed properties on the consolidated balance sheet, are non-qualifying assets. As of March 31, 2015, the percentage of our total assets that were invested in non-qualifying assets were up to 26% on an unconsolidated basis and up to 29% on a consolidated basis.

At the end of each fiscal quarter, we may take proactive steps to prospectively preserve investment flexibility in the next quarter which is assessed against our total assets at our most recent quarter end. We can accomplish this in many ways including purchasing US Treasury bills or other investment-grade debt securities, and closing out our position on a net cash basis subsequent to quarter end. However, if such proactive measures are ineffective or our primary investments are deemed not to be qualifying assets, or if the fair value of our non-qualifying assets increases or is determined to be higher than previously determined, or if the fair value of our qualifying assets decreases or is determined to be lower than previously determined, we could be deemed in violation of the 1940 Act, or could be precluded from investing in what we believe are attractive investments or from making follow-on investments in existing portfolio companies that are non-qualifying assets, or could be required to dispose of non-qualifying assets at times or on terms that may be disadvantageous to us. Medallion Bank may also not be able to grow as quickly if we are precluded from providing additional funding to Medallion Bank. Any of the foregoing consequences could have a material adverse effect on us. In addition, if we are found to be in violation of the requirements applicable to business development companies under the 1940 Act, we could be unable to qualify as a RIC under the Code.

We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code.

To obtain and maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source, and asset diversification requirements.

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The annual distribution requirement for a RIC will be satisfied if we distribute to our shareholders on an annual basis at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, and at least 90% of our net tax exempt income. Because we use debt financing, we are subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

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The income source requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or securities, or similar sources.

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The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet those requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

If we do not qualify as a RIC for more than two consecutive years, and then seek to requalify and elect RIC status, we would be required to recognize gain to the extent of any unrealized appreciation on our assets unless we make a special election to pay corporate-level tax on any such unrealized appreciation recognized during the succeeding 10-year period.

If we fail to qualify for RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. In addition, the asset coverage and distribution requirements impose significant cash flow management restrictions on us and limit our ability to retain earnings to cover periods of loss, provide for future growth, and pay for extraordinary items. Additionally, we could fail to satisfy the requirement that a RIC derive at least 90% of its gross income from qualifying sources, with the result that we would not qualify as a RIC.

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Qualification as a RIC is made on an annual basis and, although we and some of our subsidiaries have qualified in the past, we cannot assure you that we will qualify for such treatment in the future.

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

RIC qualification rules require that at the end of each quarter of our taxable year, (i) at least 50% of the market value of our assets must be represented by cash, securities of other RICs, US government securities, and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of our assets and not greater than 10% of the outstanding voting securities of such issuer and (ii) not more than 25% of the value of our assets may be invested in the securities (other than US government securities or securities of other RICs) of any one issuer, any two or more issuers of which 20% or more of the voting stock is held by us and that are determined to be engaged in the same or similar trades or businesses or related trades or businesses or in the securities of one or more qualified publicly traded partnerships. As of March 31, 2015, our largest investment subject to this test was our investment in Medallion Bank, representing 22% of our RIC assets. No other investments were more than 5% of our RIC assets. We will continue to monitor the levels of this and any other investment concentrations in conjunction with the diversification tests.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For US federal income tax purposes, we will include in taxable income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the origination of a loan or possibly in other circumstances, or contractual payment-in-kind interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount or increases in loan balances as a result of payment-in-kind interest will be included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we will not receive in cash.

Since, in certain cases, we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the annual distribution requirement necessary to achieve and maintain RIC tax treatment under the Code. Accordingly, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or reduce new investment originations for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

As Medallion Bank grows, a greater portion of our business will be subject to corporate-level tax.

Medallion Bank must pay corporate-level US federal and state income taxes. As Medallion Bank grows its business, more of its income will be taxed, which will reduce the amount of cash available for distribution to us and, in turn, to our shareholders.

