MEDALLION FINANCIAL CORP - Quarter Report: 2016 September (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)

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

For the Quarterly Period Ended September 30, 2016

☐	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 ☒ 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 ☒

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of November 8, 2016 was 24,183,065.

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			46

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			67

ITEM 4. CONTROLS AND PROCEDURES			67

PART II—OTHER INFORMATION			68

ITEM 1. LEGAL PROCEEDINGS			68

ITEM 1A. RISK FACTORS			68

ITEM 6. EXHIBITS			82

SIGNATURES			83

CERTIFICATIONS

Page 2 of 83

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 4%, and our commercial loan portfolio at a compound annual growth rate of 3% (8% and 4% 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 18%. 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 $1,634,000,000 as of September 30, 2016, and $1,655,000,000 and $1,621,000,000 as of December 31, 2015 and September 30, 2015, 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 $263,060,000 or $14.66 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 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.

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 $518,262,000 as of September 30, 2016, well in excess of the $298,869,000 currently on the books of Medallion Bank. 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.

Our diversified investments in other controlled subsidiaries are comprised of Medallion Fine Art, Inc., Medallion Motorsports, LLC, and LAX Group, LLC. In addition, we make both marketable and nonmarketable equity investments through our subsidiaries.

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 three and nine months ended September 30, 2016.

Our consolidated balance sheet as of September 30, 2016, and the related consolidated statements of operations, changes in net assets, and cash flows for the three and nine months ended September 30, 2016 and 2015 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 three and nine months September 30, 2016 and 2015, 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, 2015.

Page 3 of 83

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2016			2015			2016			2015
Interest income on investments	$	4,290		$	4,633		$	13,676		$	14,859
Dividend income from controlled subsidiaries		—			5,000			3,000			15,889
Interest income from affiliated investments		815			409			2,153			805
Interest income from controlled subsidiaries		99			258			504			681
Medallion lease income		53			351			481			1,059
Dividend income from affiliated investments		—			—			201			—
Dividends and interest income on short-term investments		12			14			76			41

Total investment income		5,269			10,665			20,091			33,334

Total interest expense⁽¹⁾		3,373			2,402			9,273			6,957

Net interest income		1,896			8,263			10,818			26,377

Total noninterest income		104			121			165			287

Salaries and benefits		3,039			2,916			8,816			9,234
Professional fees		575			374			1,341			1,153
Occupancy expense		294			221			702			669
Other operating expenses ⁽²⁾		698			637			2,093			2,138

Total operating expenses		4,606			4,148			12,952			13,194

Net investment income (loss) before income taxes⁽³⁾		(2,606	)		4,236			(1,969	)		13,470
Income tax (provision) benefit		—			—			—			—

Net investment income (loss) after income taxes		(2,606	)		4,236			(1,969	)		13,470

Net realized gains (losses) on investments⁽⁴⁾		2,499			353			(7	)		8,576

Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries		25,913			6,648			44,221			13,288
Net change in unrealized depreciation on investments other than securities		(14,107	)		(1,570	)		(18,862	)		(9,621	)
Net change in unrealized appreciation (depreciation) on investments		(6,656	)		(2,355	)		(6,925	)		(3,247	)

Net unrealized appreciation (depreciation) on investments		5,150			2,723			18,434			420

Net realized/unrealized gains on investments		7,649			3,076			18,427			8,996

Net increase in net assets resulting from operations	$	5,043		$	7,312		$	16,458		$	22,466

Net increase in net assets resulting from operations per common share
Basic	$	0.21		$	0.30		$	0.68		$	0.92
Diluted		0.21			0.30			0.68			0.92

Distributions declared per share	$	0.05		$	0.25		$	0.35		$	0.75

Weighted average common shares outstanding
Basic		24,136,807			24,290,502			24,173,898			24,387,726
Diluted		24,184,518			24,340,913			24,227,068			24,461,390

(1)	Average borrowings outstanding were $363,943 and $390,471, and the related average borrowing costs were 3.69% and 3.17% for the 2016 third quarter and nine months, and were $365,064, $351,838, 2.61%, and 2.64% for the comparable 2015 periods.

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

(3)

Includes $394 and $980 of net revenues received from Medallion Bank for the three and nine months ended September 30, 2016, and $314 and $750 for the comparable 2015 periods, primarily for servicing fees, loan origination fees, and expense reimbursements. See Notes 3 and 10 for additional information.

(4)	There were no net losses on investment securities of affiliated issuers for the three and nine months ended September 30, 2016 and 2015.

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

Page 4 of 83

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

UNAUDITED


(Dollars in thousands, except per share data)	September 30, 2016			December 31, 2015
Assets
Medallion loans, at fair value	$	288,257		$	308,408
Commercial loans, at fair value		51,932			58,051
Commercial loans to affiliated entities, at fair value		26,210			15,496
Commercial loans to controlled subsidiaries, at fair value		2,968			8,348
Investment in Medallion Bank and other controlled subsidiaries, at fair value		208,098			159,913
Equity investments, at fair value		5,054			4,447
Equity investments in affiliated entities, at fair value		3,109			2,412
Investment securities, at fair value		—			49,884

Net investments ($235,017 at September 30, 2016 and $290,151 at December 31, 2015 pledged as collateral under borrowing arrangements)		585,628			606,959
Cash and cash equivalents ($7,838 at September 30, 2016 and $7,831 at December 31, 2015 restricted as to use by lender⁽¹⁾)		24,708			30,912
Accrued interest receivable		697			1,003
Fixed assets, net		374			198
Investments other than securities⁽²⁾		19,020			37,882
Goodwill, net		5,099			5,099
Other assets, net⁽³⁾		5,565			6,997

Total assets	$	641,091		$	689,050

Liabilities
Accounts payable and accrued expenses	$	6,184		$	5,120
Accrued interest payable		1,928			1,302
Funds borrowed		352,196			404,540

Total liabilities		360,308			410,962

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 – 26,934,604 shares at September 30, 2016 and 26,936,762 shares at December 31, 2015 issued)		269			269
Treasury stock at cost (2,751,243 shares at September 30, 2016 and 2,590,069 shares at December 31, 2015)		(24,232	)		(23,396	)
Capital in excess of par value		272,790			272,349
Accumulated undistributed net investment loss		(21,553	)		(15,617	)
Accumulated undistributed net realized gains on investments		—			—
Net unrealized appreciation on investments		53,509			44,483

Total shareholders’ equity (net assets)		280,783			278,088

Total liabilities and shareholders’ equity	$	641,091		$	689,050

Number of common shares outstanding		24,183,361			24,346,693
Net asset value per share	$	11.61		$	11.42

(1)	See Note 2 for additional information.

(2)	See Note 13 for additional information.

(3)	Includes $0 and $3,000 of dividends receivable from Medallion Bank at September 30, 2016 and December 31, 2015.

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

Page 5 of 83

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2016			2015			2016			2015
Net investment income (loss) after income taxes	$	(2,606	)	$	4,236		$	(1,969	)	$	13,470
Net realized gains (losses) on investments		2,499			353			(7	)		8,576
Net unrealized appreciation on investments		5,150			2,723			18,434			420

Net increase in net assets resulting from operations		5,043			7,312			16,458			22,466

Investment income, net		(5	)		(3,705	)		(57	)		(11,601	)
Return of capital, net		(1,206	)		(2,442	)		(13,311	)		(6,684	)
Realized gains from investment transactions, net		—			—			—			—

Distributions to shareholders ⁽¹⁾		(1,211	)		(6,147	)		(13,368	)		(18,285	)

Stock – based compensation expense		137			371			422			948
Exercise of stock options		—			—			19			281
Capitalized stock issuance costs		—			—			—			—
Treasury stock acquired		(837	)		(1,602	)		(837	)		(3,212	)

Capital share transactions		(700	)		(1,231	)		(396	)		(1,983	)
Other, distributions not paid on forfeited restricted stock grants		—			(1	)		1			49

Total increase (decrease) in net assets		3,132			(67	)		2,695			2,247
Net assets at the beginning of the period		277,651			276,984			278,088			274,670

Net assets at the end of the period⁽²⁾	$	280,783		$	276,917		$	280,783		$	276,917

Capital share activity
Common stock issued, beginning of period		26,928,313			26,937,519			26,936,762			26,797,499
Exercise of stock options		—			—			2,100			30,449
Issuance (forfeiture) of restricted stock, net		6,291			(361	)		(4,258	)		109,210

Common stock issued, end of period		26,934,604			26,937,158			26,934,604			26,937,158

Treasury stock, beginning of period		(2,590,069	)		(2,346,672	)		(2,590,069	)		(2,176,876	)
Treasury stock acquired		(161,174	)		(243,397	)		(161,174	)		(413,193	)

Treasury stock, end of period		(2,751,243	)		(2,590,069	)		(2,751,243	)		(2,590,069	)

Common stock outstanding		24,183,361			24,347,089			24,183,361			24,347,089

(1)	Distributions declared were $0.05 and $0.35 per share for the 2016 third quarter and nine months, and were $0.25 and $0.75 for the comparable 2015 periods.

(2)	Includes $0 and $0 of undistributed net investment income, $0 and $0 of undistributed net realized gains on investments, and $0 and $1,163 of capital loss carryforwards at September 30, 2016 and 2015.

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

Page 6 of 83

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
(Dollars in thousands)	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	16,458		$	22,466
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Investments originated⁽¹⁾		(316,405	)		(72,535	)
Proceeds from principal receipts, sales, and maturities of investments⁽¹⁾		379,061			41,920
Capital returned by Medallion Bank and other controlled subsidiaries, net		(3,964	)		(6,583	)
Net cash received on disposition of other controlled subsidiaries		—			11,969
Depreciation and amortization		346			312
Accretion of origination fees, net		(71	)		(63	)
Net change in unrealized depreciation on investments		6,925			3,247
Net change in unrealized depreciation on investment other than securities		18,862			9,621
Increase in unrealized appreciation on Medallion Bank and other controlled subsidiaries		(44,221	)		(13,288	)
Net realized (gains) losses on investments		7			(8,576	)
Stock-based compensation expense		422			948
Decrease in accrued interest receivable		306			38
(Increase) decrease in other assets, net		871			(5,207	)
Increase (decrease) in accounts payable and accrued expenses		1,103			(1,445	)
Increase (decrease) in accrued interest payable		626			(876	)

Net cash provided by (used for) operating activities		60,326			(18,052	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from funds borrowed		294,650			74,943
Repayments of funds borrowed		(346,994	)		(45,810	)
Proceeds from exercise of stock options		19			281
Purchase of treasury stock at cost		(837	)		(3,212	)
Payments of declared distributions		(13,368	)		(18,285	)

Net cash provided by (used for) financing activities		(66,530	)		7,917

NET DECREASE IN CASH AND CASH EQUIVALENTS		(6,204	)		(10,135	)
Cash and cash equivalents, beginning of period		30,912			47,083

Cash and cash equivalents, end of period	$	24,708		$	36,948

SUPPLEMENTAL INFORMATION
Cash paid during the period for interest	$	8,387		$	7,628
Cash paid during the period for income taxes		—			—

(1)	$280,563 and $29,963 of originated investments, and $330,466 and $0 of maturities or proceeds from sales related to the investment securities portfolio for the nine months ended September 30, 2016 and 2015.

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

Page 7 of 83

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(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 companies, Medallion Bank and Medallion Funding LLC (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans.

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 RVs, boats, and other related items, and to finance small scale home improvements.

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.

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 $130,465,000 at September 30, 2016, 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 $36,148,000 at September 30, 2016, 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 $19,020,000 on the consolidated balance sheet at September 30, 2016, compared to $37,882,000 at December 31, 2015 and September 30, 2015, and are considered non-qualifying assets under the 1940 Act.

(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.

Page 8 of 83

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 exceed the federally insured limits, and includes $500,000 and $1,500,000 related to compensating balance requirements of regional banking institutions, and $7,838,000 and $7,831,000 pledged to a lender of an affiliate as of September 30, 2016 and December 31, 2015.

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 37% and 35% of the investment portfolio at September 30, 2016 and December 31, 2015, 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 $491,000 and $570,000 at September 30, 2016 and December 31, 2015, and non-marketable securities of $7,672,000 and $6,289,000 in the comparable periods. The $208,098,000 and $159,913,000 related to portfolio investments in controlled subsidiaries at September 30, 2016 and December 31, 2015 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 at least an annual basis. The Company’s analysis includes factors such as various regulatory restrictions that were established at Medallion Bank’s inception, by the FDIC and State of Utah, and also by additional regulatory restrictions, such as the prior moratorium imposed by the Dodd-Frank Act on the acquisition of control of an industrial bank by a “commercial firm” (a company whose gross revenues are primarily derived 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 had previously determined that Medallion Bank had little value beyond its recorded book value. As a result of this valuation process, the Company had previously used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the second quarter of 2015, the Company first became aware of external interest in Medallion Bank and its portfolio’s assets at values in excess of their book value. The Company incorporated these new factors in the Medallion Bank’s fair value analysis and the Board of Directors determined that Medallion Bank had a fair value in excess of book value. Expression of interest in Medallion Bank from both investment bankers and interested parties has continued through 2016. In addition, in the third quarter of 2016 there was a court ruling involving a marketplace lender that the Company believes heightens the interest of marketplace lenders to acquire or merge with Utah industrial banks. The Company also engaged a valuation specialist to assist the Board of Directors in their determination of Medallion Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $28,600,000 was recorded in 2016. See Note 3 for additional information about Medallion Bank.

Page 9 of 83

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 49% and 51% of the Company’s investment portfolio at September 30, 2016 and December 31, 2015 had arisen in connection with the financing of taxicab medallions, taxicabs, and related assets, of which 69% were in New York City at September 30, 2016 and December 31, 2015. These loans are secured by the medallions, taxicabs, and related assets, and are personally guaranteed by the borrowers, or in the case of corporations, are generally guaranteed personally by the owners. A portion of the Company’s portfolio (14% at September 30, 2016 and December 31, 2015) represents loans to various commercial enterprises in a wide variety of industries, including manufacturing, retail trade, information, recreation, and various other industries. Approximately 47% of these loans are made primarily in the Midwest and 14% 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 36%, 1%, and 0% at September 30, 2016, and were 26%, 1%, and 8% at December 31, 2015.

On a managed basis, which includes the investments of Medallion Bank after eliminating the Company’s investment in Medallion Bank, medallion loans were 40% and 43% at September 30, 2016 and December 31, 2015 (74% in New York City), commercial loans were 6% and 8%, and 47% and 41% were consumer loans in all 50 states collateralized by recreational vehicles, boats, motorcycles, trailers, and home improvements. Investment securities were 3% and 6% at September 30, 2016 and December 31, 2015, and equity investments (including investments in controlled subsidiaries) were 4% and 2%.

Investment Transactions and Income Recognition

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At September 30, 2016 and December 31, 2015, net loan origination costs were $208,000 and $326,000. Net (accretion) amortization to income for the three months ended September 30, 2016 and 2015 was ($66,000) and $2,000, and was ($71,000) and ($63,000) for the comparable nine month periods.

Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized as an adjustment to the yield of the related investment. At September 30, 2016 and December 31, 2015, there were no premiums or discounts on investment securities, and their related income accretion or amortization was immaterial for 2016 and 2015.

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, in most cases, if the 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 September 30, 2016, December 31, 2015, and September 30, 2015, total nonaccrual loans were $65,656,000, $16,873,000, and $15,377,000, and represented 17%, 4%, and 4% of the gross medallion and commercial loan portfolio at each period end, and were primarily concentrated in the taxi medallion portfolio at September 30, 2016 and December 31, 2015, and were concentrated in the secured mezzanine portfolio at September 30, 2015. 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 $10,344,000, $8,306,000, and $8,302,000 as of September 30, 2016, December 31, 2015, and September 30, 2015, of which $1,220,000 and $491,000 would have been recognized in the quarters ended September 30, 2016 and 2015, and $2,230,000 and $1,236,000 would have been recognized in the comparable nine months.

Loan Sales and Servicing Fee Receivable

The Company accounts for its sales of loans in accordance with FASB ASC 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 $355,756,000 and $406,460,000 at September 30, 2016 and December 31, 2015, and included $329,304,000 and $382,919,000 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 September 30, 2016 and December 31, 2015. 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.

Page 10 of 83

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 $53,509,000, $44,483,000, and $42,083,000 as of September 30, 2016, December 31, 2015, and September 30, 2015. The Company’s investment in Medallion Bank, 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 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 marketplace restrictions, such as the ability to transfer industrial bank charters. Because of these restrictions and other factors, the Company’s Board of Directors had previously determined that Medallion Bank had little value beyond its recorded book value. As a result of this valuation process, the Company had previously used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the second quarter of 2015, the Company first became aware of external interest in Medallion Bank and its portfolio assets at values in excess of their book value. Expression of interest in Medallion Bank from both investment bankers and interested parties has continued through 2016. The Company incorporated these new factors in the Medallion Bank’s fair value analysis and the Board of Directors determined that Medallion Bank had a fair value in excess of book value. In addition, in the third quarter of 2016 there was a court ruling involving a marketplace lender that the Company believes heightens the interest of marketplace lenders to acquire or merge with Utah industrial banks. The Company also engaged a valuation specialist to assist the Board of Directors in their determination of Medallion Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $28,600,000 was recorded in 2016 as a component of unrealized appreciation (depreciation) on investments, in addition to Medallion Bank’s actual results of operations for the quarter. See Note 3 for additional information about Medallion Bank.

The following tables set forth the changes in the Company’s unrealized appreciation (depreciation) on investments for the 2016 and 2015 quarters shown below.


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investments in Subsidiaries		Equity Investments			Investment Securities			Investments Other Than Securities			Total
Balance December 31, 2015	($	3,438	)	($	2,239	)	$	18,640	$	2,582		($	18	)	$	28,956		$	44,483
Net change in unrealized
Appreciation on investments		—			—			6,115		(7	)		—			(1,585	)		4,523
Depreciation on investments		(2,359	)		173			305		12			(47	)		—			(1,916	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—		—			12			—			12
Losses on investments		—			348			—		—			—			—			348

Balance March 31, 2016		(5,797	)		(1,718	)		25,060		2,587			(53	)		27,371			47,450
Net change in unrealized
Appreciation on investments		—			—			2,213		1,538			7			(3,170	)		588
Depreciation on investments		(2,758	)		245			—		(8	)		52			—			(2,469	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—		—			—			—			—
Losses on investments		2,346			195			—		—			—			—			2,541
Other		—			—			—		—			(6	)		—			(6	)

Balance June 30, 2016		(6,209	)		(1,278	)		27,273		4,117			—			24,201			48,104
Net change in unrealized
Appreciation on investments		—			—			26,169		(111	)		—			(14,107	)		11,951
Depreciation on investments		(6,051	)		(65	)		—		(3	)		—			—			(6,119	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—		(600	)		—			—			(600	)
Losses on investments		173			—			—		—			—			—			173

Balance September 30, 2016	($	12,087	)	($	1,343	)	$	53,442	$	3,403		$	—		$	10,094		$	53,509

Page 11 of 83


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investments in Subsidiaries			Equity Investments			Investments Other Than Securities			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
Net change in unrealized
Appreciation on investments		—			—			10,600			(158	)		(4,612	)		5,830
Depreciation on investments		(324	)		(68	)		—			(518	)		(56	)		(966	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			—			—			—
Losses on investments		—			102			—			—			—			102

Balance June 30, 2015		(483	)		(2,401	)		12,500			707			30,538			40,861
Net change in unrealized
Appreciation on investments		—			—			5,660			(314	)		(1,570	)		3,776
Depreciation on investments		(2,367	)		(377	)		—			4			(12	)		(2,752	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			—			—			—
Losses on investments		130			68			—			—			—			198
Other ⁽¹⁾		—			—			(967	)		967			—			—

Balance September 30, 2015	($	2,720	)	($	2,710	)	$	17,193		$	1,364		$	28,956		$	42,083

(1)	Reclassification of Medallion Motorsports from equity investments to controlled subsidiaries.

The table below summarizes components of unrealized and realized gains and losses in the investment portfolio for the three and nine months ended September 30, 2016 and 2015.


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	($	110	)	($	313	)	$	1,429		($	639	)
Unrealized depreciation		(6,119	)		(2,228	)		(10,829	)		(2,840	)
Net unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries		25,913			6,648			44,221			18,097
Realized gains		(600	)		—			(588	)		(4,809	)
Realized losses		173			198			3,063			300
Net unrealized gains (losses) on investments other than securities		(14,107	)		(1,582	)		(18,862	)		(9,689	)

Total	$	5,150		$	2,723		$	18,434		$	420

Net realized gains (losses) on investments
Realized gains	$	—		$	—		$	—		$	4,809
Realized losses		(173	)		(198	)		(3,063	)		(300	)
Other gains		2,904			615			3,308			4,198
Direct recoveries (chargeoffs)		(232	)		(64	)		(252	)		(131	)
Realized losses on investments other than securities		—			—			—			—

Total	$	2,499		$	353		($	7	)	$	8,576

Page 12 of 83

The following table provides additional information on attributes of the nonperforming loan portfolio as of September 30, 2016, December 31, 2015, and September 30, 2015.


(Dollars in thousands)	Recorded Investment ⁽¹⁾⁽²⁾		Unpaid Principal Balance		Average Recorded Investment
September 30, 2016
Medallion⁽³⁾	$	61,508	$	62,001	$	63,490
Commercial⁽³⁾		4,148		11,127		4,024
December 31, 2015
Medallion⁽³⁾	$	12,973	$	13,051	$	13,010
Commercial ⁽³⁾		3,900		10,401		4,293
September 30, 2015
Medallion⁽³⁾	$	6,414	$	6,442	$	6,428
Commercial⁽³⁾		8,963		15,665		9,223

(1)	As of September 30, 2016, December 31, 2015, and September 30, 2015, $13,430, $5,621, and $5,291 of unrealized depreciation had been recorded as a valuation allowance on these loans.

(2)	Interest income of $279 and $1,220 was recognized in the three and nine months ended September 30, 2016, compared to $3 and $122 for the comparable 2015 periods on these loans.

(3)

Included in the unpaid principal balance is unearned paid in-kind interest on nonaccrual loans of $7,472, $6,579, and $6,729 which is included in the nonaccrual disclosures in the section titled “Investment Transactions and Income Recognition” on page 10 as of September 30, 2016, December 31, 2015, and September 30, 2015.

The following tables show the aging of medallion and commercial loans as of September 30, 2016 and December 31, 2015.

September 30, 2016

Days Past Due

Recorded
Investment >
90 Days and

(Dollars in thousands)

31—60

61—90

91 +

Total

Current

Total

Accruing

Medallion loans

16,118

11,491

58,267

85,876

214,141

300,017

3,089

Commercial loans

Secured mezzanine

—

1,390

72,112

73,502

—

Asset-based receivable

—

Other secured commercial

194

255

182

631

8,439

9,070

—

Total commercial loans

194

255

1,572

2,021

80,551

82,572

—

Total

16,312

11,746

59,839

87,897

294,692

382,589

3,089


December 31, 2015	Days Past Due												Recorded Investment > 90 Days and
(Dollars in thousands)	31—60		61—90		91 +		Total		Current		Total		Accruing
Medallion loans	$	17,354	$	10,224	$	11,880	$	39,458	$	271,975	$	311,433	$	—

Commercial loans
Secured mezzanine		—		—		1,390		1,390		66,459		67,849		—
Asset-based receivable		—		—		—		—		3,750		3,750		—
Other secured commercial		202		92		945		1,239		11,383		12,622		—

Total commercial loans		202		92		2,335		2,629		81,592		84,221		—

Total	$	17,556	$	10,316	$	14,215	$	42,087	$	353,567	$	395,654	$	—

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

Page 13 of 83

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. 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 September 30, 2016, 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. In September 2015, one loan was sold at a discount to a third party, and the related proceeds are held in escrow pending resolution of the bankruptcy proceeding. One loan was charged off in September 2014. 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 September 30, 2016.


