##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 31, 2010

OR



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

For the transition period from to

Commission file number 814-00188

MEDALLION FINANCIAL CORP.

(Exact name of registrant as specified in its
charter)



|                         |  |                                  
|------------------------ |  | ---------------------------------
|DELAWARE                 |  | 04-3291176                       
|(State of Incorporation) |  | (IRS Employer Identification No.)

437 MADISON AVENUE, 38thFloor, 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: None

Securities registered pursuant to Section 12(g) of the
Act

Common Stock, par value $0.01 per share

(Title of class)

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.    YES   ̈    NO  x

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act:    YES   ̈    NO  x

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

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

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

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

Large Accelerated
Filer   ̈        Accelerated Filer  x        Non
Accelerated Filer   ̈        Smaller Reporting Company   ̈

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

The aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the last
reported price at which the stock was sold on June 30, 2010 was $93,049,572.

The number of outstanding shares of
registrants Common Stock, par value $0.01, as of March 10, 2011 was 17,468,973.

DOCUMENTS INCORPORATED BY
REFERENCE

Portions of the registrants Definitive Proxy Statement for its 2011 Annual Meeting of Shareholders,
which Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrants fiscal year-end of December 31, 2010, are incorporated by reference into Part III of this form 10-K









---

##### Table of Contents

MEDALLION FINANCIAL CORP.

2010 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS



|                                                                                                                         |  |  |    | 
|------------------------------------------------------------------------------------------------------------------------ |  |  | -- | 
|PART I                                                                                                                   |  |  | 3  | 
|                                                                                                                         | 
|ITEM 1. OUR BUSINESS                                                                                                     |  |  | 3  | 
|                                                                                                                         | 
|ITEM 1A. RISK FACTORS                                                                                                    |  |  | 19 | 
|                                                                                                                         | 
|ITEM 1B. UNRESOLVED STAFF COMMENTS                                                                                       |  |  | 28 | 
|                                                                                                                         | 
|ITEM 2. PROPERTIES                                                                                                       |  |  | 28 | 
|                                                                                                                         | 
|ITEM 3. LEGAL PROCEEDINGS                                                                                                |  |  | 28 | 
|                                                                                                                         | 
|ITEM 4. [REMOVED AND RESERVED]                                                                                           |  |  | 29 | 
|                                                                                                                         | 
|PART II                                                                                                                  |  |  | 29 | 
|                                                                                                                         | 
|ITEM 
5. MARKET FOR THE REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASE OF EQUITY SECURITIES |  |  | 29 | 
|                                                                                                                         | 
|ITEM 6. SELECTED FINANCIAL DATA                                                                                          |  |  | 31 | 
|                                                                                                                         | 
|ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |  |  | 32 | 
|                                                                                                                         | 
|ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                      |  |  | 51 | 
|                                                                                                                         | 
|ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                      |  |  | 52 | 
|                                                                                                                         | 
|ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES                            |  |  | 52 | 
|                                                                                                                         | 
|ITEM 9A. CONTROLS AND PROCEDURES                                                                                         |  |  | 52 | 
|                                                                                                                         | 
|ITEM 9B. OTHER INFORMATION                                                                                               |  |  | 55 | 
|                                                                                                                         | 
|PART III                                                                                                                 |  |  | 55 | 
|                                                                                                                         | 
|ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                                         |  |  | 55 | 
|                                                                                                                         | 
|ITEM 11. EXECUTIVE COMPENSATION                                                                                          |  |  | 55 | 
|                                                                                                                         | 
|ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                  |  |  | 55 | 
|                                                                                                                         | 
|ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          |  |  | 55 | 
|                                                                                                                         | 
|ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                          |  |  | 55 | 
|                                                                                                                         | 
|PART IV                                                                                                                  |  |  | 55 | 
|                                                                                                                         | 
|ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                      |  |  | 55 | 
|                                                                                                                         | 
|SIGNATURES                                                                                                               |  |  | 61 | 
|                                                                                                                         | 
|CERTIFICATIONS                                                                                                           |  |  |    | 



2



---

##### Table of Contents

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. Actual results could differ materially from those anticipated
in such forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statements. We caution investors that
our business and financial performance are subject to substantial risks and uncertainties.

PART I



|ITEM 1. | OUR BUSINESS
|------- | ------------

We,
Medallion Financial Corp. or the Company, are a specialty finance company that has a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. A wholly-owned portfolio
company of ours, Medallion Bank, also originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and trailers. Our core philosophy has been In niches there are riches. We try to identify markets that are
profitable and where we can become an industry leader. Our investment objectives are to provide high level of distributable income, consistent with the preservation of capital, as well as long-term growth of net asset value and our stock price. We
also provide other debt, mezzanine, and equity investment capital to companies in a variety of industries, consistent with our investment objectives. For additional information about our business and operations, see Managements
Discussion and Analysis of Financial Condition and Results of Operations.

Since 1996, the year in which we became a
public company, we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 6%, and our commercial loan portfolio at a compound annual growth rate of 4% (11% and 10% on a managed basis when combined with Medallion
Bank). Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 12%. Total assets under our management, which includes
assets serviced for third party investors and assets managed by Medallion Bank, were $1,093,379,000 as of December 31, 2010 and $1,039,840,000 as of December 31, 2009, and have grown at a compound annual growth rate of 12% from
$215,000,000 at the end of 1996. Since our initial public offering in 1996, we have paid dividends in excess of $154,890,000 or $9.86 per share.

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



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



| |  |  | Medallion Capital, Inc., or Medallion Capital, an SBIC and a regulated investment company, or RIC, which conducts a mezzanine financing business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



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

In December 2010, we formed a wholly-owned portfolio company, Medallion Servicing Corporation (MSC), to
provide loan services to Medallion Bank, also a portfolio company wholly-owned by us. We have assigned all of our loan servicing rights for Medallion Bank, which consists of servicing taxi medallion and commercial loans originated by Medallion Bank,
to MSC, who will bill and collect the related service fee income from Medallion Bank, and will be allocated and charged by the Company for MSCs share of these servicing costs.

On March 26, 2009, we formed a new wholly-owned New York limited liability company subsidiary, Medallion Funding LLC. On
February 26, 2010, Medallion Funding Corp. merged into Medallion Funding LLC and following the merger, Medallion Funding LLC was the surviving entity and the successor-in-interest to Medallion Funding Corp.s business. There is no business
or operational change resulting from this corporate restructuring. For federal and state tax purposes, Medallion Funding LLC will be treated as a disregarded entity. Medallion Funding LLC will not independently file any tax return, but will be
subsumed in the tax return of Medallion Financial Corp. Medallion Funding LLC will maintain its status as an SBIC.



3



---

##### Table of Contents

We also conduct business through our asset-based lending division, Medallion Business
Credit, an originator of loans to small businesses for the purpose of financing inventory and receivables, which prior to December 31, 2007, was a wholly-owned investment company subsidiary. On December 31, 2007, Medallion Business Credit
was merged into us and ceased to exist as a separate legal entity.

In addition, we conduct business through a wholly-owned
portfolio company, Medallion Bank, a bank regulated by the FDIC and the Utah Department of Financial Institutions which originates taxicab medallion, commercial, and consumer loans, raises deposits, and conducts other banking activities. Medallion
Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers. To take advantage of this low cost of funds, we refer a portion of our taxicab medallion and commercial loans to
Medallion Bank, which then originates these loans. We earn referral fees for these activities. Until December 2010, we serviced these loans and earned servicing fees for these activities. In December 2010, all of these servicing activities were
assigned to MSC. As a non-investment company, Medallion Bank is not consolidated with the Company, which is an investment company under the 1940 Act.

We are a closed-end, non-diversified management investment company, organized as a Delaware corporation, under the Investment Company Act of 1940 (the 1940 Act). We have elected to be treated as a
business development company under the 1940 Act. We have also elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Internal Revenue Code, or the Code. As a RIC, we generally do not have to pay corporate-level
federal income taxes on any net ordinary income or capital gains that we distribute to our shareholders as dividends, if we meet certain source-of-income and asset diversification requirements. Medallion Bank is not a RIC and must pay
corporate-level federal income taxes.

We are managed by our executive officers under the supervision of our board of
directors. As a result, we do not pay investment advisory fees, but instead we incur the operating costs associated with employing investment and portfolio management professionals. Alvin Murstein, our chairman and chief executive officer, has over
45 years of experience in the ownership, management, and financing of taxicab medallions and other commercial businesses. Andrew M. Murstein, our president, has 20 years of experience and is the third generation in his family to participate in the
business.

Our Market

We provide loans to individuals and small to mid-size businesses, both directly through our investment company subsidiaries and also through Medallion Bank, in three primary markets:



| |  |  | loans that finance taxicab medallions;
| | - |  | --------------------------------------



| |  |  | loans that finance commercial businesses; and
| | - |  | ---------------------------------------------



| |  |  | loans that finance consumer purchases of recreational vehicles, boats, motorcycles, trailers, and hearing aids.
| | - |  | ---------------------------------------------------------------------------------------------------------------

The following chart shows the components of our $946,343,000 managed net investment portfolio as of December 31, 2010.



|                                                                |  |                  |         |  |                      |   |         |                           |  |   |         | 
|--------------------------------------------------------------- |  | ---------------- | ------- |  | -------------------- | - | ------- | ------------------------- |  | - | ------- | 
|(Dollars in thousands)                                          |  | On-Balance Sheet |         |  | Off-Balance Sheet(1) |   |         | Total Managed Investments | 
|Medallion loans                                                 |  | $                | 323,126 |  |                      | $ | 260,467 |                           |  | $ | 583,593 | 
|Commercial loans                                                |  |                  | 76,866  |  |                      |   | 72,701  |                           |  |   | 149,567 | 
|Consumer loans                                                  |  |                  |        |  |                      |   | 182,879 |                           |  |   | 182,879 | 
|Investments in Medallion Bank and other controlled subsidiaries |  |                  | 78,735  |  |                      |   | (74,007 | )                         |  |   | 4,728   | 
|Investment securities                                           |  |                  |        |  |                      |   | 20,787  |                           |  |   | 20,787  | 
|Equity investments                                              |  |                  | 4,789   |  |                      |   |        |                           |  |   | 4,789   | 
|                                                                |  |                  |         |  |                      |   |         |                           |  |   |         | 
|Net investment portfolio                                        |  | $                | 483,516 |  |                      | $ | 462,827 |                           |  | $ | 946,343 | 
|                                                                |  |                  |         |  |                      |   |         |                           |  |   |         | 



|(1) | Off-balance sheet investments are those owned by our wholly-owned unconsolidated portfolio companies, primarily Medallion Bank.
|--- | -------------------------------------------------------------------------------------------------------------------------------

Medallion Loans

Taxi
medallion loans of $323,126,000 comprised 67% of our $483,516,000 net investment portfolio as of December 31, 2010, compared to $321,915,000 or 68% of our $475,133,000 net investment portfolio as of December 31, 2009. Managed taxi
medallion loans of $583,593,000 comprised 62% of our $946,343,000 managed net investment portfolio as of December 31, 2010, compared to $482,087,000 or 57% of our $846,542,000 managed net investment portfolio as of December 31, 2009.
Including loans to unaffiliated investors, the total amount of medallion loans under our management was $647,527,000 as of December 31, 2010, compared to $584,394,000 as of December 31, 2009. Since 1979, we and Medallion Bank have
originated, on a combined basis, approximately $2,165,676,000 in medallion loans in New York City, Chicago, Boston, Newark, Cambridge, and other cities within the United States. In addition, our management has a long history of owning, managing, and
financing taxicab fleets, taxicab medallions, and corporate car services, dating back to 1956.



4



---

##### Table of Contents

Medallion loans collateralized by New York City taxicab medallions and related assets
comprised 74% and 76% of the value of the medallion loan portfolio as of December 31, 2010 and 2009, and were 76% and 75% on a managed basis. The New York City Taxi and Limousine Commission, or TLC, estimates that the total value of all of New
York City taxicab medallions and related assets exceeded $10.5 billion as of December 31, 2010. We estimate that the total value of all taxicab medallions and related assets in the US exceeded $13.0 billion as of December 31, 2010.

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

The following table displays information on managed medallion loans outstanding (other than those managed for third party investors) in
each of our major markets at December 31, 2010. For a presentation of only the consolidated on-balance sheet medallion loans, see the Consolidated Schedule of Investments in the consolidated financial statements on page F-29.



|                                 |  |            |       |  |                                 |  |     |                           |  |  |                  |   |  |   |         |  
|-------------------------------- |  | ---------- | ----- |  | ------------------------------- |  | --- | ------------------------- |  |  | ---------------- | - |  | - | ------- | -
|(Dollars in thousands)           |  | # of Loans |       |  | % ofMedallionLoan Portfolio (1) |  |     | AverageInterest Rate 
(2) |  |  | PrincipalBalance |  
|Managed medallion loans          |  |            |       |  |                                 |  |     |                           |  |  |                  |   |  |   |         |  
|New York                         |  |            | 917   |  |                                 |  | 76  | %                         |  |  | 5.35             | % |  | $ | 441,933 |  
|Chicago                          |  |            | 329   |  |                                 |  | 12  |                           |  |  | 6.68             |   |  |   | 69,843  |  
|Newark                           |  |            | 153   |  |                                 |  | 4   |                           |  |  | 7.76             |   |  |   | 23,957  |  
|Boston                           |  |            | 84    |  |                                 |  | 4   |                           |  |  | 6.77             |   |  |   | 21,376  |  
|Cambridge                        |  |            | 34    |  |                                 |  | 2   |                           |  |  | 6.51             |   |  |   | 13,803  |  
|Other                            |  |            | 86    |  |                                 |  | 2   |                           |  |  | 8.43             |   |  |   | 12,726  |  
|                                 |  |            |       |  |                                 |  |     |                           |  |  |                  |   |  |   |         |  
|Total managed medallion loans    |  |            | 1,603 |  |                                 |  | 100 | %                         |  |  | 5.75             |   |  |   | 583,638 |  
|                                 |  |            |       |  |                                 |  |     |                           |  |  |                  |   |  |   |         |  
|Deferred loan acquisition costs  |  |            |       |  |                                 |  |     |                           |  |  |                  |   |  |   | 1,245   |  
|Unrealized depreciation on loans |  |            |       |  |                                 |  |     |                           |  |  |                  |   |  |   | (1,290  | )
|                                 |  |            |       |  |                                 |  |     |                           |  |  |                  |   |  |   |         |  
|Net managed medallion loans      |  |            |       |  |                                 |  |     |                           |  |  |                  |   |  | $ | 583,593 |  
|                                 |  |            |       |  |                                 |  |     |                           |  |  |                  |   |  |   |         |  

|(1) | Based on principal balance outstanding at December 31, 2010.
|--- | ------------------------------------------------------------



|(2) | Based on the contractual rates of the portfolios at December 31, 2010.
|--- | ----------------------------------------------------------------------

The New York City Market. A New York City taxicab medallion is the only permitted license to operate a taxicab and accept street hails in New York City. As reported by the TLC, individual
(owner-driver) medallions sold for approximately $624,000 and corporate medallions sold for approximately $850,000 as of December 31, 2010. The number of taxicab medallions is limited by law, and as a result of the limited supply of medallions,
an active market for medallions has developed. The law limiting the number of medallions also stipulates that the ownership for the 13,237 medallions outstanding as of December 31, 2010 shall remain divided into 4,876 individual medallions and
8,361 fleet or corporate medallions. Corporate medallions are more valuable because they can be aggregated by businesses, leased to drivers, and operated for more than one shift. New York City auctioned 600 additional medallions during 2004, 308
during 2006, and 89 during 2008. The medallions auctioned in 2006 were restricted to hybrid fuel vehicles and wheelchair accessible vehicles. In addition, New York City auctioned an additional 63 medallions for wheelchair accessible vehicles in
2007. New York City announced a 25% fare hike to support the increased level of medallions, which took effect in the 2004 second quarter.

