MEDALLION FINANCIAL CORP - Quarter Report: 2019 June (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 June 30, 2019

☐	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 001-37747

MEDALLION FINANCIAL CORP.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE

04-3291176

(State of Incorporation)

(IRS Employer

Identification No.)

437 MADISON AVENUE, 38^th Floor

NEW YORK, NEW YORK 10022

(Address of Principal Executive Offices) (Zip Code)

(212) 328-2100

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbols

Name of each exchange

on which registered

Common Stock, par value $0.01 per share

9.000% Senior Notes due 2021

MFIN

MFINL

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

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

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

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in 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 August 6, 2019 was 24,609,815.

MEDALLION FINANCIAL CORP.

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS	3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	45

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	73

ITEM 4. CONTROLS AND PROCEDURES	73

PART II—OTHER INFORMATION	74

ITEM 1. LEGAL PROCEEDINGS	74

ITEM 1A. RISK FACTORS	74

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	74

ITEM 6. EXHIBITS	75

SIGNATURES	76

CERTIFICATIONS

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

This report contains forward-looking statements relating to future events and future performance applicable to us within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions, or future strategies that are signified by the words expects, anticipates, intends, believes, or similar language. 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 control of the Company. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statements. 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. You should consider these risks and those described under Risk Factors in the Company’s Annual Report on Form 10-K and others that are detailed in the other reports that the Company files from time to time with the Securities and Exchange Commission.

Page 2 of 76

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BASIS OF PREPARATION

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

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

•

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

•

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

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

We historically have had a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. Recently, our strategic growth has been through Medallion Bank which originates consumer loans for the purchase of recreational vehicles, boats, and trailers, and to finance small-scale home improvements. Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 16% (19% if there had been no loan sales during 2016, 2017, and 2018). In January 2017, we announced our plans to transform our overall strategy. We are transitioning away from medallion lending and placing our strategic focus on our growing consumer finance portfolio. Total assets under management, which includes our portfolio, as well as assets serviced for third party investors, were $1,620,000,000 as of June 30, 2019, and were $1,522,000,000 as of December 31, 2018, and have grown at a compound annual growth rate of 9% from $215,000,000 at the end of 1996. Since our initial public offering in 1996, we have paid distributions in excess of $263,060,000 or $14.66 per share.

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

•

Medallion Bank, or the Bank, an FDIC-insured industrial bank that originates consumer loans, raises deposits, and conducts other banking activities, and has a separate board of directors with a majority of independent directors;

•

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

•

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

•

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

•

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

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

Our consolidated balance sheet as of June 30, 2019, and the related consolidated statements of operations, consolidated statements of other comprehensive loss, consolidated statements of stockholders’ equity and cash flows for the quarter and six months then ended included in Item 1 have been prepared by us, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the US have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly our consolidated financial position and results of operations. The results of operations for the quarter and six months ended June 30, 2019 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, 2018.

Page 3 of 76

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)	UNAUDITED June 30, 2019			December 31, 2018
Assets
Cash ⁽¹⁾	$	35,138		$	23,842
Federal funds sold		37,010			33,871
Equity investments		9,797			9,197
Investment securities		44,820			45,324
Loans		1,088,475			1,017,882
Allowance for losses		(40,670	)		(36,395	)
Net loans receivable		1,047,805			981,487
Accrued interest receivable		7,742			7,413
Property, equipment, and right-of-use lease asset, net		12,821			1,222
Loan collateral in process of foreclosure ⁽²⁾		52,368			49,495
Goodwill		150,803			150,803
Intangible assets, net		53,259			53,982
Other assets		30,390			25,210
Total assets	$	1,481,953		$	1,381,846
Liabilities
Accounts payable and accrued expenses ⁽³⁾	$	20,223		$	18,789
Accrued interest payable		4,205			3,852
Deposits		927,658			848,040
Short-term borrowings		46,688			55,178
Deferred tax liabilities and other tax payables		5,412			6,973
Operating lease liabilities		11,273			—
Long-term debt		180,990			158,810
Total liabilities		1,196,449			1,091,642
Commitments and contingencies ⁽⁴⁾
Stockholders’ equity
Preferred stock (1,000,000 shares of $0.01 par value stock authorized-none outstanding)	—				—
Common stock (50,000,000 shares of $0.01 par value stock authorized- 27,550,801 shares at June 30, 2019 and 27,385,600 shares at December 31, 2018 issued)		275			274
Additional paid in capital		274,796			274,292
Treasury stock (2,951,243 shares at June 30, 2019 and December 31, 2018)		(24,919	)		(24,919	)
Accumulated other comprehensive income (loss)		1,145			(82	)
Retained earnings		6,771			13,043
Total stockholders’ equity		258,068			262,608
Non-controlling interest in consolidated subsidiaries		27,436			27,596
Total equity		285,504			290,204
Total liabilities and equity	$	1,481,953		$	1,381,846
Number of shares outstanding		24,599,558			24,434,357
Book value per share	$	10.49		$	10.75

(1)	Includes restricted cash of $2,475 as of June 30, 2019.

(2)	Includes financed sales of this collateral to third parties that are reported separately from the loan portfolio, and that are conducted by the Bank of $4,290 as of June 30, 2019 and $3,134 as of December 31, 2018.

(3)	Includes the short-term portion of lease liabilities of $1,872 as of June 30, 2019. Refer to Note 8 for more details.

(4)	Refer to Note 14 for details.

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

Page 4 of 76

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Bank Holding Company Accounting						Bank Holding Company Accounting			Combined ⁽¹⁾
(Dollars in thousands, except per share data)	For the Three Months Ended June 30, 2019			For the Six Months Ended June 30, 2019			For the Three Months Ended June 30, 2018			For the Six Months Ended June 30, 2018
Interest and fees on loans	$	31,313		$	60,752		$	32,026		$	32,026
Interest and dividends on investment securities		669			1,235			588			602
Medallion lease income		33			71			30			70
Interest income on investments	—			—				—			3,287
Dividend income from controlled subsidiaries	—			—				—			28
Interest income from affiliated investments	—			—				—			654
Interest income from controlled subsidiaries	—			—				—			10
Total interest income⁽²⁾/total investment income⁽²⁾		32,015			62,058			32,644			36,677
Interest on deposits		5,485			10,406			4,200			4,200
Interest on short-term borrowings		904			1,886			1,859			1,859
Interest on long-term debt		2,432			4,251			1,866			1,866
Interest expense	—			—				—			3,551
Total interest expense⁽³⁾		8,821			16,543			7,925			11,476
Net interest income/net investment income		23,194			45,515			24,719			25,201
Provision for loan losses		15,171			28,514			30,576			30,576
Net interest income (loss) after provision for loan losses		8,023			17,001			(5,857	)		(5,375	)
Other income (loss)
Sponsorship and race winnings		4,889			8,068			5,228			5,228
Change in collateral value on in process of foreclosure		(1,972	)		(4,091	)		(96	)		(96	)
Gain on the extinguishment of debt	—				4,145			—			—
Impairment of equity investments	—			—				(474	)		(474	)
Other income (loss)		(1,234	)		424			220			280
Total other income, net		1,683			8,546			4,878			4,938
Other expenses
Salaries and employee benefits		6,321			11,662			5,639			7,988
Race team related expenses		2,550			4,548			2,540			2,540
Collection costs		2,253			2,891			837			957
Professional fees		2,048			3,684			2,246			2,969
Loan servicing fees		1,293			2,487			1,128			1,128
Rent expense		577			1,177			591			834
Regulatory fees		448			895			582			582
Amortization of intangible assets		362			723			361			361
Travel, meals, and entertainment		205			470			603			809
Other expenses⁽⁴⁾		2,127			4,349			2,399			2,866
Total other expenses		18,184			32,886			16,926			21,034
Loss before income taxes/net investment loss before taxes⁽⁵⁾		(8,478	)		(7,339	)		(17,905	)		(21,471	)
Income tax benefit		1,835			2,091			4,021			4,357
Net loss after taxes/net investment loss after taxes		(6,643	)		(5,248	)		(13,884	)		(17,114	)
Net realized losses on investments⁽⁶⁾		—			—			—			(34,745	)
Income tax benefit		—			—			—			8,426
Total net realized losses on investments		—			—			—			(26,319	)
Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries		—			—			—			29,115
Net change in unrealized depreciation on investments other than securities		—			—			—			(1,915	)
Net change in unrealized depreciation on investments		—			—			—			(4,403	)
Income tax provision		—			—			—			(8,122	)
Net unrealized appreciation on investments		—			—			—			14,675
Net realized/unrealized losses on investments		—			—			—			(11,644	)
Net loss after taxes/net decrease on net assets resulting from operations		(6,643	)		(5,248	)		(13,884	)		(28,758	)
Less: income attributable to the noncontrolling interest		857			1,024			763			763
Total net loss attributable to Medallion Financial Corp./net decrease on net assets resulting from operations	$	(7,500	)	$	(6,272	)	$	(14,647	)	$	(29,521	)
Basic and diluted net loss per share	$	(0.31	)	$	(0.26	)	$	(0.60	)	$	(1.22	)
Distributions declared per share	$	—		$	—		$	—		$	—
Weighted average common shares outstanding
Basic and diluted		24,359,280			24,323,967			24,230,815			24,193,057

(1)	Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.

(2)	Included in interest and investment income is $188 and $425 of paid in kind interest for the three and six months ended June 30, 2019 and $487 and $978 for the comparable 2018 periods.

Page 5 of 76

(3)	Average borrowings outstanding were $1,127,509 and $1,108,512, and the related average borrowing costs were 3.14% and 3.01% for the three and six months ended June 30, 2019, and were $1,197,450 and $1,201,386 and 2.65% and 1.93% for the comparable 2018 periods.

(4)	See Note 12 for the components of other operating expenses as of March 31, 2018.

(5)	Includes $256 of net revenues received from Medallion Bank for the three months ended March 31, 2018, primarily for expense reimbursements. See Notes 6 and 15 for additional information.

(6)	There were no net losses on investment securities of affiliated issuers for the three months ended March 31, 2018.

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

Page 6 of 76

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME/(LOSS)

(UNAUDITED)

	Bank Holding Company Accounting						Bank Holding Company Accounting			Combined ⁽¹⁾
(Dollars in thousands)	For the Three Months Ended June 30, 2019			For the Six Months Ended June 30, 2019			For the Three Months Ended June 30, 2018			For the Six Months Ended June 30, 2018
Net loss after taxes/net decrease on net assets resulting from operations	$	(6,643	)	$	(5,248	)	$	(13,884	)	$	(28,758	)
Other comprehensive income (loss), net of tax		558			1,227			(255	)		(255	)
Total comprehensive loss		(6,085	)		(4,021	)		(14,139	)		(29,013	)
Less: comprehensive income attributable to the noncontrolling interest		857			1,024			763			763
Total comprehensive loss attributable to Medallion Financial Corp.	$	(6,942	)	$	(5,045	)	$	(14,902	)	$	(29,776	)

(1)	Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.

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

Page 7 of 76

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND CHANGES IN NET ASSETS

(UNAUDITED)

	Bank Holding Company Accounting
(Dollars in thousands)	Common Stock Shares			Common Stock		Preferred Stock		Capital in Excess of Par		Treasury Stock Shares			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income			Total Stockholders’ Equity			Non- controlling Interest			Total Equity
Balance at December 31, 2018		27,385,600		$	274		—	$	274,292		(2,951,243	)	$	(24,919	)	$	13,043		$	(82	)	$	262,608		$	27,596		$	290,204
Net income		—			—		—		—		—			—			1,228			—			1,228			167			1,395
Distributions to non- controlling interest		—			—		—		—		—			—			—			—			—			(592	)		(592	)
Stock-based compensation		—			1		—		164		—			—			—			—			165			—			165
Issuance of restricted stock, net		163,098			—		—		—		—			—			—			—			—			—			—
Forfeiture of restricted stock, net		(1,699	)		—		—		—		—			—			—			—			—			—			—
Net change in unrealized gains on investments, net of tax		—			—		—		—		—			—			—			669			669			—			669
Balance at March 31, 2019		27,546,999		$	275		—	$	274,456		(2,951,243	)	$	(24,919	)	$	14,271		$	587		$	264,670		$	27,171		$	291,841
Net income		—			—		—		—		—			—			(7,500	)		—			(7,500	)		857			(6,643	)
Distributions to non-controlling interest		—			—		—		—		—			—			—			—			—			(592	)		(592	)
Stock-based compensation		—			—		—		340		—			—			—			—			340			—			340
Issuance of restricted stock, net		4,751			—		—		—		—			—			—			—			—			—			—
Forfeiture of restricted stock, net		(949	)		—		—		—		—			—			—			—			—			—			—
Net change in unrealized gains on investments, net of tax		—			—		—		—		—			—			—			558			558			—			558
Balance at June 30, 2019		27,550,801		$	275		—	$	274,796		(2,951,243	)	$	(24,919	)	$	6,771		$	1,145		$	258,068		$	27,436		$	285,504

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

Page 8 of 76

	Bank Holding & Investment Company Accounting														Investment Company Accounting								Bank Holding Company Accounting									Bank Holding & Investment Company Accounting
(Dollars in thousands)	Common Stock Shares		Common Stock		Preferred Stock		Capital in Excess of Par		Treasury Stock Shares			Treasury Stock			Accumulated undistributed net investment loss			Accumulated undistributed net realized gains on investments		Net unrealized appreciation on investments, net of tax			Retained Earnings			Accumulated Other Comprehensive Income			Total Stockholders’ Equity			Noncontrolling Interest			Total Equity
Balance at December 31, 2017		27,294,327	$	273		—	$	273,716		(2,951,243	)	$	(24,919	)	$	(65,592	)		—	$	103,681		$	—		$	—		$	287,159		$	—		$	287,159
Net decrease in net assets resulting from operations		—		—		—		—		—			—			(38,299	)		—		23,425			—			—			(14,874	)		—			(14,874	)
Stock-based compensation expense		—		1		—		151		—			—			—			—		—			—			—			152			—			152
Issuance of restricted stock, net		95,726		—		—		—		—			—			—					—			—			—			—			—
Balance at March 31, 2018		27,390,053		274		—		273,867		(2,951,243	)		(24,919	)	$	(103,891	)		—		127,106			—			—			272,437			—			272,437
Adoption of Bank Holding Company Accounting		—		—		—		—		—			—			103,891			—		(127,106	)		23,215			—			—			—			—
Balance at April 2, 2018		27,390,053		274		—		273,867		(2,951,243	)		(24,919	)		—			—		—			23,215			—			272,437			27,065			299,502
Net loss		—		—		—		—		—			—			—			—		—			(14,647	)		—			(14,647	)		763			(13,884	)
Distributions to noncontrolling interest		—		—		—		—		—			—			—			—		—			—			—			—			(592	)		(592	)
Stock-based compensation		—				—		145		—			—			—			—		—			—			—			145			—			145
Issuance of restricted stock, net		13		—		—		—		—			—			—					—			—			—			—			—
Net change in unrealized losses on investments, net of tax		—		—		—		—		—			—			—			—		—			—			(255	)		(255	)		—			(255	)
Balance at June 30, 2018		27,390,066	$	274		—	$	274,012		(2,951,243	)	$	(24,919	)		—		—			—		$	8,568		$	(255	)	$	257,680		$	27,236		$	284,916

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

Page 9 of 76

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Bank Holding Company Accounting			Combined ⁽¹⁾
(Dollars in thousands)	For the Six Months Ended June 30, 2019			For the Six Months Ended June 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/net (decrease) in net assets resulting from operations	$	(5,248	)	$	(28,758	)
Adjustments to reconcile net loss/net decrease in net assets resulting from operations to net cash provided by operating activities:
Provision for loan losses		28,514			30,576
Paid-in-kind interest		(425	)		(978	)
Depreciation and amortization		4,186			1,283
(Decrease) increase in deferred and other tax liabilities		(1,560	)		3,204
Amortization of origination fees, net		2,389			1,045
Proceeds from the sale and principal payments on loan collateral in process of foreclosure		9,167			—
Net change in loan collateral in process of foreclosure		7,411			2,967
Net change in unrealized depreciation on investments		(96	)		4,995
Stock-based compensation expense		505			297
Gain on extinguishment of debt		(4,145	)		—
(Increase) decrease in accrued interest receivable		(329	)		130
Increase in other assets		(5,505	)		(4,845	)
Decrease (increase) in accounts payable and accrued expenses		139			(675	)
Increase (decrease) in accrued interest payable		353			(249	)
Loans originated	—				(8,193	)
Proceeds from principal receipts, sales, and maturities of loans	—				13,279
Capital returned by Medallion Bank and other controlled subsidiaries, net	—				93
Net realized losses on sale of investments	—				96
Net change in unrealized depreciation on investment other than securities	—				1,915
Increase in unrealized appreciation on Medallion Bank and other controlled subsidiaries	—				(29,115	)
Net realized losses on investments	—				34,745
Increase in other liabilities	—				2,779
Net cash provided by operating activities		35,356			24,591
CASH FLOWS FROM INVESTING ACTIVITIES
Loans originated		(240,523	)		(135,205	)
Proceeds from principal receipts, sales, and maturities of loans		122,106			64,631
Purchases of investments		(1,650	)		(4,940	)
Proceeds from principal receipts, sales, and maturities of investments		2,877			732
Net cash (used for) investing activities		(117,190	)		(74,782	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from time deposits and funds borrowed		292,725			173,737
Repayments of time deposits and funds borrowed		(195,272	)		(137,822	)
Purchase of federal funds	—				8,000
Distributions to noncontrolling interests		(1,184	)		(592	)
Payments of declared distributions	—				(64	)
Net cash provided by financing activities		96,269			43,259
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		14,435			(6,932	)
Cash and cash equivalents and restricted cash, beginning of period ⁽²⁾		57,713			42,513
Cash and cash equivalents and restricted cash, end of period ⁽³⁾	$	72,148		$	35,581
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest	$	15,077		$	10,038
Cash paid during the period for income taxes		120			42

(1)	Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.

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

(3)	Includes federal funds sold.