(Dollars in thousands)	The Company			Medallion Bank			Total
Loans outstanding	$	258		$	1,953		$	2,211
Loans charged off ⁽¹⁾		(258	)		(1,953	)		(2,211	)
Valuation allowance		—			—			—

Net loans outstanding		—			—			—

Other receivables		590			11,062			11,652
Valuation allowance		(236	)		(4,425	)		(4,661	)

Net other receivables		354			6,637			6,991
Total net outstanding		354			6,637			6,991

Income foregone in 2016		—			—			—
Total income foregone	$	74		$	108		$	182

(1)	The income foregone on the charged off loan was $99 for the Company and $213 for Medallion Bank.

The following table shows troubled debt restructurings which the Company entered into during the quarter and nine months ended September 30, 2016.


(Dollars in thousands)	Number of Loans		Pre-Modification Investment		Post-Modification Investment
Medallion loans		1	$	229	$	229

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

Total commercial loans		—		—		—

Total		1	$	229	$	229

During the twelve months ended September 30, 2016, two loans modified as troubled debt restructurings were in default and had an investment value of $1,989,000 as of September 30, 2016.

The following table shows troubled debt restructurings which the Company entered into during the quarter ended September 30, 2015.


(Dollars in thousands)	Number of Loans		Pre-Modification Investment		Post-Modification Investment
Medallion loans		3	$	875	$	875

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

Total commercial loans		—		—		—

Total		3	$	875	$	875

Page 14 of 83

The following table shows troubled debt restructurings which the Company entered into during the nine months ended September 30, 2015.


(Dollars in thousands)	Number of Loans		Pre-Modification Investment		Post-Modification Investment
Medallion loans		21	$	11,519	$	13,042

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

Total commercial loans		—		—		—

Total		21	$	11,519	$	13,042

Page 15 of 83

During the twelve months ended September 30, 2015, one loan modified as a troubled debt restructuring was in default and had an investment value of $2,139,000.

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 September 30, 2016 and December 31, 2015. 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 September 30, 2016. 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 $28,000 and $32,000 for the quarters ended September 30, 2016 and 2015, and was $85,000 and $107,000 for the comparable nine months.

Deferred Costs

Deferred financing costs, included in other assets, represents costs associated with obtaining the Company’s borrowing facilities, and are amortized on a straight line basis over the lives of the related financing agreements. Amortization expense was $233,000 and $70,000 for the quarters ended September 30, 2016 and 2015, and was $486,000 and $205,000 for the comparable nine months. In addition, the Company capitalizes certain costs for transactions in the process of completion (other than business combinations), including those for potential investments, and the sourcing of other financing alternatives. Upon completion or termination of the transaction, any accumulated amounts will be amortized against income over an appropriate period, or written off. The amounts on the balance sheet for all of these purposes were $4,161,000, $2,126,000, and $1,825,000 as of September 30, 2016, December 31, 2015, and September 30, 2015.

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) in prior years. 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 2014 and 2015. As a result, no provisions for income taxes have been recorded for the three and nine months ended September 30, 2016 and 2015. State and local tax treatment follows the federal model.

As of September 30, 2016 and June 30, 2016, the Company has not met the 25% asset diversification test, and if such noncompliance cannot be remediated by year-end, then it is likely that the Company will not be eligible to file its tax returns as a RIC for 2016. If that occurs, it is likely that a consolidated tax return would be filed on behalf of the Company and its subsidiaries. The Company believes that filing on a consolidated basis may lower the overall taxes paid for all of the Company entities for 2016 operations. As a result of the substantial net appreciation on its assets, a non-cash deferred liability would be recorded for historical net unrealized appreciation recorded in prior periods.

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 2013 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.

Regulatory

As a BDC, the Company is not permitted to acquire any assets other than “qualifying assets” unless, at the time of such acquisition, at least 70% of its total assets are qualifying assets. The Company’s investment in Medallion Bank and City of Chicago taxicab medallions purchased out of foreclosure, which are carried in investments other than securities on the consolidated balance sheet, are non-qualifying assets. As of September 30, 2016, the percentage of the Company’s total assets that were invested in non-qualifying assets were up to 40.6% on an unconsolidated basis and up to 35.1% on a consolidated basis. The

Page 16 of 83

Company did not satisfy the requirement that no more than 30% of its total assets be comprised of non-qualifying assets, and is currently not permitted to acquire any non-qualifying assets. The Company is therefore unable to make any investments in non-qualifying assets, including follow-on investments in Medallion Bank and the Company’s City of Chicago taxicab medallions purchased out of foreclosure. As a result of such failure, the Company could also be precluded from investing in what the Company believes are attractive investments or could be required to dispose of non-qualifying assets at times or on terms that may be disadvantageous to the Company. The Company would also not be able to support Medallion Bank’s capital requirements, if any, and Medallion Bank may also not be able to grow as quickly because the Company is precluded from providing additional funding to Medallion Bank. Any of the foregoing consequences could have a material adverse effect on the Company. If the Company purchases a non-qualifying asset after failing to satisfy the requirement that no more than 30% of the Company’s total assets be comprised of non-qualifying assets, then the Company would be deemed to be in violation of the 1940 Act and the violation could also result in an event of default on its debt obligations. In addition, if the Company is found to be in violation of the requirements applicable to BDCs under the 1940 Act, the Company could be unable to qualify as a RIC under the Code.

The Company is exploring measures to return the amount of qualifying assets to at least 70% of the Company’s total assets. However, the Company cannot guarantee that it will be able to do so. At the end of each fiscal quarter, the Company may take proactive steps to prospectively preserve investment flexibility in the next quarter which is assessed against its total assets at its most recent quarter end. The Company can accomplish this in many ways including purchasing US Treasury bills or other investment-grade debt securities, and closing out its position on a net cash basis subsequent to quarter end. However, if such proactive measures are ineffective or the Company’s primary investments are deemed not to be qualifying assets, or if the fair value of its non-qualifying assets increases or is determined to be higher than previously determined, or if the fair value of its qualifying assets decreases or is determined to be lower than previously determined, the Company could continue to fail to satisfy the requirement that no more than 30% of its total assets be comprised of non-qualifying assets.

During 2014 and 2016, one of our SBIC subsidiaries, Freshstart, was examined by the SBA. The SBA issued a report related to such examination in February 2015 and September 2016, and Freshstart has responded to the SBA’s report. The ultimate outcome of the foregoing regulatory examination cannot be predicted with any certainty at this time.

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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Net increase in net assets resulting from operations available to common shareholders	$	5,043	$	7,312	$	16,458	$	22,466

Weighted average common shares outstanding applicable to basic EPS		24,136,807		24,290,502		24,173,898		24,387,726
Effect of dilutive stock options		—		619		307		13,684
Effect of restricted stock grants		47,711		49,792		52,863		59,980

Adjusted weighted average common shares outstanding applicable to diluted EPS		24,184,518		24,340,913		24,227,068		24,461,390

Basic earnings per share	$	0.21	$	0.30	$	0.68	$	0.92
Diluted earnings per share		0.21		0.30		0.68		0.92

Potentially dilutive common shares excluded from the above calculations aggregated 347,000 and 198,000 shares as of September 30, 2016 and 2015.

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.

Page 17 of 83

During the nine months ended September 30, 2016 and 2015, the Company issued 6,266 and 162,576 restricted shares of stock-based compensation awards, and 12,000 and 27,000 shares of other stock-based compensation awards, and recognized $137,000 and $422,000, or $0.01 and $0.02 per diluted common share for the 2016 third quarter and nine months, and $371,000 and $948,000, or $0.01 and $0.04 per share in the comparable 2015 periods, of non-cash stock-based compensation expense related to the grants. As of September 30, 2016, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $444,000, which is expected to be recognized over the next 11 quarters (see Note 5).

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 $123,000,000 of notional value of principal from various multinational banks, with termination dates ranging to October 2018. The caps provide for payments to the Company if various LIBOR thresholds are exceeded during the cap terms. Total cap purchases were generally fully expensed when paid, including $10,000 for the three and nine months ended September 30, 2016 and $49,000 and $81,000 for the comparable 2015 periods, and all are carried at $0 on the balance sheet at September 30, 2016.

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 three and nine months ended September 30, 2016 and 2015.


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Statement of comprehensive income
Investment income	$	26,165		$	23,812		$	76,982		$	66,287
Interest expense		3,027			2,413			8,730			6,574

Net interest income		23,138			21,399			68,252			59,713
Noninterest income		102			77			271			223
Operating expenses		5,966			5,714			17,415			16,103

Net investment income before income taxes		17,274			15,762			51,108			43,833
Income tax benefit (provision)		1,528			(4,692	)		(7,964	)		(14,357	)

Net investment income after income taxes		18,802			11,070			43,144			29,476
Net realized/unrealized losses of Medallion Bank		(19,111	)		(4,114	)		(28,555	)		(11,790	)

Net increase (decrease) in net assets resulting from operations of Medallion Bank		(309	)		6,956			14,589			17,686
Unrealized appreciation (depreciation) on Medallion Bank ⁽¹⁾		26,409			(166	)		23,942			302
Net realized/unrealized losses on controlled subsidiaries other than Medallion Bank		(187	)		(142	)		5,690			(4,700	)

Net increase in net assets resulting from operations of Medallion Bank and other controlled subsidiaries	$	25,913		$	6,648		$	44,221		$	13,288

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

Page 18 of 83

The following table presents Medallion Bank’s balance sheets and the net investment in other controlled subsidiaries as of September 30, 2016 and December 31, 2015.


(Dollars in thousands)	2016		2015
Loans	$	977,874	$	996,375
Investment securities, at fair value		37,066		35,524

Net investments ⁽¹⁾		1,014,940		1,031,899
Cash		64,565		23,094
Other assets, net		34,763		24,827
Due from affiliates		—		—

Total assets	$	1,114,268	$	1,079,820

Other liabilities	$	4,535	$	6,106
Due to affiliates		1,267		1,387
Deposits and other borrowings, including accrued interest payable		933,117		909,909

Total liabilities		938,919		917,402
Medallion Bank equity ⁽²⁾		175,349		162,418

Total liabilities and equity	$	1,114,268	$	1,079,820

Investment in other controlled subsidiaries	$	14,245	$	7,747
Total investment in Medallion Bank and other controlled subsidiaries ⁽³⁾		208,098		159,913

(1)	Included in Medallion Bank’s net investments is $4 and $6 for purchased loan premium at September 30, 2016 and December 31, 2015.

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

(3)	Includes $44,100 and $15,500 of unrealized appreciation on Medallion Bank, in excess of Medallion Bank’s book value as of September 30, 2016 and December 31, 2015.

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

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 September 30, 2016 and December 31, 2015, the net premium on investment securities totaled $258,000 and $311,000, and $19,000 and $61,000 was amortized into interest income for the quarter and nine months ended September 30, 2016, and $19,000 and $58,000 was amortized in the comparable 2015 periods.

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At September 30, 2016 and December 31, 2015, net loan origination costs were $12,657,000 and $11,400,000. Net amortization expense for the quarter and nine months ended September 30, 2016 was $947,000 and $2,688,000, and was $871,000 and $2,505,000 for the comparable 2015 periods.

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 September 30, 2016, $3,467,000 or 1% of consumer loans, no commercial loans, and $47,403,000 or 15% of medallion loans were on nonaccrual, compared to $3,381,000 or 1% of consumer loans, no commercial loans, and $21,722,000 or 6% of medallion loans on nonaccrual at December 31, 2015, and $2,669,000 or less than 1% of consumer loans, $5,889,000 or 2% of medallion loans, and no commercial loans on nonaccrual at September 30, 2015. 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 $1,161,000, $233,000, and $67,000 as of September 30, 2016, December 31, 2015, and September 30, 2015. See also the paragraph and table on page 50 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 0.15%, and which is capitalized and amortized to interest expense over the life of the respective pool. The total amount capitalized at September 30, 2016 and December 31, 2015 was $1,997,000 and $2,034,000, and $345,000 and $1,035,000 was amortized to interest expense during the quarter and nine months ended September 30, 2016, and $338,000 and $972,000 was amortized in the comparable 2015 periods. Interest on the deposits is accrued daily and paid monthly, quarterly, semiannually, or at maturity.

Page 19 of 83

The outstanding balances of fixed rate borrowings were as follows.


	Payments Due for the Fiscal Year Ending September 30,												September 30,		December 31,		Interest
(Dollars in thousands)	2017		2018		2019		2020		2021		Thereafter		2016		2015		Rate ⁽¹⁾
Deposits and other borrowings	$	400,745	$	304,262	$	163,430	$	40,169	$	23,006	$	—	$	931,612	$	908,896		1.16	%

(1)	Weighted average contractual rate as of September 30, 2016.

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 disciplinary 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 $3,000,000 in 2016 and $7,000,000 in 2015. Separately, Medallion Bank declared dividends to the Company of $3,000,000 in the 2016 nine months, and $5,000,000 and $15,000,000 in the 2015 quarter and nine months.

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 previously paid a dividend rate of 1% on the Series E, which increased to 9% in the 2016 first quarter.

The following table represents Medallion Bank’s actual capital amounts and related ratios as of September 30, 2016 and December 31, 2015, compared to required regulatory minimum capital ratios and the ratios required to be considered well capitalized. As of September 30, 2016, Medallion Bank meets all capital adequacy requirements to which it is subject, and is well-capitalized.


	Regulatory
(Dollars in Thousands)	Minimum			Well-capitalized			September 30, 2016			December 31, 2015
Common equity tier 1 capital		—			—		$	146,451		$	135,635
Tier 1 capital		—			—			172,754			161,938
Total capital		—			—			186,670			175,533
Average assets		—			—			1,109,482			1,071,980
Risk-weighted assets		—			—			1,077,713			1,077,103
Leverage ratio ⁽¹⁾		4	%		5	%		15.6	%		15.1	%
Common equity tier 1 capital ratio ⁽³⁾		5			7			13.6			12.6
Tier 1 capital ratio ⁽²⁾		6			8			16.0			15.0
Total capital ratio ⁽²⁾		8			10			17.3			16.3

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

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

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

Page 20 of 83

(4) FUNDS BORROWED

The outstanding balances of funds borrowed were as follows. These balances are exclusive of deferred financing costs of $4,161,000 and $2,126,000 as of September 30, 2016 and December 31, 2015, which are included in other assets.


	Payments Due for the Fiscal Year Ending September 30,												September 30,		December 31,		Interest
(Dollars in thousands)	2017		2018		2019		2020		2021		Thereafter		2016		2015		Rate ⁽¹⁾
Revolving lines of credit	$	108,284	$	—	$	—	$	—	$	—	$	—	$	108,284	$	129,518		2.20	%
Notes payable to banks		64,514		30,712		36		—		40		—		95,302		122,429		3.04	%
SBA debentures		—		—		3,000		—		15,985		63,000		81,985		74,485		3.63	%
Unsecured note		—		—		—		—		33,625		—		33,625		—		9.00	%
Preferred securities		—		—		—		—		—		33,000		33,000		33,000		2.96	%
Margin loan		—		—		—		—		—		—		—		45,108		—	%

Total	$	172,798	$	30,712	$	3,036	$	—	$	49,650	$	96,000	$	352,196	$	404,540		3.48	%

(1)	Weighted average contractual rate as of September 30, 2016.

(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 which was further reduced in stages in December 2015 to $135,000,000, and to $125,000,000 on July 1, 2016; and of which $108,284,000 was outstanding at September 30, 2016. During 2016, the DZ line was amended several times, for the most part to improve Trust III’s flexibility under the credit facility.

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 0.53% at September 30, 2016) plus 1.65%.

(B) SBA DEBENTURES

In 2016, the SBA approved $10,000,000 of commitments for MCI for a four and a half year term and a 1% fee, which was paid. In 2015, the SBA approved $15,500,000 of commitments for MCI for a four year term and a 1% fee, which was paid. In 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. As of at September 30, 2016, $169,985,000 of commitments had been fully utilized, there were $5,500,000 of commitments available, and $81,985,000 was outstanding.

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, dividends or 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.

Page 21 of 83

The table below summarizes the key attributes of the Company’s various borrowing arrangements with these lenders as of September 30, 2016.

(Dollars in thousands)

Borrower

# of Lenders
/Notes

Note
Dates

Maturity
Dates

Type

Note
Amounts

Balance
Outstanding at
September 30,
2016

Monthly Payment

Average Interest
Rate at September 30,
2016

Interest
Rate
Index⁽¹⁾

The Company

6/6

4/11

8/14

4/17

7/18

Term loans and demand notes secured by pledged loans

68,118

⁽²⁾

68,118

Interest only

3.02%
(includes
unused
fee)

Various

⁽²⁾

Medallion Chicago

3/28

11/11

12/11

10/16

12/16

Term loans secured by owned Chicago medallions⁽³⁾

25,708

22,949

$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

3/5

2/12

4/14

1/17

11/18

Participated loans treated as financings

256

248

Proportionate to the payments received on the participated loans

6.03

N/A

MFC

1/2

3/13

12/15

12/16

12/20

Participated loans treated as financings

Proportionate to the payments received on the participated loans

8.18

N/A

98,082

95,302

(1)	At September 30, 2016, 30 day LIBOR was 0.53% and the prime rate was 3.50%.

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

(3)	$14,159 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 bear a variable rate of interest of 90 day LIBOR (0.85% at September 30, 2016) plus 2.13%. The notes mature in September 2037 and are prepayable at par. Interest is payable quarterly in arrears. The terms of the preferred securities and the notes are substantially identical. In December 2007, $2,000,000 of the preferred securities were repurchased from a third party investor. At September 30, 2016, $33,000,000 was outstanding on the preferred securities.

(E) MARGIN LOAN

In June 2015, the Company entered into a margin loan agreement with Morgan Stanley. The margin loan is secured by the pledge of short-term, high-quality investment securities held by the Company, and is initially available at 90% of the current fair market value of the securities. The margin loan bears interest at 30-day LIBOR (0.53% at September 30, 2016) plus 1.00%. As of September 30, 2016, there were no outstandings under the margin loan.

(F) UNSECURED NOTE

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

(G) 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, provided for the issuance of a maximum of 800,000 shares of common stock of the Company. No additional shares are available for issuance under the 2006 Stock Option Plan. The 2006 Stock Option Plan is administered by the Compensation Committee of the Board of Directors. The option price per share may not be less than the current market value of the Company’s common stock on the date the option is granted. The term and vesting periods of the options are determined by the Compensation Committee, provided that the maximum term of an option may not exceed a period of ten years.

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The Company’s Board of Directors approved the 2015 Employee Restricted Stock Plan (2015 Restricted Stock Plan) on February 13, 2015 and which was approved by the Company’s shareholders on June 5, 2015. The 2015 Restricted Stock Plan became effective upon the Company’s receipt of exemptive relief from the SEC on March 1, 2016. The terms of 2015 Restricted Stock Plan provide for grants of restricted stock awards to the Company’s employees. A grant of restricted stock is a grant of shares of the Company’s common stock which, at the time of issuance, is subject to certain forfeiture provisions, and thus is restricted as to transferability until such forfeiture restrictions have lapsed. A total of 700,000 shares of the Company’s common stock are issuable under the 2015 Restricted Stock Plan, and 693,734 remained issuable as of September 30, 2016. Awards under the 2015 Restricted Stock Plan are subject to certain limitations as set forth in the 2015 Restricted Stock Plan. The 2015 Restricted Stock Plan will terminate when all shares of common stock authorized for delivery under the 2015 Restricted Stock Plan have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the 2015 Restricted Stock Plan, whichever first occurs.

The Company’s Board of Directors approved the 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. No additional shares are available for issuance under the Employee Restricted Stock Plan. The terms of the Employee Restricted Stock Plan provided 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 were issuable under the Employee Restricted Stock Plan, and as of September 30, 2016, none 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 2015 Non-Employee Director Stock Option Plan (2015 Director Plan) on March 12, 2015, which was approved by the Company’s shareholders on June 5, 2015, and on which exemptive relief to implement the 2015 Director Plan was received from the SEC on February 29, 2016. A total of 300,000 shares of the Company’s common stock are issuable under the 2015 Director Plan, and 288,000 remained issuable as of September 30, 2016. Under the 2015 Director Plan, unless otherwise determined by a committee of the Board of Directors comprised of directors who are not eligible for grants under the 2015 Director Plan, the Company will grant options to purchase 12,000 shares of the Company’s common stock to a non-employee director upon election to the Board of Directors, with an adjustment for directors who are elected to serve less than a full term. The option price per share may not be less than the current market value of the Company’s common stock on the date the option is granted. Options granted under the 2015 Director Plan are exercisable annually, as defined in the 2015 Director Plan. The term of the options may not exceed ten years.

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

The Company’s Employee Restricted Stock Plan, 1996 Stock Option Plan, and 1996 Director Plan have terminated and no additional shares are available for future issuance. At September 30, 2016, 346,712 options on the Company’s common stock were outstanding under the 2006 plans, of which 313,712 options were exercisable, and there were 134,146 unvested shares of the Company’s common stock outstanding under the Employee Restricted Stock Plan.

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The fair value of each restricted stock grant is determined on the date of grant by the closing market price of the Company’s common stock on the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average fair value of options granted was $0.53 and $0.90 for the nine months ended September 30, 2016 and 2015. The following assumption categories are used to determine the value of any option grants.


	Nine Months Ended September 30,
	2016			2015
Risk free interest rate		1.22	%		1.87	%
Expected dividend yield		10.13			8.90
Expected life of option in years ⁽¹⁾		6.00			6.00
Expected volatility ⁽²⁾		30.00			30.00

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

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

The following table presents the activity for the stock option programs for the 2016 quarters and the 2015 full year.


	Number of Options			Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2014		461,821		$	7.49-13.84	$	10.38
Granted		27,000			9.38		9.38
Cancelled		(12,118	)		9.22-13.06		11.07
Exercised ⁽¹⁾		(30,449	)		9.22		9.22

Outstanding at December 31, 2015		446,254			7.49-13.84		10.38
Granted		—			—		—
Cancelled		(9,000	)		13.84		13.84
Exercised ⁽¹⁾		(2,100	)		9.22		9.22

Outstanding at March 31, 2016		435,154			7.49-13.84		10.31
Granted		12,000			7.10		7.10
Cancelled		(100,442	)		9.22-13.84		12.15
Exercised ⁽¹⁾		—			—		—

Outstanding at June 30, 2016		346,712			7.10-13.84		9.67
Granted		—			—		—
Cancelled		—			—		—
Exercised ⁽¹⁾		—			—		—

Outstanding at September 30, 2016⁽²⁾		346,712		$	7.10-13.84	$	9.67
Options exercisable at September 30, 2016⁽²⁾		313,712			7.49-13.84		9.75

(1)	The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at the exercise date and the related exercise price of the underlying options, was $0 for the 2016 third quarter and nine months, and was $0 and $33,000 for the comparable 2015 periods.

(2)

The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at September 30, 2016 and the related exercise price of the underlying options, was $0 for outstanding options and $0 for exercisable options as of September 30, 2016. The remaining contractual life was 2.65 years for outstanding options and 1.98 years for exercisable options at September 30, 2016.