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

Some of our subsidiaries are subject to the SBIA. Our SBIC subsidiaries that are also RICs may be prohibited by the SBIA from making the distributions necessary to qualify as a RIC. The SBA has agreed that our SBIC subsidiaries can make these distributions provided we reinvest the distributions in our SBIC subsidiaries. Normally, we would report this reinvested capital as paid-in surplus; however, the SBA has required us to categorize this reinvested capital as undistributed net realized earnings. We cannot assure you that this will continue to be the SBA’s policy or that our subsidiaries will have adequate capital to make the required adjustments. If our subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may result in loss of RIC status and a consequent imposition of an entity-level tax at the subsidiary level. In the event we are granted a waiver, we will be required to reinvest the distribution into the SBIC as capital. This may result in us recognizing taxable income without receiving a corresponding amount of cash to pay the distribution. Any failure to pay the distribution could cause a loss of RIC status and the imposition of entity level tax.

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

Our SBIC subsidiaries are licensed to act 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.

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 a licensed 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 can revoke or suspend a license 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.

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We may materially change our corporate structure and the nature of our business.

We are very much affected by the legal, regulatory, tax and accounting regimes under which we operate. We are evaluating whether those regimes and our existing corporate structure are the optimum means for the operation and capitalization of our business. As a result of these evaluations, we may decide to proceed with structural and organizational changes (certain of which may require the approval of our shareholders), which could result in material dispositions of various assets, changes in our corporate form, termination of our election to be regulated as a BDC, our conversion from an investment company to an operating company or other fundamental changes. If we were no longer an investment company, our accounting practices would change and, for example, lead to the consolidation of certain majority owned companies with which we do not now consolidate as an investment company. Additionally, if we were no longer an investment company, our shareholders would not benefit from the investor protections provided by the 1940 Act. We may incur certain costs in completing these evaluations and may receive no benefit from these expenditures, particularly if we do not proceed with any changes. No decisions have been made with respect to any such changes and there is no timetable for making any decisions, including any decision not to proceed with any such changes.

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 lose investment opportunities if we do not match our competitors’ pricing, terms, and structure. 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. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC.

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.

We depend on cash flow from our subsidiaries to make distributions to our shareholders.

We are primarily a holding company, and we derive most of our operating income and cash flow from our subsidiaries. As a result, we rely heavily upon distributions from our subsidiaries to generate the funds necessary to make distributions 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 total assets). Medallion Bank may be restricted from declaring and paying dividends if doing so were to cause it to fall below a 15% leverage ratio.

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. 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

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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.

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

Our borrowers generally have the right to prepay their loans upon payment of a fee ranging from 1% to 2% for standard commodity 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 difficulty re-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.

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

The majority of our loan portfolio is comprised of fixed-rate loans. 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.

Our investment portfolio is, and will continue to be, recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is, and will continue to be, uncertainty as to the value of our portfolio investments which could adversely affect our net asset value.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined by our Board of Directors. Unlike other lending institutions, we are not permitted to maintain a general reserve for anticipated losses. Instead, we are required by the 1940 Act to specifically value each individual investment and record an unrealized gain or loss for any asset we believe has increased or decreased in value. Typically, there is not a public market for most of the investments in which we have invested and will generally continue to invest. As a result, our Board of Directors values our investments on a quarterly basis based on a determination of their fair value made in good faith and in accordance with the written guidelines approved by our Board of Directors. Our Board of Directors regularly reviews the appropriateness and accuracy of the method used in valuing our investments, and makes any necessary adjustments. The types of factors that may be considered in determining the fair value pricing of our investments include the nature and realizable value of any collateral, the portfolio company’s earnings and its ability to make payments on its indebtedness, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow, comparable sales and valuations of companies similar to the portfolio company, regulatory factors that may limit the value of the portfolio company, and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, the valuations may fluctuate over short periods of time and may be based on estimates. As a result, our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed, and may cause our net asset value on a given date to materially understate or overstate the value that we may ultimately realize upon the sale or disposition of one or more of our investments. Investors purchasing our securities in connection with an offering based on an overstated net asset value would pay a higher price than the value of our investments might warrant, and investors purchasing our securities in connection with an offering based on an understated net asset value would pay a lower price than the value of our investments might warrant. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities. Considering these factors, we have determined that the fair value of our portfolio is above its cost basis. As of March 31, 2015, our net unrealized appreciation on investments, other than in foreclosed properties, was $689,000 or 0.13% of our investment portfolio.