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

Page 10 of 76

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

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

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

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

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

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

Taxi Medallion Loan Trust III (Trust III) was established for the purpose of owning medallion loans originated by MFC or others. Trust III is a variable interest entity (VIE), and MFC was the primary beneficiary. As a result, the Company consolidated Trust III in its financial results until the consummation of a restructuring in the 2018 fourth quarter. For a discussion of the restructuring, see Note 19. Trust III is a separate legal and corporate entity with its own creditors which, in any liquidation of Trust III, will be entitled to be satisfied out of Trust III’s assets prior to any value in Trust III becoming available to Trust III’s equity holders. The assets of Trust III 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 $36,140,000 at June 30, 2019, 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, some of which are leased to fleet operators while being held for sale. The 159 medallions are carried at a net realizable value of $3,091,000 in other assets on the Company’s consolidated balance sheet at June 30, 2019, compared to a net realizable value of $4,305,000 and $5,535,000 at December 31, 2018 and June 30, 2018.

Page 11 of 76

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change to Bank Holding Company Accounting

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

Use of Estimates

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

Principles of Consolidation

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

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

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash balances are generally held in accounts at large national or regional banking organizations in amounts that exceed the federally insured limits. Cash includes $2,475,000 of an interest reserve associated with the private placement of debt in March 2019, which cannot be used for any other purpose until March 2022.

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 16 and 17 to the consolidated financial statements.

Page 12 of 76

Equity Investments

Equity investments of $9,797,000 and $9,197,000 at June 30, 2019 and December 31, 2018, comprised mainly of nonmarketable stock and stock warrants, are recorded at cost and are evaluated for impairment periodically. Prior to April 2, 2018, equity investments were recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. The fair value of investments that had no ready market were determined in good faith by the Board of Directors, based upon the financial condition and operating performance of the underlying investee companies as well as general market trends for businesses in the same industry.

Investment Securities (Bank Holding Company Accounting)

The Company follows FASB ASC Topic 320, Investments – Debt and Equity Securities (ASC 320), which requires that all applicable investments in equity securities with readily determinable fair values, and debt securities be classified as trading securities, available-for-sale securities, or held-to-maturity securities. 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. The net premium on investment securities totaled $129,000 at June 30, 2019 and $154,000 at December 31, 2018, and $13,000 and $25,000 was amortized to interest income for the three and six months ended June 30, 2019, and $21,000 was amortized to interest income for the three months ended June 30, 2018. Refer to Note 3 for more details. ASC 320 further requires that held-to-maturity securities be reported at amortized cost and available-for-sale securities be reported at fair value, with unrealized gains and losses excluded from earnings at the date of the consolidated financial statements, and reported in accumulated other comprehensive income (loss) as a separate component of shareholders’ equity, net of the effect of income taxes, until they are sold. At the time of sale, any gains or losses, calculated by the specific identification method, will be recognized as a component of operating results and any amounts previously included in shareholders’ equity, which were recorded net of the income tax effect, will be reversed.

Other Investment Valuation (Investment Company Accounting)

Prior to April 2, 2018, under the 1940 Act, the Company’s investment in the Bank, as a wholly owned portfolio investment, was subject to quarterly assessments of fair value. The Company conducted a thorough valuation analysis, and also received an opinion regarding the valuation from an independent third party to assist the Board of Directors in its determination of the fair value of the Bank on at least an annual basis. The Company’s analysis included factors such as various regulatory restrictions that were established at the 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 the Bank had little value beyond its recorded book value. As a result of this valuation process, the Company had previously used the Bank’s actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments. In the 2015 second quarter, the Company first became aware of external interest in the Bank and its portfolio assets at values in excess of their book value. Expression of interest in the Bank from both investment bankers and interested parties continued. The Company incorporated these new factors in the Bank’s fair value analysis and the Board of Directors determined that the Bank had a fair value in excess of book value. In addition, in the 2016 third quarter there was a court ruling involving a marketplace lender that the Company believes heightened 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 the Bank’s fair value, and this appreciation of $15,500,000 was thereby recorded in 2015, and additional appreciation of $128,918,000 was recorded in 2016, $7,849,000 was recorded in 2017, and $39,826,000 was recorded in the first quarter of 2018. Refer to Note 6 for additional details.

Loans

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

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At June 30, 2019 and December 31, 2018, net loan origination costs were $16,786,000 and $14,416,000. The majority of these loan origination costs were capitalized into the loan balances on April 2, 2018 in connection with the change in reporting status. Net amortization to income for the three months ended June 30, 2019 and 2018 was $1,238,000 and $1,040,000, and was $2,389,000 and $1,053,000 ($1,918,000 when combined with the Bank) for the comparable six month period.

Page 13 of 76

Interest income is recorded on the accrual basis. Taxicab medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectability of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is generally recognized when cash is received, unless a determination has been made to apply all cash receipts to principal. The consumer portfolio has different characteristics, typified by a larger number of lower dollar loans that have similar characteristics. A loan is considered to be impaired, or nonperforming, when based on current information and events, it is likely the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Management considers loans that are in bankruptcy status, but have not been charged-off, to be impaired. These loans are placed on nonaccrual, when they become 90 days past due, or earlier if they enter bankruptcy, and are charged-off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever occurs first, at which time appropriate collection and recovery efforts against both the borrower and the underlying collateral are initiated. For the recreation consumer loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged-off. If the collateral is repossessed, a loss is recorded to write the collateral down to its fair value less selling costs, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off. Proceeds collected on charged-off accounts are recorded as a recovery. Total loans more than 90 days past due were $8,255,000 at June 30, 2019, or 0.78% of the total loan portfolio, compared to $20,154,000, or 2.03% at December 31, 2018.

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

The Company had $32,871,000 and $40,500,000 of net loans and loans in process of foreclosure pledged as collateral under borrowing arrangements at June 30, 2019 and December 31, 2018.

The Company accounts for its sales of loans in accordance with FASB Accounting Standards Codification Topic 860, Transfers and Servicing (FASB ASC 860), which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. In accordance with FASB ASC 860, the Company had elected the fair value measurement method for its servicing assets and liabilities. The principal portion of loans serviced for others by the Company and its affiliates was $134,122,000 at June 30, 2019 and $140,180,000 at December 31, 2018. The Company has evaluated the servicing aspect of its business in accordance with FASB ASC 860, which relates to servicing assets held by MFC (related to the remaining assets in Trust III) and determined that no material servicing asset or liability existed as of June 30, 2019 and December 31, 2018. The Company assigned its servicing rights of the Bank portfolio to MSC. The costs of servicing were allocated to MSC by the Company, and the servicing fee income was billed to and collected from the Bank by MSC.

Allowance for Loan Losses (Bank Holding Company Accounting)

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and excess concentration risks. In analyzing the adequacy of the allowance for loan losses, the Company uses historical delinquency and actual loss rates with a one year lookback period for consumer loans. For commercial loans deemed nonperforming, the historical loss experience and other projections are looked at, and for medallion loans, nonperforming loans are valued at the median sales price over the most recent quarter, and performing medallion loans are reserved utilizing historical loss ratios over a three-year lookback period. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. As a result, reserves of $5,247,000 were recorded by the Company as a general reserve on medallion loans as an additional buffer against future losses, not including the Bank’s general reserve of $17,351,000 which was netted against loan balances at consolidation on April 2, 2018. Subsequent to April 2, 2018, the Bank recorded general reserves of $6,092,000. Credit losses are deducted from the allowance and subsequent recoveries are added back to the allowance.

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

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

Page 14 of 76

Under Investment Company Accounting, the Company recognized unrealized appreciation (depreciation) on investments as the amount by which the fair value estimated by the Company is greater (less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and writeoffs of loans or assets acquired in satisfaction of loans, net of recoveries. Refer to Note 5 for additional details.

Goodwill and Intangible Assets

The Company’s goodwill and intangible assets arose as a result of the excess of fair value over book value for several of the Company’s previously unconsolidated portfolio investment companies as of April 2, 2018. This fair value was brought forward under the Company’s new reporting, and was subject to a purchase price accounting allocation process conducted by an independent third party expert to arrive at the current categories and amounts. Goodwill is not amortized, but is subject to quarterly review by management to determine whether additional impairment testing is needed, said testing which is performed at least on an annual basis. Intangible assets are amortized over their useful life of approximately 20 years. As of June 30, 2019, December 31, 2018, and June 30, 2018, the Company had goodwill of $150,803,000, which all related to the Bank, and intangible assets of $53,259,000, $53,982,000 and $60,320,000, and the Company recognized $362,000 and $361,000 of amortization expense on the intangible assets for the three months ended June 30, 2019 and 2018, and $723,000 of amortization expense on the intangible assets for the six months ended June 30, 2019. Additionally, loan portfolio premiums of $12,387,000 were determined as of April 2, 2018, of which $6,875,000, $9,048,000, and $12,387,000 were outstanding at June 30, 2019, December 31, 2018, and June 30, 2018, and of which $1,081,000 and $0 was amortized to interest income for the three months ended June 30, 2019 and 2018, and of which $2,173,000 was amortized to interest income for the six months ended June 30, 2019. The Company engaged an expert to assess the goodwill and intangibles for impairment at December 31, 2018, who concluded there was no impairment on the Bank and impairment on the RPAC intangible asset of $5,615,000, which was recorded in the 2018 fourth quarter.

The table below shows the details of the intangible assets as of the periods presented.

(Dollars in thousands)	June 30, 2019		December 31, 2018
Brand-related intellectual property	$	20,625	$	21,176
Home improvement contractor relationships		6,469		6,641
Race organization		26,165		26,165
Total intangible assets	$	53,259	$	53,982

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 $105,000 and $135,000 for the three months ended June 30, 2019 and 2018, and was $205,000 and $158,000 for the comparable six months.

Deferred Costs

Deferred financing costs, included in other assets, represent costs associated with obtaining the Company’s borrowing facilities, and are amortized on a straight line basis over the lives of the related financing agreements and life of the respective pool. Amortization expense was $597,000 and $541,000 for the three months ended June 30, 2019 and 2018, and was $1,118,000 and $764,000 for the comparable six 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 are amortized against income over an appropriate period, or written off. The amount on the Company’s balance sheet for all of these purposes was $5,584,000, $4,461,000, and $5,012,000 as of June 30, 2019, December 31, 2018, and June 30, 2018.

Page 15 of 76

Income Taxes

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

Sponsorship and Race Winnings

The Company accounts for sponsorship and race winnings revenue under FASB ASC Topic 606, Revenue from Contracts with Customers. Sponsorship revenue is recognized based upon the contract terms of the sponsorship contract. Race winnings revenue is recognized after each race during the season based upon terms provided by NASCAR and the placement of the driver.

Earnings (Loss) Per Share (EPS)

Basic earnings (loss) per share are computed by dividing net income (loss)/net increase (decrease) in net assets resulting from operations available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised, or if restricted stock vests, and has been computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and restricted stock. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants, including unvested compensation expense related to the shares, in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. The table below shows the calculation of basic and diluted EPS.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share data)	2019			2018			2019			2018
Net loss/net decrease in net assets resulting from operations available to common shareholders	$	(7,500	)	$	(14,647	)	$	(6,272	)	$	(29,521	)
Weighted average common shares outstanding applicable to basic EPS		24,359,280			24,230,815			24,323,967			24,193,057
Effect of dilutive stock options		—			—			—			—
Effect of restricted stock grants		—			—			—			—
Adjusted weighted average common shares outstanding applicable to diluted EPS		24,359,280			24,230,815			24,323,967			24,193,057
Basic loss per share	$	(0.31	)	$	(0.60	)	$	(0.26	)	$	(1.22	)
Diluted loss per share		(0.31	)		(0.60	)		(0.26	)		(1.22	)

Potentially dilutive common shares excluded from the above calculations aggregated 498,714 and 100,000 shares as of June 30, 2019 and 2018.

Stock Compensation

The Company follows FASB ASC Topic 718 (ASC 718), Compensation – Stock Compensation, for its equity incentive, stock option, and restricted stock plans, and accordingly, the Company recognizes the expense of these grants as required. Stock-based employee compensation costs pertaining to stock options are reflected in net increase in net income/net assets resulting from operations for any new grants using the fair values established by usage of the Black-Scholes option pricing model, expensed over the vesting period of the underlying option. Stock-based employee compensation costs pertaining to restricted stock are reflected in net income/net increase 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 16 of 76

During the six months ended June 30, 2019 and 2018, the Company issued 167,849 and 98,164 of restricted shares of stock-based compensation awards, and 375,481 and 24,000 shares of stock options, and recognized $340,000 and $505,000, or $0.01 and $0.02 per share for the 2019 second quarter and six months, and $145,000 and $296,000, or $0.01 per share for each of the comparable 2018 periods, of non-cash stock-based compensation expense related to the grants. As of June 30, 2019, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock was $1,831,000, which is expected to be recognized over the next 15 quarters (see Note 10).

Regulatory Capital

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

FDIC-insured banks, including the 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, the Bank is subject to certain restrictions on any extensions of credit to, or other covered transactions, such as certain purchases of assets, with the Company or its affiliates.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting the Bank’s application for federal deposit insurance, the FDIC ordered that the Tier 1 leverage capital to total assets ratio, as defined, be not less than 15%, which would preclude its ability to pay dividends to the Company, and that an adequate allowance for loan losses be maintained. As of June 30, 2019, the Bank’s Tier 1 leverage ratio was 15.96%. The Bank’s actual capital amounts and ratios, and the regulatory minimum ratios are presented in the following table.

	Regulatory
(Dollars in thousands)	Minimum			Well- Capitalized			June 30, 2019			December 31, 2018
Common equity Tier 1 capital		—			—		$	144,886		$	141,608
Tier 1 capital		—			—			171,189			167,911
Total capital		—			—			185,117			180,917
Average assets		—			—			1,072,712			1,059,461
Risk-weighted assets		—			—			1,068,566			993,374
Leverage ratio⁽¹⁾		4.0	%		5.0	%		16.0	%		15.8	%
Common equity Tier 1 capital ratio⁽²⁾		7.0			6.5			13.6			14.3
Tier 1 capital ratio⁽³⁾		8.5			8.0			16.0			16.9
Total capital ratio⁽³⁾		10.5			10.0			17.3			18.2

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

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

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

In addition, the Bank is subject to a Common Equity Tier 1 capital conservation buffer on top of the minimum risk-based capital ratios. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and increased by 0.625% each subsequent January 1 until January 1, 2019. Including the buffer, as of January 1, 2019, the Bank is required to maintain the following minimum capital ratios: a Common Equity Tier 1 risk-based capital ratio of greater than 7.0%, a Tier 1 risk-based capital ratio of greater than 8.5% and a total risk-based capital ratio of greater than 10.5%. Since the FDIC’s new capital rule has been fully phased in, the minimum capital requirements plus the capital conservation buffer exceed the Prompt Corrective Action well-capitalized thresholds.

Page 17 of 76

Recently Issued Accounting Standards

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

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

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

(3) INVESTMENT SECURITIES (Bank Holding Company Accounting)

Fixed maturity securities available for sale as of June 30, 2019 and December 31, 2018 consisted of the following:

June 30, 2019 (Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	31,083	$	488	$	(31	)	$	31,540
State and municipalities		13,155		218		(93	)		13,280
Total	$	44,238	$	706	$	(124	)	$	44,820

December 31, 2018 (Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	32,184	$	15	$	(742	)	$	31,457
State and municipalities		14,239		35		(407	)		13,867
Total	$	46,423	$	50	$	(1,149	)	$	45,324

The amortized cost and estimated market value of investment securities as of June 30, 2019 by contractual maturity are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	20	$	20
Due after one year through five years		8,889		8,959
Due after five years through ten years		12,112		12,298
Due after ten years		23,217		23,543
Total	$	44,238	$	44,820

Page 18 of 76

The following table shows information pertaining to securities with gross unrealized losses at June 30, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position.

	Less than Twelve Months				Twelve Months and Over
June 30, 2019 (Dollars in thousands)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	—	$	—	$	(31	)	$	7,401
State and municipalities		—		—		(93	)		8,016
Total	$	—	$	—	$	(124	)	$	15,417

	Less than Twelve Months					Twelve Months and Over
December 31, 2018 (Dollars in thousands)	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Mortgage-backed securities, principally obligations of US federal agencies	$	(54	)	$	4,616	$	(688	)	$	24,871
State and municipalities		(78	)		5,429		(329	)		6,259
Total	$	(132	)	$	10,045	$	(1,017	)	$	31,130

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

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

The following table shows the major classification of loans, inclusive of capitalized loan origination costs, at June 30, 2019 and December 31, 2018.

	As of June 30, 2019						As of December 31, 2018
(Dollars in thousands)	Amount			As a Percent of Gross Loans			Amount			As a Percent of Gross Loans
Recreation	$	668,540			62	%	$	587,038			58	%
Home improvement		209,549			19			183,155			18
Commercial		64,442			6			64,083			6
Medallion		145,944			13			183,606			18
Total gross loans		1,088,475			100	%		1,017,882			100	%
Allowance for loan losses		(40,670	)					(36,395	)
Total net loans	$	1,047,805					$	981,487

The following table shows the activity of the gross loans for the three and six months ended June 30, 2019.

Three Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallions			Total
Gross loans- March 31, 2019	$	609,999		$	193,275		$	55,211		$	165,715		$	1,024,200
Loan originations		102,695			33,533			9,270			—			145,498
Principal payments		(41,641	)		(16,580	)		(70	)		(3,164	)		(61,455	)
Charge-offs, net		(2,433	)		(86	)		—			(8,844	)		(11,363	)
Transfer to loans in process of foreclosure, net		(3,491	)		—			—			(6,863	)		(10,354	)
Other		3,411			(593	)		31			(900	)		1,949
Gross loans- June 30, 2019	$	668,540		$	209,549		$	64,442		$	145,944		$	1,088,475

Page 19 of 76

Six Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallions			Total
Gross loans- December 31, 2018	$	587,038		$	183,155		$	64,083		$	183,606		$	1,017,882
Loan originations		166,327			60,180			9,770			—			236,277
Principal payments		(72,890	)		(32,779	)		(9,413	)		(6,599	)		(121,681	)
Charge-offs, net		(7,363	)		(245	)		—			(16,631	)		(24,239	)
Transfer to loans in process of foreclosure, net		(6,883	)		—			—			(12,568	)		(19,451	)
Other		2,311			(762	)		2			(1,864	)		(313	)
Gross loans- June 30, 2019	$	668,540		$	209,549		$	64,442		$	145,944		$	1,088,475

The following table sets forth the activity in the allowance for loan losses for the three and six months ended June 30, 2019 and the three months ended June 30, 2018.