The following table presents the activity for the restricted stock programs for the 2016 quarters and the 2015 full year.


	Number of Shares			Grant Price Per Share		Weighted Average Grant Price
Outstanding at December 31, 2014		209,365		$	10.08-15.61	$	12.47
Granted		162,576			9.08-10.38		9.89
Cancelled		(53,761	)		9.92-15.61		11.16
Vested ⁽¹⁾		(109,140	)		10.08-15.61		12.16

Outstanding at December 31, 2015		209,040			9.08-15.61		10.96
Granted		—			—		—
Cancelled		(214	)		10.08-15.61		11.32
Vested ⁽¹⁾		(69,803	)		9.92-13.46		11.34

Outstanding at March 31, 2016		139,023			9.08-15.61		10.78
Granted		—			—		—
Cancelled		(9,502	)		9.92-15.61		11.18
Vested ⁽¹⁾		(833	)		9.08		9.08

Outstanding at June 30, 2016		128,688			9.08-15.61		10.76
Granted		6,266			7.98		7.98
Cancelled		(808	)		10.08-15.61		11.32
Vested ⁽¹⁾		—			—		—

Outstanding at September 30, 2016⁽²⁾		134,146		$	7.98-15.61	$	10.63

(1)	The aggregate fair value of the restricted stock vested was $0 and $694,000 for the 2016 third quarter and nine months, and was $0 and $624,000 for the comparable 2015 periods.

(2)	The aggregate fair value of the restricted stock was $566,000 as of September 30, 2016. The remaining vesting period was 1.22 years at September 30, 2016.

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The following table presents the activity for the unvested options outstanding under the plans for the 2016 quarters.


	Number of Options			Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2015		54,333		$	9.38-13.84	$	11.14
Granted		—			—		—
Cancelled		(3,000	)		13.84		13.84
Vested		—			—		—

Outstanding at March 31, 2016		51,333			9.38-13.84		10.98
Granted		12,000			7.10		7.10
Cancelled		(15,333	)		11.42-13.53		12.25
Vested		(15,000	)		9.38-13.84		11.10

Outstanding at June 30, 2016		33,000			7.10-13.84		8.93
Granted		—			—		—
Cancelled		—			—		—
Vested		—			—		—

Outstanding at September 30, 2016		33,000		$	7.10-13.84	$	8.93

The intrinsic value of the options vested was $0 for the 2016 third quarter and nine months.

(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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Prepayment fees	$	64	$	59	$	85	$	65
Servicing fees		29		24		33		44
Late charges		4		10		20		40
Management fees		—		—		—		75
Other		7		28		27		63

Total noninterest income	$	104	$	121	$	165	$	287

The major components of other operating expenses were as follows.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Travel, meals, and entertainment	$	175	$	205	$	646	$	686
Directors’ fees		108		116		256		332
Printing and stationery		80		27		114		124
Computer expense		65		64		176		268
Office expense		59		44		147		164
Miscellaneous taxes		58		102		247		185
Insurance		47		44		150		126
Other expenses		106		35		357		253

Total other operating expenses	$	698	$	637	$	2,093	$	2,138

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(8) SELECTED FINANCIAL RATIOS AND OTHER DATA

The following table provides selected financial ratios and other data.


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2016			2015			2016			2015
Net share data
Net asset value at the beginning of the period	$	11.41		$	11.26		$	11.42		$	11.16
Net investment income (loss)		(0.10	)		0.17			(0.08	)		0.55
Income tax (provision) benefit		—			—			—			—
Net realized gains (losses) on investments		0.10			0.02			—			0.35
Net change in unrealized appreciation on investments		0.21			0.11			0.76			0.02

Net increase in net assets resulting from operations		0.21			0.30			0.68			0.92
Issuance of common stock		—			0.01			0.02			(0.02	)
Repurchase of common stock		0.04			0.04			0.04			0.06

Distributions of net investment income		—			(0.15	)		—			(0.47	)
Distributions of net realized gains on investments		—			—			—			—
Return of capital		(0.05	)		(0.10	)		(0.55	)		(0.27	)

Total distributions		(0.05	)		(0.25	)		(0.55	)		(0.74	)
Other		—			0.01			—			(0.01	)

Total increase in net asset value		0.20			0.11			0.19			0.21

Net asset value at the end of the period ⁽¹⁾	$	11.61		$	11.37		$	11.61		$	11.37

Per share market value at beginning of period	$	7.38		$	8.35		$	7.04		$	10.01
Per share market value at end of period		4.22			7.58			4.22			7.58
Total return ⁽²⁾		(168	%)		(25	%)		(48	%)		(24	%)

Ratios/supplemental data
Total shareholders’ equity (net assets)	$	280,783		$	276,917		$	280,783		$	276,917
Average net assets	$	277,579		$	276,889		$	278,149		$	276,650
Total expense ratio ^(3) (4)		11.44	%		9.39	%		10.67	%		9.74	%
Operating expenses to average net assets ⁽⁴⁾		6.60			5.94			6.22			6.38
Net investment income after income taxes to average net assets⁽⁴⁾		(3.73	)		6.07			(0.95	)		6.51

(1)	Includes $0.00 and $0.00 of undistributed net investment income per share and $0.00 and $0.00 of undistributed net realized gains per share as of September 30, 2016 and 2015.

(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 $1,416 and $1,458, and operating expenses of $1,296 and $1,421, which formerly were the Company’s were now MSC’s for the three months ended September 30, 2016 and 2015, and were $4,231 and $4,216 of servicing fee income, and $4,422 and $4,634 of operating expenses for the comparable nine months. Excluding the impact of the MSC amounts, the total expense ratio, operating expense ratio, and net investment income ratio would have been 13%, 8.46%, and (3.56)% in the 2016 quarter, 11%, 7.98%, and 6.12% in the 2015 quarter, 13%, 8.34%, and (1.04)% in the 2016 nine months, and 12%, 8.62%, and 6.31% in the 2015 nine months.

(9) RECENTLY ISSUED ACCOUNTING STANDARDS

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The update clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 enhances the reporting model for stock compensation and provides users of financial statements with more decision-useful information. ASU 2016-09 simplifies guidance on several aspects of the accounting for shared-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flow. The update, as amended, is effective for annual periods beginning after December 15, 2016. The Company does not believe this update will have a material impact on its financial condition.

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In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for leases classified as operating under current GAAP. ASU 2016-02 applies to all entities and is effective for fiscal years beginning after December 15, 2018 for public entities and is effective for fiscal years beginning after December 15, 2019 for all other entities, with early adoption permitted. The Company is assessing the impact the update will have on its financial condition and results of operations.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The main objective of this Update is to enhance the reporting model for financial instruments and provide users of financial statements with more decision-useful information. ASU 2016-01 requires equity investments to be measured at fair value, simplifies the impairment assessment of equity investment without readily determinable fair value, eliminates the requirements to disclose the fair value of financial instruments measured at amortized cost, and requires public business entities to use the exit price notion when measuring the fair value of financial instruments. The update, as amended, is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company does not believe this update will have a material impact on its financial condition.

(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 $245,000 and $23,000 for the 2016 and 2015 third quarters, and were $518,000 and $117,000 for the comparable nine months.

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 $166,000 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 September 30, 2016, December 31, 2015, and September 30, 2015, the Company and MSC serviced $329,304,000, $382,919,000, and $391,903,000 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, $1,416,000 and $4,231,000 of servicing fee income was earned by MSC in the 2016 third quarter and nine months, and $1,458,000 and $4,216,000 was earned in the comparable 2015 periods.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2016		2015		2016		2015
Reimbursement of operating expenses	$	257	$	257	$	754	$	616
Loan origination fees		137		56		225		126
Servicing fees		—		1		1		7

Total other income	$	394	$	314	$	980	$	749

The Company had a loan to Medallion Fine Art, Inc. in the amount of $2,968,000 and $8,348,000 as of September 30, 2016 and December 31, 2015. The loan bears interest at a rate of 12%, all of which is paid in kind. During 2016 and 2015, the Company advanced $200,000 and $1,225,000, and was repaid $6,111,000 and $550,000 with respect to this loan. Additionally, the Company recognized $99,000 and $504,000 of interest income in the three and nine months ended September 30, 2016 and $258,000 and $681,000 in the comparable 2015 periods.

The Company and MCI had loans to an affiliate of Medallion Motorsports LLC which totaled $8,454,000 and $5,033,000 as of September 30, 2016 and December 31, 2015. The loans bear interest at rates of 8% and 10%, all of which is paid in kind. The Company and MCI recognized $174,000 and $429,000 of interest income for the three and nine months ended September 30, 2016, and $0 and $0 for the comparable 2015 periods with respect to these loans.

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(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.

(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 September 30, 2016 and December 31, 2015, 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.

September 30, 2016

December 31, 2015

(Dollars in thousands)

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Financial assets

Investments

585,628

606,959

Cash ⁽¹⁾

24,708

30,912

Accrued interest receivable ⁽²⁾

697

1,003

Financial liabilities

Funds borrowed ⁽²⁾

352,196

404,540

Accrued interest payable ⁽²⁾

1,928

1,302

(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 our valuation methodology which is unchanged during 2016.

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

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).

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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

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

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

A review of fair value hierarchy classification is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain assets or liabilities. Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers in/out of the level 3 category as of the beginning of the quarter in which the reclassifications occur. The following paragraphs describe the sensitivity of the various level 3 valuations to the factors that are relevant in their valuation analysis.

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 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). Recently, as transfer price activity and the collateral values of medallion loans have declined, and greater weight has been placed on the operating cash flows of the borrowers and the values of their personal guarantees in determining whether or not a valuation adjustment is necessary. Collateral values for asset based loans were 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. Those portfolios had historically been at very low loan to collateral value ratios, and as a result, historically have not been highly sensitive to changes in collateral values 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 on at least an annual basis, 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. 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 had previously determined that Medallion Bank had little value beyond its recorded book value. As a result of this valuation process, the Company had previously used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In 2015 the Company first became aware of external interest in Medallion Bank and its portfolio’s assets at

Page 29 of 83

values in excess of their carrying amount. Expression of interest in Medallion Bank from both investment bankers and interested parties has continued through 2016. The Company incorporated these new factors in the Medallion Bank’s fair value analysis and the Board of Directors determined that Medallion Bank had a fair value in excess of book value. In addition, in the third quarter of 2016 there was a court ruling involving a marketplace lender that the Company believes heightens the interest of marketplace lenders to acquire or merge with Utah industrial banks. The Company also engaged a valuation specialist to assist the Board of Directors in their determination of Medallion Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $28,600,000 was recorded in 2016. See Note 3 for additional information about Medallion Bank.

Investments in controlled subsidiaries, other than Medallion Bank, equity investments, and investments other than securities 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, equity investments, and investments other than securities 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.

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 September 30, 2016 and December 31, 2015.


(Dollars in thousands)	Level 1		Level 2		Level 3		Total
2016 Assets
Medallion loans	$	—	$	—	$	288,257	$	288,257
Commercial loans		—		—		81,110		81,110
Investment in Medallion Bank and other controlled subsidiaries		—		—		208,098		208,098
Equity investments		61		—		8,102		8,163
Investment other than securities		—		—		19,020		19,020
Other assets		—		—		354		354

2015 Assets
Medallion loans	$	—	$	—	$	308,408	$	308,408
Commercial loans		—		—		81,895		81,895
Investment in Medallion Bank and other controlled subsidiaries		—		—		159,913		159,913
Equity investments		62		—		6,797		6,859
Investment securities		49,884		—		—		49,884
Investment other than securities		—		—		37,882		37,882
Other assets		—		—		354		354

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, and other investments detailed in the consolidated summary schedule of investments following these footnotes. Included in level 3 equity investments are unregistered shares of common stock in a publicly-held company, as well as certain private equity positions 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 and nine months ended September 30, 2016 and 2015.


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Medallion Bank & Other Controlled Subs			Equity Investments			Investments Other Than Securities			Other Assets
June 30, 2016	$	297,367		$	88,045		$	180,954		$	8,561		$	33,127		$	354
Gains (losses) included in earnings		(6,087	)		1,864			25,913			84			(14,107	)		—
Purchases, investments, and issuances		5,628			355			1,315			250			—			—
Sales, maturities, settlements, and distributions		(8,651	)		(9,154	)		(84	)		(793	)		—			—
Transfers in (out)		—			—			—			—			—			—

September 30, 2016	$	288,257		$	81,110		$	208,098		$	8,102		$	19,020		$	354

Amounts related to held assets⁽¹⁾	($	6,050	)	($	114	)	$	25,913		($	110	)	($	14,107	)		—

(1)	Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of September 30, 2016

Page 30 of 83

(Dollars in thousands)

Medallion
Loans

Commercial
Loans

Investment in
Medallion
Bank & Other
Controlled
Subs

Equity
Investments

Investments
Other Than
Securities

Other
Assets

December 31, 2015

308,408

81,895

159,913

6,797

37,882

354

Gains (losses) included in earnings

(11,317

)

2,403

47,221

2,021

(18,862

)

—

Purchases, investments, and issuances

18,071

16,371

5,061

1,400

—

Sales, maturities, settlements, and distributions

(26,905

)

(19,783

)

(4,097

)

(1,892

)

—

Transfers in (out) ⁽¹⁾

—

224

—

(224

)

—

September 30, 2016

288,257

81,110

208,098

8,102

19,020

354

Amounts related to held assets⁽²⁾

11,168

)

297

)

47,221

1,022

18,862

)

—

(1)	During 2016, the equity interest in WRWP LLC was exchanged for a loan and has resulted in the transfer from equity interest to commercial loan.

(2)	Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of September 30, 2016.


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Medallion Bank & Other Controlled Subs			Equity Investments			Investments Other Than Securities			Other Assets
June 30, 2015	$	309,482		$	75,292		$	141,132		$	7,105		$	0		$	336
Gains (losses) included in earnings		(2,382	)		(373	)		11,648			814			(1,570	)		(12	)
Purchases, investments, and issuances		13,991			1,630			5,100			50			—			—
Sales, maturities, settlements, and distributions		(11,659	)		(4,227	)		(5,036	)		(1,122	)		—			—
Transfers, in (out)		—			(30	)		1,612			(1,612	)		39,452			30

September 30, 2015	$	309,432		$	72,292		$	154,456		$	5,235		$	37,882		$	354

Amounts related to held assets⁽¹⁾	($	2,367	)	($	378	)	$	11,648		($	313	)	$	(1,570	)	($	12	)

(1)	Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of September 30, 2015.


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investment in Medallion Bank & Other Controlled Subs			Equity Investments			Investments Other Than Securities			Other Assets
December 31, 2014	$	311,894		$	71,149		$	136,848		$	7,532		$	0		$	392
Gains (losses) included in earnings		(2,865	)		6			36,843			129			(1,570	)		(68	)
Purchases, investments, and issuances		25,912			15,860			8,839			812			—			—
Sales, maturities, settlements, and distributions		(25,509	)		(14,693	)		(29,686	)		(1,626	)		—			—
Transfers, in (out)		—			(30	)		1,612			(1,612	)		39,452			30

September 30, 2015	$	309,432		$	72,292		$	154,456		$	5,235		$	37,882		$	354

Amounts related to held assets⁽¹⁾	($	2,850	)	$	69		$	33,613		($	719	)	$	(1,570	)	($	68	)

(1)	Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of September 30, 2015.

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 31 of 83

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and liabilities as of September 30, 2016 and December 31, 2015 were as follows.

(Dollars in thousands)

Fair Value
at 9/30/16

Valuation Techniques

Unobservable Inputs

Range
(Weighted Average)

Medallion Loans

288,257

Precedent market transactions

Adequacy of collateral (loan to value)

1% - 190% (96%)

Commercial Loans – Mezzanine and Other

81,110

Borrower financial analysis

Financial condition and operating performance of the borrower

N/A

Portfolio yields

3% -19.00% (13.07%)

Third party valuation using a weighting of the three methods utilized

Comparable Transactions Analysis

Precedent M&A transaction approach

Discount rate in Cash Flow Analysis

(29.4% premium to book
value)

(10.58%)

Investment in Medallion Bank

193,853

Investee book value and equity pickup

Financial condition and operating performance of the investee

N/A

Premium on portfolio assets

(4.51% premium recorded)

Investment in Other Controlled Subsidiaries

6,027

Investee book value adjusted for asset appreciation

Financial condition and operating performance of the investee

N/A

Third party valuation/offer to purchase asset

N/A

4,269

Investee financial analysis

Financial condition and operating performance

N/A

Implied value of individual franchises

$30,000

Equity value

$3,000 - $5,000

3,330

Investee book value adjusted for market appreciation

Third party offer to purchase investment

Financial condition and operating performance of the investee

N/A

619

Investee book value and equity pickup

Financial condition and

operating performance of the investee

N/A

Equity Investments

1,264

Investee book value

Valuation indicated by investee filings

N/A

430

Market comparables

Discount for lack of marketability

10% (10%)

6,408

Investee financial analysis

Financial condition and operating performance of the borrower

N/A

Collateral support

N/A

Investments Other Than Securities

19,020

Precedent market transaction

Transfer prices of Chicago medallions

N/A

Cash flow analysis

Discount rate in cash flow analysis

Other Assets

354

Borrower collateral analysis

Adequacy of collateral (loan to value)

(Dollars in thousands)

Fair Value
at 12/31/15

Valuation Techniques

Unobservable Inputs

Range
(Weighted Average)

Medallion Loans

308,408

Precedent market transactions

Adequacy of collateral (loan to value)

1% - 155% (79%)

Commercial Loans – Asset-Based

3,678

Borrower collateral analysis

Adequacy of collateral (loan to value)

0% - 84% (54%)

Commercial Loans – Mezzanine and Other

78,217

Borrower financial analysis

Financial condition and operating performance of the borrower

N/A

Portfolio yields

3% - 19.00% (13.13%)

Investment in Medallion Bank

152,166

Third party valuation using a weighting of the three methods utilized

Comparable Transactions Analysis

Control Premium Analysis

Discount rate in Cash Flow Analysis

(11.4% premium to book
value)

(32%)

(20%)

Investee book value and equity pickup

Financial condition and operating performance of the investee

N/A

Premium on portfolio assets

(1.56% premium recorded)

Investment in Other Controlled Subsidiaries

4,234

Investee book value and equity pickup, adjusted for asset appreciation

Financial condition and operating performance of the investee

N/A

986

Investee book value and equity pickup

Third party valuation/ offer to purchase assets

N/A

Collateral support

N/A

Financial condition and operating performance of the investee

N/A

2,527

Investee financial analysis

Financial condition and operating performance

N/A

Equity Investments

1,957

Investee book value

Valuation indicated by investee filings

N/A

509

Market comparables

Discount for lack of marketability

10% (10%)

4,331

Investee financial analysis

Financial condition and operating performance of the borrower

N/A

Collateral support

N/A

Investments Other Than Securities

37,882

Precedent market transaction

Transfer prices of Chicago medallions

$150 - $238 ($194)

Cash flow analysis

Discount rate in cash flow analysis

Other Assets

354

Borrower collateral analysis

Adequacy of collateral (loan to value)

Page 32 of 83

(13) INVESTMENTS OTHER THAN SECURITIES

The following table presents the Company’s investments other than securities as of September 30, 2016 and December 31, 2015.


Investment Type (Dollars in thousands)	Number of Investments			Investment Cost		Value as of 9/30/16			Value as of 12/31/15
City of Chicago Taxicab Medallions		154	⁽¹⁾	$	8,411	$	18,480	⁽²⁾	$	36,806	⁽²⁾
City of Chicago Taxicab Medallions (handicap accessible)		5	⁽¹⁾		278		540	⁽³⁾		1,076	⁽³⁾

Investment Other Than Securities				$	8,689	$	19,020		$	37,882

⁽¹⁾	Investment is not readily marketable, is considered mostly non-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 $16,387, $0, and $16,387 as of September 30, 2016, and was $34,240, $0, and $34,240 as of December 31, 2015. The aggregate cost for Federal income tax purposes was $2,093 at September 30, 2016 and $2,566 at December 31, 2015.

⁽³⁾

Gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation for Federal income tax purposes was $478, $0, and $478 as of September 30, 2016, and was $989, $0, and $989 as of December 31, 2015. The aggregate cost for Federal income tax purposes was $62 at September 30, 2016 and $84 at December 31, 2015.

(14) SUBSEQUENT EVENTS

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

On October 26, 2016, the Company’s Board of Directors declared a $0.05 per share common stock distribution, payable on December 7, 2016 to shareholders of record on November 30, 2016.

The Company is finalizing a one year extension of Medallion Chicago’s term loans secured by owned Chicago Medallions that are scheduled to mature on November 9, 2016. The Company and its subsidiaries obtain financing under lending facilities extended by various banks and other financial institutions, some of which are secured by loans, taxi medallions and other assets. Where these facilities are extended to its subsidiaries, the Company and others of its subsidiaries may guarantee the obligations of the relevant borrower. Five of its smallest subsidiaries are borrowers under promissory notes extended to them by a bank that total $8.8 million that came due on October 17, 2016. These loans are secured by Chicago taxi medallions owned by the Company’s subsidiaries. These notes are guaranteed by Medallion Funding, not by the Company. These subsidiaries have not repaid the amounts due under the notes, and the bank has filed a suit seeking payment of these amounts. This failure to pay would constitute an event of default under other loan agreements under which the Company or its subsidiaries are borrowers, but to the lenders under those agreements have waived the default. The majority of such waivers have been signed but will not be effective until all of the waivers have been received. If judgment is entered against the Company in the suit brought by the bank, or entered and not satisfied within specified periods of time, this event may constitute an additional event of default under these other agreements. The Company not yet asked for waivers from the other lenders of this additional default. If such waivers are required and not granted, it would lead to events of default under other of the Company’s financing arrangements. The Company is currently negotiating the renewal of the five loans of its subsidiaries in an effort to reach a mutually beneficial settlement.