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

Medallion loans and the asset-based portion of the commercial loan portfolio are primarily collateral-based lending, whereby the collateral value exceeds the amount of the loan, providing sufficient excess collateral to protect us against losses. Collateral values for medallion loans reflect recent sales prices and are typically obtained from the regulatory agency in a particular local market. Collateral values for asset based loans are confirmed through daily analysis of funds availability based on cash collection and receivables agings, confirmations obtained from a borrower’s underlying customers, and field examinations by us or third parties engaged by us. 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. A significant downward movement in collateral values would have a negative impact on our valuation analysis and could result in a significantly lower fair market value measurement of our portfolio.

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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.

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 tangible net worth, net income, leverage ratios, shareholders’ 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. 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. In addition, an event of default under the credit agreements would permit the lenders under our credit facilities to terminate all commitments to extend further credit under the facilities. 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.

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 material non-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 to the extent permitted by the 1940 Act. 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, and including the impact on Medallion Bank, a hypothetical immediate 1% increase in interest rates would result in an increase to the line item “net increase in net assets resulting from operations” as of March 31, 2015 by approximately $1,287,000 on an annualized basis, compared to a positive impact of $1,279,000 at December 31, 2014, and the impact of such an immediate increase of 1% over a one year period would have been approximately ($1,812,000) at March 31, 2015, compared to ($1,634,000) at December 31, 2014. 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.

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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.

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 invest directly, or indirectly 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.

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.

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

By their nature, corporate acquisitions entail certain risks, including those relating to undisclosed liabilities, the entry into new markets, operational, and personnel matters. We may have difficulty integrating acquired operations or managing problems due to sudden increases in the size of our loan portfolio. In such instances, we might be required to modify our operating systems and procedures, hire additional staff, obtain and integrate new equipment, and complete other tasks appropriate for the assimilation of new business activities. We cannot assure you that we would be successful, if and when necessary, in minimizing these inherent risks or in establishing systems and procedures which will enable us to effectively achieve our desired results in respect of any future acquisitions.

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

The 1940 Act restricts our ability to knowingly participate in certain transactions with our affiliates. These restrictions limit our ability to buy or sell any security from or to our affiliates, or engage in “joint” transactions with our affiliates, which could include investments in the same portfolio company (whether at the same or different times). With respect to controlling or certain closely affiliated persons, we will generally be prohibited from engaging in such transactions absent the prior approval of the SEC. With respect to other affiliated persons, we may engage in such transactions only with the prior approval of our independent directors.

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

Medallion Bank is subject to certain federal laws that restrict and control its ability to provide or receive services between affiliates. Sections 23A and 23B of the Federal Reserve Act and applicable regulations also impose restrictions on Medallion Bank. These restrictions limit the transfer of funds by a depository institution to certain of its affiliates, including us, in the form of loans, extensions of credit, investments, or purchases of assets. Sections 23A and 23B also require generally that the depository institution’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.

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Risks Relating to Our Investments

Changes in taxicab industry regulations that result in the issuance of additional medallions or increases in the expenses involved in operating a medallion and increased competition could 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 US, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. If this were to occur, the value of the collateral securing our then outstanding medallion loans in that market could be adversely affected. For example, the New York State legislature enacted a law on December 21, 2011 which was amended on February 17, 2012 to permit cars for hire to pickup street hails in boroughs outside of Manhattan. Pursuant to this law, since June 2013 the TLC has issued approximately 8,000 Street Hail Livery licenses, of which approximately 6,100 are active. We do not yet know the impact that these licenses will have on the taxicab industry. In addition, there is uncertainty in the taxi industry associated with increased competition from ridesharing and car service apps. In the event Street Hail Livery licenses and increased competition from ridesharing and car service apps materially reduce the market for taxicab services, income from operating medallions and the value of medallions serving as collateral for our loans could decrease by a material amount. This could increase our loan to value ratios, loan delinquencies, or loan defaults further. We are unable to forecast with any degree of certainty whether any other potential increases in the supply of medallions will occur.