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2019				2018				2019
Allowance for loan losses – beginning balance	$	36,862			$	—		⁽¹⁾	$	36,395
Charge-offs
Recreation		(4,395	)			(4,646	)			(10,921	)
Home improvement		(539	)			(561	)			(1,088	)
Commercial	—					—			—
Medallion		(9,242	)			(6,280	)			(18,029	)
Total charge-offs		(14,176	)			(11,487	)			(30,038	)
Recoveries
Recreation		1,962				1,899				3,558
Home improvement		453				239				843
Commercial	—					4			—
Medallion		398				194				1,398
Total recoveries		2,813				2,336				5,799
Net charge-offs⁽²⁾		(11,363	)			(9,151	)			(24,239	)
Provision for loan losses		15,171				30,576				28,514
Allowance for loan losses – ending balance	$	40,670		⁽³⁾	$	21,425			$	40,670		⁽³⁾

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

(2)	As of June 30, 2019, cumulative net charge-offs of loans and loans in process of foreclosure in the medallion portfolio were $237,671, representing collection opportunities for the Company.

(3)

Includes $5,247 of a general reserve for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses, representing 13% of the total allowance, and 3.82% of the loans under 90 days past due as of June 30, 2019. This figure excludes $17,351 of a general reserve on loans at the Bank, much of which was netted against loan balances at consolidation on April 2, 2018. Subsequent to April 2, 2018, the Bank recorded general reserves of $6,092.

The following tables set forth the composition of the allowance for loan losses by type as of June 30, 2019 and December 31, 2018.

June 30, 2019 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	12,672		31	%		1.90	%
Home improvement		2,913		7			1.39
Commercial		455		1			0.71
Medallion		24,630		61			16.88
Total	$	40,670		100	%		3.74

Page 20 of 76

December 31, 2018 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	6,856		19	%		1.17	%
Home Improvement		1,796		5			0.98
Commercial		—		—			0.00
Medallion		27,743		76			15.11
Total	$	36,395		100	%		3.58	%

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

(Dollars in thousands)	June 30, 2019			December 31, 2018			June 30, 2018
Total nonaccrual loans	$	26,878		$	34,877		$	47,904
Interest foregone quarter to date		379			487			770
Amount of foregone interest applied to principal in the quarter		116			166			400
Interest foregone life to date		1,809			1,952			8,281
Amount of foregone interest applied to principal life to date		847			1,214			3,748
Percentage of nonaccrual loans to gross loan portfolio		2	%		3	%		4	%

The following tables present the performance status of loans as of June 30, 2019 and December 31, 2018.

June 30, 2019 (Dollars in thousands)	Performing		Nonperforming		Total		Percentage of Nonperforming to Total
Recreation	$	662,785	$	5,755	$	668,540		0.86	%
Home improvement		209,384		165		209,549		0.08
Commercial		55,699		8,743		64,442		13.57
Medallion		133,729		12,215		145,944		8.37
Total	$	1,061,597	$	26,878	$	1,088,475		2.47

December 31, 2018 (Dollars in thousands)	Performing		Nonperforming		Total		Percentage of Nonperforming to Total
Recreation	$	581,250	$	5,788	$	587,038		0.99	%
Home improvement		183,018		137		183,155		0.07
Commercial		60,249		3,834		64,083		5.98
Medallion		158,488		25,118		183,606		13.68
Total	$	983,005	$	34,877	$	1,017,882		3.43	%

Page 21 of 76

For those loans aged 31-90 days, there is a possibility that their delinquency status will continue to deteriorate and they will subsequently be placed on nonaccrual status and be reserved for, and as such, deemed nonperforming.

The following tables provide additional information on attributes of the nonperforming loan portfolio as of June 30, 2019 and December 31, 2018, all of which had an allowance recorded against the principal balance.

	June 30, 2019						Three Months Ended June 30, 2019				Six Months Ended June 30, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With an allowance recorded
Recreation	$	5,755	$	5,755	$	211	$	5,777	$	135	$	5,951	$	246
Home improvement		165		165		3		167		—		167		—
Commercial		8,743		8,838		455		6,656		30		5,776		73
Medallion		12,215		12,967		19,383		15,932		20		15,557		27
Total nonperforming loans with an allowance	$	26,878	$	27,725	$	20,052	$	28,532	$	185	$	27,451	$	346

	December 31, 2018						June 30, 2018						Three Months Ended June 30, 2018
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Investment Recorded		Interest Income Recognized
With an allowance recorded
Recreation	$	5,788	$	5,788	$	204	$	4,171	$	4,171	$	145	$	5,577	$	125
Home improvement		137		137		3		117		117		2		116		—
Commercial		3,834		3,929		—		7,441		7,441		175		8,256		70
Medallion		25,118		26,237		22,035		37,829		37,829		12,069		55,213		114
Total nonperforming loans with allowance	$	34,877	$	36,091	$	22,242	$	49,558	$	49,558	$	12,391	$	69,162	$	309

The following tables show the aging of all loans as of June 30, 2019 and December 31, 2018:

	Days Past Due
June 30, 2019 (Dollars in thousands)	31-60		61-90		91 +		Total		Current		Total ⁽¹⁾		Recorded Investment 90 Days and Accruing
Recreation	$	16,482	$	5,286	$	3,613	$	25,381	$	620,882	$	646,263	$	—
Home improvement		672		216		165		1,053		211,451		212,504		—
Commercial		—		—		731		731		63,711		64,442		—
Medallion		18,024		3,098		3,746		24,868		116,122		140,990		—
Total	$	35,178	$	8,600	$	8,255	$	52,033	$	1,012,166	$	1,064,199	$	—

(1)	Excludes loan premiums of $6,875 resulting from purchase price accounting and $17,401 of capitalized loan origination costs.

	Days Past Due
December 31, 2018 (Dollars in thousands)	31-60		61-90		91 +		Total		Current		Total ⁽¹⁾		Recorded Investment > 90 Days and Accruing
Recreation	$	18,483	$	5,655	$	4,020	$	28,158	$	539,051	$	567,209	$	—
Home improvement		715		283		135		1,133		184,528		185,661		—
Commercial		—		454		279		733		63,350		64,083		—
Medallion		8,689		3,652		15,720		28,061		148,774		176,835		—
Total	$	27,887	$	10,044	$	20,154	$	58,085	$	935,703	$	993,788	$	—

(1)	Excludes loan premiums of $9,047 resulting from purchase price accounting and $15,047 of capitalized loan origination costs.

Page 22 of 76

The Company estimates that the weighted average loan-to-value ratio of the medallion loans was approximately 210%, 220%, and 211% as of June 30, 2019, December 31, 2018, and June 30, 2018.

The following table shows the troubled debt restructurings which the Company entered into during the three months ended June 30, 2019.

(Dollars in thousands)

Number of

Loans

Pre-

Modification

Investment

Post-

Modification

Investment

Medallion loans

842

The following table shows the troubled debt restructurings which the Company entered into during the six months ended June 30, 2019.

(Dollars in thousands)

Number of

Loans

Pre-

Modification

Investment

Post-

Modification

Investment

Medallion loans

3,737

During the twelve months ended June 30, 2019, five loans modified as troubled debt restructurings were in default and had an investment value of $1,530,000 as of June 30, 2019, net of a $912,000 allowance for loan losses.

The following table shows the troubled debt restructurings which the Company entered into during the three and six months ended June 30, 2018.

(Dollars in thousands)

Number of

Loans

Pre-

Modification

Investment

Post-

Modification

Investment

Medallion loans

2,695

During the twelve months ended June 30, 2018, five loans modified as troubled debt restructurings were in default and had an investment value of $904,000 as of June 30, 2018, net of a $6,000 allowance for loan losses.

The following tables show the activity of the loans in process of foreclosure, which relate only to the recreation and medallion loans, for the three and six months ended June 30, 2019.

Three Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Medallion			Total
Loans in process of foreclosure – March 31, 2019	$	1,180		$	48,628		$	49,808
Transfer from loans, net		3,491			6,863			10,354
Sales		(2,034	)		(175	)		(2,209	)
Cash payments received		—			(1,931	)		(1,931	)
Collateral valuation adjustments		(1,682	)		(1,972	)		(3,654	)
Loans in process of foreclosure – June 30, 2019	$	955		$	51,413		$	52,368

Six Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Medallion			Total
Loans in process of foreclosure – December 31, 2018	$	1,503		$	47,992		$	49,495
Transfer from loans, net		6,883			12,568			19,451
Sales		(4,111	)		(551	)		(4,662	)
Cash payments received		—			(4,505	)		(4,505	)
Collateral valuation adjustments		(3,320	)		(4,091	)		(7,411	)
Loans in process of foreclosure – June 30, 2019	$	955		$	51,413		$	52,368

Page 23 of 76

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

The following table sets forth the pre-tax change in the Company’s unrealized appreciation (depreciation) on investments for the three months ended March 31, 2018.

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

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

(Dollars in thousands)	Three Months Ended March 31, 2018
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	$	(998	)
Unrealized depreciation		(38,152	)
Net unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries		29,115
Realized gains		—
Realized losses		34,747
Net unrealized losses on investments other than securities and other assets		(1,915	)
Total	$	22,797
Net realized gains (losses) on investments
Realized gains	$	—
Realized losses		(34,747	)
Direct recoveries		2
Total	$	(34,745	)

Page 24 of 76

(6) INVESTMENTS IN MEDALLION BANK AND OTHER CONTROLLED SUBSIDIARIES (Investment Company Accounting)

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

The following table presents information derived from the Bank’s statement of comprehensive income and other valuation adjustments on other controlled subsidiaries for the three months ended March 31, 2018 under Investment Company Accounting.

(Dollars in thousands)	Three Months Ended March 31, 2018
Statement of comprehensive income
Investment income	$	26,880
Interest expense		3,615
Net interest income		23,265
Noninterest income		19
Operating expenses		7,158
Net investment income before income taxes		16,126
Income tax benefit		3,321
Net investment income after income taxes		19,447
Net realized/unrealized losses of Medallion Bank		(28,539	)
Net decrease in net assets resulting from operations of Medallion Bank		(9,092	)
Unrealized appreciation on Medallion Bank⁽¹⁾		39,092
Net realized/unrealized losses on controlled subsidiaries other than Medallion Bank		(885	)
Net increase in net assets resulting from operations of Medallion Bank and other controlled subsidiaries	$	29,115

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

(7) FUNDS BORROWED

The outstanding balances of funds borrowed were as follows:

	Payments Due for the Twelve Months Ending June 30,
(Dollars in thousands)	2020		2021		2022		2023		2024		Thereafter		June 30, 2019		December 31, 2018		Interest Rate ⁽¹⁾
Deposits	$	330,902	$	183,873	$	229,929	$	97,811	$	85,143	$	—	$	927,658	$	848,040		2.36	%
SBA debentures and borrowings		24,452		8,500	—			5,000		2,500		35,000		75,452		80,099		3.41	%
Retail and privately placed notes	—			33,625	—			—		30,000	—			63,625		33,625		8.65	%
Notes payable to banks		14,523		32,665		280		280		140	—			47,888		59,615		4.78	%
Preferred securities	—		—		—		—		—			33,000		33,000		33,000		4.60	%
Other borrowings		7,713	—		—		—		—		—			7,713		7,649		2.00	%
Total	$	377,590	$	258,663	$	230,209	$	103,091	$	117,783	$	68,000	$	1,155,336	$	1,062,028		2.94	%

(1)	Weighted average contractual rate as of June 30, 2019.

Page 25 of 76

(A) DEPOSITS

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

(Dollars in thousands)	June 30, 2019
Three months or less	$	116,138
Over three months through six months		59,460
Over six months through one year		155,304
Over one year		596,756
Total deposits	$	927,658

(B) DZ LOAN

In December 2008, Trust III entered into the DZ loan agreement with DZ Bank, to provide up to $200,000,000 of financing through a commercial paper conduit to acquire medallion loans from MFC (DZ loan), which was extended in December 2013 until December 2016 through an amended and restated credit agreement, which has been further extended several times and currently terminates in September 2019. The line was reduced to $150,000,000, and was further reduced in stages to $125,000,000 on July 1, 2016, remained as an amortizing facility and was restructured during the fourth quarter of 2018.

Borrowings under Trust III’s DZ loan are collateralized by Trust III’s assets. MFC is the servicer of the loans owned by Trust III. In addition, if certain financial tests are not met, MFC can be replaced as the servicer. See Note 19 for more information about Trust III and the DZ loan.

Over the years, the SBA has approved commitments for MCI and FSVC, typically for a four and half year term and a 1% fee, which was paid. During 2017, the SBA restructured FSVC’s debentures with SBA totaling $33,485,000 in principal into a new loan by the SBA to FSVC in the principal amount of $34,024,756 (the SBA Loan). In connection with the SBA Loan, FSVC executed a Note (the SBA Note), with an effective date of March 1, 2017, in favor of SBA, in the principal amount of $34,024,756. The SBA Loan bears interest at a rate of 3.25% per annum, required a minimum of $5,000,000 of principal and interest to be paid on or before February 1, 2018 (which was paid) and a minimum of $7,600,000 of principal and interest to be paid on or before March 27, 2019 (which was paid), and all remaining unpaid principal and interest on or before February 1, 2020, the final maturity date. The SBA Loan agreement contains covenants and events of defaults, including, without limitation, payment defaults, breaches of representations and warranties and covenants defaults. As of June 30, 2019, $172,485,000 of commitments had been fully utilized, there were $3,000,000 of commitments available, and $75,452,000 was outstanding, including $24,452,000 under the SBA Note.

(D) NOTES PAYABLE TO BANKS

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

Page 26 of 76

The table below summarizes the key attributes of the Company’s various borrowing arrangements with these lenders as of June 30, 2019.

(Dollars in thousands)

Borrower

# of

Lenders/

Notes

Note

Dates

Maturity

Dates

Type

Note

Amounts

Balance

Outstanding

at June 30,

2019

Monthly

Payment

Average

Interest

Rate at

June 30,

2019

Interest

Rate

Index⁽¹⁾

The Company

6/6

4/11 - 8/14

7/19 - 3/21

Term loans

and demand

notes secured

by pledged

loans ⁽²⁾

35,096

⁽²⁾

35,096

Interest

only⁽³⁾

5.23

Various⁽³⁾

Medallion Chicago

2/23

11/11 - 12/11

2/21

Term loans

secured by

owned

Chicago

medallions⁽⁴⁾

18,449

11,532

$134 of

principal &

interest

3.50

N/A

Medallion Funding

1/1

11/18

12/23

1,260

$70

principal &

interest

paid

quarterly

4.00

N/A

54,805

47,888

(1)	At June 30, 2019, 30 day LIBOR was 2.40%, 360 day LIBOR was 2.18%, and the prime rate was 5.50%.

(2)	One note has an interest rate of Prime, one note has an interest rate of Prime plus 0.50%, one note has a fixed interest rate of 3.75%, one note has an interest rate of LIBOR plus 3.75%, and the other interest rates on these borrowings are LIBOR plus 2%.

(3)	Various agreements call for remittance of all principal received on pledged loans subject to minimum monthly payments ranging from $12 to $81.

(4)	Guaranteed by the Company.

In March 2019, the Company used some of the proceeds of the privately placed notes to pay off one of the notes payable to banks at a 50% discount, resulting in a gain on debt extinguishment of $4,145,000 in the 2019 first quarter.

In November 2018, MFC entered into a note to the benefit of DZ Bank for $1,400,000 at a 4.00% interest rate due December 2023, as part of the restructuring of the DZ loan. See Note 19 for more information.

(E) RETAIL AND PRIVATELY PLACED NOTES

In March 2019, the Company completed a private placement to certain institutional investors of $30,000,000 aggregate principal amount of 8.25% unsecured senior notes due 2024, with interest payable semiannually. The Company used the net proceeds from the offering for general corporate purposes, including repaying certain borrowings under its notes payable to banks at a discount which led to a gain of $4,145,000 in the 2019 first quarter.

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

Page 27 of 76

(F) PREFERRED SECURITIES

In June 2007, the Company issued and sold $36,083,000 aggregate principal amount of unsecured junior subordinated notes to Fin Trust which, in turn, sold $35,000,000 of preferred securities to Merrill Lynch International and issued 1,083 shares of common stock to the Company. The notes bear a variable rate of interest of 90 day LIBOR (2.32% at June 30, 2019) 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 June 30, 2019, $33,000,000 was outstanding on the preferred securities.

(G) OTHER BORROWINGS

In November and December 2017, RPAC amended the terms of various promissory notes with affiliate Richard Petty (refer to Note 15 for more details). At December 31, 2018, the total outstanding on these notes was $7,149,000 at a 2.00% annual interest rate compounded monthly and due March 31, 2020. As of June 30, 2019, $7,213,000 was outstanding on these notes. Additionally, RPAC has a short term promissory note to an unrelated party for $500,000 due on December 31, 2019.

(H) COVENANT COMPLIANCE

Certain of our debt agreements contain restrictions that require the Company and its subsidiaries to maintain certain financial ratios, including debt to equity and minimum net worth, which in the event of noncompliance could preclude their ability to pay dividends to the Company.

(8) LEASES

The Company has leased premises that expire at various dates through April 30, 2027 that are operating leases. The Company has implemented ASC Topic 842 under a modified retrospective approach in which no adjustments have been made to the prior year balances.

The following table presents the operating lease costs and additional information for the three and six months ended June 30, 2019.

(Dollars in thousands)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease costs	$	531		$	1,062
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		537			1,124
Right-of-use asset obtained in exchange for lease liability		(14	)		(30	)

The following table presents the breakout of the operating leases as of June 30, 2019.

(Dollars in thousands)	June 30, 2019
Operating lease right-of-use assets	$	11,767
Other current liabilities		1,872
Operating lease liabilities		11,273
Total operating lease liabilities		13,145
Weighted average remaining lease term	4 years
Weighted average discount rate		4.26

Page 28 of 76

At June 30, 2019, maturities of the lease liabilities were as follows.

(Dollars in thousands)
Remainder of 2019	$	1,180
2020		2,380
2021		2,278
2022		2,216
2023		2,136
Thereafter		6,049
Total lease payments	$	16,239
Less imputed interest		3,094
Total operating lease liabilities	$	13,145

(9) INCOME TAXES

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

The following table sets forth the significant components of our deferred and other tax assets and liabilities as of June 30, 2019 and December 31, 2018.