Page 33 of 83

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

September 30, 2016

(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 2016
Acquisitions ⁽⁵⁾

Principal
Outstanding

Cost ⁽⁴⁾

Fair
Value

Medallion Loans

New York

386

3.76

12,977

206,576

206,404

200,440

Real Cab Corp ##

Term Loan

07/20/07

07/20/17

2.81

2,545

Real Cab Corp

Term Loan

08/19/14

07/20/17

3.31

481

Real Cab Corp ##

Term Loan

07/20/07

07/20/17

2.81

350

Sean Cab Corp ##

Term Loan

12/09/11

11/23/18

4.63

3,297

Slo Cab Corp ##

Term Loan

07/20/07

07/20/17

2.81

1,527

Slo Cab Corp ##

Term Loan

08/19/14

07/20/17

3.31

289

Slo Cab Corp ##

Term Loan

07/20/07

07/20/17

2.81

210

Whispers Taxi Inc ## &

Term Loan

05/28/13

05/28/16

3.35

2,026

Esg Hacking Corp ##

Term Loan

03/12/14

03/12/17

3.50

1,725

1,726

Christian Cab Corp &

Term Loan

11/27/12

11/27/18

3.75

1,489

1,493

Junaid Trans Corp ## {Annually-Prime plus 1.00%}

Term Loan

04/30/13

04/29/19

4.50

1,419

Hamilton Transit LLC ## &

Term Loan

03/26/14

03/26/17

3.38

1,494

1,401

Silke Hacking Corp ## &

Term Loan

03/26/14

03/26/17

3.38

1,495

1,400

Kaderee M & G Corp ## &

Term Loan

03/26/14

03/26/17

3.38

1,488

1,399

Daytona Hacking Corp ## &

Term Loan

03/26/14

03/26/17

3.38

1,488

1,399

Jacal Hacking Corp ##

Term Loan

12/20/13

12/20/16

3.50

1,386

Ocean Hacking Corp ##

Term Loan

12/20/13

12/20/16

3.50

1,386

Hj Taxi Corp ##

Term Loan

04/11/14

04/11/17

3.25

1,376

Avi Taxi Corporation ##

Term Loan

04/11/14

04/11/17

3.25

1,376

Kby Taxi Inc ##

Term Loan

04/11/14

04/11/17

3.25

1,376

Apple Cab Corp ##

Term Loan

04/11/14

04/11/17

3.25

1,376

Anniversary Taxi Corp ##

Term Loan

04/11/14

04/11/17

3.25

1,376

Devin Taxi Corp ## &

Term Loan

05/28/13

05/28/16

3.35

1,351

Benson Hacking Corp ## &

Term Loan

05/28/13

05/28/16

3.35

1,351

Dayna Hacking Corp ## &

Term Loan

05/28/13

05/28/16

3.35

1,351

Yosi Transit Inc ##

Term Loan

07/20/07

07/20/17

2.81

1,018

Yosi Transit Inc ##

Term Loan

08/19/14

07/20/17

3.31

193

Yosi Transit Inc ##

Term Loan

07/20/07

07/20/17

2.81

140

Various New York && ##

1.75% to 8.96%

Term Loan

03/23/01

09/20/16

03/22/16 to 09/10/23

358

3.82

12,977

170,197

170,025

164,422

Chicago

111

4.57

109

38,562

38,432

35,344

Sweetgrass Peach &Chadwick Cap ##

Term Loan

08/28/12

02/24/18

5.00

1,470

Various Chicago && ##

0.00% to 7.00%

Term Loan

01/22/10

08/08/16

03/12/16 to 12/29/20

110

4.55

109

37,092

36,962

33,874

Newark && ##

4.50% to 7.00%

Term Loan

04/09/10

04/14/16

09/19/16 to 05/14/25

113

5.27

314

23,791

23,776

23,809

Boston && ##

3.90% to 6.15%

Term Loan

06/12/07

09/28/16

12/07/15 to 11/06/25

4.58

1,185

26,147

26,010

23,862

Cambridge && ##

3.75% to 5.50%

Term Loan

05/06/11

12/15/15

03/29/16 to 01/26/20

4.47

4,447

4,410

4,022

Various Other && ##

4.75% to 11.50%

Term Loan

04/28/08

07/30/15

07/01/15 to 09/01/23

7.28

997

985

780

Total medallion loans ($237,025 pledged as collateral under borrowing arrangements)

694

103

4.07

14,585

300,520

300,017

288,257

Commercial Loans

Secured mezzanine (20% Minnesota, 13% Ohio, 10% Oklahoma, 8% Delaware, 8% Pennsylvania, 7% North Carolina, 5% Kansas, 5% North Dakota, 4% Massachusetts, 4% Colorado, 4% Illinois, 3% Texas and 9% all other states) ⁽²⁾

Manufacturing (50% of the total)

Stride Tool Holdings, LLC (interest rate includes PIK interest of 3.00%)

Term Loan

04/05/16

04/05/21

15.00

4,000

4,060

4,008

(capitalized interest of $60 per footnote 2)

MicroGroup, Inc.

Term Loan

06/29/15

06/29/21

12.00

3,244

(capitalized interest of $44 per footnote 2)

Page 34 of 83

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

September 30, 2016


*(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 2016 Acquisitions ⁽⁵⁾		Principal Outstanding		Cost ⁽⁴⁾		Fair Value
	AA Plush Holdings, LLC (interest rate includes PIK interest of 6.00%)	Term Loan	08/15/14	08/15/19		1		1	%		14.00	%			$	3,148	$	3,148	$	3,141
	(capitalized interest of $148 per footnote 2)
	Liberty Paper Products Acquisition LLC (interest rate includes PIK interest of 2.00%)	Term Loan	06/09/16	06/09/21		1		1	%		14.00	%	$	3,000	$	3,019	$	3,019	$	3,019
	(capitalized interest of $19 per footnote 2)
	EGC Operating Company, LLC (interest rate includes PIK interest of 3.00%)	Term Loan	09/30/14	09/30/19		1		1	%		15.00	%			$	3,002	$	3,002	$	3,009
	(capitalized interest of $73 per footnote 2)
	Pinnacle Products International, Inc. (interest rate includes PIK interest of 3.00%)	Term Loan	10/09/15	10/09/20		1		1	%		15.00	%			$	2,885	$	2,885	$	2,885
	(capitalized interest of $84 per footnote 2)
+	Production Services Associates LLC (d/b/a American Card Services) (interest rate includes PIK interest of 2.00%)	Term Loan	02/17/15	02/17/20		1		1	%		16.00	%			$	2,687	$	2,687	$	2,669
	(capitalized interest of $86 per footnote 2)
	WRWP, LLC (interest rate includes PIK interest of 5.00%)	Term Loan	12/30/14	12/30/19		1		1	%		17.00	%			$	2,377	$	2,377	$	2,384
	(capitalized interest of $135 per footnote 2)
	WRWP, LLC (interest rate includes PIK interest of 6.00%)	Term Loan	01/01/15	01/01/24		1		*			6.00	%			$	248	$	248	$	248
	(capitalized interest of $24 per footnote 2)
	BB Opco, LLC d/b/a BreathableBaby, LLC (interest rate includes PIK interest of 3.00%)	Term Loan	08/01/14	08/01/19		1		1	%		14.00	%			$	2,616	$	2,616	$	2,619
	(capitalized interest of $117 per footnote 2)
	Tech Cast Holdings, LLC	Term Loan	12/12/14	12/12/19		1		1	%		15.00	%			$	2,635	$	2,635	$	2,611
	American Cylinder, Inc. d/b/a All Safe (interest rate includes PIK interest of 7.00%)	Term Loan	07/03/13	01/03/18		1		1	%		19.00	%			$	1,663	$	1,663	$	1,662
	(capitalized interest of $163 per footnote 2)
+	Respiratory Technologies, Inc.	Term Loan	04/25/12	04/25/17		1		1	%		12.00	%			$	1,500	$	1,500	$	1,501
	Orchard Holdings, Inc. &	Term Loan	03/10/99	03/31/10		1		*			13.00	%			$	1,390	$	1,390	$	1,390
	Quaker Bakery Brands, Inc.	Term Loan	03/28/12	03/28/17		1		*			17.00	%			$	1,300	$	1,300	$	1,299
+	Various Other && 12.00% to 14.00%	Term Loan	03/31/06 to 03/06/14	03/31/18 to 03/06/19		2		*			13.69	%			$	750	$	750	$	625
Professional, Scientific, and Technical Services (15% of the total)	Weather Decision Technologies, Inc. {One-time on 1/1/18 to 15%} (interest rate includes PIK interest of 9.00%)	Term Loan	12/11/15	12/11/20		1		1	%		18.00	%			$	3,767	$	3,767	$	3,757
	(capitalized interest of $267 per footnote 2)
	Northern Technologies, LLC (interest rate includes PIK interest of 1.00%)	Term Loan	01/29/16	01/29/23		1		1	%		13.00	%	$	3,500	$	3,524	$	3,524	$	3,523
	(capitalized interest of $24 per footnote 2)
+	DPIS Engineering, LLC	Term Loan	12/01/14	06/30/20		1		1	%		12.00	%			$	2,000	$	2,000	$	1,997
	J. R. Thompson Company LLC (interest rate includes PIK interest of 2.00%)	Term Loan	05/21/15	05/21/22		1		1	%		14.00	%			$	1,617	$	1,617	$	1,617
	(capitalized interest of $6 per footnote 2)
Information (11% of the total)	US Internet Corp.	Term Loan	06/12/13	09/18/20		1		1	%		14.50	%			$	3,000	$	3,000	$	3,011
	US Internet Corp.	Term Loan	03/18/15	09/18/20		1		1	%		14.50	%			$	1,750	$	1,750	$	1,742
	US Internet Corp.	Term Loan	02/05/16	02/11/23		1		*			14.50	%	$	1,900	$	950	$	950	$	940
	Centare Holdings, Inc. (interest rate includes PIK interest of 2.00%)	Term Loan	08/30/13	08/30/18		1		1	%		14.00	%			$	2,500	$	2,500	$	2,493
Arts, Entertainment, and Recreation (7% of the total)	RPAC Racing, LLC (interest rate includes PIK interest of 10.00%)	Term Loan	11/19/10	01/15/17		1		2	%		10.00	%			$	5,420	$	5,420	$	5,420
	(capitalized interest of $2380 per footnote 2)
Transportation and Warehousing (5% of the total)	LLL Transport, Inc. (interest rate includes PIK interest of 3.00%)	Term Loan	10/23/15	04/23/21		1		1	%		15.00	%			$	3,595	$	3,595	$	3,592
	(capitalized interest of $95 per footnote 2)

Page 35 of 83

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

September 30, 2016


(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 2016 Acquisitions ⁽⁵⁾		Principal Outstanding		Cost ⁽⁴⁾		Fair Value
Administrative and Support Services (4% of the total)		Staff One, Inc.	Term Loan		06/30/08		03/31/18		1		1	%		3.00	%			$	2,813	$	2,813	$	2,813
		Staff One, Inc.	Term Loan		09/15/11		03/31/18		1		*			3.00	%			$	352	$	352	$	352
Wholesale Trade (4% of the total)	+	Classic Brands, LLC	Term Loan		01/08/16		04/30/23		1		1	%		12.00	%	$	2,880	$	2,879	$	2,879	$	2,879
Construction (2% of the total)		Highland Crossing-M, LLC	Term Loan		01/07/15		02/01/25		1		1	%		11.50	%			$	1,450	$	1,450	$	1,450
Accommodation and Food Services (1% of the total)		Various Other && 9.25% to 10.00%	Term Loan		06/30/00 to 11/05/10		09/30/17 to 11/05/20		3		*			9.78	%			$	1,254	$	1,254	$	480
Retail Trade (1% of the total)		Various Other && 10.00%	Term Loan		06/30/00		09/30/17		1		*			10.00	%			$	107	$	107	$	35

Total secured mezzanine ⁽²⁾									35		26	%		13.55	%	$	15,280	$	73,502	$	73,502	$	72,415


Other secured commercial (44% New York, 35% North Carolina, 18% New Jersey and 3% all other states)
Retail Trade (56% of the total)		Medallion Fine Art Inc (interest rate includes PIK interest of 12%)	Term Loan		12/17/12		12/17/17		1		1	%		12.00	%			$	2,968	$	2,968	$	2,968
		(capitalized interest of $2604 per footnote 2)
		Various Other && 4.75% to 10.50%	Term Loan		10/28/08 to 05/03/16		03/15/17 to 05/03/21		8		1	%		8.26	%	$	175	$	2,082	$	2,062	$	1,947
Arts, Entertainment, and Recreation (35% of the total)		Rpac Racing LLC (interest rate includes PIK interest of 8%)	Term Loan		06/22/16		10/31/16		1		1	%		8.00	%	$	2,000	$	2,034	$	2,034	$	2,034
		(capitalized interest of $34 per footnote 2)
		Rpac Racing LLC (interest rate includes PIK interest of 8%)	Term Loan		09/14/16		10/31/16		1		*			8.00	%	$	1,000	$	1,000	$	1,000	$	1,001
Accommodation and Food Services (5% of the total)		Various Other && 6.75% 9.00%	Term Loan		11/29/05 06/06/14		04/18/17 09/06/19		3		*			8.28	%			$	704	$	615	$	477
Transportation and Warehousing (2% of the total)		Various Other && 4.00% to 4.25%	Term Loan		09/19/14 to 03/17/15		03/31/17 to 09/10/18		2		*			4.08	%			$	268	$	262	$	147
Real Estate and Rental and Leasing (1% of the total)		Various Other && 5.00%	Term Loan		03/31/15		03/31/20		1		*			5.00	%			$	75	$	72	$	63
Health Care and Social Assistance (1% of the total)		Various Other 7.50%	Term Loan		05/14/13		05/14/18		1		*			7.50	%			$	57	$	57	$	58

Total Other Commercial Loans (2)									18		3	%		9.25	%	$	3,175	$	9,188	$	9,070	$	8,695

Total commercial loans ⁽²⁾									53		29	%		13.07	%	$	18,455	$	82,690	$	82,572	$	81,110

Investment in Medallion Bank and other controlled subsidiaries
Commercial Banking		Medallion Bank **	100% of common stock		05/16/02		None		1		69	%		4.01	%					$	149,753	$	193,853
NASCAR Race Team		Medallion MotorSports, LLC	75% of LLC units		11/24/10		None		1		2	%		0.00	%					$	2,820	$	4,269
Art Dealer		Medallion Fine Art, Inc.	100% of common stock		12/03/12		None		1		2	%		0.00	%					$	884	$	6,026
Loan Servicing		Medallion Servicing Corp.	100% of common stock		11/05/10		None		1		*			0.00	%					$	619	$	619
Professional Sports Team		LAX Group LLC	45.74% of membership interests		05/23/12		None		1		1	%		0.00	%					$	580	$	3,331

Investment in Medallion Bank and other controlled subsidiaries, net									5		74	%		3.88	%	$	0	$	0	$	154,656	$	208,098

Equity investments
Commercial Finance		Convergent Capital, Ltd **	7% of limited partnership interest		07/20/07		None		1		*			0.00	%					-$	367	$	1,264
Employee Leasing Services		Staff One, Inc.	46.4% preferred stock		06/30/08		None		2		*			0.00	%					$	472	$	1,172
IT Services		Centare Holdings, Inc.	7.23% of common stock, 3.88% of preferred stock		08/30/13		None		1		*			0.00	%					$	104	$	104

Page 36 of 83

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

September 30, 2016

(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 2016
Acquisitions ⁽⁵⁾

Principal
Outstanding

Cost ⁽⁴⁾

Fair
Value

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

1,379

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

Machine Shop

MicroGroup, Inc.

5.5% common stock

06/29/15

None

0.00

300

Manufacture Space Heaters, etc.

Pinnacle Products International, Inc.

0.5% common stock

10/09/15

None

0.00

135

Weather Forecasting Services

Weather Decision Technologies, Inc.

2.2% preferred stock

12/11/15

None

0.00

500

Hand Tool Manufacturer

Stride Tool Holdings, LLC

7.14% of Series A-2 LLC units

04/05/16

None

0.00

500

Envirnomental Consulting Services

Northern Technologies, LLC

7.7% of LLC units

01/29/16

None

0.00

300

Paper Tapes Manufacturer

Liberty Paper Products Acquisition, LLC

100% of Series A preferred LLC units - 12% total

06/09/16

None

0.00

350

Surgical Supplies Manufacturer

Respiratory Technologies, Inc.

Warrant for 38,000 Common shares

04/25/12

5th
anniversary
of note paid
in full

0.00

Hobbyists’ Supplies Merch. Wholesale

Classic Brand, LLC

Warrant for 300,000 Class A units

01/08/16

01/08/26

0.00

Various Other #

* Various

09/10/98
to
7/24/15

None to
2/5/23

2.29

250

1,366

1,309

Equity investments, net

0.66

1,400

4,760

8,163

Investment securities

Investment securities, net

Net Investments ($237,025 pledged as collateral under borrowing arrangements)⁽³⁾

780

209

5.36

34,440

383,210

542,005

585,628

(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 $6,363 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 209%.

(4)	Gross unrealized appreciation, gross unrealized depreciation and net appreciation for federal income tax purposes totaled $124,296, $14,880 and $109,416, respectively. The tax cost of investments was $476,212.

(5)	For revolving lines of credit the amount shown is the cost at September 30, 2016.

*	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 41% and up to 35% 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 Septemer 30, 2016.

The Summary Schedule of Investments does not reflect the Company’s complete portfolio holdings. It includes the Company’s 50 largest holdings and each investmentof 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 scheduleof 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 fiscal quarter ended September 30, 2016, filed on November 9, 2016 (File No. 814-00188)

Page 37 of 83

Medallion Financial Corp

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of and for the year ended September 30, 2016


Name of issuer and title of issue (Dollars in thousands)	Number of shares (all restricted unless otherwise noted)	Equity in net profit and (loss) for the quarter ended 9/30/16			Amount of dividends or interest⁽¹⁾ for the quarter ended 9/30/16		Equity in net profit and (loss) for the nine months ended 9/30/16			Amount of dividends or interest⁽¹⁾ for the nine months ended 9/30/16		Value as of 9/30/16
Medallion Bank – common stock	1,000,000 shares - 100% of common stock	$	26,100		$	0	$	41,532		$	3,000	$	193,853
Medallion Fine Art, Inc. – common stock ⁽²⁾	1,000 shares - 100% of common stock		(214	)		0		1,793			0		6,027
LAX Group LLC – membership interest	45.74% of membership interest		(94	)		0		2,340			0		3,330
Medallion Motorsports, LLC – membership interest ⁽³⁾	75% of membership interest		—			0		1,754			0		4,269
Medallion Servicing Corp. – common stock	1,000 shares - 100% of common stock		121			0		(198	)		0		619

Total investments in Medallion Bank and other controlled subsidiaries			*25,913*			0		*47,221*		$	*3,000*		*208,098*

Production Services Associates LLC ⁽⁴⁾	5.65% of membership interest		0			0		0			0		1,379
Appliance Recycling Centers of America Inc. – common stock	8.86% of common stock		0			0		0			0		430
Northern Technologies LLC – membership interest ⁽⁸⁾	7.7% of membership interest		0			0		0			0		300
Micro Group, Inc. ⁽⁵⁾	5.50% of common stock		0			0		0			0		300
WRWP, LLC – membership interest ⁽⁶⁾	0.00% of membership interest		0			0		0			0		0
Third Century JRT, Inc. ⁽⁷⁾	13% of common stock		0			0		0			0		200
Stride Tool Holdings LLC ⁽⁹⁾ – membership interest	7.14% of Series A membership interest		0			0		0			0		500

Total equity investments in affiliates		$	0		$	0	$	0		$	0	$	*3,109*

(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 $2,968 as of September 30, 2016, on which $99 and $504 of interest income was earned during the quarter and nine months ended September 30, 2016.

(3)	Additionally, the Company and a controlled subsidiary of the Company have 3 loans due from an affiliate of Medallion Motorsports, LLC in the amount of $8,454 as of September 30, 2016, on which $174 and $429 of interest income was earned during the quarter and nine months ended September 30, 2016.

(4)	Additionally, the Company has a loan due from Production Services Associates LLC in the amount of $2,687 as of September 30, 2016, on which $107 and $311 of interest income was earned during the quarter and nine months ended September 30, 2016.

(5)	Additionally, the Company has a loan due from Micro Group, Inc. in the amount of $3,244 as of September 30, 2016, on which $100 and $305 of interest income was earned during the quarter and nine months ended September 30, 2016.

(6)	Additionally, the Company has loans due from WRWP, LLC in the amount of $2,625 as of September 30, 2016, on which $106 and $303 of interest income was earned during the quarter and nine months ended September 30, 2016.

(7)	Additionally, the Company has a loan due from JR Thompson Company LLC, or affiliate of Third Century JRT, Inc., in the amount of $1,617 as of September 30, 2016, on which $58 and $199 of interest income was earned during the quarter and nine months ended September 30, 2016.

(8)	Additionally, the Company has loan from Northern Technologies LLC in the amount of $3,524 as if September 30, 2016, on which $116 and $310 of interest income was earned during the quarter and nine months ended September 30, 2016.

(9)	Additionally, the Company has a loan from Stride Tool Holding LLC in the amount of $4,060 as of September 30, 2016, on which $155 and $299 of interest income was earned during the quarter and nine months ended September 30, 2016.

Page 38 of 83

The table below provides a recap of the changes in the investment in the respective issuers for the 2016 quarters.


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⁾		Micro Group, Inc.⁽⁴⁾		WRWP, LLC			Third Century JRT, Inc.⁽⁶⁾		Northern Technologies, LLC ⁽⁷⁾		Stride Tool Holding LLC ⁽⁸⁾
Title of Issue	Common Stock			Common Stock⁽¹⁾			Membership Interest⁽²⁾			Common Stock			Common Stock			Membership Interest			Membership Interest		Common Stock		Membership Interest⁽⁵⁾			Common Stock		Membership Interest		Membership Interest
(Dollars in thousands)
Value as of 12/31/15	$	152,166		$	4,234		$	2,527		$	509		$	631		$	355		$	1,179	$	300	$	224		$	200	$	—	$	—
Gross additions / investments		—			—			1			—			134			—			—		—		—			—		300		—
Gross reductions / distributions		(3,289	)		—			—			—			—			—			—		—		—			—		—		—
Net equity in profit and loss, and unrealized appreciation and (depreciation)		5,687			1,650			1,754			(7	)		(196	)		2,573			—		—		—			—		—		—
Other adjustments		—			—			—			—			—			—			—		—		—			—		—		—

Value as of 3/31/16		154,564			5,884			4,282			502			569			2,928			1,179		300		224			200		300		—
Gross additions / investments		3,000			—			—			—			110			635			—		—		—			—		—		500
Gross reductions / distributions		(821	)		—			(13	)		—			(24	)		—			—		—		—			—		—		—
Net equity in profit and loss, and unrealized appreciation and (depreciation)		9,745			357			—			38			(123	)		(139	)		200		—		—			—		—		—
Other adjustments		—			—			—			—			—			—			—		—		(224	)		—		—		—

Value as of 6/30/16		166,488			6,241			4,269			540			532			3,424			1,379		300		—			200		300		500
Gross additions / investments		1,265			—			—			—			50			—			—		—		—			—		—		—
Gross reductions / distributions		—			—			—			—			(84	)		—			—		—		—			—		—		—
Net equity in profit and loss, and unrealized appreciation and (depreciation)		26,100			(214	)		—			(110	)		121			(94	)		—		—		—			—		—		—
Other adjustments		—			—			—			—			—			—			—		—		—			—		—		—

Value as of 9/30/16	$	193,853		$	6,027		$	4,269		$	430		$	619		$	3,330		$	1,379	$	300	$	—		$	200	$	300	$	500

(1)	Additionally, the Company has a loan due from Medallion Fine Art, Inc. in the amount of $2,968 as of September 30, 2016, $200 of which was advanced during 2016, and for which $6,111 was repaid.

(2)	In addition to the equity ownership, the Company and a controlled subsidiary of the Company have three loans due from an affiliate of Medallion Motorsports, LLC in the amount of $8,454 as of September 30, 2016, $3,429 of which was advanced during 2016.

(3)	Additionally, the Company has a loan due from Production Services Associates LLC in the amount of $2,687 as of September 30, 2016, $41 of which was advanced during 2016.

(4)	Additionally, the Company has a loan due from Micro Group, Inc. in the amount of $3,244 as of September 30, 2016, $11 of which was advanced during 2016.

(5)	Additionally, the Company has a loan due from WRWP LLC in the amount of $2,625 as of September 30, 2016, $314 of which was advanced during 2016, $224 of which was an exchange of the equity interest.

(6)	Additionally, the Company has a loan due from J. R. Thompson Company, LLC, an affiliate of Third Century JRT, INC in the amount of $1,617 as of September 30, 2016, $21 of which was advanced during 2016, and for which $677 was repaid.