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

Most New York City medallion transfers are handled through approximately 23 medallion brokers licensed by the TLC. In addition to
brokering medallions, these brokers also arrange for TLC documentation insurance, vehicles, meters, and financing. We have excellent relations with many of the most active brokers, and regularly receive referrals from them. Brokers generated 40% of
the loans originated during 2010, and 26% for 2009. However, we receive most of our referrals from a small number of brokers.



5



---

##### Table of Contents

The Chicago Market. We estimate that Chicago medallions currently sell for
approximately $188,000 as of December 31, 2010. Pursuant to a municipal ordinance, the number of outstanding medallions is currently capped at 6,951. We estimate that the total value of all Chicago medallions and related assets is over
$1,362,000,000 as of December 31, 2010.

The Boston Market. We estimate that Boston medallions currently sell for
approximately $410,000 as of December 31, 2010. The number of Boston medallions is currently capped at 1,825. We estimate that the total value of all Boston medallions and related assets is over $770,734,000 as of December 31, 2010.

The Newark Market. We estimate that Newark medallions currently sell for approximately $320,000 as of
December 31, 2010. The number of Newark medallions has been limited to 600 since 1950 by local law. We estimate that the total value of all Newark medallions and related assets is over $196,000,000 as of December 31, 2010.

The Cambridge Market. We estimate that Cambridge medallions currently sell for approximately $445,000 as of December 31,
2010. The number of Cambridge medallions is currently 257. We estimate that the total value of all Cambridge medallions and related assets is over $117,115,000 as of December 31, 2010.

Commercial Loans

Commercial loans finance either the purchase of the
equipment and related assets necessary to open a new business or the purchase or improvement of an existing business. From the inception of the commercial loan business in 1987 through December 31, 2010, we and Medallion Bank have originated
more than 10,290 commercial loans for an aggregate principal amount of approximately $792,953,000. Commercial loans of $76,866,000 comprised 16% of our $483,516,000 net investment portfolio as of December 31, 2010, compared to $77,922,000 or
16% of our $475,133,000 net investment portfolio as of December 31, 2009. Managed commercial loans of $149,567,000 comprised 16% of our $946,343,000 net investment portfolio as of December 31, 2010, compared to $149,388,000 or 18% of our
$846,542,000 managed net investment portfolio as of December 31, 2009. We have increased our commercial loan activity in recent years, primarily because of the attractive higher yielding, floating rate nature of most of this business. The
outstanding balances of managed commercial loans have grown at a compound annual rate of 10% since 1996. The increase since 1996 has been primarily driven by internal growth through the origination of additional commercial loans. We plan to continue
expanding our commercial loan activities by developing a more diverse borrower base, a wider geographic area of coverage, and by expanding targeted industries.

Commercial loans are generally secured by equipment, accounts receivable, real estate, or other assets, and have interest rates averaging 619 basis points over the prevailing prime rate at year end, down
from 625 basis points over prime at the end of 2009. As with medallion loans, the vast majority of the principals of borrowers personally guarantee commercial loans. The aggregate realized loss of principal on managed commercial loans has averaged
2.2% per annum for the last five years.

The following table displays information on managed commercial loans outstanding
(other than those managed for third party investors) in each of our major markets at December 31, 2010. For a presentation of only the consolidated on-balance sheet commercial loans, see the Consolidated Schedule of Investments in the
consolidated financial statements on page F-29.



|                                 |  |            |     |  |                                  |  |     |                           |  |  |                  |   |  |   |         |  
|-------------------------------- |  | ---------- | --- |  | -------------------------------- |  | --- | ------------------------- |  |  | ---------------- | - |  | - | ------- | -
|(Dollars in thousands)           |  | # of Loans |     |  | % ofCommercialLoan Portfolio (1) |  |     | AverageInterest Rate 
(2) |  |  | PrincipalBalance |  
|Managed commercial loans         |  |            |     |  |                                  |  |     |                           |  |  |                  |   |  |   |         |  
|Asset-based                      |  |            | 42  |  |                                  |  | 48  | %                         |  |  | 5.81             | % |  | $ | 77,827  |  
|Secured mezzanine                |  |            | 35  |  |                                  |  | 42  |                           |  |  | 14.16            |   |  |   | 68,299  |  
|Other secured commercial         |  |            | 79  |  |                                  |  | 10  |                           |  |  | 6.97             |   |  |   | 15,854  |  
|                                 |  |            |     |  |                                  |  |     |                           |  |  |                  |   |  |   |         |  
|Total managed commercial loans   |  |            | 156 |  |                                  |  | 100 | %                         |  |  | 9.44             |   |  |   | 161,980 |  
|                                 |  |            |     |  |                                  |  |     |                           |  |  |                  |   |  |   |         |  
|Deferred loan acquisition income |  |            |     |  |                                  |  |     |                           |  |  |                  |   |  |   | (107    | )
|Unrealized depreciation on loans |  |            |     |  |                                  |  |     |                           |  |  |                  |   |  |   | (12,306 | )
|                                 |  |            |     |  |                                  |  |     |                           |  |  |                  |   |  |   |         |  
|Net managed commercial loans     |  |            |     |  |                                  |  |     |                           |  |  |                  |   |  | $ | 149,567 |  
|                                 |  |            |     |  |                                  |  |     |                           |  |  |                  |   |  |   |         |  



|(1) | Based on principal balance outstanding at December 31, 2010.
|--- | ------------------------------------------------------------



|(2) | Based on the contractual rates of the portfolios at December 31, 2010.
|--- | ----------------------------------------------------------------------

Asset Based Loans. Through our Medallion Business Credit division, we originate, manage, and service asset-based loans to small businesses which require working capital credit facilities ranging
from $500,000 to $6,500,000. Medallion Business Credit frequently refers a portion of its potential commercial loans to Medallion Bank to originate, so that we can benefit from Medallion Banks lower cost of funds. Additionally, from time to
time, Medallion Business Credit also sells and purchases loan participations to or from independent third parties. Together, these loans represent approximately 48% of the managed commercial loan portfolio as of



6



---

##### Table of Contents

December 31, 2010 and were 49% as of December 31, 2009. The commercial loans are secured principally by the borrowers accounts receivable, but may also be secured by inventory,
machinery, equipment, and/or real estate, and are personally guaranteed by the principals. Currently, our clients are mostly located in the New York metropolitan area, and include wholesale and retail trade, transportation and warehousing, and other
industrial and services businesses. We had successfully established 42 commercial loans as of December 31, 2010.

Secured Mezzanine Loans. Through our subsidiary Medallion Capital, we originate both senior and subordinated loans nationwide to
businesses in a variety of industries, including manufacturing and various service providers, about a third of which are located in the upper Midwest and Great Lakes region, with the rest scattered across the country. These loans are primarily
secured by a second position on all assets of the businesses, generally range from $1,000,000 to $5,000,000, and represent approximately 42% of our managed commercial loan portfolio as of December 31, 2010, and were 40% as of December 31,
2009. Frequently, we also receive warrants to purchase an equity interest in the borrowers of secured mezzanine loans.

Other Secured Commercial Loans. We originate other commercial loans that are not concentrated in any particular industry. These
loans represented approximately 10% of the managed commercial loan portfolio as of December 31, 2010, and were 11% as of December 31, 2009. Historically, most of the portfolio had consisted of fixed-rate loans. Borrowers include
accommodation and food services, retail trade, real estate, construction, transportation and warehousing, and other industrial and services businesses.

Consumer Loans

Consumer loans are originated by Medallion Bank, a
wholly-owned, unconsolidated portfolio company. Consumer loans of $182,879,000 comprised 19% of our $946,343,000 managed net investment portfolio as of December 31, 2010 and consumer loans of $186,709,000 comprised 22% of our $846,542,000
managed net investment portfolio as of December 31, 2009. The loans are collateralized by recreational vehicles, boats, motorcycles, trailers, and hearing aids, located in all 50 states. The portfolio is serviced by a large third party
servicer. We believe that Medallion Banks consumer loan portfolio is of acceptable credit quality given the high interest rates earned on the loans, which compensate for the higher degree of credit risk in the portfolio.

Other

As a business
development company, we also provide debt, mezzanine, and equity investment capital to companies in a variety of industries. These investments may be venture capital style investments which may not be fully collateralized. This is a small, but
growing portion of our business.

Our Strategy

Our core philosophy has been In niches there are riches. We try to identify markets that are profitable and where we can be an industry leader. Key elements of our strategy include:

Capitalize on our relationships with brokers and dealers. We are committed to establishing, building, and maintaining
our relationships with our brokers and dealers. Our marketing efforts are focused on building relationships with brokers in the medallion market and dealers in the consumer market. We believe that our relationships with brokers and dealers provide
us with, in addition to potential investment opportunities, other significant benefits, including an additional layer of due diligence and additional monitoring capabilities. We have assembled a management team that has developed an extensive
network of broker and dealer relationships in our target market over the last 50 years. We believe that our management teams relationships with these brokers and dealers have and will continue to provide us with significant investment
opportunities. During 2010, approximately 39% of our originated investment transactions were generated by brokers and dealers.

Employ disciplined underwriting policies and maintain rigorous portfolio monitoring. We have an extensive investment underwriting
and monitoring process. We conduct a thorough analysis of each potential investment and its prospects, competitive position, financial performance, and industry dynamics. We stress the importance of credit and risk analysis in our underwriting
process. We believe that our continued adherence to this disciplined process will permit us to continue to generate a stable, diversified, and increasing revenue stream of current income from our debt investments to enable us to make distributions
to our shareholders.

Leverage the skills of our experienced management team. Our management team is led by our Chief
Executive Officer, Mr. Alvin Murstein, and our President, Mr. Andrew M. Murstein. Alvin Murstein has over 45 years of experience in the ownership, management, and financing of taxicab medallions and other commercial businesses, and
Andrew M. Murstein is the third generation in his family to participate in the business. The other members of our management team have broad investment backgrounds, with prior experience at specialty finance companies, middle market commercial
banks, and other financial services companies. We



7



---

##### Table of Contents

believe that the experience and contacts of our management team will continue to allow us to effectively implement the key aspects of our business strategy.

Perform Strategic Acquisitions. In addition to increasing market share in existing lending markets and identifying new niches, we
seek to acquire medallion financing businesses and related portfolios and specialty finance companies that make secured loans to small businesses which have experienced historically low loan losses similar to our own. Since our initial public
offering in May 1996, eight specialty finance companies, five loan portfolios, and three taxicab rooftop advertising companies have been acquired. Our most recent acquisition was the purchase of a taxicab medallion loan portfolio by Medallion Bank
in October 2008 for $25,584,000.

Investment Activity

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



|                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|----------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                            |  | Year ended December 31, |         
|(Dollars in thousands)                                      |  | 2010                    |          |   | 2009 |   |          | 2008 | 
|Net investments at beginning of year                        |  | $                       | 846,542  |   |      | $ | 922,007  |      |  | $ | 934,955  |  
|Investments originated                                      |  |                         | 525,872  |   |      |   | 329,708  |      |  |   | 413,461  |  
|Repayments of investments                                   |  |                         | (392,417 | ) |      |   | (365,108 | )    |  |   | (422,659 | )
|Net realized gains (losses) on investments(1)               |  |                         | (18,333  | ) |      |   | (15,467  | )    |  |   | (12,703  | )
|Net increase in unrealized depreciation(2)                  |  |                         | 66       |   |      |   | (9,210   | )    |  |   | (5,055   | )
|Transfers to other assets/liabilities, net                  |  |                         | (13,478  | ) |      |   | (13,619  | )    |  |   | (8,893   | )
|Amortization of origination costs                           |  |                         | (1,909   | ) |      |   | (1,769   | )    |  |   | (2,683   | )
|Purchase of Elk Associates Funding medallion loan portfolio |  |                         |         |   |      |   |         |      |  |   | 25,584   |  
|                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in investments                      |  |                         | 99,801   |   |      |   | (75,465  | )    |  |   | (12,948  | )
|                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net investments at end of year                              |  | $                       | 946,343  |   |      | $ | 846,542  |      |  | $ | 922,007  |  
|                                                            |  |                         |          |   |      |   |          |      |  |   |          |  



|(1) | Excludes net realized losses of $779 for the year ended December 31, 2010, related to the investment in SPAC 2, and realized gains (losses) of ($1) and $1,064 for
the years ended December 31, 2009, and 2008, related to foreclosed properties, which were carried in other assets on the consolidated balance sheet.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes the reversal of unrealized depreciation of $759 for the year ended December 31, 2010, related to the realized loss of the SPAC 2 investment, and net
unrealized appreciation of $2,153, $3,742, and $7,273 for the years ended December 31, 2010, 2009, and 2008, related to foreclosed properties, which were carried in other assets on the consolidated balance sheet.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investment Characteristics

Medallion Loans.Our medallion loan portfolio consists of mostly fixed-rate loans, collateralized by first security interests in taxicab medallions and related assets (vehicles, meters, and the
like). The portfolio was originated at an approximate loan-to-value ratio range of 65-80%. We estimate that the average loan-to-value ratio of all of the medallion loans was approximately 45% as of December 31, 2010. In addition, we have
recourse against a vast majority of the owners of the taxicab medallions and related assets through personal guarantees.