(Dollars in thousands)	June 30, 2019			December 31, 2018
Goodwill and other intangibles	$	(44,574	)	$	(45,272	)
Provision for loan losses		20,743			25,790
Net operating loss carryforwards⁽¹⁾		19,464			11,132
Accrued expenses, compensation, and other assets		1,374			1,844
Unrealized gains on other investments		(3,399	)		(2,024	)
Total deferred tax liability		(6,392	)		(8,530	)
Valuation allowance		(223	)		(255	)
Deferred tax liability, net		(6,615	)		(8,785	)
Taxes receivable		1,203			1,812
Net deferred and other tax liabilities	$	(5,412	)	$	(6,973	)

(1)	As of June 30, 2019, the Company and its subsidiaries had an estimated $77,535 of net operating loss carryforwards, $1,712 of which expire at various dates between December 31, 2026 and December 31, 2035, which had a net asset value of $19,241 as of June 30, 2019.

The components of our tax benefit for the three and six months ended June 30, 2019 and 2018 were as follows.

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2019			2018		2019			2018
Current
Federal	$	—		$	418	$	(869	)	$	6,313
State		(136	)		58		(959	)		1,240
Deferred
Federal		1,588			2,919		2,198			(972	)
State		383			626		1,721			(1,920	)
Net benefit for income taxes	$	1,835		$	4,021	$	2,091		$	4,661

Page 29 of 76

The following table presents a reconciliation of statutory federal income tax benefit to consolidated actual income tax benefit reported in net loss/net decrease in net assets for the three and six months ended June 30, 2019 and 2018.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019		2018
Statutory Federal Income tax benefit at 21%	$	1,663		$	3,971		$	1,284	$	7,229
State and local income taxes, net of federal income tax benefit		194			598			87		1,101
Appreciation of Medallion Bank		—			—			—		(1,974	)
Utilization of carry forwards		—			(663	)		—		(663	)
Change in state income tax accruals		—			—			686		—
Change in effective state income tax rate		—			—			—		(1,358	)
Other		(22	)		115			34		326
Total income tax benefit	$	1,835		$	4,021		$	2,091	$	4,661

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

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible pursuant to ASC 740. The Company considers the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company’s evaluation of the realizability of deferred tax assets must consider both positive and negative evidence. The weight given to the potential effects of positive and negative evidence is based on the extent to which it can be objectively verified. Based upon these considerations, the Company determined the necessary valuation allowance as of June 30, 2019.

The Company has filed tax returns in many states. Federal, New York State, New York City, and Utah tax filings of the Company for the tax years 2015 through the present are the more significant filings that are open for examination.

(10) STOCK OPTIONS AND RESTRICTED STOCK

The Company’s Board of Directors approved the 2018 Equity Incentive Plan (2018 Plan), which was approved by the Company’s shareholders on June 15, 2018. The terms of 2018 Plan provide for grants of a variety of different type of stock awards to the Company’s employees and non-employee directors, including options, restricted stock, stock appreciation rights, etc. A total of 1,500,253 shares of the Company’s common stock are issuable under the 2018 Plan, and 917,173 remained issuable as of June 30, 2019. Awards under the 2018 Plan are subject to certain limitations as set forth in the 2018 Plan, which will terminate when all shares of common stock authorized for delivery have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the 2018 Plan, whichever first occurs.

The Company’s Board of Directors approved the 2015 Employee Restricted Stock Plan (2015 Restricted Stock Plan) on February 13, 2015, which was approved by the Company’s shareholders on June 5, 2015. The 2015 Restricted Stock Plan became effective upon the Company’s receipt of exemptive relief from the SEC on March 1, 2016. The terms of 2015 Restricted Stock Plan 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 700,000 shares of the Company’s common stock were issuable under the 2015 Restricted Stock Plan, and 241,919 remained issuable as of June 15, 2018. Effective June 15, 2018, the 2018 Plan was approved, and these remaining shares were rolled into the 2018 Plan. Awards under the 2015 Restricted Stock Plan are subject 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.

Page 30 of 76

The Company had 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 was administered by the Compensation Committee of the Board of Directors. The option price per share could not be less than the current market value of the Company’s common stock on the date the option was granted. The term and vesting periods of the options were determined by the Compensation Committee, provided that the maximum term of an option could not exceed a period of ten years.

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 were issuable under the 2015 Director Plan, and 258,334 remained issuable as of June 15, 2018. Effective June 15, 2018, the 2018 Plan was approved, and these remaining shares were rolled into the 2018 Plan. Under the 2015 Director Plan, unless otherwise determined by a committee of the Board of Directors comprised of directors who are not eligible for grants under the 2015 Director Plan, the Company granted 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 were elected to serve less than a full term. The option price per share could not be less than the current market value of the Company’s common stock on the date the option was granted. Options granted under the 2015 Director Plan are exercisable annually, as defined in the 2015 Director Plan. The term of the options could 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 would 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 were elected to serve less than a full term. The option price per share could not be less than the current market value of the Company’s common stock on the date the option was granted. Options granted under the Amended Director Plan are exercisable annually, as defined in the Amended Director Plan. The term of the options could not exceed ten years.

Additional shares are only available for future issuance under the 2018 Plan. At June 30, 2019, 498,714 options on the Company’s common stock were outstanding under the Company’s plans, of which 77,889 options were exercisable, and there were 237,878 unvested shares of the Company’s common stock outstanding under the Company’s restricted stock plans.

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 $2.98 per share for the six months ended June 30, 2019, and there were no options granted during the six months ended June 30, 2018. The following assumption categories are used to determine the value of any option grants.

	Six Months Ended June 30,
	2019			2018
Risk free interest rate		2.39	%		2.82	%
Expected dividend yield		0.79			4.86
Expected life of option in years⁽¹⁾		6.25			6.00
Expected volatility⁽²⁾		48.45			30.00

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

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

Page 31 of 76

The following table presents the activity for the stock option programs for the 2019 quarters and the 2018 full year.

	Number of Options				Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2017		320,626		$	2.14-13.84		$	8.78
Granted		39,000			5.27-5.58			5.46
Cancelled		(214,960	)		9.22-9.24			9.22
Exercised⁽¹⁾		—				—		—
Outstanding at December 31, 2018		144,666			2.06-13.84			7.23
Granted		374,377			5.21-6.55			6.48
Cancelled		(18,000	)		7.49-9.38			8.44
Exercised⁽¹⁾		—				—		—
Outstanding at March 31, 2019		501,043			2.14-13.84			6.63
Granted		1,104				6.55		6.55
Cancelled		(3,433	)		6.55-7.49			7.10
Exercised⁽¹⁾		—				—		—
Outstanding at June 30, 2019⁽²⁾		498,714		$	2.14-13.84		$	6.62
Options exercisable at June 30, 2019⁽²⁾		77,889		$	2.14-13.84		$	8.63

(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 each of the 2019 and 2018 second quarter and six months.

(2)

The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at June 30, 2019 and the related exercise price of the underlying options, was $277,000 for outstanding options and $71,000 for exercisable options as of June 30, 2019. The remaining contractual life was 9.06 years for outstanding options and 6.11 years for exercisable options at June 30, 2019.

The following table presents the activity for the restricted stock programs for the 2019 quarters and the 2018 full year.

	Number of Shares				Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2017		408,582		$	2.06-10.38		$	3.45
Granted		101,010			3.93-5.27			4.41
Cancelled		(9,737	)		3.93-9.08			4.66
Vested⁽¹⁾		(308,940	)		2.06-10.38			3.35
Outstanding at December 31, 2018		190,915			2.14-5.27			4.06
Granted		163,098				6.55		6.55
Cancelled		(1,699	)		3.93-3.95			3.94
Vested⁽¹⁾		(101,832	)		3.93-4.39			4.07
Outstanding at March 31, 2019		250,482			2.14-6.55			5.68
Granted		4,751			6.55-7.03			6.98
Cancelled		(949	)		3.95-6.55			6.40
Vested⁽¹⁾		(16,406	)		2.06-7.03			3.35
Outstanding at June 30, 2019⁽²⁾		237,878		$	3.95-6.55		$	5.86

(1)	The aggregate fair value of the restricted stock vested was $113,000 and $736,000 for the three and six months ended June 30, 2019, and was $0 and $1,209,000 for the comparable 2018 periods.

(2)	The aggregate fair value of the restricted stock was $1,603,000 as of June 30, 2019. The remaining vesting period was 2.67 years at June 30, 2019.

Page 32 of 76

The following table presents the activity for the unvested options outstanding under the plans for the 2019 quarters.

	Number of Options				Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 31, 2018		62,777		$	2.14-7.10		$	4.59
Granted		374,377			5.21-6.55			6.48
Cancelled		—				—		—
Vested		—				—		—
Outstanding at March 31, 2019		437,154			2.14-7.10			6.21
Granted		1,104				6.55		6.55
Cancelled		(1,433	)			6.55		6.55
Vested		(16,000	)		2.22-7.10			5.12
Outstanding at June 30, 2019		420,825		$	2.14-6.55		$	6.25

The intrinsic value of the options vested was $26,000 for each of the three and six months ended June 30, 2019.

(11) SEGMENT REPORTING (Bank Holding Company Accounting)

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

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

The four lending segments reflect the main types of lending performed at the Company, which are recreation, home improvement, commercial, and medallion. The recreation and home improvement lending segments are conducted by the Bank in all fifty states, with the highest concentrations in Texas, California, and Florida at 16%, 10%, and 10% of loans outstanding and with no other states over 10% as of June 30, 2019. The recreation lending segment is a consumer finance business that works with third-party dealers and financial service providers for the purpose of financing RVs, boats, and other consumer recreational equipment, of which RVs, boats, and trailers make up 62%, 19%, and 11% of the segment portfolio as of June 30, 2019. The home improvement lending segment works with contractors and financial service providers to finance residential home improvements concentrated in swimming pools, roofs, solar panels, and windows, at 26%, 18%, 14%, and 12% of total home improvement loans outstanding, and with no other product lines over 10% as of June 30, 2019. The commercial lending segment focuses on enterprise wide industries, including manufacturing services, and various other industries, in which 59% of these loans are made in the Midwest. The medallion lending segment arose in connection with the financing of the taxicab medallions, taxicabs, and related assets, of which 88% were in New York City as of June 30, 2019.

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

As part of the segment reporting, capital ratios for all operating segments have been normalized at 20%, which approximates the percentage of consolidated total equity divided by total assets, with the net adjustment applied to corporate and other investments for the three and six months ended June 30, 2019. In addition, in the current quarter the commercial segment exclusively represents the mezzanine lending business, and the legacy commercial loan business (immaterial to total) has been re-allocated to corporate and other investments for all periods presented.

Page 33 of 76

The following tables present segment data as of June 30, 2019 and for the three and six months then ended, and as of June 30, 2018, and for the three months then ended.

	Consumer Lending																Corp.
Three Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Home Improvement			Commercial Lending				Medallion Lending			RPAC			and Other Investments			Consolidated
Total interest income	$	24,370		$	4,678		$	1,641			$	666		$	—		$	660		$	32,015
Total interest expense		3,189			1,037			666				1,591			36			2,302			8,821
Net interest income (loss)		21,181			3,641			975				(925	)		(36	)		(1,642	)		23,194
Provision for loan losses		6,176			813			—				8,182			—			—			15,171
Net interest income (loss) after loss provision		15,005			2,828			975				(9,107	)		(36	)		(1,642	)		8,023
Sponsorship and race winnings		—			—			—				—			4,889			—			4,889
Race team related expenses		—			—			—				—			(2,550	)		—			(2,550	)
Other (expense)		(5,938	)		(1,719	)		(780	)			(6,558	)		(1,717	)		(2,128	)		(18,840	)
Net income (loss) before taxes		9,067			1,109			195				(15,665	)		586			(3,770	)		(8,478	)
Income tax benefit (provision)		(2,349	)		(288	)		(48	)			3,779			(141	)		882			1,835
Net income (loss) after tax	$	6,718		$	821		$	147			$	(11,886	)	$	445		$	(2,888	)	$	(6,643	)
Balance Sheet Data
Total loans net	$	655,868		$	206,636		$	60,395			$	121,314		$	—		$	3,592		$	1,047,805
Total assets		667,600			217,757			86,725				235,948			33,526			240,397			1,481,953
Total funds borrowed		531,708			173,226			68,654				187,575			7,713			186,460			1,155,336
Selected Financial Ratios
Return on assets		4.21	%		1.94	%		0.66	%			(19.43	)%		5.54	%		(4.82	)%		(2.06	)%
Return on equity		16.16			7.88			3.31				(97.16	)		(47.72	)		(20.68	)		(10.34	)
Interest yield		15.53			9.46			11.02				1.99		N/A			N/A				11.67
Net interest margin		13.50			7.36			6.55				(2.77	)	N/A			N/A				8.46
Reserve coverage		1.90			1.39			0.71		⁽¹⁾		16.88		N/A			N/A				3.74
Delinquency ratio		0.56			0.08			1.13		⁽¹⁾		2.66		N/A			N/A				0.78
Charge-off ratio		1.55			0.17			0.00		⁽¹⁾		26.47		N/A			N/A				4.46

(1)	Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business.

Page 34 of 76

	Consumer Lending																Corp.
Six Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Home Improvement			Commercial Lending				Medallion Lending			RPAC			and Other Investments			Consolidated
Total interest income	$	46,849		$	9,003		$	3,517			$	1,507		$	—		$	1,182		$	62,058
Total interest expense		5,963			1,943			1,367				3,500			72			3,698			16,543
Net interest income (loss)		40,886			7,060			2,150				(1,993	)		(72	)		(2,516	)		45,515
Provision for loan losses		13,181			1,362			—				13,516			—			455			28,514
Net interest income (loss) after loss provision		27,705			5,698			2,150				(15,509	)		(72	)		(2,971	)		17,001
Sponsorship and race winnings		—			—			—				—			8,068			—			8,068
Race team related expenses		—			—			—				—			(4,548	)		—			(4,548	)
Other (expense)		(11,320	)		(3,356	)		(1,095	)			(5,344	)		(3,514	)		(3,231	)		(27,860	)
Net income (loss) before taxes		16,385			2,342			1,055				(20,853	)		(66	)		(6,202	)		(7,339	)
Income tax benefit (provision)		(4,244	)		(607	)		(254	)			5,030			16			2,150			2,091
Net income (loss) after tax	$	12,141		$	1,735		$	801			$	(15,823	)	$	(50	)	$	(4,052	)	$	(5,248	)
Balance Sheet Data
Total loans net	$	655,868		$	206,636		$	60,395			$	121,314		$	—		$	3,592		$	1,047,805
Total assets		667,600			217,757			86,725				235,948			33,526			240,397			1,481,953
Total funds borrowed		531,708			173,226			68,654				187,575			7,713			186,460			1,155,336
Selected Financial Ratios
Return on assets		3.93	%		1.98	%		1.81	%			(12.53	)%		(0.32	)%		(3.16	)%		(0.89	)%
Return on equity		16.26			8.65			9.03				(62.63	)		(3.13	)		(12.54	)		(4.36	)
Interest yield		15.49			9.44			11.85				2.17		N/A			N/A				11.58
Net interest margin		13.52			7.40			7.24				(2.87	)	N/A			N/A				8.49
Reserve coverage		1.90			1.39			0.71		⁽¹⁾		16.88		N/A			N/A				3.74
Delinquency ratio		0.56			0.08			1.13		⁽¹⁾		2.66		N/A			N/A				0.78
Charge-off ratio		2.43			0.26			0.00		⁽¹⁾		23.94		N/A			N/A				4.88

(1)	Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business.

Page 35 of 76

	Consumer Lending																Corp.
Three Months Ended June 30, 2018 (Dollars in thousands)	Recreation			Home Improvement			Commercial Lending				Medallion Lending			RPAC			and Other Investments			Consolidated
Total interest income	$	22,132		$	4,637		$	2,217			$	3,189		$	—		$	469		$	32,644
Total interest expense		2,136			739			485				3,373			41			1,151			7,925
Net interest income (loss)		19,996			3,898			1,732				(184	)		(41	)		(682	)		24,719
Provision for loan losses		4,710			877			175				24,814			—			—			30,576
Net interest income (loss) after loss provision		15,286			3,021			1,557				(24,998	)		(41	)		(682	)		(5,857	)
Sponsorship and race winning		—			—			—				—			5,228			—			5,228
Race team related expenses		—			—			—				—			(2,540	)		—			(2,540	)
Other (expense)		(5,520	)		(1,685	)		(942	)			(2,811	)		(2,237	)		(1,541	)		(14,736	)
Net income (loss) before taxes		9,766			1,336			615				(27,809	)		410			(2,223	)		(17,905	)
Income tax benefit (provision)		(2,162	)		(296	)		(136	)			6,157			(43	)		501			4,021
Net income (loss) after tax	$	7,604		$	1,040		$	479			$	(21,652	)	$	367		$	(1,722	)	$	(13,884	)
Balance Sheet Data as of June 30, 2018
Total loans net	$	595,385		$	195,321		$	74,610			$	258,062		$	—		$	5,320		$	1,128,698
Total assets		599,960			206,298			86,107				386,225			37,861			218,078			1,534,529
Total funds borrowed		456,955			159,913			50,872				402,955			7,578			148,069			1,226,342
Balance Sheet Data as of December 31, 2018
Total loans net	$	580,182		$	181,359		$	59,973			$	155,863		$	—		$	4,110		$	981,487
Total assets		590,746			188,892			90,264				273,501			29,925			208,518			1,381,846
Total funds borrowed		434,527			143,815			51,266				294,465			7,649			130,306			1,062,028
Selected Financial Ratios as of June 30, 2018
Return on assets		5.32	%		2.13	%		2.17	%			(21.69	%)		3.89	%		(3.01	%)		(4.53	%)
Return on equity		23.33			9.74			4.64			NM				22.38			(8.32	)		(22.00	)
Interest yield		15.62			10.02			11.10				4.43		N/A			N/A				11.23
Net interest margin		14.12			8.43			8.67				(0.26	)	N/A			N/A				8.57
Reserve coverage		0.33			0.28			0.23				6.77		N/A			N/A				1.86
Delinquency ratio		0.40			0.06			0.27		⁽¹⁾		4.49		N/A			N/A				1.32
Charge off ratio		0.82			0.30			0.00		⁽¹⁾		2.18		N/A			N/A				3.19

(1)	Ratio is based on total commercial lending balances, and relates solely to the legacy commercial loan business.