(7)	Additionally, the Company has a loan due from Northern Technologies LLC in the amount of $3,524 as of September 30, 2016, all of which was advanced during 2016.

(8)	Additionally, the Company has a loan due from Stride Tool Holdings LLC in the amount of $4,060 as of September 30, 2016, all of which was advanced during 2016.

Page 39 of 83

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 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⁾		Principal Outstanding		Cost ⁽⁴⁾		Fair Value
Medallion Loans
New York									391		77	%		3.72	%	$	25,051	$	213,374	$	213,356	$	213,278
	Real Cab Corp ##		Term Loan		07/20/07		07/20/17		1		1	%		2.81	%			$	2,545	$	2,545	$	2,545
	Real Cab Corp		Term Loan		08/19/14		07/20/17		1		*			3.31	%			$	903	$	903	$	903
	Real Cab Corp		Term Loan		07/20/07		07/20/17		1		*			2.81	%			$	350	$	350	$	351
	Sean Cab Corp ##		Term Loan		12/09/11		11/23/18		1		1	%		4.63	%			$	3,376	$	3,376	$	3,374
	Slo Cab Corp ##		Term Loan		07/20/07		07/20/17		1		1	%		2.81	%			$	1,527	$	1,527	$	1,527
	Slo Cab Corp ##		Term Loan		08/19/14		07/20/17		1		*			3.31	%			$	542	$	542	$	542
	Slo Cab Corp ##		Term Loan		07/20/07		07/20/17		1		*			2.81	%			$	210	$	210	$	211
	Whispers Taxi Inc ##		Term Loan		05/28/13		05/28/16		1		1	%		3.35	%			$	2,046	$	2,046	$	2,045
	Esg Hacking Corp ##		Term Loan		03/12/14		03/12/17		1		1	%		3.50	%			$	1,760	$	1,760	$	1,763
	Sag Taxi LLC ##		Term Loan		03/28/14		03/28/17		1		1	%		3.50	%			$	1,754	$	1,754	$	1,755
	Pontios Taxi LLC ##		Term Loan		03/28/14		03/28/17		1		1	%		3.50	%			$	1,753	$	1,753	$	1,754
	Kos Taxi LLC ##		Term Loan		03/28/14		03/28/17		1		1	%		3.50	%			$	1,752	$	1,752	$	1,753
	Ikaria Taxi LLC ##		Term Loan		03/28/14		03/28/17		1		1	%		3.50	%			$	1,752	$	1,752	$	1,753
	Yosi Transit Inc ##		Term Loan		07/20/07		07/20/17		1		*			2.81	%			$	1,018	$	1,018	$	1,018
	Yosi Transit Inc ##		Term Loan		08/19/14		07/20/17		1		*			3.31	%			$	361	$	361	$	361
	Yosi Transit Inc ##		Term Loan		07/20/07		07/20/17		1		*			2.81	%			$	140	$	140	$	141
	Hamilton Transit LLC ##		Term Loan		03/26/14		03/26/17		1		1	%		3.38	%			$	1,502	$	1,502	$	1,505
	Silke Hacking Corp ##		Term Loan		03/26/14		03/26/17		1		1	%		3.38	%			$	1,502	$	1,502	$	1,503
	Daytona Hacking Corp ##		Term Loan		03/26/14		03/26/17		1		1	%		3.38	%			$	1,502	$	1,502	$	1,503
	Kaderee M & G Corp ##		Term Loan		03/26/14		03/26/17		1		1	%		3.38	%			$	1,502	$	1,502	$	1,503
	Christian Cab Corp		Term Loan		11/27/12		11/27/18		1		1	%		3.75	%			$	1,490	$	1,490	$	1,490
	Bunty & Jyoti Inc ##		Term Loan		03/13/13		03/13/16		1		1	%		3.75	%			$	1,467	$	1,467	$	1,466
	Junaid Trans Corp ##		Term Loan		04/30/13		04/30/16		1		1	%		3.75	%			$	1,446	$	1,446	$	1,445
	Ocean Hacking Corp ##		Term Loan		12/20/13		12/20/16		1		1	%		3.50	%			$	1,424	$	1,424	$	1,425
	Jacal Hacking Corp ##		Term Loan		12/20/13		12/20/16		1		1	%		3.50	%			$	1,424	$	1,424	$	1,424
	Anniversary Taxi Corp ##		Term Loan		04/11/14		04/11/17		1		1	%		3.25	%			$	1,395	$	1,395	$	1,395
	Avi Taxi Corporation ##		Term Loan		04/11/14		04/11/17		1		1	%		3.25	%			$	1,395	$	1,395	$	1,395
	Kby Taxi Inc ##		Term Loan		04/11/14		04/11/17		1		1	%		3.25	%			$	1,395	$	1,395	$	1,395
	Apple Cab Corp ##		Term Loan		04/11/14		04/11/17		1		1	%		3.25	%			$	1,395	$	1,395	$	1,395
	Hj Taxi Corp ##		Term Loan		04/11/14		04/11/17		1		1	%		3.25	%			$	1,395	$	1,395	$	1,395
Various New York && ##	2.75% to 10.00%		Term Loan		03/23/01 to 12/28/15		01/03/16 to 09/10/23		361		62	%		3.78	%	$	25,051	$	171,351	$	171,333	$	171,243
Chicago									112		14	%		4.87	%	$	4,656	$	39,412	$	39,406	$	39,260
	Sweetgrass Peach &Chadwick Cap ##		Term Loan		08/28/12		02/24/18		1		1	%		5.00	%			$	1,517	$	1,517	$	1,516
Various Chicago && ##	3.25% to 12.00%		Term Loan		01/22/10 to 12/22/15		10/19/15 to 12/22/20		111		14	%		4.87	%	$	4,656	$	37,895	$	37,889	$	37,744
Newark && ##	4.50% to 7.00%		Term Loan		04/09/10 to 12/10/15		02/14/16 to 05/14/25		115		9	%		5.26	%	$	1,749	$	24,585	$	24,585	$	24,654
Boston									56		9	%		4.63	%	$	3,268	$	26,471	$	26,436	$	25,883
	Chiso Trans Inc &		Term Loan		11/26/13		11/07/16		1		*			4.25	%			$	819	$	819	$	820
	Chiso Trans Inc &		Term Loan		04/20/12		04/20/18		1		*			5.50	%			$	581	$	581	$	581
Various Boston && ##	4.00% to 6.15%		Term Loan		06/12/07 to 09/29/15		12/07/15 to 11/06/25		54		9	%		4.62	%	$	3,268	$	25,071	$	25,036	$	24,482
Cambridge && ##	3.75% to 5.50%		Term Loan		05/06/11 to 12/15/15		03/22/16 to 01/26/20		14		2	%		4.64	%	$	2,414	$	6,624	$	6,607	$	4,287
Various Other && ##	4.75% to 11.50%		Term Loan		04/28/08 to 07/30/15		07/01/15 to 09/01/23		11		0	%		7.27	%	$	320	$	1,045	$	1,043	$	1,046

Total medallion loans ($238,103 pledged as collateral under borrowing arrangements)									699		111	%		4.09	%	$	37,458	$	311,511	$	311,433	$	308,408

Commercial Loans
Secured mezzanine (23% Minnesota, 10% Oklahoma, 8% Pennsylvania, 8% Ohio, 8% North Carolina, 5% Kansas, 5% New York, 5% Massachusetts, 5% Rhode Island, 4% Wisconsin, 4% Illinois, 4% Deleware, 4% Michigan, 3% Texas and 4% all other states) ⁽²⁾
Manufacturing (51% of the total)	MicroGroup, Inc. (interest rate includes PIK interest of 2.00%)		Term Loan		06/29/15		06/29/20		1		1	%		14.00	%	$	3,200	$	3,233	$	3,233	$	3,233
	(capitalized interest of $33 per footnote 2)
	AA Plush Holdings, LLC (interest rate includes PIK interest of 2.00%)		Term Loan		08/15/14		08/15/19		1		1	%		14.00	%			$	3,085	$	3,085	$	3,075
	(capitalized interest of $85 per footnote 2)
	EGC Operating Company, LLC (interest rate includes PIK interest of 2.00%)		Term Loan		09/30/14		09/30/19		1		1	%		15.00	%			$	2,945	$	2,945	$	2,954

Page 40 of 83

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 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⁾		Principal Outstanding		Cost ⁽⁴⁾		Fair Value
		(capitalized interest of $15 per footnote 2)
		Pinnacle Products International, Inc. (interest rate includes PIK interest of 3.00%)		Term Loan		10/09/15		10/09/20		1		1	%		15.00	%	$	2,800	$	2,820	$	2,820	$	2,820
		(capitalized interest of $20 per footnote 2)
		Tech Cast Holdings, LLC (interest rate includes PIK interest of 3.00%)		Term Loan		12/12/14		12/12/19		1		1	%		15.00	%			$	2,690	$	2,690	$	2,661
	+	Production Services Associates LLC (d/b/a American Card Services) (interest rate includes PIK interest of 2.00%)		Term Loan		02/17/15		02/17/20		1		1	%		16.00	%	$	2,600	$	2,646	$	2,646	$	2,624
		(capitalized interest of $46 per footnote 2)
		BB Opco, LLC d/b/a BreathableBaby, LLC (interest rate includes PIK interest of 2.00%)		Term Loan		08/01/14		08/01/19		1		1	%		14.00	%			$	2,573	$	2,573	$	2,577
		(capitalized interest of $73 per footnote 2)
		WRWP, LLC (interest rate includes PIK interest of 3.00%)		Term Loan		12/30/14		12/30/19		1		1	%		15.00	%			$	2,311	$	2,311	$	2,319
		(capitalized interest of $70 per footnote 2)
		Dynamic Systems, Inc. (interest rate includes PIK interest of 3.50%)		Term Loan		12/23/10		12/23/17		1		1	%		15.50	%			$	2,066	$	2,066	$	2,066
		(capitalized interest of $241 per footnote 2)
		American Cylinder, Inc. d/b/a All Safe (interest rate includes PIK interest of 7.00%)		Term Loan		07/03/13		01/03/18		1		1	%		19.00	%			$	1,577	$	1,577	$	1,575
		(capitalized interest of $77 per footnote 2)
	+	GAF Manufacturing, LLC (interest rate includes PIK interest of 2.00%)		Term Loan		03/06/14		03/06/19		1		1	%		14.00	%			$	1,556	$	1,556	$	1,562
		(capitalized interest of $56 per footnote 2)
	+	Respiratory Technologies, Inc.		Term Loan		04/25/12		04/25/17		1		1	%		12.00	%			$	1,500	$	1,500	$	1,503
	+	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	%		13.97	%			$	5,561	$	5,561	$	5,561
Professional, Scientific, and Technical Services (12% of the total)		Weather Decision Technologies, Inc. {One-time on 1/1/18 to 15%} (interest rate includes PIK interest of 9.00%)		Term Loan		12/11/15		12/11/20		1		1	%		18.00	%	$	3,500	$	3,517	$	3,517	$	3,505
		(capitalized interest of $18 per footnote 2)
		JR Thompson Company LLC (interest rate includes PIK interest of 2.00%)		Term Loan		05/21/15		05/21/22		1		1	%		14.00	%	$	2,800	$	2,273	$	2,273	$	2,273
		(capitalized interest of $12 per footnote 2)
	+	DPIS Engineering, LLC		Term Loan		12/01/14		06/30/20		1		1	%		12.00	%			$	2,000	$	2,000	$	1,997
Information (11% of the total)		US Internet Corp.		Term Loan		06/12/13		09/18/20		1		1	%		14.50	%			$	3,000	$	3,000	$	3,013
		US Internet Corp.		Term Loan		03/18/15		09/18/20		1		1	%		14.50	%	$	1,750	$	1,750	$	1,750	$	1,741
		Centare Holdings, Inc. (interest rate includes PIK interest of 2.00%)		Term Loan		08/30/13		08/30/18		1		1	%		14.00	%			$	2,500	$	2,500	$	2,490
Arts, Entertainment, and Recreation (8% of the total)		RPAC Racing, LLC (interest rate includes PIK interest of 10.00%)		Term Loan		11/19/10		01/15/17		1		2	%		10.00	%			$	5,033	$	5,033	$	5,033
		(capitalized interest of $1,994 per footnote 2)
Transportation and Warehousing (5% of the total)		LLL Transport, Inc. (interest rate includes PIK interest of 3.00%)		Term Loan		10/23/15		04/23/21		1		1	%		15.00	%	$	3,500	$	3,514	$	3,514	$	3,511
		(capitalized interest of $14 per footnote 2)
Administrative and Support Services (5% of the total)		Staff One, Inc.		Term Loan		06/30/08		03/31/17		1		1	%		3.00	%			$	2,931	$	2,931	$	2,931
		Staff One, Inc.		Term Loan		09/15/11		03/31/17		1		*			3.00	%			$	369	$	369	$	369
Wholesale Trade (5% of the total)		Fit & Fresh, Inc (interest rate includes PIK interest of 2.00%)		Term Loan		03/02/15		03/02/20		1		1	%		14.00	%	$	3,000	$	3,051	$	3,051	$	3,057
		(capitalized interest of $51 per footnote 2)
Construction (2% of the total)		Highland Crossing-M, LLC		Term Loan		01/07/15		02/01/25		1		1	%		11.50	%	$	2,200	$	1,450	$	1,450	$	1,450
Accommodation and Food Services (1% of the total)		Various Other && 9.25% to 10.00%		Term Loan		06/30/00 to 11/05/10		09/30/16 to 11/05/20		3		*			9.81	%			$	1,674	$	1,674	$	535
Retail Trade (0% of the total)		Various Other && 10.00%		Term Loan		06/30/00		09/30/16		1		*			10.00	%			$	224	$	224	$	36

Total secured mezzanine ⁽²⁾										33		24	%		13.59	%	$	25,350	$	67,849	$	67,849	$	66,471

Page 41 of 83

Medallion Financial Corp.

Consolidated Summary Schedule of Investments

December 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⁾

Principal
Outstanding

Cost ⁽⁴⁾

Fair
Value

Asset-based (43% New Jersey, 34% New York, 13% Florida, 7% Virginia and 3% all other states)

Wholesale Trade (24% of the total)

Various Other 4.00% to 6.50% ##

Revolving line of credit

01/23/99

07/21/15

01/14/16

11/30/16

5.46

425

880

$ 880

895

{Daily-Prime + .75% to 3.25%}

Retail Trade (17% of the total)

Various Other 4.75% to 7.25% ##

Revolving line of credit

10/19/98

08/31/06

08/31/16

10/19/16

5.11

649

$ 649

630

{Daily-Prime + 1.5% to 4%}

Transportation and Warehousing (14% of the total)

Various Other 6.00% ##

Revolving line of credit

12/31/01

12/31/16

6.00

506

$ 506

499

{Daily-Prime + 2.75%}

Professional, Scientific, and Technical Services (11% of the total)

Various Other 6.75%

Revolving line of credit

12/22/14

12/22/16

6.75

408

$ 408

408

{Daily-Prime + 3.5%}

Construction (9% of the total)

Various Other 5.75% ##

Revolving line of credit

07/20/99

07/20/16

5.75

354

$ 354

349

{Daily-Prime + 2.5%}

Health Care and Social Assistance (7% of the total)

Various Other 5.50% to 5.75% ##

Revolving line of credit

10/02/07

11/09/12

10/02/16

11/09/16

5.72

294

$ 294

273

{Daily-Prime + 2.25% to 2.5%}

Finance and Insurance (7% of the total)

Various Other 7.00%

Revolving line of credit

08/26/15

08/26/16

7.00

250

$ 250

242

{Daily-Prime + 3.75%}

Manufacturing (6% of the total)

Various Other 5.75% to 7.25% ##

Revolving line of credit

07/07/04

11/10/15

01/27/16

11/29/16

6.38

236

$ 236

215

{Daily-Prime + 2.5% to 4%}

Administrative and Support Services (5% of the total)

Various Other 5.50%

Revolving line of credit

06/30/07

06/30/16

5.50

173

$ 173

167

{Daily-Prime + 2.25%}

Real Estate and Rental and Leasing (0% of the total)

Various Other 7.75%

Revolving line of credit

12/24/15

12/24/16

7.75

$ 0

{Daily-Prime + 4.5%}

Total asset-based ($2,164 pledged as collateral under borrowing arrangements)

5.82

573

3,750

$ 3,750

3,678

Other secured commercial (80% New York, 16% New Jersey, 3% Illinois and 1% all other states)

Retail Trade (90% of the total)

Medallion Fine Art Inc (interest rate includes PIK interest of 12%)

Term Loan

12/17/12

12/17/17

12.00

8,348

$ 8,348

8,348

(capitalized interest of $2,073 per footnote 2)

Various Other && 4.75% to 10.50%

Term Loan

10/28/08

12/23/15

03/15/17

02/13/21

8.58

954

3,129

$ 3,073

2,300

Accommodation and Food Services (5% of the total)

Various Other && 6.75% to 9.00%

Term Loan

11/29/05

06/06/14

03/16/16

09/06/19

8.29

786

$ 721

615

Transportation and Warehousing (3% of the total)

Various Other && 4.00% to 4.25%

Term Loan

09/19/14

03/17/15

09/10/18

02/05/20

4.08

120

301

$ 301

303

Real Estate and Rental and Leasing (1% of the total)

Various Other && 4.00% to 5.00%

Term Loan

07/15/13

03/31/15

07/15/16

03/31/20

4.93

100

$ 99

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

Various Other 7.50%

Term Loan

05/14/13

05/14/18

7.50

$ 80

Total Other Commercial Loans

10.68

1,174

12,743

$ 12,622

11,746

Total commercial loans ($2,164 pledged as collateral under borrowing arrangements) ⁽²⁾

12.80

27,097

84,342

$ 84,221

81,895

Investment in Medallion Bank and other controlled subsidiaries

Commercial Banking

Medallion Bank **

100% of common stock

05/16/02

None

13.17

$136,666

152,166

NASCAR Race Team

Medallion MotorSports, LLC

75% of LLC units

11/24/10

None

0.00

$ 2,832

2,527

Art Dealer

Medallion Fine Art, Inc.

100% of common stock

12/03/12

None

0.00

$ 789

4,234

Page 42 of 83

(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⁾

Principal
Outstanding

Cost ⁽⁴⁾

Fair
Value

Loan Servicing

Medallion Servicing Corp.

100% of common stock

11/05/10

None

0.00

631

Professional Sports Team

LAX Group LLC

44.31% of membership interests

05/23/12

None

0.00

355

Investment in Medallion Bank and other controlled subsidiaries, net

12.74

141,273

159,913

Equity investments

Commercial Finance

Convergent Capital, Ltd **

7% of limited partnership interest

07/20/07

None

0.00

326

1,957

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

1,179

Weather forecasting services

Weather Decision Technologies, Inc.

2.2% preferred stock

12/11/15

None

0.00

500

Employee Leasing Services

Staff One, Inc.

46.4% preferred stock

06/30/08

None

0.00

472

Stuffed Toy Manufacturer

AA Plush Holdings, LLC

1.6% LLC common units

08/15/14

None

0.00

300

Investment Castings

Tech Cast Holdings LLC

4.14% LLC units

12/12/14

12/12/19

0.00

300

Machine Shop

MicroGroup, Inc.

5.5% common stock

06/29/15

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

Wire Manufacturer

WRWP LLC

10.3% preferred LLC units, 7.23% common LLC units

12/30/14

12/30/19

0.00

224

Marketing Services

Third Century JRT Inc.

13% common stock

05/21/15

None

0.00

200

Manufacture space heaters, etc.

Pinnacle Products International, Inc.

0.5% common stock

10/09/15

None

0.00

135

IT Services

Centare Holdings, Inc.

7.23% of common stock, 3.88% of preferred stock

08/30/13

None

0.00

104

Various Other #

* Various

09/10/98
to
7/24/15

None to
6/30/22

3.37

916

938

Equity investments, net

0.72

1,435

4,277

6,859

Investment securities

US Treasury Note AAA

06/30/15

07/15/16

0.63

10,059

10,000

10,059

10,029

US Treasury Bill

07/30/15

07/21/16

0.33

9,936

10,000

9,936

9,972

US Treasury Bill

09/22/15

09/15/16

0.39

9,968

10,000

9,968

9,964

US Treasury Bill

10/30/15

10/13/16

0.21

19,939

20,000

19,939

19,919

Investment securities, net

0.35

49,902

50,000

49,902

49,884

Net Investments ($240,267 pledged as collateral under borrowing arrangements)⁽³⁾

806

218

7.06

115,892

445,853

591,106

606,959

(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 $4,878 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 218%.

(4)	Gross unrealized appreciation, gross unrealized depreciation and net appreciation for federal income tax purposes totaled $79,139, $5,896 and $73,243, respectively. The tax cost of investments was $533,716.

(5)	For revolving lines of credit the amount shown is the cost at December 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 29% 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, 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed on March 7, 2016 (File No. 814-00188)

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Medallion Financial Corp

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFIILIATES

As of and for the year ended December 31, 2015

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
12/31/15

(Dollars in thousands)

Medallion Bank—common stock

1,000,000 shares—100% of common stock

38,474

18,000

152,166

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

1,000 shares—100% of common stock

2,552

4,234

Medallion Motorsports, LLC—membership interest ⁽³⁾

75% of membership interest

150

2,527

Medallion Servicing Corp.—common stock

1,000 shares—100% of common stock

(394

)

631

LAX Group LLC—membership interest

44.31% of membership interest

(627

)

355

Generation Outdoor, Inc.

3,206

889

Medallion Hamptons Holding LLC—membership interest

100% of membership interest

Total investments in Medallion Bank and other controlled subsidiaries

43,385

18,889

159,913

Appliance Recycling Centers of America Inc.—common stock

8.86% of common stock

509

Micro Group, Inc. ⁽⁵⁾

5.5% of common stock

300

Production Services Associates LLC ⁽⁴⁾

5.65% of membership interest

1,179

WRWP, LLC – membership interest ⁽⁶⁾

7.23% of membership interest

224

Third Century JRT, Inc. ⁽⁷⁾

13% of common stock

200

Summit Medical, Inc.—common stock

Total equity investments in affiliates

—

2,412

(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 $8,348 as of December 31, 2015, and on which $944 of interest income was earned during 2015.

(3)	Additionally, a controlled subsidiary of the Company has a loan due from an affiliate of Medallion Motorsports, LLC in the amount of $5,033, and on which $547 of interest income was earned during 2015.

(4)	Additionally, the Company has a loan due from Production Services Associates LLC in the amount of $2,646 as of December 31, 2015, on which $367 of interest income was earned during 2015.

(5)	Additionally, the Company has a loan due from Micro Group, Inc. in the amount of $3,233 as of December 31, 2015, on which $230 of interest income was earned during 2015.

(6)	Additionally, the Company has a loan due from WRWP, LLC in the amount of $2,311 as of December 31, 2015, on which $348 of interest income was earned during 2015.

(7)	Additionally, the Company has a loan due from Third Century JRT, Inc., in the amount of $2,273 as of December 31, 2015, on which $230 of interest income was earned during 2015.