Medallion loans generally require equal monthly payments covering accrued interest and amortization of principal over a five to
twenty-five year schedule, subject to a balloon payment of all outstanding principal after three or five years. More recently, we have begun to originate loans with one-to-three year maturities where interest rates are adjusted and a new maturity
period set. Borrowers may prepay medallion loans upon payment of a fee of approximately 90 days interest.

We generally
retain the medallion loans we originate; however, from time to time, we participate or sell shares of some loans or portfolios to interested third party financial institutions. In these cases, we retain the borrower relationships and service the
sold loans.

Commercial Loans.We have typically originated commercial loans in principal amounts ranging from $100,000
to $7,500,000, and occasionally, have originated loans in excess of that amount. These loans are generally retained and typically have maturities ranging from three to ten years and require monthly payments ranging from full amortization over the
loan term to fully deferred interest and principal at maturity, with multiple payment options in between. Substantially all loans may be prepaid with a fee ranging from 30 to 120 days interest. The term of, and interest rate charged on,
certain of our outstanding loans are subject to SBA regulations. Under SBA regulations, the maximum rate of interest permitted on loans originated by us is 19%. Unlike medallion loans, for which competition precludes us from charging the maximum
rate of interest permitted under SBA regulations, we are able to charge the maximum rate on certain commercial loans. We believe that the increased yield on commercial loans compensates for their higher risk relative to medallion loans and further
illustrates the benefits of diversification.



8



---

##### Table of Contents

Commercial loans are generally originated at an average loan-to-value ratio of 60 to 75%.
Substantially all of the commercial loans are collateralized by security interests in the assets being financed by the borrower. In addition, we have recourse against the vast majority of the principals of borrowers who personally guarantee the
loans. Although personal guarantees increase the commitment of borrowers to repay their loans, we cannot assure you that the assets available under personal guarantees would, if required, be sufficient to satisfy the obligations secured by such
guarantees. In certain cases, equipment vendors may provide full and partial recourse guarantees on loans.

Consumer
Loans. Consumer loans generally require equal monthly payments covering accrued interest and amortization of principal over a negotiated term, generally around ten years. Interest rates offered are both floating and fixed, and certain of the
floating rate notes have built in caps or floors. Borrowers may prepay consumer loans without any prepayment penalty. In general, Medallion Bank has established relationships with dealers in the industry, who are the sources for most of the
customers of Medallion Bank.

Marketing, Origination, and Loan Approval Process

We employ 25 loan originators to originate medallion, commercial, and consumer loans. Each loan application is individually reviewed
through analysis of a number of factors, including loan-to-value ratios, a review of the borrowers credit history, public records, personal interviews, trade references, personal inspection of the premises, and approval from the TLC, SBA, or
other regulatory body, if applicable. Each medallion and commercial loan applicant is required to provide personal or corporate tax returns, premises leases, and/or property deeds. Senior management establishes loan origination criteria. Loans that
conform to such criteria may be processed by a loan officer with the proper credit authority, and non-conforming loans must be approved by the chief executive officer and/or the chief credit officer. Both medallion and commercial loans are sourced
from brokers with extensive networks of applicants, and commercial loans are also referred by contacts with banks, attorneys, and accounting firms. Consumer loans are primarily sourced through relationships which have been established with
recreational vehicle and boat dealers throughout our market area.

Sources of Funds

We have historically funded our lending operations primarily through credit facilities with bank syndicates and, to a lesser degree,
through equity or debt offerings or private placements, and fixed-rate, senior secured notes and long-term subordinated debentures issued to or guaranteed by the SBA. Since the inception of Medallion Bank, substantially all of Medallion Banks
funding has been provided by FDIC insured brokered certificates of deposit. The determination of funding sources is established by our management, based upon an analysis of the respective financial and other costs and burdens associated with funding
sources. Our funding strategy and interest rate risk management strategy is to have the proper structuring of debt to minimize both rate and maturity risk, while maximizing returns with the lowest cost of funding over an intermediate period of time.



9



---

##### Table of Contents

The table below summarizes our sources of available funds and amounts outstanding under
credit facilities and their respective end of period weighted average interest rates at December 31, 2010. See Note 4 to the consolidated financial statements for additional information about each credit facility.



|                                                                                               |  |       |           |  
|---------------------------------------------------------------------------------------------- |  | ----- | --------- | -
|Consolidated sources of funds(Dollars in thousands)                                            |  | Total |          
|Cash                                                                                           |  | $     | 17,303    |  
|Bank loans                                                                                     |  | $     | 97,578    |  
|Amounts undisbursed                                                                            |  |       | 10,500    |  
|Amounts outstanding                                                                            |  |       | 87,078    |  
|Average interest rate                                                                          |  |       | 4.41      | %
|Maturity                                                                                       |  |       | 1/11-2/17 |  
|Preferred securities                                                                           |  | $     | 33,000    |  
|Average interest rate                                                                          |  |       | 7.68      | %
|Maturity                                                                                       |  |       | 9/37      |  
|Lines of credit                                                                                |  | $     | 200,000   |  
|Amounts undisbursed                                                                            |  |       | 19,796    |  
|Amounts outstanding                                                                            |  |       | 180,204   |  
|Average interest rate                                                                          |  |       | 1.31      | %
|Maturity                                                                                       |  |       | 12/13     |  
|SBA debentures                                                                                 |  | $     | 92,735    |  
|Amounts undisbursed                                                                            |  |       | 12,485    |  
|Amounts outstanding                                                                            |  |       | 80,250    |  
|Average interest rate                                                                          |  |       | 5.48      | %
|Maturity                                                                                       |  |       | 9/11-3/21 |  
|                                                                                               |  |       |           |  
|Total cash and amounts remaining undisbursed under credit facilities                           |  | $     | 60,084    |  
|                                                                                               |  |       |           |  
|Total debt outstanding                                                                         |  | $     | 380,532   |  
|                                                                                               |  |       |           |  
|Medallion bank sources of funds                                                                |  |       |           |  
|Cash                                                                                           |  | $     | 16,980    |  
|Deposits and federal funds purchased                                                           |  |       | 468,957   |  
|Average interest rate                                                                          |  |       | 1.34      | %
|Maturity                                                                                       |  |       | 1/11-9/13 |  
|                                                                                               |  |       |           |  
|Total cash and amounts remaining undisbursed under credit facilities, including Medallion Bank |  | $     | 77,064    |  
|                                                                                               |  |       |           |  
|Total debt outstanding, including Medallion Bank                                               |  | $     | 849,489   |  
|                                                                                               |  |       |           |  

We fund our fixed-rate loans with variable-rate credit lines and bank debt, and with fixed-rate SBA
debentures. The mismatch between maturities and interest-rate sensitivities of these balance sheet items results in interest rate risk. We seek to manage our exposure to increases in market rates of interest to an acceptable level by:



| |  |  | Originating adjustable rate loans;
| | - |  | ----------------------------------



| |  |  | Incurring fixed-rate debt; and
| | - |  | ------------------------------



| |  |  | Purchasing interest rate caps to hedge a portion of variable-rate debt against increases in interest rates.
| | - |  | -----------------------------------------------------------------------------------------------------------

Nevertheless, we accept varying degrees of interest rate risk depending on market conditions. For additional discussion of our funding
sources and asset liability management strategy, see Asset/Liability Management on page 44.

Competition

Banks, credit unions, and finance companies, some of which are SBICs, compete with us in originating medallion, commercial, and consumer
loans. In addition, finance subsidiaries of equipment manufacturers also compete with us in originating commercial loans. Many of these competitors have greater resources than we do and certain competitors are subject to less restrictive regulations
than us. As a result, we cannot assure you that we will be able to identify and complete the financing transactions that will permit us to compete successfully.



10



---

##### Table of Contents

Employees

As of December 31, 2010 we employed 122 persons, including 31 at our Medallion Bank subsidiary. We believe that relations with all of our employees are good.

CERTAIN US FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a general summary of the material US federal income tax considerations applicable to us and to an investment in shares of our common stock. This summary does not purport to be
a complete description of the income tax considerations applicable to such an investment. For example, we have not described tax consequences that we assume to be generally known by investors or certain considerations that may be relevant to certain
types of holders subject to special treatment under US federal income tax laws, including shareholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts, and
financial institutions. This summary assumes that investors hold our common stock as capital assets (within the meaning of the Code). The discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each
as of the date of this annual report and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the Internal Revenue Service, or
the IRS, regarding an investment in our common stock. This summary does not discuss any aspects of US estate or gift tax; or foreign, state, or local tax. It does not discuss the special treatment under US federal income tax laws that could result
if we invested in tax-exempt securities or certain other investment assets.

A US shareholder is a beneficial
owner of shares of our common stock that is for US federal income tax purposes:



| |  |  | a citizen or individual resident of the United States;
| | - |  | ------------------------------------------------------



| |  |  | a corporation, or other entity treated as a corporation for US federal income tax purposes, created or organized in or under the laws of the US or any
state thereof or the District of Columbia; or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a trust or an estate, the income of which is subject to US federal income taxation regardless of its source.
| | - |  | ------------------------------------------------------------------------------------------------------------

A non-US shareholder is a beneficial owner of shares of our common stock that is not a US shareholder.

If a partnership (including an entity treated as a partnership for US federal income tax purposes) holds shares of our common stock, the
tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective shareholder that is a partner of a partnership holding shares of our common stock should consult
its tax advisors with respect to the purchase, ownership, and disposition of shares of our common stock.

Tax matters are very
complicated and the tax consequences to an investor of an investment in our shares will depend on the facts of his, her, or its particular situation. We encourage investors to consult their own tax advisors regarding the specific consequences of
such an investment, including tax reporting requirements, the applicability of federal, state, local, and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.

Election to be Taxed as a RIC

As a business development company, we have elected to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on any ordinary
income or capital gains that we distribute to our shareholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to obtain RIC tax
treatment we must distribute to our shareholders, for each taxable year, at least 90% of our investment company taxable income, which is generally our ordinary income plus the excess of realized net short-term capital gains over realized
net long-term capital losses, or the Annual Distribution Requirement.

Taxation as a RIC

If we:



| |  |  | qualify as a RIC; and
| | - |  | ---------------------



| |  |  | satisfy the Annual Distribution Requirement;
| | - |  | --------------------------------------------

then we will not be subject to federal income tax on the portion of our investment company taxable income and net capital gain ( i.e. , net long-term capital gains in excess of net short-term
capital losses) we distribute to shareholders. We will be subject to US federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to our shareholders.

We will be subject to a 4% nondeductible federal excise tax on certain undistributed income of RICs unless we distribute in a timely
manner an amount at least equal to the sum of (1) 98% of our ordinary income for each calendar year, (2) 98% of our capital



11



---

##### Table of Contents

gain net income for the one-year period ending October 31 in that calendar year, and (3) any income realized, but not distributed, in preceding years, or the Excise Tax Avoidance
Requirement. We currently intend to make sufficient distributions each taxable year to satisfy the Excise Tax Avoidance Requirement.

In order to qualify as a RIC for federal income tax purposes, we must, among other things:



| |  |  | qualify to be treated as a business development company under the 1940 Act at all times during each taxable year;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from
the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities, and net income derived from interests in qualified publicly traded partnerships (i.e., partnerships
that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends, capital gains, and other traditionally permitted mutual fund income) or the 90%
Income Test; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | diversify our holdings so that at the end of each quarter of the taxable year:
| | - |  | ------------------------------------------------------------------------------



| |  |  | at least 50% of the value of our assets consists of cash, cash equivalents, US Government securities, securities of other RICs, and other securities if
such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | no more than 25% of the value of our assets is invested in the securities, other than US Government securities or securities of other RICs, of one
issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more qualified publicly traded
partnerships, or the Diversification Tests.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may be required to recognize taxable income in circumstances
in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest
rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable
year. Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our shareholders in order to satisfy the Annual Distribution
Requirement, even though we will not have received any corresponding cash amount.

Gain or loss realized by us from warrants
acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.

We are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940
Act, we are not permitted to make distributions to our shareholders while our debt obligations and other senior securities are outstanding unless certain asset coverage tests are met. See RegulationSenior Securities.
Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the diversification tests.
If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

If we fail to satisfy the Annual Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year, we will be subject
to tax in that year on all of our taxable income, regardless of whether we make any distributions to our shareholders. In that case, all of our income will be subject to corporate-level federal income tax, reducing the amount available to be
distributed to our shareholders. In contrast, assuming we qualify as a RIC, our corporate-level federal income tax should be substantially reduced or eliminated. See Election to be Taxed as a RIC above.

The remainder of this discussion assumes that we qualify as a RIC and have satisfied the Annual Distribution Requirement.