(12) OTHER OPERATING EXPENSES (Investment Company Accounting)

The major components of other operating expenses were as follows:

(Dollars in thousands)	For the Three Months Ended March 31, 2018
Directors’ fees	$	89
Miscellaneous taxes		120
Computer expenses		74
Depreciation and amortization		23
Other expenses		161
Total other operating expenses	$	467

Page 36 of 76

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

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

(Dollars in thousands, except per share data)	Three Months Ended March 31, 2018
Net share data
Net asset value at the beginning of the period	$	11.80
Net investment loss		(0.15	)
Income tax benefit		0.03
Net realized losses on investments		(1.44	)
Net change in unrealized appreciation on investments		0.94
Net decrease in net assets resulting from operations		(0.62	)
Issuance of common stock		(0.03	)
Repurchase of common stock		—
Net investment income		—
Return of capital		—
Net realized gains on investments		—
Total distributions		—
Total decrease in net asset value		(0.65	)
Net asset value at the end of the period⁽¹⁾	$	11.15
Per share market value at beginning of period	$	3.53
Per share market value at end of period		4.65
Total return⁽²⁾		(129	)%
Ratios/supplemental data
Total shareholders’ equity (net assets)	$	272,437
Average net assets	$	284,021
Total expense ratio^{(3) (4)}		10.02	%
Operating expenses to average net assets⁽⁴⁾		5.87
Net investment loss after income taxes to average net assets⁽⁴⁾		(4.61	)%

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

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

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

(4)

MSC has assumed certain of the Company’s servicing obligations, and as a result, servicing fee income of $1,290, and operating expenses of $1,150, which formerly were the Company’s, were MSC’s for the three months ended March 31, 2018. Excluding the impact of the MSC amounts, the total expense ratio, operating expense ratio, and net investment income ratio would have been 11.75%, 7.51%, and (4.49%) in the March 31, 2018 quarter.

(14) COMMITMENTS AND CONTINGENCIES

(A) EMPLOYMENT AGREEMENTS

The Company has employment agreements with certain key officers for either a two- or five-year term. Annually, the contracts with a five-year term will renew for new five-year terms unless prior to the end of the first year, either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current five-year term. Annually, the contracts with a two-year term will renew for new two-year terms unless prior to the term either the Company or the executive provides notice to the other party of its intention not to extend the employment period beyond the current one-year term. In the event of a change in control, as defined, during the employment period, the agreements provide for severance compensation to the executive in an amount equal to the balance of the salary, bonus, and value of fringe benefits which the executive would be entitled to receive for the remainder of the employment period.

Page 37 of 76

Employment agreements expire at various dates through 2023, with no material changes since December 31, 2018. Accordingly, the future minimum payments under these agreements were approximately $4,916,000.

(B) OTHER COMMITMENTS

Except as described in the following paragraph, the Company had no commitments to extend credit or make investments outstanding at June 30, 2019. Generally, any commitments would be on the same terms as loans to or investments in existing borrowers or investees, and generally have fixed expiration dates. Since some commitments would be expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company has commitments for leased premises that expire at various dates through April 30, 2027. At June 30, 2019, minimal rental commitments for non-cancelable leases were $16,218,000.

The Company and its subsidiaries become defendants to various legal proceedings arising from the normal course of business. In the opinion of management, based on 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 could result in a material adverse impact on the financial condition or results of operations of the Company.

(D) REGULATORY

In the ordinary course of business, the Company and its subsidiaries are subject to inquiries from certain regulators. During 2014, FSVC was examined by the SBA. The foregoing regulatory examination was resolved in January 2017 as a result of FSVC’s transfer to liquidation status and the restructure of the FSVC loan described in Note 7.

(15) RELATED PARTY TRANSACTIONS

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

Jeffrey Rudnick, the son of one of the Company’s directors, is an officer of LAX Group, LLC (LAX), one of the Company’s equity investments. Mr. Rudnick receives a salary from LAX of $171,000 per year, and certain equity from LAX consisting of 10% ownership in LAX Class B stock, vesting at 3.34% per year; 5% of any new equity raised from outside investors at a valuation of $1,500,000 or higher; and 10% of LAX’s profits as a year-end bonus. In addition, Mr. Rudnick provides consulting services to the Company directly for a monthly retainer of $4,200.

The Company’s subsidiary RPAC, has an agreement with minority shareholder Richard Petty, in which it makes an annual payment of $700,000 per year for services provided to the entity. In addition, RPAC has a note payable to a trust controlled by Mr. Petty of $7,213,000 that earns interest at an annual rate of 2% as of June 30, 2019.

In the 2019 second quarter, RPAC entered into a sponsorship agreement with Victory Junction, a 501(c)(3) public charity for which Richard Petty is a Board member, for $7,000,000 for sponsorship during the remaining 2019 race car season.

The Company and MSC serviced $308,346,000 of loans for the Bank at March 31, 2018. Under Investment Company Accounting, included in net investment income were amounts as described in the table below that were received from the Bank for services rendered in originating and servicing loans, and also for reimbursement of certain expenses incurred on their behalf.

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

Page 38 of 76

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

(Dollars in thousands)	Three Months Ended March 31, 2018
Reimbursement of operating expenses	$	250
Loan origination and servicing fees		6
Total other income	$	256

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

The Company and MCI have loans to RPAC which have been eliminated in consolidation since April 2, 2018. The loans bear interest at 2%, inclusive of cash and paid in kind interest. The Company and MCI recognized $0 of interest income for the three months ended March 31, 2018 with respect to these loans.

(16) 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) Cash—Book value equals fair value.

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

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

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

(f) 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 June 30, 2019 and December 31, 2018, the estimated fair value of these off-balance-sheet instruments was not material.

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

	June 30, 2019				December 31, 2018
(Dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash and federal funds sold⁽¹⁾	$	72,148	$	72,148	$	57,713	$	57,713
Equity investments		9,797		9,797		9,197		9,197
Investment securities		44,820		44,820		45,324		45,324
Loans receivable		1,047,805		1,047,805		981,487		981,487
Accrued interest receivable⁽²⁾		7,742		7,742		7,413		7,413
Financial liabilities
Funds borrowed⁽³⁾		1,155,336		1,157,206		1,062,028		1,062,297
Accrued interest payable⁽²⁾		4,205		4,205		3,852		3,852

(1)	Categorized as level 1 within the fair value hierarchy. See Note 17.

(2)	Categorized as level 3 within the fair value hierarchy. See Note 17.

(3)	As of June 30, 2019 and December 31, 2018, publicly traded retail notes traded at a premium to par of $1,870 and $269.

Page 39 of 76

(17) FAIR VALUE OF ASSETS AND LIABILITIES

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

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

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

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

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

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

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

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

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

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 paragraph describes the sensitivity of the various level 3 valuations to the factors that are relevant in their valuation analysis under Bank Holding Company Accounting (applicable as of June 30, 2018 and for the quarter then ended) and shows the table under Investment Company Accounting (applicable to prior periods).

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

Page 40 of 76

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018.

June 30, 2019 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Equity investments	$	—	$	—	$	9,797	$	9,797
Available for sale investment securities⁽¹⁾		—		44,820		—		44,820
Total	$	—	$	44,820	$	9,797	$	54,617

(1)	Total unrealized income of $1,227, net of tax, was included in accumulated other comprehensive income (loss) for the six months ended June 30, 2019 related to these assets.

December 31, 2018 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Equity investments	$	—	$	—	$	9,197	$	9,197
Available for sale investment securities⁽¹⁾		—		45,324		—		45,324
Total	$	—	$	45,324	$	9,197	$	54,521

(1)	Total unrealized losses of $82, net of tax, was included in accumulated other comprehensive income (loss) for the nine months ended December 31, 2018 related to these assets.

The following tables provide a summary of changes in fair value of the Company’s level 3 assets and liabilities for the three and six months ended June 30, 2019 and the three months ended June 30, 2018, under Bank Holding Company Accounting, and for the three months ended March 31, 2018 under Investment Company Accounting.

(Dollars in thousands)	Equity Investments
March 31, 2019	$	8,699
Losses included in earnings		(502	)
Purchases, investments, and issuances		1,600
Sales, maturities, settlements, and distributions		—
June 30, 2019	$	9,797
Amounts related to held assets⁽¹⁾	$	(502	)

(1)	Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of June 30, 2019.

(Dollars in thousands)	Equity Investments
December 31, 2018	$	9,197
Gains included in earnings		96
Purchases, investments, and issuances		1,650
Sales, maturities, settlements, and distributions		(1,146	)
June 30, 2019	$	9,797
Amounts related to held assets⁽¹⁾	$	(306	)

(1)	Total realized and unrealized gains (losses) included in income for the period which relate to assets held as of June 30, 2019.

Page 41 of 76

(Dollars in thousands)	Equity Investments
March 31, 2018	$	9,458
Losses included in earnings		(374	)
Purchases, investments, and issuances		529
Sales, maturities, settlements, and distributions		(217	)
Transfers in⁽¹⁾		1,377
June 30, 2018	$	10,773
Amounts related to held assets⁽²⁾	$	(374	)

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

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

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

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

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a non-recurring basis as of June 30, 2019 and December 31, 2018 under Bank Holding Company Accounting.

June 30, 2019 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Impaired loans	$	—	$	—	$	26,878	$	26,878
Loan collateral in process of foreclosure		—		—		52,368		52,368
Total	$	—	$	—	$	79,246	$	79,246

December 31, 2018 (Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Impaired loans	$	—	$	—	$	34,877	$	34,877
Loan collateral in process of foreclosure		—		—		49,495		49,495
Total	$	—	$	—	$	84,372	$	84,372

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 42 of 76

The valuation techniques and significant unobservable inputs used in recurring level 3 fair value measurements of assets and liabilities as of June 30, 2019 and December 31, 2018 were as follows under Bank Holding Company Accounting.

(Dollars in thousands)		Fair Value at 6/30/19	Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Equity Investments	$	6,314	Investee financial analysis	Financial condition and operating performance of the borrower	N/A
				Collateral support	N/A
		2,028	Investee book value adjusted for market appreciation	Financial condition and operating performance of the investee	N/A
			Precedent arm’s length offer	Business enterprise value	$6,014 – $7,214
				Business enterprise value/revenue multiples	0.96x – 4.44x
		1,455	Precedent market transaction	Offering price	$8.73 / share

(Dollars in thousands)	Fair Value at 12/31/18		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
Equity investments	$	5,683	Investee financial analysis	Financial condition and operating performance of the borrower	N/A
				Collateral support	N/A
	1,850		Investee book value adjusted for market appreciation	Financial condition and operating performance of the investee	N/A
			Precedent arm’s length offer	Business enterprise value	$6,014 – $7,214
				Business enterprise value/revenue multiples	0.96x – 4.54x
	1,455		Precedent market transaction	Offering price	$8.73 / share
	209		Investee book value	Valuation indicated by investee filings	N/A

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

On February 27, 2009 and December 22, 2009, the Bank issued, and the US Treasury purchased under the TARP Capital Purchase Program (the CPP) the 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, the 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 SBLF. The SBLF is a voluntary program intended to encourage small business lending by providing capital to qualified smaller banks at favorable rates. In connection with the issuance of the Series E, the Bank exited the CPP by redeeming the Series A, B, C, and D; and received approximately $4,000,000, net of dividends due on the repaid securities. the Bank pays a dividend rate of 9% on the Series E.

(19) VARIABLE INTEREST ENTITIES

During the 2018 third quarter, the Company determined that Trust III was a VIE. Trust III had been consolidated as a subsidiary of MFC historically, although it should have been consolidated under the variable interest model, since MFC was its primary beneficiary until October 31, 2018. Trust III is a VIE since the key decision-making authority rests in the servicing agreement (where MFC is the servicer for Trust III) rather than in the voting rights of the equity interests and as a result the decision-making rights are considered a variable interest. This conclusion is supported by a qualitative assessment that Trust III does not have sufficient equity at risk. Since the inception of Trust III, MFC had also been party to a limited guaranty which was considered a variable interest because, pursuant to the guaranty, MFC absorbed variability as a result of the on-going performance of the loans in Trust III. As of October 31, 2018, the Company determined that MFC was no longer the primary beneficiary of Trust III and accordingly deconsolidated the VIE, leading to a net gain of $25,325,000 recorded as well as a new promissory note payable by MFC of $1,400,000 issued in settlement of the limited guaranty (see Note 7 for more details). In addition, the Company remains the servicer of the assets of Trust III for a fee.

Page 43 of 76

(20) SUBSEQUENT EVENTS

On July 3, 2019, a credit facility with a maturity date of July 31, 2019 was extended until February 28, 2021.

On July 16, 2019, the Company paid $10,819,000 at maturity in satisfaction of all its outstanding obligations under one of its credit facilities. In connection with this payment, the Company obtained a waiver from one of its other lenders, with a term note of $3,096,000, of certain resulting repayment and other obligations, which waiver expires on August 16, 2019. While there can be no assurance, the Company is working with the lender to extend such waiver.

Page 44 of 76

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

GENERAL

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

Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 16% (19% if there had been no loan sales during 2016, 2017, and 2018). We are transitioning away from medallion lending and placing our strategic focus on our growing consumer finance business. As a result of our change in strategy, as of June 30, 2019, our consumer loans represented 82% of our net loan portfolio, with medallion loans representing 12% and commercial loans representing 6%. Total assets under management and management of our unconsolidated wholly-owned subsidiaries (prior to April 2, 2018), which includes our managed net investment portfolio, as well as assets serviced for third party investors and unconsolidated subsidiaries, were $1,620,000,000 as of June 30, 2019, and were $1,522,000,000 and $1,561,000,000 as of December 31, 2018 and June 30, 2018, and have grown at a compound annual growth rate of 9% from $215,000,000 at the end of 1996.

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

We also provide debt, mezzanine, and equity investment capital to companies in a variety of industries, consistent with our investment objectives. These investments may be venture capital style investments which may not be fully collateralized. Our investments are typically in the form of secured debt instruments with fixed interest rates accompanied by an equity stake or warrants to purchase an equity interest for a nominal exercise price (such warrants are included in equity investments on the consolidated balance sheets). Interest income is earned on the debt instruments.

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

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

•

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

•

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

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

Our wholly-owned subsidiary, Medallion Bank, is a bank regulated by the FDIC and the Utah Department of Financial Institutions that originates consumer loans, raises deposits, and conducts other banking activities. Medallion Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit. To take advantage of this low cost of funds, historically we have referred a portion of our taxicab medallion and commercial loans to Medallion Bank, which originated these loans, and have been serviced by Medallion Servicing Corp. (MSC). However, at this time Medallion Bank is not originating any new taxi medallion loans and is working with MSC to service its existing portfolio. The FDIC restricts the amount of taxicab medallion loans that Medallion Bank may finance to three times Tier 1 capital, although it is less than one times Tier 1 capital as of June 30, 2019. MSC earns referral and servicing fees for these activities.

Page 45 of 76

The assets of Taxi Medallion Loan Trust III (Trust III) were not available to pay obligations of its affiliates or any other party. Trust III’s loans are serviced by Medallion Funding LLC (MFC). On November 8, 2018, a limited guaranty in favor of DZ Bank was terminated in exchange for a $1.4 million note, payable in quarterly installments over five years. As a result of such restructuring, effective as of such date, Trust III is no longer consolidated in our financial statements.

Average Balances and Rates (Bank Holding Company Accounting)

The following tables show the Company’s consolidated average balance sheet, interest income and expense and the average interest earning/bearing assets and liabilities, and which reflect the average yield on assets and average costs on liabilities for three months ended June 30, 2019 and 2018, and for the six months ended June 30, 2019.

	Three Months Ended June 30,
	2019							2018
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Interest-earning assets
Interest-earning cash and cash equivalents	$	34,001	$	153		1.80	%	$	26,211	$	95		1.47	%
Investment securities		44,560		404		3.64			43,257		284		2.67
Loans
Recreation		629,383		24,370		15.53			562,735		22,214		16.01
Home improvement		198,352		4,678		9.46			189,562		4,542		9.72
Commercial		59,721		1,744		11.71			80,130		2,778		14.06
Medallion		134,007		666		1.99			277,515		2,731		3.99
Total loans		1,021,463		31,458		12.35			1,109,942		32,265		11.79
Total interest-earning assets		1,100,024		32,015		11.67			1,179,410		32,644		11.23
Non-interest-earning assets
Cash		45,364							10,374
Equity investments		9,361							10,940
Loan collateral in process of foreclosure⁽¹⁾		50,048							60,614
Goodwill and intangible assets		204,243							211,394
Deferred tax asset		—							2,900
Other assets		48,588							35,249
Total non-interest-earning assets		357,604							331,471
Total assets	$	1,457,628						$	1,510,881
Interest-bearing liabilities
Deposits	$	895,215	$	5,484		2.46	%	$	871,483	$	4,200		1.93	%
DZ loan		—		—		0.00			97,660		884		3.63
SBA debentures and borrowings		78,036		756		3.89			78,136		752		3.86
Notes payable to banks		49,932		601		4.83			73,985		821		4.45
Retail and privately placed notes		63,625		1,552		9.78			33,625		875		10.44
Preferred securities		33,000		392		4.76			33,000		353		4.29
Other borrowings		7,701		36		1.88			9,561		40		1.68
Total interest-bearing liabilities		1,127,509		8,821		3.14			1,197,450		7,925		2.65
Non-interest-bearing liabilities
Deferred tax liability		6,958							—
Other liabilities		32,328							19,124
Total non-interest-bearing liabilities		39,286							19,124
Total liabilities		1,166,795							1,216,574
Non controlling interest		27,238							27,211
Total stockholders’ equity		263,595							267,096
Total liabilities and stockholders' equity	$	1,457,628						$	1,510,881
Net interest income			$	23,194						$	24,719
Net interest margin						8.46	%						8.57	%

(1)	Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by Medallion Bank of $4,290 as of June 30, 2019.

Page 46 of 76

During the quarter, our net loans receivable had a yield of 12.35% (compared to 11.79% in the prior year quarter), mainly driven by the increase in the average yield on recreation and home improvement loans even as yields have declined overall. The debt, mainly certificates of deposit, helps fund the growing consumer loan business and as the market rates have increased, there has been an overall increase in the average borrowing rate.