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The table below provides a recap of the changes in the investment in the respective issuers for the year ended December 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⁾		Micro Group, Inc.⁽⁴⁾		WRWP, LLC		Third Century JRT, Inc.⁽⁶⁾		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		Common Stock		Membership Interest⁽⁵⁾		Common Stock		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	$	0	$	224	$	0	$	5,063		$	4,400		$	135
Gross additions / investments		8,000			525		777		—			600			633			250		300		—		200		—			80			—
Gross reductions / distributions		(19,335	)		—		—		—			(427	)		—			—		—		—		—		(8,269	)		(4,504	)		(369	)
Net equity in profit and loss, and unrealized appreciation and (depreciation)		38,474			2,552		150		(722	)		(394	)		(627	)		929		—		—		—		3,206			24			234
Other adjustments		—			—		—		—			—			—			—		—		—		—		—			—			—

Value as of 12/31/15		152,166			4,234		2,527		509			631			355			1,179		300		224		200		—			—			—

(1)	Additionally, the Company has a loan due from Medallion Fine Art, Inc. in the amount of $8,348 as of December 31, 2015, $2,161 of which was advanced during 2015, and for which $550 was repaid.

(2)	In addition to the equity ownership, a controlled subsidiary of the Company has a loan due from an affiliate of Medallion Motorsports, LLC in the amount of $5,033, $548 of which was advanced during 2015.

(3)	Additionally, the Company has a loan due from Production Services Associates LLC in the amount of $2,646 as of December 31, 2015, all of which was advanced during 2015, on which there were $367 of interest income was earned during 2015.

(4)	Additionally, the Company has a loan due from Micro Group, Inc. in the amount of $3,233 as of December 31, 2015 all of which was advanced during 2015.

(5)	Additionally, the Company has a loan due from WRWP LLC in the amount of $2,311 as of December 31, 2015, $69 of which was advanced during 2015.

(6)	Additionally, the Company has a loan due from J. R. Thompson Company, LLC, an affiliate of Third Century JRT, INC in the amount of $2,273 as of December 31, 2015, all of which was advanced during 2015.

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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 4%, and our commercial loan portfolio at a compound annual growth rate of 3% (8% and 4% 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 18%. 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 $1,634,000,000 as of September 30, 2016, and $1,655,000,000 and $1,621,000,000 as of December 31, 2015 and September 30, 2015, 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 an equity stake or warrants to purchase an equity interest for a nominal exercise price (such warrants are included in equity investments on the consolidated balance sheets). Interest income is earned on the debt instruments.

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 $518,262,000 as of September 30, 2016. 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.

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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. Because of these restrictions and other factors, our Board of Directors had previously determined that Medallion Bank had little value beyond its recorded book value. As a result of this valuation process, we had previously used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the second quarter of 2015, we first became aware of external interest in Medallion Bank and its portfolio assets at values in excess of their book value. Expression of interest in Medallion Bank from both investment bankers and interested parties has continued through 2016. We incorporated these new factors in the Medallion Bank fair value analysis, and the Board of Directors determined that Medallion Bank had a fair value in excess of book value. In addition, in the third quarter of 2016 there was a court ruling involving a marketplace lender that the Company believes heightens the interest of marketplace lenders to acquire or merge with Utah industrial banks. We also engaged a valuation specialist to assist the Board of Directors in its determination of Medallion Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $28,600,000 was recorded in 2016 as a component of unrealized appreciation (depreciation) on investments, in addition to Medallion Bank’s actual results of operations.

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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.


	September 30, 2016						June 30, 2016						March 31, 2016						December 31, 2015						September 30, 2015
(Dollars in thousands)	Interest Rate ⁽¹⁾			Investment Balances			Interest Rate ⁽¹⁾			Investment Balances			Interest Rate ⁽¹⁾			Investment Balances			Interest Rate ⁽¹⁾			Investment Balances			Interest Rate ⁽¹⁾			Investment Balances
Medallion loans
New York		3.76	%	$	206,404			3.79	%	$	208,838			3.77	%	$	211,466			3.72	%	$	213,356			3.66	%	$	212,791
Chicago		4.57			38,432			4.56			38,747			4.84			39,099			4.87			39,406			5.07			39,615
Boston		4.58			26,010			4.65			26,170			4.65			26,291			4.63			26,436			4.62			26,758
Newark		5.27			23,776			5.25			24,043			5.25			24,320			5.26			24,585			5.26			24,854
Cambridge		4.47			4,410			4.47			4,435			4.64			6,587			4.64			6,607			4.65			6,634
Other		7.28			985			7.28			999			7.28			1,022			7.27			1,043			7.27			1,069

Total medallion loans		4.07			300,017			4.10			303,232			4.12			308,785			4.09			311,433			4.08			311,721

Deferred loan acquisition costs					327						344						364						413						431
Unrealized depreciation on loans					(12,087	)					(6,209	)					(5,797	)					(3,438	)					(2,720	)

Net medallion loans				$	288,257					$	297,367					$	303,352					$	308,408					$	309,432

Commercial loans
Secured mezzanine		13.55	%	$	73,502			13.47	%	$	77,661			13.52	%	$	72,946			13.59	%	$	67,849			13.16	%	$	57,520
Asset based		—			—			5.93			3,229			5.81			2,924			5.82			3,750			5.76			3,689
Other secured commercial		9.25			9,070			10.37			8,531			10.28			8,638			10.68			12,622			10.68			13,861

Total commercial loans		13.07			82,572			12.90			89,421			12.92			84,508			12.80			84,221			12.34			75,070

Deferred loan acquisition income					(119	)					(98	)					(71	)					(87	)					(68	)
Unrealized depreciation on loans					(1,343	)					(1,278	)					(1,718	)					(2,239	)					(2,710	)

Net commercial loans				$	81,110					$	88,045					$	82,719					$	81,895					$	72,292

Investment in Medallion Bank and other controlled subsidiaries		3.88	%	$	154,656			7.16	%	$	153,681			11.18	%	$	143,167			12.74	%	$	141,273			14.57	%	$	137,263
Unrealized appreciation on subsidiary investments					53,442						27,273						25,060						18,640						17,193

Investment in Medallion Bank and other controlled subsidiaries, net				$	208,098					$	180,954					$	168,227					$	159,913					$	154,456

Equity investments		0.66	%	$	4,760			0.65	%	$	4,510			0.58	%	$	4,576			0.72	%	$	4,277			1.06	%	$	4,071

Unrealized appreciation on equities					3,403						4,116						2,587						2,582						1,364

Net equity investments				$	8,163					$	8,626					$	7,163					$	6,859					$	5,435

Investment securities		-	%	$	—			0.24	%	$	69,990			0.66	%	$	69,594			0.35	%	$	49,902			0.45	%	$	29,963

Unrealized depreciation on investment securities					—						—						(53	)					(18	)					—

Net investment securities				$	—						69,990					$	69,541					$	49,884					$	29,963

Investments at cost ⁽²⁾		5.36	%	$	542,005			5.66	%	$	620,834			6.57	%	$	610,631			7.06	%	$	591,106			7.56	%	$	558,088

Deferred loan acquisition costs					208						245						292						326						363
Unrealized appreciation on controlled subsidiaries and equity investments					56,845						31,390						27,594						21,204						18,557
Unrealized depreciation on loans					(13,430	)					(7,487	)					(7,515	)					(5,677	)					(5,430	)

Net investments				$	585,628					$	644,982					$	631,002					$	606,959					$	571,578

Medallion Bank investments
Consumer loans		14.44	%	$	683,236			14.62	%	$	625,128			13.99	%	$	652,342			14.06	%	$	626,132			14.19	%	$	602,066
Medallion loans		3.83			327,134			3.84			331,580			3.85			335,838			3.84			338,285			3.83			345,990
Commercial loans		3.48			2,950			5.23			42,095			5.16			44,167			5.23			44,634			4.82			45,912
Investment securities		2.29			36,065			2.30			37,531			2.21			38,149			2.30			35,713			2.40			34,444

Medallion Bank investments at cost ⁽²⁾		10.68			1,049,385			10.34			1,036,334			10.02			1,070,496			9.97			1,044,764			9.89			1,028,412

Deferred loan acquisition costs					12,657						11,746						11,549						11,400						11,513
Unrealized depreciation on investment securities					742						458						237						(501	)					250
Premiums paid on purchased securities					258						267						285						311						328
Unrealized depreciation on loans					(48,106	)					(31,663	)					(28,043	)					(24,081	)					(21,513	)

Medallion Bank net investments				$	1,014,936					$	1,017,142					$	1,054,524					$	1,031,893					$	1,018,990

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

(2)	The weighted average interest rate for the entire managed loan portfolio (medallion, commercial, and consumer loans) was 9.62%, 9.36%, 9.13%, 9.03%, and 8.90% at September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015, and September 30, 2015.

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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 September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Net investments at beginning of period	$	644,982		$	543,265		$	606,959		$	527,601
Investments originated ⁽¹⁾		7,464			40,811			320,369			79,227
Repayments of investments ⁽¹⁾		(88,639	)		(17,124	)		(379,060	)		(41,999	)
Net cash received on disposition of other controlled subsidiaries		—			—			—			(11,969	)
Net realized gains (losses) on investments		2,499			353			(7	)		8,576
Net increase in unrealized appreciation ⁽²⁾		19,256			4,305			37,296			10,109
Transfer to other assets		—			(30	)		—			(30	)
(Amortization) accretion of origination (costs) fees, net		66			(2	)		71			63

Net increase (decrease) in investments		(59,354	)		28,313			(21,331	)		43,977

Net investments at end of period	$	585,628		$	571,578		$	585,628		$	571,578

(1)	Includes refinancings.

(2)	Excludes net unrealized (depreciation) of ($14,107) and ($18,862) for the quarter and nine months ended September 30, 2016, and ($1,582) and ($9,689) for the comparable 2015 periods, related to investments other than securities 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 September 30, 2016 was 5.36% (6.02% for the loan portfolio), a decrease of 170 basis points from 7.06% at December 31, 2015, and a decrease of 220 basis points from 7.56% at September 30, 2015. The weighted average yield of the total managed portfolio at September 30, 2016 was 9.38% (9.62% for the loan portfolio), an increase of 85 basis points from 8.53% at December 31, 2015 and September 30, 2015. The changes in 2016 primarily reflected decreases in the yields of investment securities and investments in controlled subsidiaries, and reflected increases in the yields of the commercial loan portfolio and managed consumer loan portfolio.

Medallion Loan Portfolio

Our medallion loans comprised 49% of the net portfolio of $585,628,000 at September 30, 2016, compared to 51% of the net portfolio of $606,959,000 at December 31, 2015, and 54% of $571,578,000 at September 30, 2015. Our managed medallion loans of $587,126,000 comprised 40% of the net managed portfolio of $1,450,192,000 at September 30, 2016, compared to 43% of the net managed portfolio of $1,501,555,000 at December 31, 2015, and 45% of $1,456,940,000 at September 30, 2015. The medallion loan portfolio decreased by $20,151,000 or 7% in 2016 (a decrease of $53,778,000 or 8% on a managed basis). The decrease in outstandings was primarily concentrated in the New York and Chicago markets, and reflected net amortization of loan principal as well as increased realized and unrealized losses. Total medallion loans serviced for third parties were $24,889,000, $26,959,000, and $27,167,000 at September 30, 2016, December 31, 2015, and September 30, 2015.

The weighted average yield of the medallion loan portfolio at September 30, 2016 was 4.07%, a decrease of 2 basis points from 4.09% at December 31, 2015, and a decrease of 1 basis point from 4.08% at September 30, 2015. The weighted average yield of the managed medallion loan portfolio at September 30, 2016 was 3.95%, a decrease of 1 basis point from 3.96% at December 31, 2015 and September 30, 2015. The slight change in yield is due to stable pricing of existing portfolio to current interest rates. At September 30, 2016, 31% of the medallion loan portfolio represented loans outside New York, compared to 31% and 32% at December 31, 2015 and September 30, 2015. At September 30, 2016, December 31, 2015 and September 30, 2015, 26% of the managed medallion loan portfolio represented loans outside New York.

Commercial Loan Portfolio

Our commercial loans represented 14%, 14%, and 13% of the net investment portfolio as of September 30, 2016, December 31, 2015, and September 30, 2015, and were 6%, 8%, and 8% on a managed basis. Commercial loans decreased by $785,000 or 1% during 2016 (decreased $41,823,000 or 33% on a managed basis). Net commercial loans serviced for third parties were $1,563,000 at September 30, 2016, and loans serviced by third parties were $3,419,000 at December 31, 2015 and $3,133,000 at September 30, 2015.

The weighted average yield of the commercial loan portfolio at September 30, 2016 was 13.07%, an increase of 27 basis points from 12.80% at December 31, 2015, and an increase of 73 basis points from 12.34% at September 30, 2015. The weighted average yield of the managed commercial loan portfolio at September 30, 2016 was 12.74%, an increase of 256 basis points from 10.18% at December 31, 2015, and an increase of 325 basis points from 9.49% at September 30, 2015. The increases primarily reflect our exit

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from the asset based lending business which had a lower average yield in comparison to our mezzanine and other secured commercial loans. At September 30, 2016, variable-rate loans represented approximately 5% of the commercial portfolio, compared to 9% and 5% at December 31, 2015 and September 30, 2015, and were 5%, 38%, and 39% on a managed basis.

Consumer Loan Portfolio

Our managed consumer loans, all of which are held in the portfolio managed by Medallion Bank, represented 47%, 41%, and 41% of the managed net investment portfolio as of September 30, 2016, December 31, 2015, and September 30, 2015. Managed consumer loans increased by $56,165,000 or 9% during 2016, also reflecting the second quarter sale of $98,000,000 of consumer loans to a third party investor. Medallion Bank originates fixed 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 14.44% at September 30, 2016, an increase of 38 basis points from 14.06% at December 31, 2015, and an increase of 25 basis points from 14.19% at September 30, 2015. The increase in yield primarily reflect changes in the mix of the portfolio.

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.


	September 30, 2016					June 30, 2016					March 31, 2016					December 31, 2015					September 30, 2015
(Dollars in thousands)	Amount		%⁽¹⁾			Amount		%⁽¹⁾			Amount		%⁽¹⁾			Amount		%⁽¹⁾			Amount		%⁽¹⁾
Medallion loans	$	58,267		15.2	%	$	41,019		10.4	%	$	29,260		7.4	%	$	11,880		3.0	%	$	5,539		1.4	%

Commercial loans
Secured mezzanine		1,390		0.4			1,390		0.4			1,390		0.4			1,390		0.4			1,390		0.4
Asset-based receivable		—		0.0			—		0.0			—		0.0			—		0.0			—		0.0
Other secured commercial		182		0.0			280		0.1			876		0.2			945		0.2			1,302		0.3

Total commercial loans		1,572		0.4			1,670		0.5			2,266		0.6			2,335		0.6			2,692		0.7

Total loans 90 days or more past due	$	59,839		15.6	%	$	42,689		10.9	%	$	31,526		8.0	%	$	14,215		3.6	%	$	8,231		2.1	%

Total Medallion Bank loans	$	43,733		4.3	%	$	34,120		3.4	%	$	30,217		2.9	%	$	17,154		1.7	%	$	12,801		1.3	%

Total managed loans 90 days or more past due	$	103,572		7.4	%	$	76,809		5.5	%	$	61,743		4.3	%	$	31,369		2.2	%	$	21,032		1.5	%

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

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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 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 September 30, 2016, 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. In September 2015, one loan was sold at a discount to a third party, and the related proceeds are held in escrow pending resolution of the bankruptcy proceedings. 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	$	258		$	1,953		$	2,211
Loans charged off ⁽¹⁾		(258	)		(1,953	)		(2,211	)
Valuation allowance		—			—			—

Net loans outstanding		—			—			—

Other receivables		590			11,062			11,652
Valuation allowance		(236	)		(4,425	)		(4,661	)

Net other receivables		354			6,637			6,991
Total net outstanding		354			6,637			6,991

Income foregone in 2016		—			—			—
Total income foregone	$	74		$	108		$	182

(1)	The income foregone on the charged off loan was $99 for the Company and $213 for Medallion Bank.

In general, collection efforts since the establishment of our collection department have contributed to better management of delinquencies of medallion and other secured commercial loans. The recent increases in medallion delinquencies reflected our borrowers experiencing declining cash flows due to competitive internet ride hailing services and decreases in medallion values putting stress on certain of our borrowers, all of whom we continue to work with. We have vigorously pursued strategies to offset these declines which have included adding personnel to the collection staff, receiving principal reductions as loans renew and requiring additional collateral so as to offer temporary solutions until cash flows improve. Additionally, we have had some success in assisting delinquent customers in selling their medallions to new owners putting a reasonable amount of cash equity into the sale so as to reduce our exposure on the collateral. This in turn has improved the overall cash flow to debt service ratio. Secured mezzanine delinquencies have not changed since the prior quarter. Commercial loan delinquencies have declined due to recent collection efforts. Medallion Bank delinquencies increased due to a weaker portfolio performance attributed to the increase in medallion loan delinquencies being managed as described above.

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.

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The following tables set forth the changes in our unrealized appreciation (depreciation) on investments for the 2016 and 2015 quarters shown below.


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investments in Subsidiaries		Equity Investments			Investment Securities			Investments Other Than Securities			Total
Balance December 31, 2015	($	3,438	)	($	2,239	)	$	18,640	$	2,582		($	18	)	$	28,956		$	44,483
Net change in unrealized
Appreciation on investments		—			—			6,115		(7	)		—			(1,585	)		4,523
Depreciation on investments		(2,359	)		173			305		12			(47	)		—			(1,916	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—		—			12			—			12
Losses on investments		—			348			—		—			—			—			348

Balance March 31, 2016		(5,797	)		(1,718	)		25,060		2,587			(53	)		27,371			47,450
Net change in unrealized
Appreciation on investments		—			—			2,213		1,538			7			(3,170	)		588
Depreciation on investments		(2,758	)		245			—		(8	)		52			—			(2,469	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—		—			—			—			—
Losses on investments		2,346			195			—		—			—			—			2,541
Other		—			—			—		—			(6	)		—			(6	)

Balance June 30, 2016		(6,209	)		(1,278	)		27,273		4,117			—			24,201			48,104
Net change in unrealized
Appreciation on investments		—			—			26,169		(111	)		—			(14,107	)		11,951
Depreciation on investments		(6,051	)		(65	)		—		(3	)		—			—			(6,119	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—		(600	)		—			—			(600	)
Losses on investments		173			—			—		—			—			—			173

Balance September 30, 2016	($	12,087	)	($	1,343	)	$	53,442	$	3,403		$	—		$	10,094		$	53,509


(Dollars in thousands)	Medallion Loans			Commercial Loans			Investments in Subsidiaries			Equity Investments			Investments Other Than Securities			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
Net change in unrealized
Appreciation on investments		—			—			10,600			(158	)		(4,612	)		5,830
Depreciation on investments		(324	)		(68	)		—			(518	)		(56	)		(966	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			—			—			—
Losses on investments		—			102			—			—			—			102

Balance June 30, 2015		(483	)		(2,401	)		12,500			707			30,538			40,861
Net change in unrealized
Appreciation on investments		—			—			5,660			(314	)		(1,570	)		3,776
Depreciation on investments		(2,367	)		(377	)		—			4			(12	)		(2,752	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments		—			—			—			—			—			—
Losses on investments		130			68			—			—			—			198
Other ⁽¹⁾		—			—			(967	)		967			—			—

Balance September 30, 2015	($	2,720	)	($	2,710	)	$	17,193		$	1,364		$	28,956		$	42,083

(1)	Reclassification of Medallion Motorsports from equity investments to controlled subsidiaries.

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


(Dollars in thousands)	September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015			September 30, 2015
Total loans
Medallion loans	$	288,257		$	297,367		$	303,352		$	308,408		$	309,432
Commercial loans		81,110			88,045			82,719			81,895			72,292

Total loans		369,367			385,412			386,071			390,303			381,724
Investments in Medallion Bank and other controlled subsidiaries		208,098			180,954			168,227			159,913			154,456
Equity investments ⁽¹⁾		8,163			8,626			7,163			6,859			5,435
Investment securities		—			69,990			69,541			49,884			29,963

Net investments	$	585,628		$	644,982		$	631,002		$	606,959		$	571,578

Net investments at Medallion Bank and other controlled subsidiaries	$	1,014,936		$	1,017,142		$	1,054,524		$	1,031,893		$	1,018,990
Managed net investments	$	1,450,192		$	1,512,205		$	1,545,892		$	1,501,555		$	1,456,940

Unrealized appreciation (depreciation) on investments
Medallion loans	($	12,087	)	($	6,209	)	($	5,797	)	($	3,438	)	($	2,720	)
Commercial loans		(1,343	)		(1,278	)		(1,718	)		(2,239	)		(2,710	)

Total loans		(13,430	)		(7,487	)		(7,515	)		(5,677	)		(5,430	)
Investments in Medallion Bank and other controlled subsidiaries		53,442			27,273			25,060			18,640			17,193
Equity investments		3,403			4,117			2,587			2,582			1,364
Investment securities		—			—			(53	)		(18	)		—

Total unrealized appreciation on investments	$	43,415		$	23,903		$	20,079		$	15,527		$	13,127

Net unrealized depreciation on investments at Medallion Bank and other controlled subsidiaries	($	47,364	)	($	31,205	)	($	27,807	)	($	24,582	)	($	21,263	)

Managed total unrealized depreciation on investments	($	3,949	)	($	7,302	)	($	7,728	)	($	9,055	)	($	8,136	)

Unrealized appreciation (depreciation) as a % of balances outstanding ⁽²⁾
Medallion loans		(4.03	%)		(2.05	%)		(1.88	%)		(1.10	%)		(0.87	%)
Commercial loans		(1.63	)		(1.43	)		(2.03	)		(2.66	)		(3.61	)
Total loans		(3.51	)		(1.91	)		(1.91	)		(1.43	)		(1.40	)
Investments in Medallion Bank and other controlled subsidiaries		34.56			17.75			17.50			13.19			12.53
Equity investments		71.50			91.29			56.49			60.39			33.52
Investment securities		—			—			(0.08	)		(0.04	)		—
Net investments		8.01			3.85			3.29			2.63			2.35

Net investments at Medallion Bank and other controlled subsidiaries		(4.51	%)		(3.01	%)		(2.60	%)		(2.35	%)		(2.07	%)
Managed net investments		(0.27	%)		(0.48	%)		(0.50	%)		(0.60	%)		(0.56	%)

(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.

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The following table presents the gain/loss experience on the investment portfolios for the three and nine months ended September 30, 2016 and 2015.


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Realized gains (losses) on loans and equity investments
Medallion loans	($	167	)	($	145	)	($	2,514	)	($	145	)
Commercial loans		1,820			(64	)		1,281			(233	)

Total loans		1,653			(209	)		(1,233	)		(378	)
Investments in Medallion Bank and other controlled subsidiaries		(1	)		(53	)		160			8,105
Equity investments		845			615			1,053			849
Investment securities		2			—			13			—

Total realized gains (losses) on loans and equity investments	$	2,499		$	353		($	7	)	$	8,576

Net realized gains (losses) on investments at Medallion Bank and other controlled subsidiaries	($	2,835	)	($	3,238	)	($	5,263	)	($	7,120	)

Total managed realized gains (losses) on loans and equity investments	($	336	)	($	2,885	)	($	5,270	)	$	1,456

Realized gains (losses) as a % of average balances outstanding
Medallion loans		(0.22	%)		(0.19	%)		(1.10	%)		(0.06	%)
Commercial loans		8.40			(0.34	)		1.99			(0.41	)
Total loans		1.70			(0.22	)		(0.42	)		(0.13	)
Investments in Medallion Bank and other controlled subsidiaries		(0.00	)		(0.16	)		0.14			8.22
Equity investments		73.53			40.73			31.06			18.58
Investment securities		0.05			—			0.05			—
Net investments		1.76			0.26			(0.00	)		2.16

Net investments at Medallion Bank and other controlled subsidiaries		(1.07	)		(1.28	)		(0.66	)		(0.99	)
Managed net investments		(0.09	%)		(0.81	%)		(0.47	%)		0.14	%

The table below summarizes components of unrealized and realized gains and losses in the investment portfolio for the three and nine months ended September 30, 2016 and 2015.