In New York City, Chicago, Boston, and in other markets where we originate medallion loans, taxicab fares are generally set by government agencies. Expenses associated with operating taxicabs are largely unregulated. As a result, the ability of taxicab operators to recoup increases in expenses is limited in the short term. Escalating expenses, such as rising gas prices and increase in interest rates, can render taxicab operations less profitable, could cause borrowers to default on loans from us, and could potentially adversely affect the value of our collateral.

A significant portion of our loan revenue is derived from loans collateralized by New York City taxicab medallions. According to New York City TLC data, over the past 20 years New York City taxicab medallions have appreciated in value from under $220,000 to $925,000 for corporate medallions and $800,000 for individual medallions. However, for sustained periods during that time, taxicab medallions have declined in value. Since December 31, 2013, the value of New York City taxicab medallions decreased by 24% for individual medallions and 30% for corporate medallions.

We own 159 taxicab medallions that were purchased out of foreclosure. In addition, a portion of our loan revenue is derived from loans collateralized by Chicago taxicab medallions. Since we acquired the Chicago medallions in 2003, they have appreciated in value from $50,000 to approximately $278,000. However, there has been a recent decline in the value of Chicago taxicab medallions. Since December 31, 2013, the value of Chicago taxicab medallions decreased 22%.

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.

Our portfolio is and may continue to be concentrated in a limited number of portfolio companies and industries, 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.

Our portfolio is and may continue to be concentrated in a limited number of portfolio companies and industries. In addition, taxicab companies that constitute separate issuers may have related management or guarantors and constitute larger business relationships to us. As of March 31, 2015, investments in New York City taxi medallion loans represented approximately 74% of our managed taxi medallion loans, which in turn represented 38% of our managed net investment portfolio. Beyond the asset diversification requirements associated with our qualification as a RIC, 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 in which we are invested could also negatively impact the aggregate returns we realize.

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

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

An economic downturn could result in certain of our 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- to mid-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.

A third party finance company sold various participations in asset based loans to Medallion Business Credit and Medallion Bank. In April 2013, the aggregate balance of the participations was approximately $13.8 million, $12.9 million of which were held by Medallion Bank. That amount was divided between seven separate borrowers operating in a variety of industries. In April 2013, the third party finance company became the subject of an involuntary bankruptcy petition filed by its bank lenders. Among other things, the bank lenders alleged that the third party finance company fraudulently misrepresented its borrowing availability under its credit facility with the bank lenders and are seeking the third party finance company’s liquidation. In May 2013, the bankruptcy court presiding over the third party finance company’s case entered an order converting the involuntary chapter 7 case to a chapter 11 case. On May 31, 2013, we commenced an adverse proceeding against the third party finance company and the bank lenders seeking declaratory judgment that our loan participations are true participations and not subject to the bankruptcy estate or to the bank lender’s security interest in the third party finance company’s assets. The third party finance company and bank lenders are contesting our position. In April 2014, we received a decision from the court granting summary judgment in our favor with respect to the issue of whether our loan participations are true participations. In March 2015, we and Medallion Bank received a decision from the court finding that the bank lenders generally held a first lien on our and Medallion Bank’s loan participations subject to, among other things, defenses still pending prosecution by the parties and adjudication by the court. We and Medallion Bank are appealing the decision. The remaining issues are still being litigated. Although we believe the claims raised by the third party finance company and the senior lenders are without merit and will vigorously defend against them, we cannot at this time predict the outcome of this litigation or determine our potential exposure. If we are incorrect in our assessments our results of operations could be materially adversely affected. At March 31, 2015, five of the seven secured borrowers had refinanced their loans in full with third parties, and the related proceeds are held in escrow pending resolution of the bankruptcy proceedings. One loan was charged off in September 2014. The one remaining loan is still outstanding. See page 42 for additional information regarding this matter.

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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 make non-control, equity co-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.

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ITEM 6. EXHIBITS

EXHIBITS


Number		Description

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

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

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

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

99.1		Consolidated Schedules of Investments as of March 31, 2015 and December 31, 2014. Filed herewith.

IMPORTANT INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

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

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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: May 7, 2015

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.

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