	Six Months Ended June 30, 2019
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost
Interest-earning assets
Interest-earning cash and cash equivalents	$	33,910	$	298		1.77	%
Investment securities		44,505		690		3.13
Loans
Recreation		609,930		46,849		15.49
Home improvement		192,405		9,003		9.44
Commercial		59,862		3,711		12.50
Medallion		140,095		1,507		2.17
Total loans		1,002,292		61,070		12.29
Total interest-earning assets		1,080,707		62,058		11.58
Non-interest-earning assets
Cash		37,192
Equity investments		9,223
Loan collateral in process of foreclosure⁽¹⁾		50,913
Goodwill and intangible assets		204,424
Other assets		44,296
Total non-interest-earning assets		346,048
Total assets		1,426,755
Interest-bearing liabilities
Deposits	$	884,164	$	10,406		2.37	%
SBA debentures and borrowings		78,956		1,520		3.88
Notes payable to banks		54,459		1,266		4.69
Retail and privately placed notes		50,249		2,489		9.99
Preferred securities		33,000		790		4.83
Other borrowings		7,684		72		1.89
Total interest-bearing liabilities		1,108,512		16,543		3.01
Non-interest-bearing liabilities
Deferred tax liability		6,896
Other liabilities		21,313
Total non-interest-bearing liabilities		28,209
Total liabilities		1,136,721
Non controlling interest		27,392
Total stockholders’ equity		262,642
Total liabilities and stockholders' equity	$	1,426,755
Net interest income			$	45,515
Net interest margin						8.49	%

(1)	Includes financed sales of this collateral to third parties reported separately from the loan portfolio, and that are conducted by Medallion Bank of $4,290 as of June 30, 2019.

For the six months ended June 30, 2019, our net loans receivable had a yield of 12.29%, which was mainly driven by the recreation loans with average yields of 15.49% along with the growing portfolio. The recreation loans are mainly driven by the RV and boat business and led to a majority of our interest income. The debt, mainly certificates of deposit that assist in funding the growing consumer business, has an average rate of borrowing of 3.01%.

Page 47 of 76

Rate/Volume Analysis (Bank Holding Company Accounting)

The following tables present the change in interest income and expense due to changes in the average balances (volume) and average rates, calculated for the periods indicated.

	Three Months Ended June 30,
	2019									2018
(Dollars in thousands)	Increase (Decrease) In Volume			Increase (Decrease) in Rate			Net Change			Increase (Decrease) In Volume			Increase (Decrease) in Rate			Net Change
Interest-earning assets
Interest-earning cash and cash equivalents	$	32		$	26		$	58		$	(8	)	$	(33	)	$	(41	)
Investment securities		9			111			120			9			28			37
Loans
Recreation		2,760			(604	)		2,156			929			(902	)		27
Home improvement		259			(123	)		136			205			237			442
Commercial		(640	)		(394	)		(1,034	)		(5	)		429			424
Medallion		(1,078	)		(987	)		(2,065	)		(151	)		(308	)		(459	)
Total loans		1,301			(2,108	)		(807	)		978			(544	)		434
Total interest-earning assets		1,342			(1,971	)		(629	)		979			(549	)		430
Interest-bearing liabilities
Deposits		139			1,145		$	1,284		$	79		$	457		$	536
DZ loan		(484	)		(400	)		(884	)		(11	)		84			73
SBA debentures and borrowings		(1	)		5			4			(5	)		—			(5	)
Notes payable to banks		(290	)		70			(220	)		(62	)		66			4
Retail and privately placed notes		732			(55	)		677			—			(9	)		(9	)
Preferred securities	—				39			39			—			38			38
Other borrowings		(9	)		5			(4	)		9			(6	)		3
Total interest-bearing liabilities		87			809			896			10			630			640
Net	$	1,255		$	(2,780	)	$	(1,525	)	$	969		$	(1,179	)	$	(210	)

	Six Months Ended June 30, 2019
(Dollars in thousands)	Increase (Decrease) In Volume			Increase (Decrease) In Rate			Net Change
Interest-earning assets
Interest-earning cash and cash equivalents	$	(146	)	$	64		$	(82	)
Investment securities		(4	)		121			117
Loans
Recreation		3,163			(1,265	)		1,898
Home improvement		516			(248	)		268
Commercial		(1,249	)		(318	)		(1,567	)
Medallion		(1,322	)		(905	)		(2,227	)
Total loans		1,108			(2,736	)		(1,628	)
Total interest-earning assets		958			(2,551	)		(1,593	)
Interest-bearing liabilities
Deposits		(170	)		1,409			1,239
DZ loan		(605	)		(520	)		(1,125	)
SBA debentures and borrowings		(23	)		10			(13	)
Notes payable to banks		(338	)		67			(271	)
Retail and privately placed notes		792			(53	)		739
Preferred securities		—			52			52
Other borrowings		(10	)		3			(7	)
Total interest-bearing liabilities		(354	)		968			614
Net	$	1,312		$	(3,519	)	$	(2,207	)

Page 48 of 76

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

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

We measure our borrowing costs as our aggregate interest expense for all of our interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The following tables show the average borrowings and related borrowing costs for the three and six months ended June 30, 2019 and 2018. Our average balances declined during the current quarter and six months ended June 30, 2019, reflecting the contraction in the medallion loan portfolio, mainly due to the deconsolidation of Trust III in the 2018 fourth quarter, but partly offset by the increase of certificates of deposits as the consumer business continues to grow. The increase in borrowing costs primarily reflects the repricing of term borrowings based upon the current market conditions, and the increase in deposit balances reflect the lengthening of their maturity profile.

	Bank Holding Company Accounting
	Three Months Ended							Six Months Ended
(Dollars in thousands)	Interest Expense		Average Balance		Average Borrowing Costs			Interest Expense		Average Balance		Average Borrowing Costs
June 30, 2019
Deposits	$	5,484	$	895,215		2.46	%	$	10,406	$	884,164		2.37	%
SBA debentures and borrowings		756		78,036		3.89			1,520		78,956		3.88
Notes payable to banks		601		49,932		4.83			1,266		54,459		4.69
Retail and privately placed notes		1,552		63,625		9.78			2,489		50,249		9.99
Preferred securities		392		33,000		4.76			790		33,000		4.83
Other borrowings		36		7,701		1.88			72		7,684		1.89
Total borrowings	$	8,821	$	1,127,509		3.14		$	16,543	$	1,108,512		3.01

	Bank Holding Company Accounting							Combined ⁽¹⁾
	Three Months Ended							Six Months Ended
(Dollars in thousands)	Interest Expense		Average Balance		Average Borrowing Costs			Interest Expense		Average Balance		Average Borrowing Costs
June 30, 2018
Deposits	$	4,200	$	871,483		1.93	%	$	4,200	$	871,483		1.93	%
DZ loan		884		97,660		3.63			1,686		98,318		3.46
SBA debentures and borrowings		752		78,136		3.86			1,501		78,420		3.86
Notes payable to banks		821		73,985		4.45			1,634		76,979		4.28
Retail notes		875		33,625		10.44			1,750		33,625		10.50
Preferred securities		353		33,000		4.29			665		33,000		4.06
Other borrowings		40		9,561		1.68			40		9,561		1.68
Total borrowings	$	7,925	$	1,197,450		2.65		$	11,476	$	1,201,386		1.93

(1)	Results include the three months ended June 30, 2018 under Bank Holding Company Accounting and the three months ended March 31, 2018 under Investment Company Accounting.

We expect to continue to seek SBA funding through Medallion Capital, Inc. (Medallion Capital) to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under the 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 June 30, 2019 and 2018, short-term adjustable rate debt constituted 6% and 14% of total debt.

Page 49 of 76

Loans

The gross loans are reported at the principal amount outstanding, inclusive of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan. During the three and six months ended June 30, 2019, there was continued growth in the consumer lending segments, which was partially offset by the various commercial loans settled during the period and payments received from borrowers.

Three Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallions			Total
Gross loans- March 31, 2019	$	609,999		$	193,275		$	55,211		$	165,715		$	1,024,200
Loan originations		102,695			33,533			9,270			—			145,498
Principal payments		(41,641	)		(16,580	)		(70	)		(3,164	)		(61,455	)
Charge-offs, net		(2,433	)		(86	)		—			(8,844	)		(11,363	)
Transfer to loans in process of foreclosure, net		(3,491	)		—			—			(6,863	)		(10,354	)
Other		3,411			(593	)		31			(900	)		1,949
Gross loans- June 30, 2019	$	668,540		$	209,549		$	64,442		$	145,944		$	1,088,475

Six Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Home Improvement			Commercial			Medallion			Total
Gross loans- December 31, 2018	$	587,038		$	183,155		$	64,083		$	183,606		$	1,017,882
Loan originations		166,327			60,180			9,770			—			236,277
Principal payments		(72,890	)		(32,779	)		(9,413	)		(6,599	)		(121,681	)
Charge-offs, net		(7,363	)		(245	)		—			(16,631	)		(24,239	)
Transfer to loans in process of foreclosure, net		(6,883	)		—			—			(12,568	)		(19,451	)
Other		2,311			(762	)		2			(1,864	)		(313	)
Gross loans- June 30, 2019	$	668,540		$	209,549		$	64,442		$	145,944		$	1,088,475

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

During the three months ended June 30, 2019, New York medallion values (representing approximately 88% of the medallion loan portfolio) remained constant at $169,500, while Chicago medallion values dropped from $29,500 to $19,500, whereas for the three months ended June 30, 2018, New York medallion values declined from $183,500 to $181,000 and the Chicago medallion value remained consistent. In addition, loans continued to age over 90 or 120 days, and were reserved and charged-off down to their collateral value. The provision and allowance also included the general reserve of $5,247,000 for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses as of June 30, 2019, whereas for the three months ended June 30, 2018 it included the initial general reserve of $6,663,000. This figure as of June 30, 2019, excludes the general reserve of $17,351,000 at Medallion Bank, much of which was netted against loan balances at consolidation on April 2, 2018. Subsequent to April 2, 2018, the Bank recorded general reserves of $6,092,000.

Page 50 of 76

During the six months ended June 30, 2019, the New York medallion values declined to a net realizable value of $169,500 from $181,000 at December 31, 2018. Overall loans continued to age over 90 and 120 days which they are then reserved and subsequently charged-off.

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in thousands)	2019				2018				2019
Allowance for loan losses – beginning balance	$	36,862			$	—		⁽¹⁾	$	36,395
Charge-offs
Recreation		(4,395	)			(4,646	)			(10,921	)
Home improvement		(539	)			(561	)			(1,088	)
Commercial	—					—			—
Medallion		(9,242	)			(6,280	)			(18,029	)
Total charge-offs		(14,176	)			(11,487	)			(30,038	)
Recoveries
Recreation		1,962				1,899				3,558
Home improvement		453				239				843
Commercial	—					4			—
Medallion		398				194				1,398
Total recoveries		2,813				2,336				5,799
Net charge-offs⁽²⁾		(11,363	)			(9,151	)			(24,239	)
Provision for loan losses		15,171				30,576				28,514
Allowance for loan losses – ending balance	$	40,670		⁽³⁾	$	21,425			$	40,670		⁽³⁾

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

(2)	As of June 30, 2019, cumulative net charge-offs of loans and loans in process of foreclosure in the medallion portfolio were $237,671, representing collection opportunities for the Company.

(3)

Includes $5,247 of a general reserve for the Company, for current and performing medallion loans under 90 days past due, as an additional buffer against future losses, representing 13% of the total allowance, and 3.82% of the loans in question. As of June 30, 2019, this figure excludes $17,351 of a general reserve on loans at Medallion Bank, much of which was netted against loan balances at consolidation on April 2, 2018. Subsequent to April 2, 2018, the Bank recorded general reserves of $6,092.

The following tables present the allowance by segment as a percentage of loans as of June 30, 2019 and December 31, 2018 under Bank Holding Company Accounting.

June 30, 2019 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	12,672		31	%		1.90	%
Home Improvement		2,913		7			1.39
Commercial		455		1			0.71
Medallion		24,630		61			16.88
Total	$	40,670		100	%		3.74

December 31, 2018 (Dollars in thousands)	Amount		Percentage of Allowance			Allowance as a Percent of Loan Category
Recreation	$	6,856		19	%		1.17	%
Home Improvement		1,796		5			0.98
Commercial		—		—			0.00
Medallion		27,743		76			15.11
Total	$	36,395		100	%		3.58	%

Page 51 of 76

The following table sets forth the pre-tax changes in our unrealized appreciation (depreciation) on investments for the three months ended March 31, 2018 under Investment Company Accounting.

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

Under both Bank Holding Company Accounting and Investment Company Accounting, 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.

	June 30, 2019					March 31, 2019					December 31, 2018					June 30, 2018
(Dollars in thousands)	Amount		%⁽¹⁾			Amount		%⁽¹⁾			Amount		%⁽¹⁾			Amount		%⁽¹⁾
Recreation	$	3,613		0.3	%	$	3,282		0.3	%	$	4,020		0.4	%	$	2,402		0.2	%
Home improvement		165		0.0			156		0.0			135		0.0			115		0.0
Commercial		731		0.1			710		0.1			279		0.0			215		0.0
Medallion		3,746		0.4			3,954		0.4			15,720		1.6			12,429		1.1
Total loans 90 days or more past due	$	8,255		0.8	%	$	8,102		0.8	%	$	20,154		2.0	%	$	15,161		1.3	%

(1)	Percentages are calculated against the total loan portfolio.

We estimate that the weighted average loan-to-value ratio of our medallion loans was approximately 210%, 220%, and 211% as of June 30, 2019, December 31, 2018, and June 30, 2018.

Page 52 of 76

Recreation and medallion loans that reach 120 days past due are charged down to collateral value and reclassified to loans in process of foreclosure. The following tables show the activity of loans in process of foreclosure for the three and six months ended June 30, 2019.

Three Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Medallion			Total
Loans in process of foreclosure – March 31, 2019	$	1,180		$	48,628		$	49,808
Transfer from loans, net		3,491			6,863			10,354
Sales		(2,034	)		(175	)		(2,209	)
Cash payments received		—			(1,931	)		(1,931	)
Collateral valuation adjustments		(1,682	)		(1,972	)		(3,654	)
Loans in process of foreclosure – June 30, 2019	$	955		$	51,413		$	52,368

Six Months Ended June 30, 2019 (Dollars in thousands)	Recreation			Medallion			Total
Loans in process of foreclosure – December 31, 2018	$	1,503		$	47,992		$	49,495
Transfer from loans, net		6,883			12,568			19,451
Sales		(4,111	)		(551	)		(4,662	)
Cash payments received		—			(4,505	)		(4,505	)
Collateral valuation adjustments		(3,320	)		(4,091	)		(7,411	)
Loans in process of foreclosure – June 30, 2019	$	955		$	51,413		$	52,368

Page 53 of 76

The following table presents the credit-related information for the investment portfolios as of March 31, 2018 shown under Investment Company Accounting.

(Dollars in thousands)	March 31, 2018
Total loans
Medallion loans	$	161,155
Commercial loans		93,620
Total loans		254,775
Investments in Medallion Bank and other controlled subsidiaries		331,169
Equity investments⁽¹⁾		9,458
Investment securities		—
Net investments	$	595,402
Net investments in Medallion Bank and other controlled subsidiaries	$	918,904
Managed net investments	$	1,384,449
Unrealized appreciation (depreciation) on investments
Medallion loans	$	(23,761	)
Commercial loans		(495	)
Total loans		(24,256	)
Investments in Medallion Bank and other controlled subsidiaries		197,715
Equity investments		2,123
Investment securities		—
Total unrealized appreciation on investments	$	175,582
Net unrealized depreciation on investments at Medallion Bank and other controlled subsidiaries	$	(69,561	)
Managed total unrealized appreciation on investments	$	106,021
Unrealized appreciation (depreciation) as a % of balances outstanding⁽²⁾
Medallion loans		(12.86	)%
Commercial loans		(0.53	)
Total loans		(8.70	)
Investments in Medallion Bank and other controlled subsidiaries		148.15
Equity investments		28.95
Investment securities		—
Net investments		41.83
Net investments at Medallion Bank and other controlled subsidiaries		(7.12	)%
Managed net investments		8.36	%

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

(2)

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

Page 54 of 76

The following table presents the gain/loss experience on the investment portfolio for the three months ended March 31, 2018 under Investment Company Accounting.

(Dollars in thousands)	Three Months Ended March 31, 2018
Realized gains (losses) on loans and equity investments
Medallion loans	$	(34,747	)
Commercial loans		2
Total loans		(34,745	)
Investments in Medallion Bank and other controlled subsidiaries		—
Equity investments		—
Investment securities		—
Total realized losses on loans and equity investments	$	(34,745	)
Net realized losses on investments at Medallion Bank and other controlled subsidiaries	$	(23,073	)
Total managed realized losses on loans and equity investments	$	(57,818	)
Realized gains (losses) as a % of average balances outstanding
Medallion loans		(65.74	)%
Commercial loans		0.01
Total loans		(45.96	)
Investments in Medallion Bank and other controlled subsidiaries		—
Equity investments		—
Investment securities		—
Net investments		(30.89	)
Net investments at Medallion Bank and other controlled subsidiaries		(9.66	)%
Managed net investments		(18.22	)%

Page 55 of 76

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

(Dollars in thousands)	Three Months Ended March 31, 2018
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	$	(998	)
Unrealized depreciation		(38,152	)
Net unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries		29,115
Realized gains		—
Realized losses		34,747
Net unrealized losses on investments other than securities and other assets		(1,915	)
Total	$	22,797
Net realized gains (losses) on investments
Realized gains	$	—
Realized losses		(34,747	)
Other gains		—
Direct recoveries		2
Realized gains on investments other than securities and other assets		—
Total	$	(34,745	)

SEGMENT RESULTS

We manage our financial results under four operating segments and report like a bank holding company. The operating segments are recreation lending, home improvement lending, commercial lending, and medallion lending. We also show results for two non-operating segments; RPAC and corporate and other investments. Prior to April 2, 2018, we operated as one segment. All results are for the three months ended June 30, 2019 and 2018, and for the six months ended June 30, 2019.

Recreation Lending

The recreation lending segment is a high-growth prime and non-prime consumer finance business which is a significant source of income for us, accounting for 76% and 75% of our interest income for the three and six months ended June 30, 2019. The loans are secured primarily by RVs, boats, and trailers, with RV loans making up 62% of the portfolio, boat loans making up 19% of the portfolio, and trailer loans 11%. Recreation loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas, California, and Florida, at 18%, 11%, and 10% of loans outstanding, and with no other states over 10%.