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2016			2015			2016			2015
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	($	110	)	($	313	)	$	1,429		($	639	)
Unrealized depreciation		(6,119	)		(2,228	)		(10,829	)		(2,840	)
Net unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries		25,913			6,648			44,221			18,097
Realized gains		(600	)		—			(588	)		(4,809	)
Realized losses		173			198			3,063			300
Net unrealized gains (losses) on investments other than securities and other assets		(14,107	)		(1,582	)		(18,862	)		(9,689	)

Total	$	5,150		$	2,723		$	18,434		$	420

Net realized gains (losses) on investments
Realized gains	$	—		$	—		$	—		$	4,809
Realized losses		(173	)		(198	)		(3,063	)		(300	)
Other gains		2,904			615			3,308			4,198
Direct recoveries (chargeoffs)		(232	)		(64	)		(252	)		(131	)
Realized losses on investments other than securities and other assets		—			—			—			—

Total	$	2,499		$	353		($	7	)	$	8,576

Investment in Medallion Bank and Other Controlled Subsidiaries

Investment in Medallion Bank and other controlled subsidiaries were 36%, 26%, and 27% of our total portfolio at September 30, 2016, December 31, 2015, and September 30, 2015. 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-

Page 54 of 83

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 $3,000,000 in 2016 and $7,000,000 in 2015. Separately, Medallion Bank declared dividends to us of $3,000,000 in the 2016 nine months, and $5,000,000 and $15,000,000 in the 2015 quarter and nine months periods. 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 September 30, 2016, December 31, 2015, and September 30, 2015. Equity investments were 1%, less than 1%, and less than 2% of our total managed portfolio at September 30, 2016, December 31, 2015, and September 30, 2015. Equity investments are comprised of common stock, partnership interests, and warrants.

Investment Securities

Investment securities were 0%, 8%, and 5% of our total portfolio at September 30, 2016, December 31, 2015, and September 30, 2015. Investment securities were 3%, 6%, and 4% of our total managed portfolio at September 30, 2016, December 31, 2015, and September 30, 2015. The investment securities are primarily United States Treasury bills purchased by us, and 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 three and nine months ended September 30, 2016 and 2015. Our average balances for the nine months ended September 30, 2016 increased reflecting a recent higher average investment portfolio and Medallion Bank’s average balances increased, reflecting the strong growth in the consumer loan portfolio. The increase in borrowing costs reflected the increase of interest rates and changes in our lending mix, and Medallion Bank’s increase reflected a lengthening of the maturity profile of its certificates of deposit.

Three Months Ended

Nine Months Ended

(Dollars in thousands)

Interest
Expense

Average
Balance

Average
Borrowing
Costs

Interest
Expense

Average
Balance

Average
Borrowing
Costs

September 30, 2016

Revolving lines of credit

606

109,633

2.20

2,018

123,566

2.18

Notes payable to banks

780

100,658

3.08

2,357

109,867

2.87

Unsecured notes

919

33,625

10.87

1,623

20,432

10.61

SBA debentures

800

79,985

3.98

2,314

78,232

3.95

Preferred securities

241

33,000

2.90

692

33,000

2.80

Margin loans

7,042

1.54

269

25,375

1.42

Total

3,373

363,943

3.69

9,273

390,472

3.17

Medallion Bank borrowings

3,027

924,897

1.30

8,730

929,846

1.25

Total managed borrowings

6,400

1,288,840

1.98

18,003

1,320,318

1.82

Page 55 of 83


	Three Months Ended							Nine Months Ended
(Dollars in thousands)	Interest Expense		Average Balance		Average Borrowing Costs			Interest Expense		Average Balance		Average Borrowing Costs
September 30, 2015
Revolving lines of credit	$	608	$	120,726		2.00	%	$	1,793	$	120,973		1.98	%
Notes payable to banks		837		126,986		2.62			2,437		124,857		2.61
SBA debentures		704		68,697		4.06			2,077		67,703		4.10
Preferred securities		205		33,000		2.46			601		33,000		2.44
Margin loans		48		15,655		1.23			49		5,305		1.23

Total	$	2,402	$	365,064		2.61		$	6,957	$	351,838		2.64

Medallion Bank borrowings	$	2,413	$	879,723		1.09		$	6,574	$	833,128		1.06

Total managed borrowings	$	4,815	$	1,244,787		1.54		$	13,531	$	1,184,966		1.53

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 September 30, 2016 and 2015, short-term adjustable rate debt constituted 59% and 75% of total debt, and was 17% 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 at least an annual basis. Our analysis includes factors such as various regulatory restrictions that were established at Medallion Bank’s inception, by the FDIC and State of Utah, and also by additional regulatory restrictions, such as the prior moratorium imposed by the Dodd-Frank Act on the acquisition of control of an industrial bank by a “commercial firm” (a company whose gross revenues are primarily derived from nonfinancial 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 had previously determined that Medallion Bank had little value beyond its recorded book value. As a result of this valuation process, we had previously used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the second quarter of 2015, we first became aware of external interest in Medallion Bank and its portfolio assets at values in excess of their book value. Expression of interest in Medallion Bank from both investment bankers and interested parties has continued through 2016. We incorporated these new factors in the Medallion Bank’s fair value analysis and the Board of Directors determined that Medallion Bank had a fair value in excess of book value. In addition, in the third quarter of 2016 there was a court ruling involving a marketplace lender that the Company believes heightens the interest of marketplace lenders to acquire or merge with Utah industrial banks. We also engaged a valuation specialist to assist the Board of Directors in their determination of Medallion Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $28,600,000 was recorded in 2016 as a component of unrealized appreciation (depreciation) on investments, in addition to Medallion Bank’s actual results of operations. See Note 3 for additional information about Medallion Bank.

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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 three and nine months ended September 30, 2016 and 2015.


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2016			2015			2016			2015
Statement of operations
Investment income	$	5,269		$	10,665		$	20,091		$	33,334
Interest expense		3,373			2,402			9,273			6,957

Net interest income		1,896			8,263			10,818			26,377
Noninterest income		104			121			165			287
Operating expenses		4,606			4,148			12,952			13,194

Net investment income (loss) before income taxes		(2,606	)		4,236			(1,969	)		13,470
Income tax (provision) benefit		—			—			—			—

Net investment income (loss) after income taxes		(2,606	)		4,236			(1,969	)		13,470
Net realized gains (losses) on investments		2,499			353			(7	)		8,576
Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries ⁽¹⁾		25,913			6,648			44,221			13,288
Net change in unrealized depreciation on investments other than securities		(14,107	)		(1,570	)		(18,862	)		(9,621	)
Net change in unrealized depreciation on investments ⁽¹⁾		(6,656	)		(2,355	)		(6,925	)		(3,247	)

Net increase in net assets resulting from operations	$	5,043		$	7,312		$	16,458		$	22,466

Per share data
Net investment income (loss)	($	0.10	)	$	0.17		($	0.08	)	$	0.55
Income tax (provision) benefit		—			—			—			—
Net realized gains (losses) on investments		0.10			0.02			—			0.35
Net change in unrealized appreciation on investments ⁽¹⁾		0.21			0.11			0.76			0.02

Net increase in net assets resulting from operations	$	0.21		$	0.30		$	0.68		$	0.92

Distributions declared per share	$	0.05		$	0.25		$	0.35		$	0.75

Weighted average common shares outstanding
Basic		24,136,807			24,290,502			24,173,898			24,387,726
Diluted		24,184,518			24,340,913			24,227,068			24,461,390


Balance sheet data	September 30, 2016		December 31, 2015
Net investments	$	585,628	$	606,959
Total assets		641,091		689,050
Total funds borrowed		352,196		404,540
Total liabilities		360,308		410,962
Total shareholders’ equity		280,783		278,088

Managed balance sheet data⁽²⁾
Net investments	$	1,450,192	$	1,501,555
Total assets		1,607,133		1,631,118
Total funds borrowed		1,283,808		1,313,436
Total liabilities		1,326,350		1,353,030

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Selected financial ratios and other data
Return on average assets (ROA) ⁽³⁾
Net investment income after taxes		(1.56	%)		2.58	%		(0.38	%)		2.82	%
Net increase in net assets resulting from operations		3.03			4.45			3.22			4.71
Return on average equity (ROE) ⁽⁴⁾
Net investment income after taxes		(3.73	)		6.07			(0.95	)		6.51
Net increase in net assets resulting from operations		7.23			10.48			7.90			10.86

Weighted average yield		3.55	%		7.65	%		4.45	%		8.32	%
Weighted average cost of funds		2.27			1.73			2.05			1.74

Net interest margin ⁽⁵⁾		1.28			5.92			2.40			6.58

Noninterest income ratio ⁽⁶⁾		0.07	%		0.09	%		0.04	%		0.07	%
Total expense ratio ⁽⁷⁾		5.37			4.70			4.93			5.03
Operating expense ratio ⁽⁸⁾		3.10			2.97			2.87			3.29


As a percentage of net investment portfolio	September 30, 2016			December 31, 2015
Medallion loans		49	%		51	%
Commercial loans		14			14
Investment in Medallion Bank and other controlled subsidiaries		36			26
Equity investments		1			1
Investment securities		0			8

Investments to assets ⁽⁹⁾		91	%		88	%
Equity to assets ⁽¹⁰⁾		44			40
Debt to equity ⁽¹¹⁾		125			145

(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 $35 and $35 in the three and nine months ended September 30, 2016, and $0 and $266 for the comparable 2015 periods, and also included $3,000 of dividends from Medallion Bank for the nine months ended September 30, 2016, and $5,000 and $15,889 for the 2015 quarter and nine months. On a managed basis, combined with Medallion Bank, the net interest margin was 6.77% and 6.76% for the three and nine months ended September 30, 2016, and was 6.89% and 6.99% for the comparable 2015 periods.

(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

2016 Third Quarter and Nine Months compared to the 2015 periods

Net increase in net assets resulting from operations was $5,043,000 or $0.21 per diluted common share and $16,458,000 or $0.68 in the 2016 third quarter and nine months, up $475,000 or 10% and decreased $6,008,000 or 27% from $4,568,000 or $0.19 per share and $22,466,000 or $0.92 in the 2015 third quarter and nine months. The increase was primarily reflecting higher net realized/unrealized gains, partially offset by higher operating expenses and by lower net interest income and noninterest income in the quarter. The year to date decrease was primarily due to lower net interest income and noninterest income (reflecting large nonaccrual adjustments), offset by an increase in net realized/ unrealized gain, and slightly lower operating expenses in the nine months. Net investment loss after income taxes was $2,606,000 or $0.11 per share and $1,969,000 or $0.08 in the 2016 quarter and nine months, up $6,842,000 or 162% and up $15,439,000 or 115% from a gain of $4,236,000 or $0.17 per share and $13,470 or $0.55 in the 2015 quarter and nine months.

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Investment income was $5,269,000 and $20,091,000 in the 2016 third quarter and nine months, down $5,396,000 or 51% and down $13,243,000 or 40% from $10,665,000 and $33,334,000 in the year ago periods. This included $0 and $3,000,000 in dividends from Medallion Bank in the 2016 quarter and nine months, compared to $5,000,000 and $15,889,000 in the comparable 2015 periods. The yield on the investment portfolio was 3.55% in the 2016 quarter, down 54% from 7.65% in 2015, and was 4.45% in the 2016 nine months, down 47% from 8.32% in the 2015 nine months. Excluding the dividends, the 2016 third quarter and nine month yields were down 13% and 12% to 3.55% and 3.79%, from 4.06% and 4.29% in the 2015 quarter and nine months, reflecting changes in the portfolio mix. Average investments outstanding were up 7% to $591,257,000 in the 2016 quarter and up 12 % to $602,399,000 in the nine months, from $553,417,000 and $535,794,000 in the year ago periods, primarily reflecting portfolio growth.

Medallion loans were $288,257,000 at quarter end, down $21,175,000 or 7% from $309,432,000 a year ago, representing 49% of the investment portfolio compared to 54% a year ago, and were yielding 4.07%, compared to 4.08% a year ago. The decrease in outstandings was primarily concentrated in the New York and Chicago markets, and reflected net amortization of loan principal as well as increased realized and unrealized losses. The managed medallion portfolio, which includes loans at Medallion Bank and those serviced for third parties, was $612,015,000 at quarter end, down $66,918,000 or 10% from $678,933,000 a year ago, reflecting the above. The commercial loan portfolio was $81,110,000 at quarter end, compared to $72,292,000 a year ago, an increase of $8,818,000 or 12%, and represented 14% of the investment portfolio in the current period and 13% in the period of 2015. The increase primarily reflected growth in the high-yield mezzanine portfolio. Commercial loans yielded 13.07% at quarter end, up 6% from 12.34% a year ago, primarily reflecting changes in the 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 $85,622,000 at quarter end, down $28,767,000 or 25% from $114,389,000 a year ago, primarily reflecting the sale of the asset based loan portfolio and the changes described above. Investments in Medallion Bank and other controlled subsidiaries were $208,098,000 at quarter end, up $53,643,000 or 35% from $154,455,000 a year ago, primarily reflecting our equity in the earnings of Medallion Bank and other portfolio company investments, capital contributions made, dividends paid, portfolio sales, and net appreciation, and which represented 36% of the investment portfolio, compared to 27% a year ago, and which yielded 3.88% at quarter end, compared to 14.57% a year ago, primarily reflecting the reduced 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 $8,163,000 at quarter end, up $2,727,000 or 50% from $5,436,000 a year ago, primarily reflecting increased net appreciation and new equity investments offset by the transfer of an investment to investment in controlled subsidiaries, and which represented 1% of the investment portfolio in both periods, and had a dividend yield of 0.66%, compared to 1.06%, a year ago. Investment securities were $0 at quarter end, compared to $29,963,000 a year ago which was representing 5% of the net investment portfolio, and had a yield of 0.63%. See page 48 for a table that shows balances and yields by type of investment.

Interest expense was $3,373,000 and $9,273,000 in the 2016 quarter and nine months, up $971,000 or 40% and $2,316,000 or 33% from $2,402,000 and $6,957,000 in the 2015 periods. The increase in interest expense was primarily due to higher average cost of borrowings and increased borrowing levels in the nine months. The cost of borrowed funds was 3.69% and 3.17% in the 2016 quarter and nine months, compared to 2.61% and 2.64% in the year ago periods, increases of 41% and 20%, reflecting the adjustable rate nature of much of our borrowings and changes in our funding mix. Average debt outstanding was down slightly to $363,943,000 for the 2016 quarter, and was up 11% to $390,471,000 in the nine months, compared to $365,064,000 and $351,838,000 in the year ago periods, primarily reflecting increased borrowings required to fund portfolio growth and investment activity. See page 55 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $1,896,000 and $10,818,000, and the net interest margin was 1.28% and 2.4% for the 2016 third quarter and nine months, down $6,367,000 or 77% and down $15,559,000 or 59% from $8,263,000 and $26,377,000 a year ago, which represented net interest margins of 5.92% and 6.58% all reflecting the items discussed above.

Noninterest income, which is comprised of management fees, prepayment fees, servicing fee income, late charges, and other miscellaneous income was $104,000 and $165,000 in the 2016 third quarter and nine months, down $17,000 or 14% and $122,000 or 43% from $121,000 and $287,000 a year ago, primarily reflecting lower servicing and other fees generated from the portfolio base at Medallion Bank, and lower prepayment fees.

Operating expenses were $4,606,000 and $12,952,000 in the 2016 third quarter and nine months, up $458,000 or 11% and down $242,000 or 2% from $4,148,000 and $13,194,000 in the 2015 periods. Salaries and benefits expense was $3,039,000 and $8,816,000 in the third quarter and nine months, up $123,000 or 4% and down $418,000 or 5% from $2,916,000 and $9,234,000 in 2015, primarily reflecting lower salaries and bonus accruals in the nine months and partially related to lower headcount from closed operations and payments of severance packages in the current quarter. Professional fees were $575,000 and $1,341,000 in the quarter and nine months, up $201,000 or 54% and $1898,000 or 16% from $374,000 and $1,153,000 a year ago, primarily reflecting higher legal and consultant expenses for a variety of corporate and investment-related matters. Occupancy expense was $294,000 and $702,000 in the quarter and nine months, up $73,000 or 33% and $33,000 or 5% from $221,000 and $669,000 in the 2015 periods, primarily reflecting higher rent payments on a new lease signed in the current quarter. Other operating expenses of $698,000 and $2,093,000 in 2016 were up $61,000 or 10% and down $45,000 or 2% from $637,000 and $2,138,000 a year ago, primarily reflecting printing and investment and referral fees, offset by lower misc. taxes and lower meals and entertainment expenses in the quarter, and in the nine months also by lower computer expenses, directors fees and travel, partially offset by higher misc. taxes and higher insurance expense.

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Income tax expense was $0 in the 2016 and 2015 third quarters and nine months.

Net change in unrealized appreciation on investments was $5,150,000 and $18,434,000 in the 2016 third quarter and nine months, compared to $2,723,000 and $420,000 in the 2015 third quarter and nine months, an increase in appreciation of $2,427,000 or 89% in the quarter and $18,014,000 in the nine months. Net change in unrealized appreciation other than the portion related to Medallion Bank and the other controlled subsidiaries, was depreciation of $20,763,000 and $25,787,000 in the 2016 quarter and nine months, compared to depreciation of $4,437,000 and $13,380,000 in the 2015 periods, resulting in increased depreciation of $16,326,000 and $12,407,000 in the 2016 quarter and nine months. Unrealized appreciation (depreciation) arises when we make valuation adjustments to the investment portfolio. When investments are sold or written off, any resulting realized gain (loss) is grossed up to reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The 2016 activity resulted from net appreciation on Medallion Bank and other controlled subsidiaries of $25,913,000 ($44,221,000 in the nine months) and by reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $427,000 ($2,475,000 in the nine months), partially offset by net unrealized depreciation on equity investments and loans of $6,277,000 ($9,447,000 in the nine months), net depreciation on foreclosed property of $14,107,000 ($18,862,000 in the nine months). The 2015 activity resulted from net appreciation on Medallion Bank and other controlled subsidiaries of $7,160,000 ($13,800,000 in the nine months The 2015 activity resulted from net appreciation on Medallion Bank and other controlled subsidiaries of $7,160,000 ($13,800,000 in the nine months) and by reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $198,000 ($300,000 in the nine months), partially offset by unrealized depreciation on loans of $2,744,000 ($2,781,000 in the nine months), net depreciation on foreclosed property of $1,570,000 ($9,621,000 in the nine months), net unrealized depreciation on equity investments of $309,000 ($1,210,000 in the nine months), and net depreciation on other assets of $12,000 ($68,000 in the nine months). The net appreciation on Medallion Bank and other controlled subsidiaries described above is net of the dividends declared by them to us of $0 and $3,000,000 in the 2016 second quarter and six months, and were $5,000,000 and $15,889,000 in the comparable 2015 periods.

Our net realized gains on investments were $2,499,000 and a loss of $7,000 in the 2016 quarter and nine months, compared to gains of $353,000 and 8,576,000 in the 2015 quarter and nine months, an increase in realized gains of $2,146,000 in the quarter and an increase of realized loss of $8,583,000 in the nine months. The 2016 activity reflected the gains on the sale of commercial loans and other securities of $2,904,000 ($3,307,000 in the nine months), slightly offset by direct chargeoffs of $232,000 ($252,000 in the nine months) and reversals described in the unrealized paragraph above. The 2015 activity reflected the reversals described in the unrealized paragraph above, and other gains on equity investments of $615,000 ($849,000 in the nine months) and reversals of $0 ($4,809,000 in the nine months) of unrealized appreciation related to sales of other controlled subsidiaries, partially offset by $53,000 ($3,296,000 of gains in the nine months) of other losses from the other controlled subsidiaries sales and net direct chargeoffs of loans of $11,000 ($78,000 in the nine months).

Our net realized/unrealized gains on investments were $7,649,000 and $18,427,000 in the 2016 quarter and nine months, compared to $3,076,000 and $8,996,000 in the 2015 periods, an increase of $4,573,000 or 149% and $9,431,000 or 105% in net gains in the 2016 periods, 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.

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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 $81,985,000 with a weighted average interest rate of 3.63%, constituting 23% of our total indebtedness, and unsecured notes of $33,625,000 with a weighted average interest rate of 9%, constituting 10% of our total indebtness as of September 30, 2016. Also, as of September 30, 2016, 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 59 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.

The following table presents our interest rate sensitivity gap at September 30, 2016, compared to the respective positions at the end of 2015 and 2014. The principal amounts of interest earning assets are assigned to the time frames in which such principal amounts are contractually obligated to be repriced. We have not reflected an assumed annual prepayment rate for such assets in this table.


September 30, 2016 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	$	—		$	—		$	—	$	—	$	—		$	—	$	—		$	—
Adjustable rate		26,609			3,812			—		—		—			—		—			30,421
Fixed-rate		183,307			79,431			40,146		18,762		18,924			1,681		9,917			352,168
Cash		24,708			—			—		—		—			—		—			24,708

Total earning assets	$	234,624		$	83,243		$	40,146	$	18,762	$	18,924		$	1,681	$	9,917		$	407,297

Interest bearing liabilities
Revolving lines of credit	$	108,284		$	—		$	—	$	—	$	—		$	—	$	—		$	108,284
Notes payable to banks		95,194			32			36		—		40			—		—			95,302
SBA debentures		4,500			—			3,000		—		15,985			—		58,500			81,985
Unsecured notes		—			—			—		—		33,625			—		—			33,625
Preferred securities		33,000			—			—		—		—			—		—			33,000

Total liabilities	$	240,978		$	32		$	3,036	$	—	$	49,650		$	—	$	58,500		$	352,196

Interest rate gap	($	6,354	)	$	83,211		$	37,110	$	18,672	($	30,726	)	$	1,681	($	48,583	)	$	55,101

Cumulative interest rate gap ⁽²⁾	($	6,354	)	$	76,857		$	113,967	$	132,729	$	102,003		$	103,684	$	55,101			—

December 31, 2015 ⁽²⁾	($	114,848	)	$	19,834		$	86,273	$	102,726	$	125,935		$	114,139	$	71,928			—
December 31, 2014 ⁽²⁾	($	160,108	)	($	47,283	)	$	73,765	$	108,360	$	124,790		$	131,736	$	84,006			—

(1)	The ratio of the cumulative one year gap to total interest rate sensitive assets was (2%), (24%), and (37%), as of September 30, 2016 and December 31, 2015 and 2014, and was (6%), (14%), and (19%) on a combined basis with Medallion Bank.

(2)

Adjusted for the medallion loan 40% prepayment assumption results in a cumulative one year positive (negative) interest rate gap and related ratio of $35,455 or 9% for September 30, 2016, compared to ($43,838) or (9%) and ($53,066) or (12%) for December 31, 2015 and 2014, and was ($10,320) or (1%), ($77,488) or (5%), and ($28,650) or (2%) on a combined basis with Medallion Bank.