Taxation of US Shareholders

Distributions by us generally are taxable to US shareholders as ordinary income or capital gains. Distributions of our investment company taxable income (which is, generally, our ordinary
income plus realized net short-term capital gains in excess of realized net long-term capital losses) will be taxable as ordinary income to US shareholders to the extent of our current or accumulated earnings and profits, whether paid in cash or
reinvested in additional common stock. To the extent such distributions paid by us to non-corporate shareholders (including individuals) are attributable to dividends from US corporations and certain qualified foreign corporations, such
distributions generally will be eligible for a maximum tax rate of 15% for taxable years beginning



12



---

##### Table of Contents

before January 1, 2011. In this regard, it is anticipated that distributions paid by us will generally not be attributable to dividends and, therefore, generally will not qualify for the 15%
maximum rate. Distributions of our net capital gains (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly designated by us as capital gain dividends will be taxable to
a US shareholder as long-term capital gains (currently at a maximum rate of 15% in the case of individuals, trusts, or estates), regardless of the US shareholders holding period for his, her, or its common stock, and regardless of whether paid
in cash or reinvested in additional common stock. Distributions in excess of our earnings and profits first will reduce a US shareholders adjusted tax basis in such shareholders common stock and, after the adjusted basis is reduced to
zero, will constitute capital gains to such US shareholder.

Although we currently intend to distribute any long-term capital
gains at least annually, we may in the future decide to retain some or all of our long-term capital gains, but designate the retained amount as a deemed distribution. In that case, among other consequences, we will pay tax on the
retained amount, each US shareholder will be required to include his, her, or its share of the deemed distribution in income as if it had been actually distributed to the US shareholder, and the US shareholder will be entitled to claim a credit
equal to his, her, or its allocable share of the tax paid thereon by us. The amount of the deemed distribution net of such tax will be added to the US shareholders tax basis for his, her, or its common stock. Since we expect to pay tax on any
retained capital gains at our regular corporate tax rate, and since that rate is in excess of the maximum rate currently payable by individuals on long-term capital gains, the amount of tax that individual shareholders will be treated as having paid
and for which they will receive a credit will exceed the tax they owe on the retained net capital gain. Such excess generally may be claimed as a credit against the US shareholders other federal income tax obligations or may be refunded to the
extent it exceeds a shareholders liability for federal income tax. A shareholder that is not subject to federal income tax or otherwise required to file a federal income tax return would be required to file a federal income tax return on the
appropriate form in order to claim a refund for the taxes we paid. In order to utilize the deemed distribution approach, we must provide written notice to our shareholders prior to the expiration of 60 days after the close of the relevant taxable
year. We cannot treat any of our investment company taxable income as a deemed distribution.

For purposes of
determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, we may, under certain circumstances, elect to treat a dividend that is paid during the
following taxable year as if it had been paid during the taxable year in question. If we make such an election, the US shareholder will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, any
dividend declared by us in October, November, or December of any calendar year, payable to shareholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been received
by our US shareholders on December 31 of the year in which the dividend was declared.

If an investor purchases shares of
our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though it represents a return of his, her, or its
investment.

A shareholder generally will recognize taxable gain or loss if the shareholder sells or otherwise disposes of
his, her, or its shares of our common stock. Any gain arising from such sale or disposition generally will be treated as capital gain or loss if the shareholder has held his, her or its shares for more than one year. Otherwise, it would be
classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital
gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of our common stock may be disallowed if other shares of our
common stock are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition.

In general, individual and other non-corporate US shareholders currently are subject to a maximum federal income tax rate of 15% on their net capital gain, i.e., the excess of realized net long-term
capital gain over realized net short-term capital loss for a taxable year, including a long-term capital gain derived from an investment in our shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals.
Corporate US shareholders currently are subject to federal income tax on net capital gain at the maximum 35% rate also applied to ordinary income. Non-corporate shareholders with net capital losses for a year (i.e., capital losses in excess of
capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each year; any net capital losses of a non-corporate shareholder in excess of $3,000 generally may be carried forward and used in subsequent years as
provided in the Code. Corporate shareholders generally may not deduct any net capital losses against ordinary income for a year, but may carryback such losses for three years or carry forward such losses for five years.

We will send to each of our US shareholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per
share basis, the amounts includible in such US shareholders taxable income for such year as ordinary income and as long-term capital gain. In addition, the federal tax status of each years distributions generally will be reported to the
IRS (including the amount of dividends, if any, eligible for the 15% maximum rate). Distributions may also be subject to additional state, local, and foreign taxes



13



---

##### Table of Contents

depending on a US shareholders particular situation. Dividends distributed by us generally will not be eligible for the dividends-received deduction or the 15% maximum rate applicable to
qualifying dividends.

We may be required to withhold federal income tax (backup withholding) currently at a rate
of 28% from all taxable distributions to any non-corporate US shareholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such shareholder is exempt from backup withholding, or (2) with
respect to whom the IRS notifies us that such shareholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individuals taxpayer identification number is his or her
social security number. Any amount withheld under backup withholding is allowed as a credit against the US shareholders federal income tax liability and may entitle such shareholder to a refund, provided that proper information is timely
provided to the IRS.

Taxation of Non-US Shareholders

Whether an investment in our common stock is appropriate for a non-US shareholder will depend upon that persons particular circumstances. An investment in our common stock by a non-US shareholder
may have adverse tax consequences. Non-US shareholders should consult their tax advisers before investing in our common stock.

Dividends paid by us to non-US shareholders are generally subject to withholding at a 30% rate or a reduced rate specified by an
applicable income tax treaty to the extent derived from investment income and short-term capital gains. In order to obtain a reduced rate of withholding, a non-US shareholder will be required to provide an IRS Form W-8BEN certifying its entitlement
to benefits under a treaty. The withholding tax does not apply to regular dividends paid to a non-US shareholder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-US shareholders conduct of a
trade or business within the United States. Instead, the effectively connected dividends will be subject to regular US income tax as if the non-US shareholder were a US shareholder. A non-US corporation receiving effectively connected dividends may
also be subject to additional branch profits tax imposed at a rate of 30% (or lower treaty rate). A non-US shareholder who fails to provide an IRS Form W-8BEN or other applicable form may be subject to backup withholding at the
appropriate rate.

In general, US federal withholding tax will not apply to any gain or income realized by a non-US
shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, exempt-interest dividends, or upon the sale or other disposition of shares of our common stock.

For taxable years beginning before January 1, 2010, properly-designated dividends were generally exempt from US federal withholding
tax where they (i) were paid in respect of our qualified net interest income (generally, our US source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which we
are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) were paid in respect of our qualified short-term capital gains (generally, the excess of our net short-term capital gain over our
long-term capital loss for such taxable year). However, depending on our circumstances, we would have designated all, some or none of its potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains,
and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for this exemption from withholding, a non-US shareholder would have needed to comply with applicable certification requirements
relating to its non-US status (including, in general, furnishing an IRS Form W-8BEN or substitute Form). In the case of shares held through an intermediary, the intermediary could withhold even if we designated the payment as qualified net interest
income or qualified short-term capital gain. Non-US shareholders should contact their intermediaries with respect to the application of these rules to their accounts. Although this provision has expired, legislation has been proposed under which
this provision would be extended to taxable years beginning before January 1, 2011; this extension, if enacted would be applied retroactively.

Non-US persons should consult their own tax advisors with respect to the US federal income tax and withholding tax, and state, local, and foreign tax consequences of an investment in the shares.

The Code may impose a withholding tax of 30% on payments (including interests, dividends, and gross proceeds on sales of US
securities) that are attributable to certain US investments and made to non-US entities, unless such entities comply with certain reporting requirements to the IRS and/or to us as to identifying information (including name, address and tax payer
identification number) of their direct and indirect US investors.

Failure to Qualify as a RIC

If we were unable to qualify for treatment as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates.
We would not be able to deduct distributions to shareholders, nor would they be required to be made. Distributions would



14



---

##### Table of Contents

generally be taxable to our shareholders as ordinary dividend income eligible for the 15% maximum rate for taxable years beginning before January 1, 2011 to the extent of our current and
accumulated earnings and profits for federal tax purposes. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings
and profits would be treated first as a return of capital to the extent of the shareholders tax basis, and any remaining distributions would be treated as a capital gain.

GOVERNMENT REGULATION

Regulation under the 1940 Act

We are a closed-end, management investment company that has elected to be treated as a business development company under the 1940 Act.
The 1940 Act contains prohibitions and restrictions relating to transactions between business development companies and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates
or underwriters, and requires that a majority of the directors be persons other than interested persons, as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as
to cease to be, or to withdraw our election as, a business development company unless approved by a majority of our outstanding voting securities voting as a class.

Qualifying Assets

Under the 1940 Act, a business development company may
not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the companys
total assets. The principal categories of qualifying assets relevant to our business are the following:

(1)
Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the
preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:

(a) is organized under the laws of, and has its principal place of business in, the US;

(b) is not an investment company (other than a small business investment company wholly owned by the business development
company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and

(c) satisfies any of the following:



| |  |  | does not have any class of securities listed on a national securities exchange, or has a class of securities listed on a national securities exchange,
but has an aggregate market value of outstanding voting and non-voting common equity of less than $250,000,000;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | is controlled by a business development company or a group of companies including a business development company and the business development company
has an affiliated person who is a director of the eligible portfolio company; or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

(2) Securities of any eligible portfolio company which we control.

(3) Securities purchased in transactions not involving any public offering from a US issuer that is not an investment
company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its
obligations as they came due without material assistance other than conventional lending or financing arrangements.

(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own at least 60% of the outstanding equity
of the eligible portfolio company.

(5) Securities received in exchange for or distributed on or with respect
to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.

(6) Cash, cash equivalents, US Government securities or high-quality debt securities maturing in one year or less from the time of investment.

(7) Securities issued by a company that met the definition of eligible portfolio company at the time of our initial
investment but subsequently does not meet the definition because the company no longer meets the definition set forth above.



15



---

##### Table of Contents

Managerial Assistance to Portfolio Companies

In addition, a business development company must have been organized and have its principal place of business in the US and must be
operated for the purpose of making investments in the types of securities described in (1), (2), or (3) above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the business development
company must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the business
development company purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among
other things, any arrangement whereby the business development company, through its directors, officers, or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations, or
business objectives and policies of a portfolio company.

Temporary Investments

Pending investment in other types of qualifying assets, as described above, our investments may consist of cash equivalents,
US government securities, or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest
in US Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the US government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a
specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage
restriction on the proportion of our assets that may be invested in such repurchase agreements.

Senior Securities

We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock
if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our shareholders
or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency
purposes without regard to full asset coverage requirements. In addition to the 1940 Act, we are subject to two exemptive orders which govern how we calculate our senior securities. For a discussion of the risks associated with leverage, see
Risk FactorsRisks Relating to Our Business and StructureRegulations governing our operation as a business development company will affect our ability to, and the way in which we raise additional capital.

Regulation by the SBA

Medallion Funding, Medallion Capital, and Freshstart each operate as Small Business Investment Companies, or SBICs. The SBIA
authorizes the organization of SBICs as vehicles for providing equity capital, long term financing, and management assistance to small business concerns. The SBIA and the SBA regulations define a small business concern as a
business that is independently owned and operated, which does not dominate its field of operation, and which (i) has a net worth, together with any affiliates, of $18.0 million or less and average annual net income after US federal income taxes
for the preceding two years of $6.0 million or less (average annual net income is computed without the benefit of any carryover loss), or (ii) satisfies alternative criteria under SBA regulations that focus on the industry in which the business
is engaged and the number of persons employed by the business or its gross revenues. In addition, at the end of each year, at least 20% of the total amount of loans made after April 25, 1994 must be made in smaller businesses which
have a net worth of $6.0 million or less, and average net income after federal income taxes for the preceding two years of $2.0 million or less. SBA regulations also prohibit an SBIC from providing funds to a small business concern for certain
purposes, such as relending and reinvestment.

Medallion Funding is authorized to make loans to borrowers other than
disadvantaged businesses (that is, businesses that are at least 50% owned, and controlled, and managed, on a day to day basis, by a person or persons whose participation in the free enterprise system is hampered because of social or economic
disadvantage) if, at the time of the loan, Medallion Funding has in its portfolio outstanding loans to disadvantaged businesses with an aggregate cost basis equal to or exceeding the value of the unamortized repurchase discount under the preferred
stock repurchase agreement between Medallion Funding and the SBA, which is currently zero.

Under current SBA Regulations, the
maximum rate of interest that Medallion Funding may charge may not exceed the higher of (i) 19% or (ii) the sum of (a) the higher of (i) that companys weighted average cost of qualified borrowings, as determined under SBA
Regulations, or (ii) the current SBA debenture rate, plus (b) 11%, rounded to the next lower eighth of one percent. As of December 31, 2010, the maximum rate of interest permitted on loans originated by Medallion Funding, Medallion
Capital, and Freshstart was 19%. As of December 31, 2010, our outstanding medallion loans had a weighted average rate of interest 5.90% and our outstanding



16



---

##### Table of Contents

commercial loans had a weighted average rate of interest of 12.44%. Current SBA regulations also require that each loan originated by an SBIC has a term between one and 20 years; loans to
disadvantaged businesses also may be for a minimum term of one year.

The SBA restricts the ability of SBICs to repurchase
their capital stock, to retire their SBA debentures, and to lend money to their officers, directors, and employees, or invest in affiliates thereof. The SBA also prohibits, without prior SBA approval, a change of control or transfers
which would result in any person (or group of persons acting in concert) owning 10% or more of any class of capital stock of an SBIC. A change of control is any event which would result in the transfer of the power, direct or indirect,
to direct the management and policies of an SBIC, whether through ownership, contractual arrangements, or otherwise.

Under
SBA Regulations, without prior SBA approval, loans by licensees with outstanding SBA leverage to any single small business concern may not exceed 20% of an SBICs regulatory capital, as defined. Under the terms of the respective conversion
agreements with the SBA, however, Medallion Funding is authorized to make loans to disadvantaged borrowers in amounts not exceeding 30% of its respective regulatory capital.