Page 56 of 76

The following table presents certain financial data and ratios as of and for the three months ended June 30, 2019 and 2018, and the six months ended June 30, 2019.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019
Selected Earnings Data
Total interest income	$	24,370		$	22,132		$	46,849
Total interest expense		3,189			2,136			5,963
Net interest income		21,181			19,996			40,886
Provision for loan losses		6,176			4,710			13,181
Net interest income after loss provision		15,005			15,286			27,705
Total non-interest income (expense)		(5,938	)		(5,520	)		(11,320	)
Net income before taxes		9,067			9,766			16,385
Income tax provision		(2,349	)		(2,162	)		(4,244	)
Net income	$	6,718		$	7,604		$	12,141
Balance Sheet Data
Total loans, gross				$	597,348		$	668,540
Total loan allowance					1,963			12,672
Total loans, net					595,385			655,868
Total assets					599,960			667,600
Total borrowings					456,955			531,708
Selected Financial Ratios
Return on average assets		4.21	%		5.32	%		3.93	%
Return on average equity		16.16			23.33			16.26
Interest yield		15.53			15.62			15.49
Net interest margin		13.50			14.12			13.52
Reserve coverage		1.90			0.33			1.90
Delinquency status⁽¹⁾		0.56			0.40			0.56
Charge-off %		1.55			0.82			2.43

(1)	Loans 90 days or more past due.

Home Improvement Lending

The home improvement lending segment works with contractors and financial service providers to finance residential home improvements and is concentrated in swimming pools, roofs, solar panels, and windows at 26%, 18%, 14%, and 12% of total loans outstanding, with no other collateral types over 10%. Home improvement loans are made to borrowers residing in all fifty states, with the highest concentrations in Texas, Florida, and Ohio at 13%, 10%, and 10% of loans outstanding, and with no other states over 10%.

Page 57 of 76

The following table presents certain financial data and ratios as of and for the three months ended June 30, 2019 and 2018, and the six months ended June 30, 2019.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019
Selected Earnings Data
Total interest income	$	4,678		$	4,637		$	9,003
Total interest expense		1,037			739			1,943
Net interest income		3,641			3,898			7,060
Provision for loan losses		813			877			1,362
Net interest income after loss provision		2,828			3,021			5,698
Total non-interest income (expense)		(1,719	)		(1,685	)		(3,356	)
Net income before taxes		1,109			1,336			2,342
Income tax provision		(288	)		(296	)		(607	)
Net income	$	821		$	1,040		$	1,735
Balance Sheet Data
Total loans, gross				$	195,876		$	209,549
Total loan allowance					555			2,913
Total loans, net					195,321			206,636
Total assets					206,298			217,757
Total borrowings					159,913			173,226
Selected Financial Ratios
Return on average assets		1.94	%		2.13	%		1.98	%
Return on average equity		7.88			9.74			8.65
Interest yield		9.46			10.02			9.44
Net interest margin		7.36			8.43			7.40
Reserve coverage		1.39			0.28			1.39
Delinquency status⁽¹⁾		0.08			0.06			0.08
Charge-off %		0.17			0.30			0.26

(1)	Loans 90 days or more past due.

Commercial Lending

We originate both senior and subordinated loans nationwide to businesses in a variety of industries, more than 67% of which are located in the Midwest and Northeast regions, with the rest scattered across the country. These mezzanine loans are primarily secured by a second position on all assets of the businesses and generally range in amount from $2,000,000 to $5,000,000 at origination, and typically included an equity component as part of the financing. The commercial lending business has concentrations in manufacturing and professional, scientific, and technical services, making up 60% and 15% of the total business.

Page 58 of 76

The following table presents certain financial data and ratios as of and for the three months ended June 30, 2019 and 2018, and for the six months ended June 30, 2019. The commercial segment encompasses the mezzanine lending business and the other legacy commercial loans (immaterial to total) have been re-allocated to corporate and other investments for all periods presented.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019
Selected Earnings Data
Total interest income	$	1,641		$	2,217		$	3,517
Total interest expense		666			485			1,367
Net interest income		975			1,732			2,150
Provision for loan losses		—			175			—
Net interest income after loss provision		975			1,557			2,150
Total non-interest income (expense)		(780	)		(942	)		(1,095	)
Net income before taxes		195			615			1,055
Income tax provision		(48	)		(136	)		(254	)
Net income	$	147		$	479		$	801
Balance Sheet Data
Total loans, gross				$	74,785		$	60,395
Total loan allowance					175			—
Total loans, net					74,610			60,395
Total assets					86,107			86,725
Total borrowings					50,872			68,654
Selected Financial Ratios
Return on average assets		0.66	%		2.17	%		1.81	%
Return on average equity		3.31			4.64			9.03
Interest yield		11.02			11.10			11.85
Net interest margin		6.55			8.67			7.24
Reserve coverage⁽²⁾		0.71			0.23			0.71
Delinquency status^{(1) (2)}		1.13			0.27			1.13
Charge-off %⁽²⁾		—			—			—

(1)	Loans 90 days or more past due.

(2)	Ratio is based off of total commercial balances, and relates solely to the legacy commercial loan balances.

Geographic Concentrations (Dollars in thousands)	Total Gross Loans		% of Market
Minnesota	$	9,768		16	%
Michigan		8,782		15	%
Illinois		5,407		9	%
New Jersey		5,153		9	%
California		4,985		8	%
Other⁽¹⁾		26,300		43	%
Total	$	60,395		100	%

(1)	Includes 10 other states with none greater than 7%.

Page 59 of 76

Medallion Lending

The medallion lending segment operates mainly in the New York, Newark, and Chicago markets. We have a long history of owning, managing, and financing taxicab fleets, taxicab medallions, and corporate car services. During the three months ended June 30, 2019, the medallion values for New York remained constant (market value of $169,500, net of liquidation costs), while they declined in the Chicago market (market value of $29,500 to $19,500, net of liquidation costs). We continued to experience a decline in interest income due to loans aging greater than 90 days and being placed on nonaccrual and by removing underperforming loans from the portfolio by transferring them to loan collateral in process of foreclosure with charge-offs to collateral value. With the continuing market change, we began to work with borrowers to collect on the loans. Lastly, in the fourth quarter of 2018 we de-consolidated Trust III, leading to an overall decline in medallion loans. All the loans are secured by the medallions and enhanced by personal guarantees of the shareholders and owners.

The following table presents certain financial data and ratios as of and for the three months ended June 30, 2019 and 2018, and the six months ended June 30, 2019.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019
Selected Earnings Data
Total interest income	$	666		$	3,189		$	1,507
Total interest expense		1,591			3,373			3,500
Net interest loss		(925	)		(184	)		(1,993	)
Provision for loan losses		8,182			24,814			13,516
Net interest loss after loss provision		(9,107	)		(24,998	)		(15,509	)
Total non-interest income (expense)		(6,558	)		(2,811	)		(5,344	)
Net loss before taxes		(15,665	)		(27,809	)		(20,853	)
Income tax benefit		3,779			6,157			5,030
Net loss	$	(11,886	)	$	(21,652	)	$	(15,823	)
Balance Sheet Data
Total loans, gross				$	276,794		$	145,944
Total loan allowance					18,732			24,630
Total loans, net					258,062			121,314
Total assets					386,225			235,948
Total borrowings					402,955			187,575
Selected Financial Ratios
Return on average assets		(19.43	)%		(21.69	)%		(12.53	)%
Return on average equity		(97.16	)	NM				(62.63	)
Interest yield		1.99			4.43			2.17
Net interest margin		(2.77	)		(0.26	)		(2.87	)
Reserve coverage		16.88			6.77			16.88
Delinquency status⁽¹⁾		2.66			4.49			2.66
Charge-off %		26.47			2.18			23.94

(1)	Loans 90 days or more past due.

Geographic Concentration (dollars in thousands)	Total Gross Loans		% of Market
New York City	$	127,871		88	%
Newark		15,815		11	%
Chicago		1,724		1	%
All Other		534		0	%
Total	$	145,944		100	%

RPAC

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

Page 60 of 76

The following table presents certain financial data and ratios as of and for the three months ended June 30, 2019 and 2018, and the six months ended June 30, 2019.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019
Selected Earnings Data
Sponsorship, race winnings, and other income	$	4,889		$	5,228		$	8,068
Race and other expenses		4,267			4,777			8,062
Interest expense		36			41			72
Total expenses		4,303			4,818			8,134
Net income (loss) before taxes		586			410			(66	)
Income tax (provision) benefit		(141	)		(43	)		16
Net income (loss)	$	445		$	367		$	(50	)
Balance Sheet Data
Total assets				$	37,861		$	33,526
Total borrowings					7,578			7,713
Selected Financial Ratios
Return on average assets		5.54	%		3.89	%		(0.32	)%
Return on average equity		(47.72	)		22.38			(3.13	)

Corporate and Other Investments

This nonoperating segment relates to our equity and investment securities, as well as our legacy commercial business, other assets, liabilities, revenues, and expenses not allocated to the operating segments. This segment also reflects the elimination of all intercompany activity among the consolidated entities.

The following table presents certain financial data and ratios as of and for the three months ended June 30, 2019 and 2018, and for the six months ended June 30, 2019.

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019
Selected Earnings Data
Interest income	$	660		$	469		$	1,182
Interest expense		2,302			1,151			3,698
Net interest loss		(1,642	)		(682	)		(2,516	)
Provision for loan losses		—			—			455
Net interest loss after loss provision		(1,642	)		(682	)		(2,971	)
Total non interest income (expense), net		(2,128	)		(1,541	)		(3,231	)
Net loss before taxes		(3,770	)		(2,223	)		(6,202	)
Income tax benefit		882			501			2,150
Net loss	$	(2,888	)	$	(1,722	)	$	(4,052	)
Balance Sheet Data
Total loans, gross				$	6,230		$	4,047
Total loan allowance					—			455
Total loans, net					6,230			3,592
Total assets					218,078			240,397
Total borrowings					148,069			186,460
Selected Financial Ratios
Return on average assets		(4.82	)%		(3.01	)%		(3.16	)%
Return on average equity		(20.68	)		(8.32	)		(12.54	)

Page 61 of 76

SELECTED FINANCIAL DATA

Summary Consolidated Financial Data

As described herein, for the three and six months ended June 30, 2019 and for the three months ended June 30, 2018, the Company reported under Bank Holding Company Accounting. For the three months ended March 31, 2018, the Company reported under Investment Company Accounting. You should read the consolidated financial information below with the consolidated financial statements and accompanying notes thereto included in this report.

(Dollars in thousands, except per share data)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Statement of operations
Net interest income	$	23,194		$	45,515
Provision for loan losses		15,171			28,514
Non-interest income (expense), net		(16,501	)		(24,340	)
Net loss before taxes		(8,478	)		(7,339	)
Income tax benefit		1,835			2,091
Less non-controlling interest		857			1,024
Net loss after taxes	$	(7,500	)	$	(6,272	)
Per share data
Net loss after taxes	$	(0.31	)	$	(0.26	)
Distributions per share		0.00			0.00
Weighted average common shares outstanding
Diluted		24,359,280			24,323,967

				June 30, 2019
Balance sheet data
Net loans receivable				$	1,047,805
Total assets					1,481,953
Total borrowings⁽¹⁾					1,168,481
Total liabilities					1,196,449
Total equity⁽²⁾					285,504

	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Selected financial ratios
Return on average assets (ROA)		(2.06	)%		(0.89	)%
Return on average equity (ROE)		(10.34	)		(4.36	)
Dividend payout ratio		0.00			0.00
Net interest margin		8.46			8.49
Other income ratio⁽³⁾		0.61			1.59
Total expense ratio⁽⁴⁾		9.18			8.83
Equity to assets⁽²⁾		19.27			19.27
Debt to equity ⁽¹⁾	4.1x			4.1x
Loans receivable to assets		71	%		71	%
Net charge-offs	$	(11,363	)	$	(24,239	)
Net charge-offs as a % of average loans receivable		4.46	%		4.88	%
Allowance coverage ratio		3.74			3.74

(1)	Includes $13,145 related to the operating lease liability.

(2)	Includes $27,436 related to non-controlling interest in consolidated subsidiaries.

(3)	Other income ratio represents other income divided by average interest earning assets, and includes the gain on extinguishment of debt of $4,145 for the six months ended June 30, 2019.

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

Page 62 of 76

(Dollars in thousands, except per share data)	Three Months Ended June 30, 2018
Statement of operations
Net interest income	$	24,719
Provision for loan losses		30,576
Non-interest income (expense), net		(12,048	)
Net loss before taxes		(17,905	)
Income tax benefit		4,021
Less non-controlling interest		763
Net loss after taxes	$	(14,647	)
Per share data
Net loss after taxes	$	(0.60	)
Distribution per share		0.00
Weighted average common shares outstanding
Diluted		24,230,815
Balance sheet data
Net loan receivable	$	1,128,698
Total assets		1,534,529
Total borrowings		1,226,342
Total liabilities		1,249,613
Total equity⁽¹⁾		284,916
Selected financial ratios
Return on average assets (ROA)		(4.53	)%
Return on average equity (ROE)		(22.00	)
Dividend payout ratio		—
Net interest margin		8.57
Other income ratio⁽²⁾		1.66
Total expense ratio⁽³⁾		7.08
Equity to assets⁽¹⁾		18.57
Debt to equity	4.3x
Loans receivable to assets		74	%
Net charge offs	$	9,151
Net charge offs as a % of average loan receivable		0.81	%
Allowance coverage ratio		1.86

(1)	Includes $27,236 related to non-controlling interest in consolidated subsidiaries.

(2)	Other income ratio represents other income divided by average interest earning assets.

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

Page 63 of 76

	Three Months Ended March 31,
(Dollars in thousands, except per share data)	2018
Statement of operations
Investment income	$	4,033
Interest expense		3,551
Net interest income		482
Noninterest income		60
Operating expenses		4,108
Net investment loss before income taxes		(3,566	)
Income tax benefit		336
Net investment loss after income taxes		(3,230	)
Net realized losses on investments		(34,745	)
Net change in unrealized appreciation on Medallion Bank and other controlled subsidiaries⁽¹⁾		29,115
Net change in unrealized depreciation on investments other than securities		(1,915	)
Net change in unrealized depreciation on investments⁽¹⁾		(4,403	)
Income tax benefit		304
Net decrease in net assets resulting from operations	$	(14,874	)
Per share data
Net investment loss	$	(0.15	)
Income tax benefit		0.03
Net realized losses on investments		(1.44	)
Net change in unrealized appreciation on investments⁽¹⁾		0.94
Net decrease in net assets resulting from operations	$	(0.62	)
Distributions declared per share	$	0.00
Weighted average common shares outstanding
Basic		24,154,879
Diluted		24,154,879

	March 31, 2018
Balance sheet data
Net investments	$	595,402
Total assets		616,710
Total funds borrowed		320,662
Total liabilities		344,273
Total shareholders’ equity		272,437
Managed balance sheet data⁽²⁾
Net investments	$	1,386,136
Total assets		1,479,826
Total funds borrowed		1,167,888
Total liabilities		1,207,389

	Three Months Ended March 31, 2018
Selected financial ratios and other data
Return on average assets (ROA)⁽³⁾
Net investment loss after taxes		(2.08	)%
Net decrease in net assets resulting from operations		(9.55	)
Return on average equity (ROE)⁽⁴⁾
Net investment loss after taxes		(4.62	)
Net decrease in net assets resulting from operations		(21.24	)
Weighted average yield		2.70	%
Weighted average cost of funds		2.38
Net interest margin⁽⁵⁾		0.32
Noninterest income ratio⁽⁶⁾		0.01
Total expense ratio⁽⁷⁾		1.16
Operating expense ratio⁽⁸⁾		0.68

	March 31, 2018
As a percentage of net investment portfolio
Medallion loans		27	%
Commercial loans		15
Investment in Medallion Bank and other controlled subsidiaries		56
Equity investments		2
Investment securities		—
Investments to assets⁽⁹⁾		97	%
Equity to assets⁽¹⁰⁾		44
Debt to equity⁽¹¹⁾		118

Page 64 of 76

(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 loss after taxes or net decrease in net assets resulting from operations, divided by average total assets.

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

(5)

Net interest margin represents net interest income for the period divided by average interest earning assets, and included dividends from Medallion Bank and other controlled subsidiaries of $28 for the three months ended March 31, 2018. On a managed basis, combined with Medallion Bank, the net interest margin was 6.96% for the three months ended March 31, 2018.

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

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

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

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

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

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

Consolidated Results of Operations

2019 Second Quarter Compared to 2018 Second Quarter under Bank Holding Company Accounting

Net loss attributable to shareholders was $7,500,000 or ($0.31) per diluted common share in the 2019 second quarter compared to $14,647,000 or ($0.60) per diluted common share in the 2018 second quarter.

Total interest income for the 2019 second quarter was $32,015,000 compared to $32,644,000 in the 2018 second quarter. Interest income in the 2019 second quarter reflected contraction in the medallion lending segment as well as $1,081,000 of loan premium amortization compared to $0 in the prior year quarter, partially offset by continued growth in the consumer lending segment. The yield on interest earning assets was 11.67% in the 2019 quarter, an improvement from 11.23% in the 2018 quarter. Average interest earning assets were $1,100,024,000 in the quarter, a decline from $1,179,410,000 during the 2018 second quarter, mainly due to shrinkage in the medallion portfolio reflecting increased provisions, as well as the deconsolidation of Trust III in the 2018 fourth quarter, partially offset by the growing consumer portfolio.

Loans before allowance for loan losses were $1,088,475,000 as of June 30, 2019, and were comprised of recreation ($668,540,000), home improvement ($209,549,000), medallion ($145,944,000) and commercial ($64,442,000) loans. The Company had an allowance for loan losses as of the end of the 2019 second quarter of $40,670,000, which was attributable to the medallion (61%), recreation (31%), home improvement (7%) and commercial (1%) loan portfolios. Loans increased from $1,024,200,000 at March 31, 2019 primarily due to $145,498,000 of originations, a majority in the recreation and home improvement segments, partially offset by principal repayments and charge offs. As of June 30, 2018, the loans before allowance were $1,150,123,000 and were comprised of recreation ($597,348,000), home improvement ($195,876,000), medallion ($276,793,000) and commercial ($80,105,000) loans. The Company had an allowance for loan losses as of the end of the 2018 second quarter of $21,425,000, attributable to the medallion (87%), recreation (9%), home improvement (3%) and commercial (1%) loan portfolios. The overall loan balance decline was mainly the result of the deconsolidation of Trust III in the 2018 fourth quarter, along with the decline in the medallion values and the continued aging of the medallion loans over 120 days which are then transferred to loans in process of foreclosure. The provision for loan losses was $15,171,000 in the 2019 second quarter, compared to $30,576,000 in the 2018 second quarter. The improvement was reflective of a lower medallion loan portfolio, in which the medallion values remained consistent in the current quarter for the New York market, while there had been a decline in the prior year quarter, as well as improvement on the non-specific general reserve in the current quarter compared to the initial recording of $6,663,000 in the 2018 second quarter. See Note 4 for additional information on loans and the allowance for loan losses.