Our interest rate sensitive assets were $407,297,000 and interest rate sensitive liabilities were $352,196,000 at September 30, 2016. The one-year cumulative interest rate gap was a negative $6,354,000 or 2% of interest rate sensitive assets, compared to a negative $114,848,000 or 24% at December 31, 2015 and $160,108,000 or 37% at December 31, 2014. However, using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a positive gap of $35,455,000 or 9% at September 30, 2016. We seek to manage interest rate risk by originating adjustable-rate loans, by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, and by other options consistent with managing interest rate risk.

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On a combined basis with Medallion Bank, our interest rate sensitive assets were $1,521,247,000 and interest rate sensitive liabilities were $1,283,808,000 at September 30, 2016. The one year cumulative interest rate gap was a negative $88,901,000 or 6% of interest rate sensitive assets, compared to a negative $220,686,000 or 14% and $257,578,000 or 19% at December 31, 2015 and 2014. Using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative gap of $10,320,000 or 1% at September 30, 2016.

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 $123,000,000 of notional value of principal from various multinational banks, with termination dates ranging to October 2018. The caps provide for payments to us if various LIBOR thresholds are exceeded during the cap terms. Total cap purchases were generally fully expensed when paid, including $10,000 for the three and nine months ended September 30, 2016, and $49,000 and $81,000 for the comparable 2015 periods, and all are carried at $0 on the balance sheet at September 30, 2016.

Liquidity and Capital Resources

Our sources of liquidity are with a variety of local and regional banking institutions, unfunded commitments to sell debentures to the SBA, loan amortization and prepayments, private issuances of debt securities, participations or sales of loans to third parties, the disposition of other assets of the Company, and dividends from Medallion Bank. 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. There were $5,500,000 of unfunded commitments from the SBA, $1,500,000 of which would be issued without further capital contribution from the Company.

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 $50,000,000 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.

The components of our debt were as follows at September 30, 2016. See Note 4 to the consolidated financial statements on page 22 for details of the contractual terms of our borrowings.

(Dollars in thousands)

Balance

Percentage

Rate ⁽¹⁾

Revolving lines of credit

108,284

30.75

2.20

Notes payable to banks

95,302

27.06

3.04

SBA debentures

81,985

23.28

3.63

Unsecured notes

33,625

9.55

9.00

Preferred securities

33,000

9.37

2.96

Total outstanding debt

352,196

100

3.48

Deposits and other borrowings at Medallion Bank

931,612

—

1.16

Total outstanding debt, including Medallion Bank

1,283,808

—

1.80

(1)	Weighted average contractual rate as of September 30, 2016.

Our contractual obligations expire on or mature at various dates through September 2037. The following table shows all contractual obligations at September 30, 2016.


	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	$	108,284	$	—	$	—	$	—	$	—	$	—	$	108,284
Notes payable to banks		64,514		30,712		36		—		40		—		95,302
SBA debentures		—		—		3,000		—		15,985		63,000		81,985
Unsecured notes		—		—		—		—		33,625		—		33,625
Preferred securities		—		—		—		—		—		33,000		33,000

Total	$	172,798	$	30,712	$	3,036	$	—	$	49,650	$	96,000	$	352,196

Deposits and other borrowings at Medallion Bank		400,745		304,262		163,430		40,169		23,006		—		931,612

Total, including Medallion Bank	$	573,543	$	334,974	$	166,466	$	40,169	$	72,656	$	96,000	$	1,283,808

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Most of our borrowing relationships have maturity dates during 2016 and 2017. We have been in active and ongoing discussions with each of these lenders and have extended each of the facilities as they matured except as set forth in the following paragraph. The lenders have worked with us to extend and change the terms of the borrowing agreements. We have arranged for changes to the terms of the notes and payment and borrowing base calculations which we anticipate will facilitate our operations for the foreseeable future.

We and our subsidiaries obtain financing under lending facilities extended by various banks and other financial institutions, some of which are secured by loans, taxi medallions and other assets. Where these facilities are extended to our subsidiaries, we and others of our subsidiaries may guarantee the obligations of the relevant borrower. Five of our smallest subsidiaries are borrowers under promissory notes extended to them by a bank that total $8.8 million that came due on October 17, 2016. These loans are secured by Chicago taxi medallions owned by our subsidiaries. These notes are guaranteed by Medallion Funding, not by Medallion Financial Corp. These subsidiaries have not repaid the amounts due under the notes, and the bank has filed a suit seeking payment of these amounts. This failure to pay would constitute an event of default under other loan agreements under which we or our subsidiaries are borrowers, but the lenders under those agreements have waived the default. The majority of such waivers have been signed but will not be effective until all of the waivers have been received. If judgment is entered against us in the suit brought by the bank or entered and not satisfied within specified periods of time, this event may constitute an additional event of default under these other agreements. We have not yet asked for waivers from the other lenders of this additional default. If such waivers are required and not granted, it would lead to events of default under other of our financing arrangements. We are currently negotiating the renewal of the five loans of our subsidiaries in an effort to reach a mutually beneficial settlement.

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 had previously used Medallion Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the second quarter of 2015, we first became aware of external interest in Medallion Bank and its portfolio assets at values in excess of their book value. Expression of interest in Medallion Bank from both investment bankers and interested parties has continued through 2016. In addition, in the third quarter of 2016 there was a court ruling involving a marketplace lender that the Company believes heightens the interest of marketplace lenders to acquire or merge with Utah industrial banks. We incorporated these new factors in the Medallion Bank’s fair value analysis and the Board of Directors determined that Medallion Bank had a fair value in excess of book value. We also engaged a valuation specialist to assist the Board of Directors in their determination of Medallion Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $28,600,000 was recorded in 2016 as a component of unrealized appreciation (depreciation) on investments, in addition to Medallion Bank’s actual results of operations for the year. 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.”

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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 September 30, 2016 by $1,471,000 on an annualized basis, compared to a positive impact of $692,000 at December 31, 2015, and the impact of such an immediate increase of 1% over a one year period would have been ($575,000) at September 30, 2016, compared to ($1,855,000) at December 31, 2015. 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.

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The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at September 30, 2016. 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			9/30/2016 Total			12/31/2015
Cash	$	12,628	⁽¹⁾	$	584		$	9,294		$	34	$	2,168		$	—		$	24,708		$	30,912
Bank loans		72,026			23,028			—			—		248			—			95,302			122,429
Average interest rate		2.99	%		3.13	%		—			—		6.03	%		—			3.04	%		2.60	%
Maturity		11/16-7/18			10/16-12/20			—			—		1/17-11/18			—			10/16-12/20			2/16-12/20
Preferred securities		33,000			—			—			—		—			—			33,000			33,000
Average interest rate		2.96	%		—			—			—		—			—			2.96	%		2.58	%
Maturity		9/37			—			—			—		—			—			9/37			9/37
Unsecured notes		33,625			—			—			—		—			—			33,625			—
Average interest rate		9.00	%																9.00	%		—
Maturity		4/21																	4/21			—
Bank loans		—			108,284			—			—		—			—			108,284			129,518
Average interest rate		—			2.20	%		—			—		—			—			2.20	%		2.05	%
Maturity		—			12/16			—			—		—			—			12/16			12/16
Margin loans		—			—			—			—		—			—			—			45,108
Average interest rate		—	%		—			—			—		—			—			—	%		1.48	%
Maturity		N/A			—			—			—		—			—			N/A			N/A
SBA debentures		—			—			54,000			—		33,485			—			87,485			77,485
Amounts undisbursed ⁽²⁾		—			—			5,500	⁽²⁾		—		—			—			5,500			3,000
Amounts outstanding		—			—			48,500			—		33,485			—			81,985			74,485
Average interest rate		—			—			3.42	%		—		3.92	%		—			3.63	%		3.52	%
Maturity		—			—			3/21-3/27			—		3/19-9/23			—			3/19-3/27			3/19-3/26

Total debt outstanding	$	138,651		$	131,312		$	48,500		$	—	$	33,733		$	—		$	352,196		$	404,540

Including Medallion Bank
Cash		—			—			—			—		—		$	64,565		$	64,565		$	23,094
Deposits and other borrowings		—			—			—			—		—			931,612			931,612			908,896
Average interest rate		—			—			—			—		—			1.16	%		1.16	%		1.04	%
Maturity		—			—			—			—		—			10/16-8/21			10/16-8/21			1/16-12/20

Total cash	$	12,628		$	584		$	9,294		$	34	$	2,168		$	64,565		$	89,273		$	54,006

Total debt outstanding	$	138,651		$	131,312		$	48,500		$	—	$	33,733		$	931,612		$	1,283,808		$	1,313,436

(1)	$7,838 is pledged to a lender of an affiliate.

(2)	$4,000 of this requires a $2,000 capital contribution from the Company.

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

Recently Issued Accounting Standards

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The update clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 enhances the reporting model for stock compensation and provides users of financial statements with more decision-useful information. ASU 2016-09 simplifies guidance on several aspects of the accounting for shared-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flow. The update, as amended, is effective for annual periods beginning after December 15, 2016. We do not believe this update will have a material impact on our financial condition.

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In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for leases classified as operating under current GAAP. ASU 2016-02 applies to all entities and is effective for fiscal years beginning after December 15, 2018 for public entities and is effective for fiscal years beginning after December 15, 2019 for all other entities, with early adoption permitted. We are assessing the impact the update will have on our financial condition and results of operations.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The main objective of this Update is to enhance the reporting model for financial instruments and provide users of financial statements with more decision-useful information. ASU 2016-01 requires equity investments to be measured at fair value, simplifies the impairment assessment of equity investment without readily determinable fair value, eliminates the requirements to disclose the fair value of financial instruments measured at amortized cost, and requires public business entities to use the exit price notion when measuring the fair value of financial instruments. The update, as amended, is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We do not believe this update will have a material impact on our financial condition.

Common Stock

Our common stock is quoted on NASDAQ under the symbol “MFIN.” Our common stock commenced trading on May 23, 1996. As of November 8, 2016, there were approximately 293 holders of record of our common stock.

On November 8, 2016, the last reported sale price of our common stock was $4.24 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.


2016	DISTRIBUTIONS DECLARED		HIGH		LOW
Third Quarter	$	0.05	$	8.12	$	3.95
Second Quarter		0.05		9.42		7.00
First Quarter		0.25		9.90		6.11

2015
Fourth Quarter	$	0.25	$	8.76	$	6.36
Third Quarter		0.25		9.23		6.17
Second Quarter		0.25		11.01		8.35
First Quarter		0.25		10.80		9.06

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 15th 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 December 31, 2015		413,193		7.77		413,193		24,398,115
January 1 through September 30, 2016		161,174		5.19		161,174		23,561,324

Total		2,731,125		8.75		2,731,125

(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, which was further increased to a total of $20,000,000 in July 2014, and which was further increased to a total of $26,000,000 in July 2015. 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 October 2016, we extended the terms of the Stock Repurchase Program. Purchases were to commence no earlier than November 2016 and were to conclude 180 days after the commencement of the purchases.

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, 2015.

ITEM 4. CONTROLS AND PROCEDURES

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting pursuant to Rules 13a—15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, and have concluded that they are effective as of September 30, 2016. In addition, based on our evaluation as of September 30, 2016, there have been no changes that occurred during the 2016 nine months that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We and our subsidiaries are currently involved in various legal proceedings incidental 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.

ITEM 1A. RISK FACTORS

Risks Relating to Our Business and Structure

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

There have been recent changes in the taxicab and for-hire vehicle industries that have resulted in increased competition in all of our taxi medallion markets. Ridesharing applications, or ridesharing apps, utilized by for-hire vehicles were introduced in New York City in 2011 and continue to expand domestically and globally. Many of these for-hire vehicle operators operate outside of the regulatory regime with which we and our borrowers operate, which poses an increased risk of competition because such operators are able to pass the cost savings of not having to comply with certain regulations to its passengers. According to the Taxi and Limousine Commission, or TLC, between January 2015 and October 2016, approximately 9,300 new for-hire vehicle licenses were issued, increasing the total number of for-hire vehicles to approximately 81,300 as of July 31, 2016, a 13% increase from January 2015.

In addition, 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 the TLC has issued approximately 8,200 Street Hail Livery licenses since June 2013, of which approximately 5,000 are active.

TLC annualized data through June 2016 has shown a 7.9% reduction in the average daily New York City taxicab fare totals, including tips, compared to the same period in 2015, and a 10.0% reduction in the average daily number of New York City taxicab trips. Such reductions in fare totals and taxicab trips are likely the result of a combination of ridesharing apps, Street Hail Livery licenses, and other forms of public transportation.

As of September 30, 2016, 15.9% of our managed medallion loan portfolio and 19.4% of our on-balance sheet loan portfolios were 90 days or more past due, compared to 4.1% and 3.8% at December 31, 2015. As discussed in further detail below, there have also been recent decreases in the values of our medallion loan collateral and our Chicago medallions purchased out of foreclosure. Increased competition from ridesharing apps and Street Hail Livery licenses has reduced our market share, the overall market for taxicab services, the supply of taxicab drivers, income from operating medallions and the value of taxicab medallions. If these trends continue and intensify, there would be a material increase to our loan to value ratios, loan delinquencies, and loan defaults resulting in a material adverse effect on our business, financial condition, and results of operations.

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

A significant portion of our loan revenue is derived from loans collateralized by New York City taxicab medallions. According to TLC data, over the past 20 years New York City taxicab medallions had appreciated in value from under $200,000 to $1,320,000 for corporate medallions and $1,050,000 for individual medallions in 2014. Over approximately the last two years, however, taxicab medallions have declined in value. Since the September 30, 2014 peak valuation, the value of New York City taxicab medallions decreased by approximately 46% for individual medallions and 43% for corporate medallions. As reported by the TLC, individual (owner-driver) medallions sold for approximately $572,000 and corporate medallions sold for approximately $750,000 as of September 30, 2016.

We own 159 Chicago taxicab medallions that were purchased out of foreclosure in 2003. Additionally, a portion of our loan revenue is derived from loans collateralized by Chicago taxicab medallions. The Chicago medallions had appreciated in value from $50,000 in 2003 to approximately $370,000 in 2013. Since that time, however, there has been a decline in the value of Chicago taxicab medallions. The medallion sale transactions reported by the City of Chicago during the last nine months have been unrepresentative of a liquid market, and have not been considered for valuation purposes.

Decreases in the value of our medallion loan collateral has resulted in an increase in the loan-to-value ratios of our medallion loans. We estimate that the weighted average loan-to-value ratio of all of our medallion loans was approximately 92% as of September 30, 2016 and 76% as of December 31, 2015. If taxicab medallion values continue to decline, there would be an increase in medallion loan delinquencies, foreclosures and borrower bankruptcies. Our ability to recover on defaulted medallion loans by foreclosing on and

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selling the medallion collateral would be diminished, which would result in material losses on defaulted medallion loans which would have a material adverse effect on our business. A substantial decrease in the value of our Chicago medallions purchased out of foreclosure would adversely affect our ability to dispose of such medallions at times when it may be advantageous for us to do so. If we are required to liquidate all or a portion of our medallions quickly, we would realize less than the value at which we had previously recorded such medallions.

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 September 30, 2016, we had $352,196,000 of outstanding indebtedness, which had a weighted average borrowing cost of 3.48% at September 30, 2016, and our wholly-owned unconsolidated portfolio companies, primarily Medallion Bank, had $931,612,000 of outstanding indebtedness at a weighted average borrowing cost of 1.16%.

Most of our relationships have maturity dates during 2016 and 2017. We have been in active and ongoing discussions with each of these lenders and have extended each of the facilities as they matured except as set forth in the following risk factor. The lenders have worked with us to extend and change the terms of the borrowing agreements. See also note 14, for a discussion of the new lending arrangements to date.

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

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

We and our subsidiaries obtain financing under lending facilities extended by various banks and other financial institutions, some of which are secured by loans, taxi medallions and other assets. Where these facilities are extended to our subsidiaries, we and others of our subsidiaries may guarantee the obligations of the relevant borrower. Five of our smallest subsidiaries are borrowers under promissory notes extended to them by a bank that total $8.8 million that came due on October 17, 2016. These loans are secured by Chicago taxi medallions owned by our subsidiaries. These notes are guaranteed by Medallion Funding, not by Medallion Financial Corp. These subsidiaries have not repaid the amounts due under the notes, and the bank has filed a suit seeking payment of these amounts. This failure to pay would constitute an event of default under other loan agreements under which we or our subsidiaries are borrowers, but we are in the process of seeking to obtain waivers of such default from the lenders under those agreements. The majority of such waivers have been signed but will not be effective until all of the waivers have been received. If judgment is entered against us in the suit brought by the bank or entered and not satisfied within specified periods of time, this event may constitute an additional event of default under these other agreements. We have not yet asked for waivers from the other lenders of this additional default. If such waivers are required and not granted, it would lead to events of default under other of our financing arrangements. We are currently negotiating the renewal of the five loans of our subsidiaries in an effort to reach a mutually beneficial settlement for a renewal will be reached.

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

Our loan and credit agreements contain financial covenants and other restrictions relating to borrowing base eligibility, tangible net worth, net income, leverage ratios, 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 or a rise in borrower delinquencies. A breach of these covenants could result in an event of default under the applicable debt instrument. Such a default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision. Certain other events can constitute an event of default. 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.

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.

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

Every city in which we originate medallion loans, and most other major cities in the United States, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. If this were to occur, the value of the collateral securing our then outstanding medallion loans in that market would be adversely affected. We are unable to forecast with any degree of certainty whether any other potential increases in the supply of medallions will occur.

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

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 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

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

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

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

As a regulated entity, Medallion Bank is subject to periodic routine examination from its regulators. Medallion Bank is currently undergoing such an examination, and while the final results of the examination are unknown at this time, it is possible that the regulators could require additional loan loss reserves or other financial adjustments at the Bank. While this would be, if it occurs at all, a subsequent event to our current regulatory filings, it is possible that the regulators could require the Bank to record any adjustment as a restatement of the Bank’s previously filed regulatory reports, resulting in certain of the supplemental Medallion Bank disclosures in this Form 10-Q to differ from the adjusted numbers. The Company would assess as appropriate any such restatement to the Bank’s regulatory reports and its effect, if any, on the carrying value of Medallion Bank, and if there is no material change on the carrying value there would be no change required in the Form 10-Q.

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

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

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

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

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.

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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:

•

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. As of September 30, 2016, our asset coverage was approximately 272%, calculated on a consolidated basis, and 250% calculated on an unconsolidated basis.

•

Any amounts that we use to service our debt or make payments on preferred stock will not be available for distributions to our common shareholders.

•

It is likely that any senior securities 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.

•

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

•

Preferred stock or any convertible or exchangeable securities that we issue in the future may have rights, preferences, and privileges more favorable than those of our common stock, including separate voting rights, and could delay or prevent a transaction or a change in control to the detriment of the holders of our common stock.

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.

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Since our investments in assets that are not “qualifying assets” exceeded 30% of our total assets as of September 30, 2016, we are precluded from making any follow-on investments in Medallion Bank and our City of Chicago taxicab medallions purchased out of foreclosure, and 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 investments other than securities on the consolidated balance sheet, are non-qualifying assets. As of September 30, 2016, the percentage of our total assets that were invested in non-qualifying assets were up to 40.6% on an unconsolidated basis and up to 35.1% on a consolidated basis. We did not satisfy the requirement that no more than 30% of our total assets be comprised of non-qualifying assets, and are currently not permitted to acquire any non-qualifying assets. We are therefore unable to make any investments in non-qualifying assets, including follow-on investments in Medallion Bank and our City of Chicago taxicab medallions purchased out of foreclosure. As a result of such failure, we could also be precluded from investing in what we believe are attractive investments or could be required to dispose of non-qualifying assets at times or on terms that may be disadvantageous to us. We would also not be able to support Medallion Bank’s capital requirements, if any, and Medallion Bank may also not be able to grow as quickly because we are precluded from providing additional funding to Medallion Bank. Any of the foregoing consequences could have a material adverse effect on us. If we purchase a non-qualifying asset after failing to satisfy the requirement that no more than 30% of our total assets be comprised of non-qualifying assets, then we would be deemed to be in violation of the 1940 Act and the violation could also result in an event of default on our debt obligations. 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 are exploring measures to return the amount of qualifying assets to at least 70% of our total assets. However, we cannot guarantee that we will be able to do so. 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 continue to fail to satisfy the requirement that no more than 30% of our total assets be comprised of non-qualifying assets.

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.

•

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.

•

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.

•

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. 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.

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The Code’s diversification requirements may limit our ability to expand our business, and our inability to meet such requirements could have a material adverse effect on 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. We monitor our compliance with these asset tests and any other investment concentrations in conjunction with the diversification tests. As of September 30, 2016, our largest investment subject to this test was our investment in Medallion Bank, representing 35.7% of our RIC assets, and no other investments were more than 5% of our RIC assets. We are currently evaluating options that could enable us to cure our failure of the 25% asset diversification test. We cannot guarantee that we will be successful in curing such failure. If we are unable to cure this failure, we may be restricted from investing additional capital in Medallion Bank. Our inability to cure the failure would result in us not being eligible to file our tax returns as a RIC for 2016.

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 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

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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.

During 2014, one of our SBIC subsidiaries, Freshstart, was examined by the SBA. The SBA issued a report related to such examination in February 2015 and Freshstart has responded to the SBA’s report. The ultimate outcome of the foregoing regulatory examination cannot be predicted with any certainty at this time.

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 periodically evaluate 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 be unwilling to match our competitors’ pricing, terms, and structure of certain loans and investments opportunities due to potential risks, which may result in us earning less income than our competitors. If we are forced to match our competitors’ pricing, terms, and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. 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.

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.

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

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

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

We are primarily a holding company, and we derive most of our operating income and cash flow from our subsidiaries. As a result, we rely heavily upon distributions from our subsidiaries to generate the funds necessary to make distribution payments to our shareholders. Funds are provided to us by our subsidiaries through dividends and payments on intercompany indebtedness, but we cannot assure you that our subsidiaries will be in a position to continue to make these dividend or debt payments. The Utah Department of Financial Institutions and FDIC have the authority to prohibit or to limit the payment of dividends by Medallion Bank. In addition, as a condition to receipt of FDIC insurance, Medallion Bank entered into a capital maintenance agreement with the FDIC requiring it to maintain a 15% leverage ratio (Tier 1 capital to 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 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.

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 establish reserves for loan 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 review 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, market conditions for loans (e.g., values used by other lenders and any active bid/ask market), 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 September 30, 2016, our net unrealized appreciation on investments was $43,415,000 or 8.01% of our investment portfolio, and the appreciation on our investments other than securities and other assets was $10,094,000 or 109% of our investments other than securities.

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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. We have experienced a significant downward movement in medallion collateral values which may continue, and has caused a negative impact on our valuation analysis and could result in a significantly lower fair market value measurement of our portfolio.

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

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 September 30, 2016 by approximately $1,471,000 on an annualized basis, compared to a positive impact of $692,000 at December 31, 2015, and the impact of such an immediate increase of 1% over a one year period would have been approximately ($575,000) at September 30, 2016, compared to ($1,855,000) at December 31, 2015. 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.

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,

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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.

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.

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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

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 September 30, 2016, investments in New York City taxi medallion loans represented approximately 74% of our managed taxi medallion loans, which in turn represented 40% 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.

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

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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 September 30, 2016, 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. In September 2015, one loan was sold at a discount to a third party, and the related proceeds are held in escrow pending resolution of the bankruptcy proceedings. One loan was charged off in September 2014. See page 51 for additional information regarding this matter.

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 September 30, 2016 and December 31, 2015. 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:		November 9, 2016

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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