SBICs must invest idle funds that are not being used to make loans in investments permitted under SBA regulations. These permitted investments include direct obligations of, or obligations guaranteed as
to principal and interest by, the government of the US with a term of 15 months or less and deposits maturing in one year or less issued by an institution insured by the FDIC. These permitted investments must be maintained in (i) direct
obligations of, or obligations guaranteed as to principal and interest by, the US, which mature within 15 months from the date of the investment; (ii) repurchase agreements with federally insured institutions with a maturity of seven days or
less if the securities underlying the repurchase agreements are direct obligations of, or obligations guaranteed as to principal and interest by the US, and such securities must be maintained in a custodial account in a federally insured
institution; (iii) certificates of deposit with a maturity of one year or less, issued by a federally insured institution; (iv) a deposit account in a federally insured institution, subject to withdrawal restriction of one year or less;
(v) a checking account in a federally insured institution; or (vi) a reasonable petty cash fund.

SBICs may purchase
voting securities of small business concerns in accordance with SBA regulations. Although prior regulations prohibited an SBIC from controlling a small business concern except in limited circumstances, new regulations adopted by the SBA on
October 22, 2002 (pursuant to Public Law 106-554) now allow an SBIC to exercise control over a small business for a period of seven years from the date on which the SBIC initially acquires its control position. This control period may be
extended for an additional period of time with the SBAs prior written approval.

Regulation of Medallion Bank as an Industrial Bank

In May 2002, we formed Medallion Bank, which received approval from the FDIC for federal deposit insurance in October
2003. Medallion Bank, a Utah-chartered industrial bank, is a depository institution subject to regulatory oversight and examination by both the FDIC and the Utah Department of Financial Institutions. Under its banking charter, Medallion Bank is
empowered to make consumer and commercial loans, and may accept all FDIC-insured deposits other than demand deposits (checking accounts). The creation of Medallion Bank allows us to apply stable and low-cost bank deposit funding for key lending
business activities throughout our business.

Medallion Bank is subject to certain federal laws that restrict and control its
ability to extend credit and provide or receive services between affiliates. In addition, the FDIC has regulatory authority to prohibit Medallion Bank from engaging in any unsafe or unsound practice in conducting its business.

Medallion Bank is further subject to capital adequacy guidelines issued by the Federal Financial Institutions Examination Council, or the
FFIEC. These guidelines make regulatory capital requirements more sensitive to differences in risk profiles among banking organizations and consider off-balance sheet exposures in determining capital adequacy. Under the rules and regulations of the
FFIEC, at least half of a banks total capital is required to be Tier I capital, comprised of common equity, retained earnings and a limited amount of non-cumulative perpetual preferred stock. The remaining capital, Tier II capital, may consist
of other preferred stock, certain hybrid debt/equity instruments, a limited amount of term-subordinated debt, or a limited amount of the reserve for possible credit losses. The FFIEC has also adopted minimum leverage ratios for banks, which are
calculated by dividing Tier I capital by total average assets. Recognizing that the risk-based capital standards address only credit risk, and not interest rate, liquidity, operational, or other risks, many banks are expected to maintain capital in
excess of the minimum standards.

In addition, pursuant to provisions of the FDIC Improvement Act of 1991, or FDICIA, and
related regulations with respect to prompt corrective action, FDIC-insured institutions such as Medallion Bank may only accept brokered deposits without FDIC permission if they meet specified capital standards, and are subject to restrictions with
respect to the interest they may pay on deposits unless they are well-capitalized. To be well-capitalized under the prompt corrective action provisions, a bank must have a ratio of



17



---

##### Table of Contents

combined Tier I and Tier II capital to risk-weighted assets of not less than 10%, Tier I capital to risk-weighted assets of not less than 6%, and a Tier I to average assets of not less than 5%.

We, the FDIC, and Medallion Bank have agreed that the capital levels of Medallion Bank will at all times meet or exceed the
levels required for Medallion Bank to be considered well-capitalized under the FDIC rules and regulations, that Medallion Banks Tier I capital to total assets ratio will be maintained at not less than 15%, and that Medallion Bank will maintain
an adequate allowance for loan and lease losses.

Sections 23A and 23B of the Federal Reserve Act and applicable regulations
also impose restrictions on Medallion Bank. These restrictions limit the transfer of funds by a depository institution to certain of its affiliates, including us, in the form of loans, extensions of credit, investments, or purchases of assets.
Sections 23A and 23B also require generally that the depository institutions transactions with its affiliates be on terms no less favorable to Medallion Bank than comparable transactions with unrelated third parties.

The USA Patriot Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, or the Patriot Act, was
enacted on October 26, 2001, and is intended to detect and prosecute terrorism and international money laundering. The Patriot Act establishes new standards for verifying customer identification incidental to the opening of new accounts.
Medallion Bank has undertaken appropriate measures to comply with the Patriot Act and associated regulations. Other provisions of the Patriot Act provide for special information sharing procedures governing communications with the government and
other financial institutions with respect to suspected terrorists and money laundering activity, and enhancements to suspicious activity reporting, including electronic filing of suspicious activity reports over a secure filing network.

Other

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

We may also be prohibited under the 1940 Act from knowingly participating in certain
transactions with our affiliates without the prior approval of our board of directors who are not interested persons and, in some cases, prior approval by the SEC.

We are periodically examined by the SEC for compliance with the 1940 Act. We are examined by the SBA annually for compliance with applicable SBA regulations. We are also periodically examined by the FDIC
and the Department of Financial Institutions of the State of Utah (DFI). Medallion Bank is examined annually by the FDIC and the DFI.

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a business development company, we are
prohibited from protecting any director or officer against any liability to us or our shareholders arising from willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of such persons
office.

We have adopted and implemented written policies and procedures reasonably designed to prevent violation of the
federal securities laws, and intend to review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We have designated a chief compliance officer to be responsible for administering our policies and
procedures.

Compliance with the Sarbanes-Oxley Act of 2002 and NASDAQ Corporate Governance Regulations

The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, imposes a wide variety of regulatory requirements on publicly-held companies
and their insiders. Many of these requirements affect us. The Sarbanes-Oxley Act has required us to review our policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the new regulations promulgated thereunder. We will
continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.



18



---

##### Table of Contents

In addition, NASDAQ has adopted or is in the process of adopting corporate governance
changes to its listing standards. We believe we are in compliance with such corporate governance listing standards. We will continue to monitor our compliance with all future listing standards and will take actions necessary to ensure that we are in
compliance therewith.

AVAILABLE INFORMATION

Our corporate website is located at www.medallion.com. We make copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendment to those
reports filed with or furnished to the SEC available to investors on or through our website free of charge as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. Our SEC filings can be found in the For
Investors section of our website, the address of which is http://www.medallion.com/investors.htm. Our Code of Ethical Conduct and Insider Trading Policy can be located in the Corporate Governance section of our website at
http://www.medallion.com/investors_governance.htm. These documents, as well as our SEC filings are available in print to any stockholder who requests a copy from our Secretary.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks
Relating to Our Business and Structure

We have recently experienced a period of capital markets disruption and severe
recession and we expect these conditions to improve very slowly over the next 18 months.

The recent market conditions
have materially and adversely affected the debt and equity capital markets in the US, which could have a negative impact on our business and operations. The US capital markets have experienced extreme volatility and disruption for more than 24
months as evidenced by a lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the repricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions.
These events have contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of credit and equity capital for the markets as a whole and financial
services firms in particular. We believe that the US economy is emerging from a prolonged recession, and forecasts for 2011 and 2012 generally call for a very slow recovery from the economic recession. As a result, we believe these conditions may
continue for a prolonged period of time, and possibly worsen in the future. A prolonged period of market illiquidity would continue to have an adverse effect on our business, financial condition, and results of operations. Unfavorable economic
conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. Equity capital may be difficult to raise because, subject to some limited exceptions, we
generally are not able to issue and sell our common stock at a price below net asset value per share. In addition, the debt capital that will be available, if at all, may be at a higher cost and on less favorable terms and conditions.

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

Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested, and therefore increase
the risk associated with investing in us. We borrow from and issue senior debt securities to banks and other lenders, and through long-term subordinated SBA debentures. These creditors have fixed dollar claims on our assets that are superior to the
claims of our common shareholders. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of
our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net
income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could reduce the amount available for common stock
dividend payments.

As of December 31, 2010, we had $380,532,000 of outstanding indebtedness, which had a weighted
average borrowing cost of 3.45% at December 31, 2010, and our wholly-owned unconsolidated portfolio companies, primarily Medallion Bank, had $468,957,000 of outstanding indebtedness at a weighted average borrowing cost of 1.34%.

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

By its nature, lending to consumers that have blemishes on their credit reports carries with it a higher risk of loss.
Although the net interest margins should be higher to compensate us for this increased risk, the current economic downturn could result in higher loss rates and lower returns than expected, and could affect the profitability of the consumer loan
portfolio.



19



---

##### Table of Contents

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

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

We operate in a highly regulated environment which may
constrain our ability to grow our business.

The 1940 Act imposes numerous constraints on the operations of business
development companies. For example, business development companies are required to invest at least 70% of their total assets in qualifying assets, primarily securities of eligible portfolio companies (as defined under the 1940 Act),
cash, cash equivalents, US government securities, and other high quality debt investments that mature in one year or less. Our regulatory requirements may hinder our ability to take advantage of attractive investment opportunities and, as a result,
achieve our investment objective. In addition, we rely upon several exemptive orders from the SEC permitting us to consolidate our financial reporting and operate our business as presently conducted. Our failure to satisfy the conditions set forth
in those exemptive orders could result in our inability to rely upon such orders or to cause the SEC to revoke the orders which could result in material changes in our financial reporting or the way in which we conduct our business. Furthermore, any
failure to comply with the requirements imposed on business development companies by the 1940 Act could cause the SEC to bring an enforcement action against us. If we do not remain a business development company, we might be regulated as a
closed-end investment company under the 1940 Act, which would further significantly decrease our operating flexibility.

On
February 27, 2009, Medallion Bank issued and sold, and the US Treasury purchased under the TARP Capital Purchase Program, or the CPP, (1) 11,800 shares of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A,
and (2) a warrant, which was immediately exercised, to purchase up to 590 shares of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, for an aggregate purchase price of approximately $11,800,000 in cash. On
December 22, 2009, Medallion Bank issued and sold, and the US Treasury purchased under the CPP, (1) 9,698 shares of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, and (2) a warrant, which was
immediately exercised, to purchase up to 55 shares of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series D, for an aggregate purchase price of approximately $9,698,000 in cash. The US Congress, through the Emergency
Economic Stabilization Act of 2008, or the EESA, and the American Recovery and Reinvestment Act of 2009, or the ARRA, has imposed a number of restrictions and limitations on the operations of CPP participants. The interim final rule promulgated
pursuant to Section 111 of the EESA, as amended by the ARRA, prescribes certain standards for compensation and corporate governance for CPP participants (which we believe to include parent companies such as us). The rules and regulations
applicable to CPP participants continue to evolve and their scope, timing and effect cannot be predicted.

The Dodd-Frank Wall
Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was signed into law on July 21, 2010. The Dodd-Frank Act significantly changes federal financial services regulation and affects, among other things, the lending, deposit,
investment, trading, and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations. The federal agencies have
significant discretion in issuing these rules and regulations, and consequently, many of the details and much of the effect of the Dodd-Frank Act may not be known for many months or years. As such, we cannot predict and may not be able to anticipate
all the effects of the Dodd-Frank Act on our financial condition or operations.

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

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



20



---

##### Table of Contents

Regulations governing our operation as a business development company will affect our
ability to, and the way in which, we raise additional capital.

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

Senior Securities and Other Indebtedness. We may issue debt
securities or preferred stock, and/or borrow money from banks or other financial institutions, which we refer to collectively as senior securities, up to the maximum amount permitted by the 1940 Act. If we issue senior securities, including debt or
preferred stock, we will be exposed to additional risks, including the following:



| |  |  | Under the provisions of the 1940 Act, we are permitted, as a business development company, to issue senior securities only in amounts such that our
asset coverage, as defined in the 1940 Act, equals at least 200% after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be restricted from issuing additional
debt, may be limited in making distributions on our stock, and may be required to sell a portion of our investments and, depending on the nature of our leverage, to repay a portion of our debt at a time when such sales and/or repayments may be
disadvantageous.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | It is likely that any senior securities or other indebtedness we issue will be governed by an indenture or other instrument containing covenants
restricting our operating flexibility. Additionally, some of these securities or other indebtedness may be rated by rating agencies, and in obtaining a rating for such securities and other indebtedness, we may be required to abide by operating and
investment guidelines that further restrict operating and financial flexibility.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

Additional Common Stock. We are not generally able to issue and sell our common stock at a price below net asset value per share.
We may, however, sell our common stock, warrants, options, or rights to acquire our common stock, at a price below the current net asset value of the common stock if our Board of Directors determines that such sale is in our best interests and that
of our shareholders, and our shareholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the
market value of such securities (less any distributing commission or discount). We may also make rights offerings to our shareholders at prices per share less than the net asset value per share, subject to applicable requirements of the 1940 Act. If
we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our shareholders at that time would decrease and they may experience dilution. Moreover,
we can offer no assurance that we will be able to issue and sell additional equity securities in the future, on favorable terms or at all.

If our primary investments are deemed not to be qualifying assets, we could be deemed to be in violation of the 1940 Act.

As a business development company, we are not permitted to acquire any assets other than qualifying assets unless, at the time of such acquisition, at least 70% of our total assets are
qualifying assets. Our investment in Medallion Bank may constitute an ineligible investment. As of December 31, 2010, up to 27% of our total assets were invested in ineligible investments.

At the end of each fiscal quarter, we may take proactive steps to prospectively preserve investment flexibility in the next quarter which
is assessed against our total assets at our most recent quarter end. We can accomplish this in many ways including purchasing US Treasury bills or other investment-grade debt securities, and closing out our position on a net cash basis subsequent to
quarter end. However, if such proactive measures are ineffective and our primary investments are deemed not to be qualifying assets, we could be deemed in violation of the 1940 Act, which could have a material effect on our business.

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

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



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



21



---

##### Table of Contents

| | are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income taxes.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------



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



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

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

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

A change in our treatment of losses recognized on worthless loans could result in a decrease in taxable income.