Interest expense was $8,821,000 at the 2019 second quarter compared to $7,925,000 in the 2018 quarter, and the cost of borrowed funds was 3.14% compared to 2.65%, mainly driven by market conditions. Average debt outstanding was $1,127,509,000 compared to $1,197,450,000 for the 2018 quarter. See page 49 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $23,194,000 for the 2019 quarter compared to $24,719,000 for the 2018 quarter and the net interest margin was 8.46% compared to 8.57%.

Page 65 of 76

Noninterest income, which is comprised of sponsorship and race winnings, prepayment fees, servicing fee income, late charges, write-downs of loan collateral, impairment of equity investments and other miscellaneous income, was $1,683,000 in the 2019 quarter compared to $4,878,000 in the 2018 quarter. The change was driven by the decline in the Chicago medallion values for both the loans in process of foreclosure and the owned Chicago medallions.

Operating expenses were $18,184,000 in the 2019 second quarter compared to $16,926,000 in the 2018 second quarter. Salaries and benefits expense were $6,321,000 in the 2019 quarter compared to $5,639,000 in the 2018 quarter, reflective of lower bonus expenses in the prior year, and collection costs were $2,253,000 compared to $837,000, primarily reflective of increased efforts with the medallion loan portfolio. The remaining expenses during the 2019 second quarter included professional fees of $2,048,000, primarily reflecting legal costs for a variety of corporate and investment-related matters, race team costs of $2,550,000, loan servicing costs of $1,293,000, primarily reflecting the cost of servicing the recreational and home improvement consumer loans, and occupancy and other operating expenses of $3,719,000, all relatively in line, or slightly improved, compared to the 2018 second quarter.

Total income tax benefit was $1,835,000 in the 2019 quarter compared to $4,021,000 in the 2018 quarter. See Note 9 for more information.

Loan collateral in process of foreclosure was $52,368,000 as of June 30, 2019, an increase of $2,560,000 from March 31, 2019, reflective of $10,355,000 of transfers from loans offset by dispositions and cash payments as well as valuation adjustments incurred during the quarter. At June 30, 2018, the balance was $60,052,000, an increase of $21,749,000 from April 2, 2018. The increase primarily reflects the re-classification of $33,750,000 from nonperforming loans shown as investments during the 2018 first quarter, as well as the net increase in loans that reached 120 days past due and were charged down to collateral value and reclassified.

Goodwill and intangible assets were $204,062,000 as of June 30, 2019 and was $204,785,000 as of December 31, 2018. See Note 2 for further information regarding goodwill and intangible assets.

2019 First Quarter under Bank Holding Company Accounting

Net income attributable to shareholders was $1,228,000, or $0.05 per diluted share for the three months ended March 31, 2019.

Total interest income was $30,043,000 for the three months ended March 31, 2019 was primarily reflective of activity on the consumer and commercial loans, which had slightly declined from the three months ended December 31, 2018 due to exits in the commercial loans and lower earnings on recreation loans. The yield on interest earning assets was 11.52%. Average interest earning assets were $1,057,488,000 for the three months.

Loans before allowance for loan losses were $1,024,200,000 as of March 31, 2019, and were comprised of recreation ($609,999,000), home improvement ($193,275,000), medallion ($165,715,000), and commercial ($55,211,000) loans. The Company had an allowance for loan losses as of March 31, 2019 of $36,862,000, which was attributable to the medallion (69%), recreation (24%), home improvement (6%), and commercial (1%) loan portfolios. The provision for loan loss remained relatively in line with provision as of December 31, 2018 even as total gross loans had increased, mainly due to consumer loan originations. The provision for loan loss was $13,343,000, and reflected an increase of reserves on the consumer loan portfolio and to a lesser extent an increase in reserves on the medallion portfolio due to a decline in the medallion values.

Interest expense was $7,722,000 for the 2019 first quarter and the cost of borrowed funds was 2.93%. Interest expense declined from $8,004,000 for the three months ended December 31, 2018 mainly due to lower borrowings as the DZ loan had been settled during the fourth quarter of 2018. Average debt outstanding was $1,067,075,000.

Net interest income was $22,321,000 and the net interest margin was 8.56% for the 2019 first quarter for the reasons stated above.

Noninterest income was $6,863,000 for the 2019 first quarter, which included a $4,145,000 gain on the extinguishment of debt, $3,179,000 of race team related revenues, as well as gains on equity investments and value adjustments on the Chicago owned medallions, which were partly offset by the decline in collateral value on the loans in process of foreclosure of $2,119,000 mainly due to the change in the New York market.

Operating expenses were $14,702,000 for the three months ended March 31, 2019 compared to $25,691,000 for the three months ended December 31, 2018. For the three months ended March 31, 2019, salaries and benefits were $5,341,000, race team costs were $1,998,000, professional fees were $1,636,000, loan servicing costs were $1,194,000, primarily related to the recreation and home improvement consumer loans, and occupancy and other operating expenses were $4,533,000. For the three months ended December 31, 2018, the majority of the change was due to $5,615,000 impairment recorded as well as higher collection costs incurred mainly related to medallion loans.

Page 66 of 76

Total income tax benefit was $256,000 for the three months ended March 31, 2019.

Loan collateral in process of foreclosure was $49,808,000 at March 31, 2019, an increase from $49,495,000 at December 31, 2018. The increase was primarily reflective of additional loans having reached 120 days past due being charged-down to their collateral value and reclassified to loans in process of foreclosure, partially offset by the decline in collateral values and to a lesser extent the disposition of collateral assets.

Goodwill and intangible assets were $204,423,000 at March 31, 2019, compared to $204,785,00 as of December 31, 2018.

2018 First Quarter under Investment Company Accounting

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

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

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

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

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

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

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

Net change in unrealized appreciation (depreciation) on investments before income tax was appreciation of $22,797,000 in the 2018 first quarter. Net change in unrealized appreciation other than the portion related to Medallion Bank and the other controlled subsidiaries was depreciation of $6,318,000 in 2018, resulting in decreased depreciation of $2,205,000 and related almost entirely to the medallion portfolio. Unrealized appreciation (depreciation) arose when we made valuation adjustments to the investment portfolio. When investments were sold or written off, any resulting realized gain (loss) was grossed up to reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The quarter activity resulted from net appreciation on Medallion Bank and other controlled subsidiaries of $29,115,000 and by reversals of unrealized depreciation on loans which were charged off of $34,747,000, offset by unrealized depreciation on loans and other investments of $40,067,000 mainly due to the continuing declining values of the medallions.

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

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

Page 67 of 76

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

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

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

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

In addition, we manage our exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing intervals on certificates of deposit, for terms of up to five years. We had outstanding SBA debentures of $75,452,000 with a weighted average interest rate of 3.41%, constituting 7% of our total indebtedness, and retail notes of $33,625,000, with a weighted average interest rate of 9.00%, constituting 3% of total indebtedness, and $30,000,000 of private placement notes, with a weighted average interest rate of 8.25%, constituting 2% of total indebtedness as of June 30, 2019. Also, as of June 30, 2019, 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.

Page 68 of 76

The following table presents our interest rate sensitivity gap at June 30, 2019. 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.

June 30, 2019 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	$	37,171		$	—		$	—		$	—		$	—		$	—		$	—	$	37,171
Adjustable rate		37,173			5,227			15,615			1,690			12,519			—			29		72,253
Fixed-rate		56,891			44,488			35,002			56,482			62,521			57,411			740,661		1,053,456
Cash		35,138			—			—			—			—			—			—		35,138
Total earning assets	$	166,373		$	49,715		$	50,617		$	58,172		$	75,040		$	57,411		$	740,690	$	1,198,018
Interest bearing liabilities
Deposits	$	330,902		$	183,873		$	229,929		$	97,811		$	85,143		$	—		$	—	$	927,658
SBA debentures and borrowings		24,452			8,500			—			5,000			2,500			12,500			22,500		75,452
Notes payable to banks		23,524			23,104			—			1,260			—			—			—		47,888
Retail and privately placed notes		—			33,625			—			—			30,000			—			—		63,625
Preferred securities		33,000			—			—			—			—			—			—		33,000
Other borrowings		7,713			—			—			—			—			—			—		7,713
Total liabilities	$	419,591		$	249,102		$	229,929		$	104,071		$	117,643		$	12,500		$	22,500	$	1,155,336
Interest rate gap	$	(253,218	)	$	(199,387	)	$	(179,312	)	$	(45,899	)	$	(42,603	)	$	44,911		$	718,190	$	42,682
Cumulative interest rate gap⁽²⁾	$	(253,218	)	$	(452,605	)	$	(631,917	)	$	(677,816	)	$	(720,419	)	$	(675,508	)	$	42,682		—
December 31, 2018	$	(232,323	)	$	(409,272	)	$	(563,100	)	$	(638,264	)	$	(600,146	)	$	(554,335	)	$	59,833		—
December 31, 2017⁽³⁾	$	(172,208	)	$	(324,049	)	$	(361,494	)	$	(425,785	)	$	(411,672	)	$	(379,286	)	$	168,501		—

(1)	The ratio of the cumulative one year gap to total interest rate sensitive assets was (21%) as of June 30, 2019.

(2)	Adjusted for the medallion loan 40% prepayment assumption results in a cumulative one year negative interest rate gap and related ratio of ($224,688) or (19%) as of June 30, 2019.

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

Our interest rate sensitive assets were $1,198,018,000 and interest rate sensitive liabilities were $1,155,336,000 at June 30, 2019. The one-year cumulative interest rate gap was a negative $253,218,000 or 21% of interest rate sensitive assets. However, using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative gap of $224,688,000 or 19% at June 30, 2019. 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.

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 Capital and Medallion Bank, although we have not received any from Medallion Bank since 2016, and are subject to compliance with regulatory ratios. Additionally, we had $3,000,000 of unfunded commitments from the SBA as of June 30, 2019.

Additionally, Medallion Bank has access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. Medallion Bank has $45,000,000 available under Fed Funds lines with several commercial banks as of June 30, 2019. In addition, Medallion Bank can retain earnings in the business to fund future growth.

In March 2019, we completed a private placement to certain institutional investors of $30,000,000 aggregate principal amount of 8.25% unsecured notes due 2024, with interest payable semiannually.

Page 69 of 76

The components of our debt were as follows at June 30, 2019. See Note 7 to the consolidated financial statements for details of the contractual terms of our borrowings.

(Dollars in thousands)	Balance		Percentage			Rate ⁽¹⁾
Deposits	$	927,658		80	%		2.36	%
SBA debentures and borrowings		75,452		7			3.41
Retail and privately placed notes		63,625		5			8.65
Notes payable to banks		47,888		4			4.78
Preferred securities		33,000		3			4.60
Other borrowings		7,713		1			2.00
Total outstanding debt	$	1,155,336		100	%		2.94	%

(1)	Weighted average contractual rate as of June 30, 2019.

Our contractual obligations expire on or mature at various dates through September 2037. The following table shows our contractual obligations at June 30, 2019.

	Payments due by period
(Dollars in thousands)	Less than 1 year		1 – 2 years		2 – 3 years		3 – 4 years		4 – 5 years		More than 5 years		Total
Deposits	$	330,902	$	183,873	$	229,929	$	97,811	$	85,143	$	—	$	927,658
SBA debentures and borrowings		24,452		8,500	—			5,000		2,500		35,000		75,452
Retail and privately placed notes	—			33,625	—			—		30,000	—			63,625
Notes payable to banks		14,523		32,665		280		280		140	—			47,888
Preferred securities	—		—		—		—		—			33,000		33,000
Other borrowings		7,713	—		—		—		—		—			7,713
Operating lease obligations		2,362		2,304		2,262		2,189		1,960		5,141		16,218
Total	$	379,952	$	260,967	$	232,471	$	105,280	$	119,743	$	73,141	$	1,171,554

Most of our borrowing relationships have maturity dates during 2019 through 2021. We have been in active and ongoing discussions with each of these lenders and have extended each of the facilities as they matured. 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.

On July 16, 2019, we paid $10,819,000 at maturity in satisfaction of all our outstanding obligations under one of our credit facilities. In connection with this payment, we obtained a waiver from one of our other lenders, with a term note of $3,096,000, of certain resulting repayment and other obligations, which waiver expires on August 16, 2019. While there can be no assurance, we are working with the lender to extend such waiver.

In addition, the illiquidity of portions of our loan portfolio and investments may adversely affect our ability to dispose of them at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of our portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net interest income.

We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate investments are financed primarily with short-term floating-rate debt, and to a lesser extent by term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity a hypothetical immediate 1% increase in interest rates would result in an increase to net income as of June 30, 2019 by $862,000 on an annualized basis, and the impact of such an immediate increase of 1% over an one year period would have been ($1,024,000) at June 30, 2019. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net income from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

Page 70 of 76

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 spinoff of certain assets or divisions, the development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth.

The following table illustrates sources of available funds for us and each of our subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at June 30, 2019. See Note 7 to the consolidated financial statements for additional information about each credit facility.

(Dollars in thousands)	Medallion Financial Corp.				MB			MFC			MCI			FSVC			RPAC and Other			June 30, 2019			December 31, 2018
Cash	$	14,499		⁽¹⁾	$	37,071		$	397		$	19,021		$	287		$	873		$	72,148		$	57,713
Brokered CDs & other funds borrowed		—				927,658			—			—			—			—			927,658			848,040
Average interest rate		—				2.36	%		—			—			—			—			2.36	%		2.14	%
Maturity		—			07/19-06/24				—			—			—			—		7/19-6/24			1/19-07/23
Retail and privately placed notes		63,625				—			—			—			—			—			63,625			33,625
Average interest rate		8.65	%			—			—			—			—			—			8.65	%		9.00	%
Maturity	4/21-3/24					—			—			—			—			—		4/21-3/24			4/21
SBA debentures and borrowings		—				—			—			54,000			24,452			—			78,452			83,099
Amounts undisbursed		—				—			—			3,000			—			—			3,000			3,000
Amounts outstanding		—				—			—			51,000			24,452			—			75,452			80,099
Average interest rate		—				—			—			3.48	%		3.25	%		—			3.41	%		3.40	%
Maturity		—				—			—		3/21-3/29			2/20				—		2/20-3/29			2/20-3/29
Bank loans		35,096				—			12,792			—			—			—			47,888			59,615
Average interest rate		5.23	%			—			3.55	%		—			—			—			4.78	%		4.55	%
Maturity	7/19-3/21					—		2/21-12/23				—			—			—		7/19-12/23			3/19-12/23
Preferred securities		33,000				—			—			—			—			—			33,000			33,000
Average interest rate		4.60	%			—			—			—			—			—			4.60	%		4.86	%
Maturity	9/37					—			—			—			—			—		9/37			9/37
Other borrowings		—				—			—			—			—			7,713			7,713			7,649
Average interest rate		—				—			—			—			—			2.00	%		2.00	%		2.00	%
Maturity		—				—			—			—			—		12/19-3/20			12/19-3/20			12/19-3/20
Total cash	$	14,499			$	37,071		$	397		$	19,021		$	287		$	873		$	72,148		$	57,713
Total debt outstanding	$	131,721			$	927,658		$	12,792		$	51,000		$	24,452		$	7,713		$	1,155,336		$	1,062,028

(1)	Includes $2,475 of an interest reserve associated with the March 2019 private placement, which can be used for no other purpose for three years.

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

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

Recently Issued Accounting Standards

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

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

Page 71 of 76

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The main objective of this new standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial assets and other commitments to extend credit held by a reporting entity at each reporting date. Under the FASB’s new standard, the concepts used by entities to account for credit losses on financial instruments will fundamentally change. The existing “probable” and “incurred” loss recognition threshold is removed. Loss estimates are based upon lifetime “expected” credit losses. The use of past and current events must now be supplemented with “reasonable and supportable” expectations about the future to determine the amount of credit loss. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL (current expected credit loss) model. ASU 2016-13 applies to all entities and is effective for fiscal years beginning after December 15, 2019 for public entities, with early adoption permitted. We are assessing the impact the update will have on our financial statements and expect the update to have a significant impact on our accounting for estimated credit losses on our loans.

Dividends

We have not paid dividends on our common stock since 2016 and do not currently anticipate paying dividends. We may, however, re-evaluate paying dividends in the future depending on market conditions.

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 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. 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 insured or guaranteed by the FDIC, or any other agency, 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.

In addition to the regulations detailed above, our operations are subject to supervision and regulation by other federal, state, and local laws and regulations. Additionally, our operations may be subject to various laws and judicial and administrative decisions. This oversight may serve to:

•

regulate credit granting activities, including establishing licensing requirements, if any, in various jurisdictions;

•

establish maximum interest rates, finance charges and other charges;

•

require disclosures to customers;

•

govern secured transactions;

•

set collection, foreclosure, repossession, and claims handling procedures and other trade practices;

•

prohibit discrimination in the extension of credit and administration of loans; and

•

regulate the use and reporting of information related to a borrower’s credit experience and other data collection.

Changes to laws of states in which we do business could affect the operating environment in substantial and unpredictable ways. We cannot predict whether such changes will occur or, if they occur, the ultimate effect they would have upon our financial condition or results of operations.

Page 72 of 76

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, 2018.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure 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 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 June 30, 2019 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Office and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Page 73 of 76

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was filed with the Securities and Exchange Commission on March 13, 2019.

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

We did not repurchase any of our shares during the three months ended June 30, 2019. Accordingly, under our Stock Repurchase Program previously authorized by our Board of Directors, up to $22,874,509 of shares remain authorized for repurchase under the program.

Page 74 of 76

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.

101.INS		XBRL Instance

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation

101.DEF		XBRL Taxonomy Extension Definition

101.LAB		XBRL Taxonomy Extension Labels

101.PRE		XBRL Taxonomy Extension Presentation

Page 75 of 76

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:	August 8, 2019

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.

Page 76 of 76