In the fourth quarter of 2010, based on developments under the Code and after discussions with external advisers, our Board of Directors
determined that the loans received in connection with our lending activities were accounts or notes receivables acquired in the ordinary course of a trade or business for services for purposes of Section 1221(a)(4) of the Code. As a
result, commencing with the tax year beginning January 1, 2010, we intend to treat losses recognized on worthless loans as ordinary losses rather than as capital losses. Our Board of Directors further determined that we may take such position
in tax returns subsequently filed without obtaining prior IRS approval.

The change in the characterization of a loss
resulting from a worthless loan from a capital loss to an ordinary loss could materially impact the amount or character of the dividends received by our shareholders. We are required to distribute 90% of our taxable income in order to maintain our
RIC status. In the event losses from worthless loans are treated as ordinary losses, those losses will offset taxable income in the taxable year in which such losses are recognized. This could result in a decrease in our taxable income which could
result in a decrease in our dividend. Alternatively, if we choose to maintain our current level of dividend, an increased portion of the dividend could be deemed to be a return of capital to the shareholder.

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

RIC qualification rules require that at the end of each quarter of our taxable year, (i) at least 50% of the market value of our
assets must be represented by cash, securities of other RICs, US government securities, and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of our assets and not greater than 10%
of the outstanding voting securities of such issuer and (ii) not more than 25% of the value of our assets may be invested in the securities (other than US government securities or securities of other RICs) of any one issuer, any two or more
issuers of which 20% or more of the voting stock is held by us and that are determined to be engaged in the same or similar trades or businesses or related trades or businesses or in the securities of one or more qualified publicly traded
partnerships.

As of December 31, 2010, our largest investment subject to this test was our investment in Medallion Bank,
representing 16% of our RIC assets. No other investments were more than 5% of our RIC assets. We will continue to monitor the levels of this and any other investment concentrations in conjunction with the diversification tests.

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

For US federal income tax purposes, we will include in taxable income certain amounts that we have not yet
received in cash, such as original issue discount, which may arise if we receive warrants in connection with the origination of a loan or possibly in other circumstances, or contractual payment-in-kind interest, which represents contractual interest
added to the loan balance and due at the



22



---

##### Table of Contents

end of the loan term. Such original issue discount or increases in loan balances as a result of payment-in-kind interest will be included in income before we receive any corresponding cash
payments. We also may be required to include in income certain other amounts that we will not receive in cash.

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

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

Some of our subsidiaries are subject to the SBIA. Our SBIC subsidiaries that are also RICs may be prohibited by the SBIA from making the distributions necessary to qualify as a RIC. Each year, in order to
comply with the SBA regulations and the RIC distribution requirements, we must request and receive a waiver of the SBAs restrictions. While the current policy of the SBAs Office of SBIC Operations is to grant such waivers if the SBIC
makes certain offsetting adjustments to its paid-in capital and surplus accounts, we cannot assure you that this will continue to be the SBAs policy or that our subsidiaries will have adequate capital to make the required adjustments. If our
subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may result in loss of RIC status and a consequent imposition of an entity-level tax.

We operate in a highly competitive market for investment opportunities.

We compete for investments with other business development companies and other investment funds as well as traditional financial services
companies such as commercial banks and credit unions. Many of our competitors are substantially larger and have considerably greater financial, technical, and marketing resources than we do. For example, some competitors may have a lower cost of
funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments. These characteristics could allow our competitors to consider a wider variety of
investments, establish more relationships, and offer better pricing and more flexible structuring than us. We may lose investment opportunities if we do not match our competitors pricing, terms, and structure. If we are forced to match our
competitors pricing, terms, and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. Furthermore, many of our competitors are not subject to the regulatory restrictions
that the 1940 Act imposes on us as a business development company.

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

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

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

We depend on cash flow from our subsidiaries to make dividend payments and other
distributions to our shareholders.

We are primarily a holding company, and we derive most of our operating income and
cash flow from our subsidiaries. As a result, we rely heavily upon distributions from our subsidiaries to generate the funds necessary to make dividend payments and other distributions to our shareholders. Funds are provided to us by our
subsidiaries through dividends and payments on intercompany indebtedness, but we cannot assure you that our subsidiaries will be in a position to continue to make these dividend or debt payments. Furthermore, as a condition of its approval by its
regulators, Medallion Bank is required to maintain a 15% capital ratio, which may inhibit its ability to declare and pay dividends, which are further restricted by the TARP to $4,000,000 per year.



23



---

##### Table of Contents

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

Medallion Bank relies on the established brokered deposit market to
originate deposits to fund its operations. While Medallion Bank has developed contractual relationships with a diversified group of investment brokers, and the brokered deposit market is well developed and utilized by many banking institutions,
conditions could change that might affect the availability of deposits. If the capital levels at Medallion Bank fall below the well-capitalized level, or if Medallion Bank experiences a period of sustained operating losses, the cost of
attracting deposits from the brokered deposit market could increase significantly, and the ability of Medallion Bank to raise deposits from this source could be impaired. Medallion Banks ability to manage its growth to stay within the
well-capitalized level, and the capital level currently required by the FDIC, which is also considerably higher than the level required to be classified as well-capitalized, is critical to Medallion Banks retaining open
access to this funding source.

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

Our borrowers generally have the right to prepay their loans upon payment of a fee ranging
from 30 to 120 days interest for standard commodity loans, and for higher amounts, as negotiated, for larger more custom loan arrangements. A borrower is likely to exercise prepayment rights at a time when the interest rate payable on the
borrowers loan is high relative to prevailing interest rates. In a lower interest rate environment, we will have difficulty re-lending prepaid funds at comparable rates, which may reduce the net interest income that we receive. When this
occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid, and we
could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely
affected if a substantial number of our portfolio companies elect to prepay amounts owed to us and we are not able to reinvest the proceeds for comparable yields in a timely fashion. Additionally, prepayments could negatively impact our return on
equity, which could result in a decline in the market price of our common stock.

Our investment portfolio is, and will
continue to be, recorded at fair value as determined in good faith by our management and approved by our Board of Directors and, as a result, there is, and will continue to be, uncertainty as to the value of our portfolio investments.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily
available market value, at fair value as determined by our management and approved by our Board of Directors. Unlike other lending institutions, we are not permitted to maintain a general reserve for anticipated losses. Instead, we are required by
the 1940 Act to specifically value each individual investment and record an unrealized gain or loss for any asset we believe has increased or decreased in value. Typically, there is not a public market for most of the investments in which we have
invested and will generally continue to invest. As a result, we value our investments on a quarterly basis based on a determination of their fair value made in good faith and in accordance with the written guidelines approved by our Board of
Directors. The types of factors that may be considered in determining the fair value pricing of our investments include the nature and realizable value of any collateral, the portfolio companys earnings and its ability to make payments on its
indebtedness, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow, and other relevant factors. Because such valuations, and particularly valuations of private securities and private
companies, are inherently uncertain, the valuations may fluctuate over short periods of time and may be based on estimates. As a result, our determinations of fair value may differ materially from the values that would have been used if a ready
market for these investments existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such
securities. Considering these factors, we have determined that the fair value of our portfolio is below its cost basis. As of December 31, 2010, our net unrealized depreciation on investments other than in controlled subsidiaries, foreclosed
properties, and other assets was $11,016,000 or 2.23% of our investment portfolio.

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

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

In addition, the illiquidity of our loan portfolio and investments may adversely affect our ability to dispose of loans at times when it may be advantageous for us to liquidate such portfolio or
investments. In addition, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans
and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a



24



---

##### Table of Contents

significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which
would reduce our net operating income before net realized and unrealized gains. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate investments are financed
primarily with short-term floating-rate debt, and to a lesser extent by term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various
interest rate hedging activities to the extent permitted by the 1940 Act. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain constant and no actions were taken to
alter the existing interest rate sensitivity, and including the impact on Medallion Bank, a hypothetical immediate 1% increase in interest rates would have positively impacted net increase in net assets resulting from operations as of
December 31, 2010 by approximately $1,291,000 on an annualized basis, compared to a positive impact of $1,149,000 at December 31, 2009, and the impact of such an immediate increase of 1% over a one year period would have been ($2,026,000)
at December 31, 2010, compared to ($1,943,000) for December 31, 2009. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality,
size, and composition of the assets on the balance sheet, and other business developments that could affect net increase in net assets resulting from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can
be given that actual results would not differ materially from the potential outcome simulated by these estimates.

We may
experience fluctuations in our quarterly results.

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

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

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

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

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

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

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

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



25



---

##### Table of Contents

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

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

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

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

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

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



26



---

##### Table of Contents

Risks Relating to Our Investments

Lending to small businesses involves a high degree of risk and is highly speculative.

Lending to small businesses involves a high degree of business and financial risk, which can result in substantial losses and should be
considered speculative. Our borrower base consists primarily of small business owners that may have limited resources and that are generally unable to obtain financing from traditional sources. There is generally no publicly available information
about these small business owners, and we must rely on the diligence of our employees and agents to obtain information in connection with our credit decisions. In addition, these small businesses often do not have audited financial statements. Some
smaller businesses have narrower product lines and market shares than their competition. Therefore, they may be more vulnerable to customer preferences, market conditions, or economic downturns, which may adversely affect the return on, or the
recovery of, our investment in these businesses.

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

Our portfolio is and may continue to be concentrated in a limited number of portfolio companies and industries. As of December 31,
2010, investments in New York City taxi medallion loans represented approximately 76% of our managed taxi medallion loans. Beyond the asset diversification requirements associated with our qualification as a RIC, we do not have fixed guidelines for
diversification, and while we are not targeting any specific industries, our investments are, and could continue to be, concentrated in relatively few industries. As a result, the aggregate returns we realize may be adversely affected if a small
number of investments perform poorly or if we need to write down the value of any one investment. Additionally, a downturn in any particular industry in which we are invested could also negatively impact the aggregate returns we realize.

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

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

An economic downturn such as what we have been experiencing could result in certain
of our commercial and consumer loan customers experiencing declines in business activities and/or personal resources, which could lead to difficulties in their servicing of their loans with us, and increasing the level of delinquencies, defaults,
and loan losses in our commercial and consumer loan portfolios.

Changes in taxicab industry regulations that result in the
issuance of additional medallions or increases in the expenses involved in operating a medallion could lead to a decrease in the value of our medallion loan collateral.

Every city in which we originate medallion loans, and most other major cities in the US, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of
medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. If this were to occur, the value of the collateral securing our then
outstanding medallion loans in that market could be adversely affected. For example, New York City is considering a proposal to permit cars for hire to pick up street hails in boroughs outside of Manhattan. We are unable to forecast with any degree
of certainty whether any other potential increases in the supply of medallions will occur.

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

A significant portion of our loan revenue is derived from loans collateralized by New York City taxicab
medallions. According to New York City TLC data, over the past 20 years New York City taxicab medallions have appreciated in value from under $100,000 to $850,000 for corporate medallions and $624,000 for individual medallions. However, for
sustained periods during that time, taxicab medallions have declined in value. Since December 31, 2008, the value of New York City taxicab medallions increased by approximately 13% for individual medallions and 14% for corporate medallions.



27



---

##### Table of Contents

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

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

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

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

We
may not control many of our portfolio companies.

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

We may not realize gains from our equity investments.

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



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | PROPERTIES
|------- | ----------

We lease
approximately 17,000 square feet of office space in New York City for our corporate headquarters under a lease expiring in June 2016, and lease a facility in Long Island City, New York, of approximately 6,000 square feet for certain corporate
back-office operations. We also lease office space for loan origination offices and subsidiary operations in Boston, MA, Chicago, IL, Minneapolis, MN, and Flemington, NJ. Medallion Bank leases space in Salt Lake City, UT. We do not own any real
property, other than foreclosed property obtained as a result of lending relationships. We believe that our leased properties, taken as a whole, are in good operating condition and are suitable for our current business operations.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

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



28



---

##### Table of Contents

|ITEM 4. | [REMOVED AND RESERVED]
|------- | ----------------------

PART II



|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASE OF EQUITY SECURITIES
|------- | ---------------------------------------------------------------------------------------------------------------

Our common stock is quoted on the Nasdaq Global Select Market under the symbol TAXI. Our common stock commenced trading on
May 23, 1996. As of March 10, 2011, there were approximately 233 holders of record of the Companys common stock.

On March 10, 2011, the last reported sale price of our common stock was 8.36 per share. Historically, our common stock has traded at a
premium to net asset value per share, but there can be no assurance that our stock will trade at a premium in the future.

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



|               |  |                   |      |  |      |   |      |     |  |   |      | 
|-------------- |  | ----------------- | ---- |  | ---- | - | ---- | --- |  | - | ---- | 
|2010           |  | DIVIDENDSDECLARED |      |  | HIGH |   |      | LOW | 
|Fourth Quarter |  | $                 | 0.16 |  |      | $ | 8.79 |     |  | $ | 7.79 | 
|Third Quarter  |  |                   | 0.15 |  |      |   | 7.79 |     |  |   | 6.50 | 
|Second Quarter |  |                   | 0.15 |  |      |   | 8.24 |     |  |   | 6.59 | 
|First Quarter  |  |                   | 0.15 |  |      |   | 8.45 |     |  |   | 7.81 | 
|               |  |                   |     
|2009           |  |                   |      |  |      |   |      |     | 
|Fourth Quarter |  | $                 | 0.15 |  |      | $ | 8.49 |     |  | $ | 7.76 | 
|Third Quarter  |  |                   | 0.19 |  |      |   | 8.83 |     |  |   | 6.87 | 
|Second Quarter |  |                   | 0.19 |  |      |   | 8.71 |     |  |   | 6.56 | 
|First Quarter  |  |                   | 0.19 |  |      |   | 8.04 |     |  |   | 3.61 | 

Information about our
equity compensation plans is incorporated by reference in all information under the caption Equity Compensation Plan Information included in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
June 17, 2011.

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

We have adopted a dividend reinvestment plan pursuant to which shareholders may elect to have
distributions reinvested in additional shares of common stock. When we declare a dividend or distribution, all participants will have credited to their plan accounts the number of full and fractional shares (computed to three decimal places) that
could be obtained with the cash, net of any applicable withholding taxes that would have been paid to them if they were not participants. The number of full and fractional shares is computed at the weighted average price of all shares of common
stock purchased for plan participants within the 30 days after the dividend or distribution is declared plus brokerage commissions. The automatic reinvestment of dividends and capital gains distributions will not release plan participants of any
income tax that may be payable on the dividend or capital gains distribution. Shareholders may terminate their participation in the dividend reinvestment plan by providing written notice to the Plan Agent at least 10 days before any given dividend
payment date. Upon termination, we will issue to a shareholder both a certificate for the number of full shares of common stock owned and a check for any fractional shares, valued at the then current market price, less any applicable brokerage
commissions and any other costs of sale. There are no additional fees or expenses for participation in the dividend reinvestment plan. Shareholders may obtain additional information about the dividend reinvestment plan by contacting the American
Stock Transfer & Trust Company, LLC at 59 Maiden Lane, New York, NY, 10038.



29



---

##### Table of Contents

ISSUER PURCHASES OF EQUITY
SECURITIES(1)



|                                     |  |                                |           |  |                             |   |      |                                                                            |  |  |                                                                                                     |  |  |   |            | 
|------------------------------------ |  | ------------------------------ | --------- |  | --------------------------- | - | ---- | -------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------------- |  |  | - | ---------- | 
|Period                               |  | Total Numberof SharesPurchased |           |  | Average PricePaid per Share |   |      | Total Numberof SharesPurchased asPart of PubliclyAnnouncedPlans
orPrograms |  |  | MaximumNumber ofShares (orApproximateDollar Value)that May
YetBe PurchasedUnder thePlans orPrograms | 
|November 5 through December 31, 2003 |  |                                | 10,816    |  |                             | $ | 9.20 |                                                                            |  |  | 10,816                                                                                              |  |  | $ | 9,900,492  | 
|January 1 through December 31, 2004  |  |                                | 952,517   |  |                             |   | 9.00 |                                                                            |  |  | 952,517                                                                                             |  |  |   | 11,329,294 | 
|January 1 through December 31, 2005  |  |                                | 389,900   |  |                             |   | 9.26 |                                                                            |  |  | 389,900                                                                                             |  |  |   | 7,720,523  | 
|January 1 through December 31, 2006  |  |                                |          |  |                             |   |     |                                                                            |  |  |                                                                                                    |  |  |   | 7,720,523  | 
|January 1 through December 31, 2007  |  |                                | 33,200    |  |                             |   | 9.84 |                                                                            |  |  | 33,200                                                                                              |  |  |   | 7,393,708  | 
|January 1 through December 31, 2008  |  |                                | 7,691     |  |                             |   | 9.66 |                                                                            |  |  | 7,691                                                                                               |  |  |   | 7,319,397  | 
|January 1 through December 31, 2009  |  |                                |          |  |                             |   |     |                                                                            |  |  |                                                                                                    |  |  |   | 7,319,397  | 
|January 1 through December 31, 2010  |  |                                | 177,844   |  |                             |   | 6.82 |                                                                            |  |  | 177,844                                                                                             |  |  |   | 6,106,354  | 
|                                     |  |                                |           |  |                             |   |      |                                                                            |  |  |                                                                                                     |  |  |   |            | 
|Total                                |  |                                | 1,571,968 |  |                             |   | 8.84 |                                                                            |  |  | 1,571,968                                                                                           |  |  |   |           | 
|                                     |  |                                |           |  |                             |   |      |                                                                            |  |  |                                                                                                     |  |  |   |            | 



|(1) | We publicly announced our Stock Repurchase Program in a press release dated November 5, 2003, after the Board of Directors approved the repurchase of up to
$10,000,000 of our outstanding common stock, which was increased by an additional $10,000,000 authorization on November 3, 2004. The stock repurchase program expires 180 days after the commencement of the purchases. If we have not repurchased
the additional $10,000,000 of common stock by the end of such period, we are permitted to extend the stock repurchase program for additional 180-day periods until we have repurchased the total amount authorized. In October 2010, we extended the
terms of the Stock Repurchase Program. Purchases were to commence no earlier than November 2010 and are to conclude 180 days after the commencement of the purchases.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30



---

##### Table of Contents

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

Summary Consolidated Financial Data

You should read the consolidated financial information below with the Consolidated Financial Statements and Notes thereto for the years ended December 31, 2010, 2009, 2008, 2007, and 2006.



|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                                                            |  | Year ended December 31, |           
|(Dollars in thousands, except per share data)                                                               |  | 2010                    |            |   | 2009 |   |            | 2008 |  |   | 2007       |   |  | 2006 |           
|Statement of operations                                                                                     |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Investment income                                                                                           |  | $                       | 37,253     |   |      | $ | 41,403     |      |  | $ | 52,284     |   |  | $    | 51,393     |   |  | $ | 39,635     |  
|Interest expense                                                                                            |  |                         | 14,585     |   |      |   | 16,876     |      |  |   | 23,711     |   |  |      | 30,704     |   |  |   | 24,190     |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net interest income                                                                                         |  |                         | 22,668     |   |      |   | 24,527     |      |  |   | 28,573     |   |  |      | 20,689     |   |  |   | 15,445     |  
|Noninterest income                                                                                          |  |                         | 3,533      |   |      |   | 3,383      |      |  |   | 3,837      |   |  |      | 2,444      |   |  |   | 2,646      |  
|Operating expenses(1)                                                                                       |  |                         | 16,328     |   |      |   | 19,730     |      |  |   | 17,320     |   |  |      | 17,835     |   |  |   | 14,926     |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investment income before income taxes                                                                   |  |                         | 9,873      |   |      |   | 8,180      |      |  |   | 15,090     |   |  |      | 5,298      |   |  |   | 3,165      |  
|Income tax (provision) benefit                                                                              |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investment income after income taxes                                                                    |  |                         | 9,873      |   |      |   | 8,180      |      |  |   | 15,090     |   |  |      | 5,298      |   |  |   | 3,165      |  
|Net realized gains (losses) on investments                                                                  |  |                         | (7,638     | ) |      |   | (4,135     | )    |  |   | (3,746     | ) |  |      | 14,172     |   |  |   | 3,080      |  
|Net change in unrealized appreciation (depreciation) on Medallion Bank
and other controlled subsidiaries(2) |  |                         | 12,535     |   |      |   | (5,671     | )    |  |   | (2,419     | ) |  |      | 2,292      |   |  |   | 7,454      |  
|Net change in unrealized appreciation (depreciation) on investments(2)                                      |  |                         | (3,491     | ) |      |   | 2,648      |      |  |   | 6,323      |   |  |      | (6,326     | ) |  |   | (591       | )
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net increase in net assets resulting from operations                                                        |  | $                       | 11,279     |   |      | $ | 1,022      |      |  | $ | 15,248     |   |  | $    | 15,436     |   |  | $ | 13,108     |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Per share data                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investment income                                                                                       |  | $                       | 0.56       |   |      | $ | 0.46       |      |  | $ | 0.85       |   |  | $    | 0.30       |   |  | $ | 0.18       |  
|Income tax (provision) benefit                                                                              |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net realized gains (losses) on investments                                                                  |  |                         | (0.43      | ) |      |   | (0.23      | )    |  |   | (0.21      | ) |  |      | 0.80       |   |  |   | 0.17       |  
|Net change in unrealized appreciation (depreciation) on investments(2)                                      |  |                         | 0.51       |   |      |   | (0.17      | )    |  |   | 0.22       |   |  |      | (0.23      | ) |  |   | 0.39       |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net increase in net assets resulting from operations                                                        |  | $                       | 0.64       |   |      | $ | 0.06       |      |  | $ | 0.86       |   |  | $    | 0.87       |   |  | $ | 0.74       |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Dividends declared per share                                                                                |  | $                       | 0.61       |   |      | $ | 0.72       |      |  | $ | 0.76       |   |  | $    | 0.76       |   |  | $ | 0.70       |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Weighted average common shares outstanding                                                                  |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic                                                                                                       |  |                         | 17,501,414 |   |      |   | 17,569,688 |      |  |   | 17,520,966 |   |  |      | 17,480,523 |   |  |   | 17,293,665 |  
|Diluted                                                                                                     |  |                         | 17,631,928 |   |      |   | 17,691,437 |      |  |   | 17,722,575 |   |  |      | 17,786,310 |   |  |   | 17,761,039 |  
|Balance sheet data                                                                                          |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investments                                                                                             |  | $                       | 483,516    |   |      | $ | 475,133    |      |  | $ | 570,597    |   |  | $    | 653,046    |   |  | $ | 592,933    |  
|Total assets                                                                                                |  |                         | 550,312    |   |      |   | 555,174    |      |  |   | 646,685    |   |  |      | 721,262    |   |  |   | 631,605    |  
|Total funds borrowed                                                                                        |  |                         | 380,532    |   |      |   | 382,522    |      |  |   | 462,650    |   |  |      | 542,549    |   |  |   | 455,137    |  
|Total liabilities                                                                                           |  |                         | 387,547    |   |      |   | 392,197    |      |  |   | 471,739    |   |  |      | 548,839    |   |  |   | 461,977    |  
|Total shareholders equity                                                                                  |  |                         | 162,765    |   |      |   | 162,977    |      |  |   | 174,946    |   |  |      | 172,423    |   |  |   | 169,628    |  
|Managed balance sheet data (3)                                                                              |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investments                                                                                             |  | $                       | 946,343    |   |      | $ | 846,542    |      |  | $ | 922,007    |   |  | $    | 934,955    |   |  | $ | 833,639    |  
|Total assets                                                                                                |  |                         | 1,041,729  |   |      |   | 950,909    |      |  |   | 1,018,114  |   |  |      | 1,025,633  |   |  |   | 893,588    |  
|Total funds borrowed                                                                                        |  |                         | 849,489    |   |      |   | 754,241    |      |  |   | 829,058    |   |  |      | 841,632    |   |  |   | 716,620    |  
|Total liabilities                                                                                           |  |                         | 878,964    |   |      |   | 787,932    |      |  |   | 843,168    |   |  |      | 853,211    |   |  |   | 723,960    |  



31



---

##### Table of Contents

|                                                               |  |                         |      |   |      |  |      |      |  |  |      |   |  |      |      |   |  |  |      |  
|-------------------------------------------------------------- |  | ----------------------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | ---- | ---- | - |  |  | ---- | -
|                                                               |  | Year ended December 31, |     
|                                                               |  | 2010                    |      |   | 2009 |  |      | 2008 |  |  | 2007 |   |  | 2006 |     
|Selected financial ratios and other data                       |  |                         |      |   |      |  |      |      |  |  |      |   |  |      |      |   |  |  |      |  
|Return on average assets (ROA) (4)                             |  |                         |      |   |      |  |      |      |  |  |      |   |  |      |      |   |  |  |      |  
|Net investment income after taxes                              |  |                         | 1.82 | % |      |  | 1.36 | %    |  |  | 2.27 | % |  |      | 0.79 | % |  |  | 0.53 | %
|Net increase in net assets resulting from operations           |  |                         | 2.08 |   |      |  | 0.17 |      |  |  | 2.29 |   |  |      | 2.30 |   |  |  | 2.20 |  
|Return on average equity (ROE) (5)                             |  |                         |      |   |      |  |      |      |  |  |      |   |  |      |      |   |  |  |      |  
|Net investment income after taxes                              |  |                         | 6.11 |   |      |  | 4.74 |      |  |  | 8.67 |   |  |      | 3.09 |   |  |  | 1.89 |  
|Net increase in net assets resulting from operations           |  |                         | 6.98 |   |      |  | 0.59 |      |  |  | 8.76 |   |  |      | 9.00 |   |  |  | 7.82 |  
|Weighted average yield                                         |  |                         | 7.91 | % |      |  | 7.77 | %    |  |  | 8.58 | % |  |      | 8.44 | % |  |  | 7.71 | %
|Weighted average cost of funds                                 |  |                         | 3.10 |   |      |  | 3.17 |      |  |  | 3.89 |   |  |      | 5.04 |   |  |  | 4.70 |  
|                                                               |  |                         |      |   |      |  |      |      |  |  |      |   |  |      |      |   |  |  |      |  
|Net interest margin(6)                                         |  |                         | 4.81 |   |      |  | 4.60 |      |  |  | 4.69 |   |  |      | 3.40 |   |  |  | 3.01 |  
|                                                               |  |                         |      |   |      |  |      |      |  |  |      |   |  |      |      |   |  |  |      |  
|Noninterest income ratio(7)                                    |  |                         | 0.75 |   |      |  | 0.63 |      |  |  | 0.63 |   |  |      | 0.40 |   |  |  | 0.52 |  
|Total expense ratio(1) (8)                                     |  |                         | 6.56 |   |      |  | 6.87 |      |  |  | 6.74 |   |  |      | 7.98 |   |  |  | 7.62 |  
|Operating expense ratio(1)(9)                                  |  |                         | 3.47 |   |      |  | 3.70 |      |  |  | 2.84 |   |  |      | 2.93 |   |  |  | 2.91 |  
|As a percentage of net investment portfolio                    |  |                         |      |   |      |  |      |      |  |  |      |   |  |      |      |   |  |  |      |  
|Medallion loans                                                |  |                         | 67   | % |      |  | 68   | %    |  |  | 70   | % |  |      | 76   | % |  |  | 72   | %
|Commercial loans                                               |  |                         | 16   |   |      |  | 16   |      |  |  | 16   |   |  |      | 14   |   |  |  | 15   |  
|Investment in Medallion Bank and other controlled subsidiaries |  |                         | 16   |   |      |  | 15   |      |  |  | 13   |   |  |      | 9    |   |  |  | 8    |  
|Equity investments                                             |  |                         | 1    |   |      |  | 1    |      |  |  | 1    |   |  |      | 1    |   |  |  | 3    |  
|Investment securities                                          |  |                         |     |   |      |  |     |      |  |  |     |   |  |      |     |   |  |  | 2    |  
|Investments to assets(10)                                      |  |                         | 88   | % |      |  | 86   | %    |  |  | 88   | % |  |      | 91   | % |  |  | 94   | %
|Equity to assets(11)                                           |  |                         | 30   |   |      |  | 29   |      |  |  | 27   |   |  |      | 24   |   |  |  | 27   |  
|Debt to equity(12)                                             |  |                         | 234  |   |      |  | 235  |      |  |  | 264  |   |  |      | 315  |   |  |  | 268  |  



|(1) | Includes $1,312 of expense reversals related to the costs of winding up the operations of the SPACs in 2010 that were reclassified to realized losses on
investments, and $310 that was reversed as a result of favorable negotiations with the creditors of SPAC. Also includes $1,622 of charges in 2009 related to winding up the operations of the SPACs. Excluding these amounts, the total expense
ratios were 6.91% and 6.56%, and the operating expense ratios were 3.81% and 3.40% for 2010 and 2009.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Unrealized appreciation (depreciation) on investments represents the increase (decrease) for the year in the fair value of our investments, including the results of
operations for Medallion Bank and other controlled subsidiaries, where applicable.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes the balances of wholly-owned, unconsolidated portfolio companies, primarily Medallion Bank.
|--- | ----------------------------------------------------------------------------------------------------



|(4) | ROA represents the net investment income after taxes or net increase in net assets resulting from operations, divided by average total assets.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



|(5) | ROE represents the net investment income after taxes or net increase in net assets resulting from operations, divided by average shareholders equity.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Net interest margin represents net interest income for the year divided by average interest earning assets, and included interest recoveries and bonuses of $2,678 in
2010, $1,684 in 2009, $4,471 in 2008, $821 in 2007, and $1,556 in 2006, and also included dividends from Medallion Bank of $4,000 in 2010, $4,000 in 2009, $6,000 in 2008, and $5,750 in 2007. On a managed basis, combined with Medallion Bank, the net
interest margin was 6.59%, 6.10%, 5.21%, 4.21%, and 4.40% for 2010, 2009, 2008, 2007, and 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Noninterest income ratio represents noninterest income divided by average interest earning assets.
|--- | --------------------------------------------------------------------------------------------------



|(8) | Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average interest earning assets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Operating expense ratio represents operating expenses divided by average interest earning assets.
|--- | -------------------------------------------------------------------------------------------------



|(10) | Represents net investments divided by total assets as of December 31.
|---- | ---------------------------------------------------------------------



|(11) | Represents total shareholders equity divided by total assets as of December 31.
|---- | --------------------------------------------------------------------------------



|(12) | Represents total funds borrowed divided by total shareholders equity as of December 31.
|---- | ----------------------------------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The information contained in this section should be read in conjunction with the Consolidated Financial Statements and Notes thereto for
the years ended December 31, 2010, 2009, and 2008. In addition, this section contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain
factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are described in the Risk Factors section on page 19.

CRITICAL ACCOUNTING POLICIES

The SEC has issued cautionary advice
regarding disclosure about critical accounting policies. The SEC defines critical accounting policies as those that are both most important to the portrayal of a companys financial condition and results, and that require managements most
difficult, subjective, or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain and may change materially in subsequent periods. The preparation of our consolidated financial statements
requires estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes.



32



---

##### Table of Contents

Significant estimates made by us include valuation of loans, equity investments, and investments in subsidiaries, evaluation of the recoverability of accounts receivable and income tax assets,
and the assessment of litigation and other contingencies. The matters that give rise to such provisions are inherently uncertain and may require complex and subjective judgments. Although we believe that estimates and assumptions used in determining
the recorded amounts of net assets and liabilities at December 31, 2010 are reasonable, actual results could differ materially from the estimated amounts recorded in our financial statements.

GENERAL

We are a
specialty finance company that has a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. A wholly-owned portfolio company of ours, Medallion Bank, also
originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, trailers, and hearing aids. Since 1996, the year in which we became a public company, we have increased our taxicab medallion loan portfolio at a compound
annual growth rate of 6%, and our commercial loan portfolio at a compound annual growth rate of 4% (11% and 10% on a managed basis when combined with Medallion Bank). Since Medallion Bank acquired a consumer loan portfolio and began originating
consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 12%. Total assets under our management, which includes assets serviced for third party investors and assets managed by Medallion Bank, were
$1,093,379,000 as of December 31, 2010 and $1,039,840,000 as of December 31, 2009, and have grown at a compound annual growth rate of 12% from $215,000,000 at the end of 1996.

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

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

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

Our wholly-owned portfolio company, Medallion Bank, is a bank regulated by the FDIC and the Utah Department of Financial Institutions which originates taxicab medallion, commercial, and consumer loans,
raises deposits, and conducts other banking activities. Medallion Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers. To take advantage of this low cost of funds, we
refer a portion of our taxicab medallion and commercial loans to Medallion Bank, which then originates these loans. We earn referral fees for these activities. Until December 2010, we serviced these loans and earned servicing fees for these
activities. In December 2010, all of these servicing activities were assigned to MSC. As a non-investment company, Medallion Bank is not consolidated with the Company, which is an investment company under the 1940 Act.

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



33



---

##### Table of Contents

disposition of a depreciated portfolio asset, the reclassification of the loss from unrealized to realized causes a decrease in net unrealized depreciation and an increase in realized loss.

Our investment in Medallion Bank, as a wholly owned portfolio investment, is also subject to quarterly assessments of fair
value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to a valuation different than recorded book value, including various regulatory restrictions that were established at Medallion
Banks inception, by the FDIC and State of Utah, and also by additional marketplace restrictions, such as the ability to transfer industrial bank charters. As a result of this valuation process, we used Medallion Banks actual results of
operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other applicable factors could change these
conclusions in the future.

The credit markets have recently experienced a crisis which has disrupted a wide range of
traditional financing sources. The crisis has made it increasingly difficult and significantly more expensive through higher credit spreads for finance companies to obtain and renew financing. Continued turmoil in the credit markets could limit our
access to funds and restrict us from continuing our current operating strategy or implementing new operating strategies. If funds are available to us, we anticipate that our cost of funds will increase as we obtain new financing.

The credit crisis has also caused many financial institutions to record significant write-downs, mostly on their residential mortgage
related assets and structured investment vehicles due to unsound lending practices. We are not involved in these types of transactions and always understand the importance of proper underwriting. Nonetheless, the judgments used by management in
applying the critical accounting policies discussed herein may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. Subsequent evaluations of our loan portfolio
and other investments, in light of the factors then prevailing, may result in changes to the fair value of the investments, including a decrease in the fair value. In addition, the fair value of investments in our portfolio may be negatively
impacted by illiquidity or dislocation in marketplaces resulting in depressed market prices.

In the fourth quarter of 2010,
based on developments under the Code and after discussions with external advisers, our Board of Directors determined that the loans received in connection with our lending activities were accounts or notes receivables acquired in the ordinary
course of a trade or business for services for purposes of Section 1221(a)(4) of the Code. As a result, commencing with the tax year beginning January 1, 2010, we intend to treat losses recognized on worthless loans as ordinary
losses rather than as capital losses. Our Board of Directors further determined that we may take such position in tax returns subsequently filed without obtaining prior IRS approval.

The change in the characterization of a loss resulting from a worthless loan from a capital loss to an ordinary loss could materially
impact the amount or character of the dividends received by our shareholders. We are required to distribute 90% of our taxable income in order to maintain our RIC status. In the event losses from worthless loans are treated as ordinary losses, those
losses will offset taxable income in the taxable year in which such losses are recognized. This could result in a decrease in our taxable income which could result in a decrease in our dividend. Alternatively, if we choose to maintain our current
level of dividend, an increased portion of the dividend could be deemed to be a return of capital to the shareholder.



34



---

##### Table of Contents

Trends in Investment Portfolio

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



|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|------------------------------------------------------------------ |  | ----------------- | ----- | - | ----------------- | - | ------- | ----------------- |  |  | ---------- | - |  | -------- | ------- | - | ---------- |  | ----- | - |  | - | ------- | -
|                                                                   |  | December 31, 2010 |       |   | December 31, 2009 |   |         | December 31, 2008 | 
|                                                                   |  | Interest          |       |   | Investment        |   |         | Interest          |  |  | Investment |   |  | Interest |         |   | Investment | 
|(Dollars in thousands)                                             |  | Rate (1)          |       |   | Balances          |   |         | Rate (1)          |  |  | Balances   |   |  | Rate (1) |         |   | Balances   | 
|Medallion loans                                                    |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|New York                                                           |  |                   | 5.52  | % |                   | $ | 239,537 |                   |  |  | 5.90       | % |  | $        | 244,082 |   |            |  | 6.04  | % |  | $ | 304,306 |  
|Chicago                                                            |  |                   | 6.68  |   |                   |   | 34,762  |                   |  |  | 6.91       |   |  |          | 25,868  |   |            |  | 7.15  |   |  |   | 28,172  |  
|Newark                                                             |  |                   | 7.81  |   |                   |   | 19,777  |                   |  |  | 7.98       |   |  |          | 21,790  |   |            |  | 8.17  |   |  |   | 27,809  |  
|Boston                                                             |  |                   | 6.74  |   |                   |   | 18,237  |                   |  |  | 7.14       |   |  |          | 21,383  |   |            |  | 7.54  |   |  |   | 31,283  |  
|Cambridge                                                          |  |                   | 6.72  |   |                   |   | 5,501   |                   |  |  | 7.10       |   |  |          | 3,025   |   |            |  | 7.59  |   |  |   | 4,387   |  
|Other                                                              |  |                   | 7.05  |   |                   |   | 5,016   |                   |  |  | 7.14       |   |  |          | 5,435   |   |            |  | 7.40  |   |  |   | 6,584   |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Total medallion loans                                              |  |                   | 5.90  |   |                   |   | 322,830 |                   |  |  | 6.23       |   |  |          | 321,583 |   |            |  | 6.42  |   |  |   | 402,541 |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Deferred loan acquisition costs                                    |  |                   |       |   |                   |   | 296     |                   |  |  |            |   |  |          | 332     |   |            |  |       |   |  |   | 423     |  
|Unrealized depreciation on loans                                   |  |                   |       |   |                   |   |        |                   |  |  |            |   |  |          |        |   |            |  |       |   |  |   |        |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Net medallion loans                                                |  |                   |       |   |                   | $ | 323,126 |                   |  |  |            |   |  | $        | 321,915 |   |            |  |       |   |  | $ | 402,964 |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Commercial loans                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Secured mezzanine                                                  |  |                   | 14.16 | % |                   | $ | 68,299  |                   |  |  | 14.63      | % |  | $        | 61,834  |   |            |  | 14.23 | % |  | $ | 65,475  |  
|Asset based                                                        |  |                   | 5.72  |   |                   |   | 10,234  |                   |  |  | 5.74       |   |  |          | 8,991   |   |            |  | 5.29  |   |  |   | 13,552  |  
|Other secured commercial                                           |  |                   | 7.50  |   |                   |   | 9,873   |                   |  |  | 7.95       |   |  |          | 11,706  |   |            |  | 8.34  |   |  |   | 15,870  |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Total commercial loans                                             |  |                   | 12.44 |   |                   |   | 88,406  |                   |  |  | 12.71      |   |  |          | 82,531  |   |            |  | 11.97 |   |  |   | 94,897  |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Deferred loan acquisition income                                   |  |                   |       |   |                   |   | (323    | )                 |  |  |            |   |  |          | (373    | ) |            |  |       |   |  |   | (171    | )
|Unrealized depreciation on loans                                   |  |                   |       |   |                   |   | (11,217 | )                 |  |  |            |   |  |          | (4,236  | ) |            |  |       |   |  |   | (5,115  | )
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Net commercial loans                                               |  |                   |       |   |                   | $ | 76,866  |                   |  |  |            |   |  | $        | 77,922  |   |            |  |       |   |  | $ | 89,611  |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Investment in Medallion Bank and other controlledsubsidiaries, net |  |                   | 5.08  | % |                   | $ | 78,735  |                   |  |  | 5.53       | % |  | $        | 72,279  |   |            |  | 8.22  | % |  | $ | 74,750  |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Equity investments                                                 |  |                   | 1.48  | % |                   | $ | 4,588   |                   |  |  | 2.50       | % |  | $        | 3,393   |   |            |  | 4.33  | % |  | $ | 2,835   |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Unrealized appreciation (depreciation) on equities                 |  |                   |       |   |                   |   | 201     |                   |  |  |            |   |  |          | (376    | ) |            |  |       |   |  |   | 437     |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Net equity investments                                             |  |                   |       |   |                   | $ | 4,789   |                   |  |  |            |   |  | $        | 3,017   |   |            |  |       |   |  | $ | 3,272   |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Investment securities                                              |  |                   |      | % |                   | $ |        |                   |  |  |           | % |  | $        |        |   |            |  |      | % |  | $ |        |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Investments at cost (2)                                            |  |                   | 6.89  | % |                   | $ | 494,559 |                   |  |  | 7.22       | % |  | $        | 479,786 |   |            |  | 7.56  | % |  | $ | 575,023 |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Deferred loan acquisition (income) costs                           |  |                   |       |   |                   |   | (27     | )                 |  |  |            |   |  |          | (41     | ) |            |  |       |   |  |   | 252     |  
|Unrealized appreciation (depreciation) on equities                 |  |                   |       |   |                   |   | 201     |                   |  |  |            |   |  |          | (376    | ) |            |  |       |   |  |   | 437     |  
|Unrealized depreciation on loans                                   |  |                   |       |   |                   |   | (11,217 | )                 |  |  |            |   |  |          | (4,236  | ) |            |  |       |   |  |   | (5,115  | )
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Net investments                                                    |  |                   |       |   |                   | $ | 483,516 |                   |  |  |            |   |  | $        | 475,133 |   |            |  |       |   |  | $ | 570,597 |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Medallion Bank investments                                         |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Medallion loans                                                    |  |                   | 5.57  | % |                   | $ | 260,808 |                   |  |  | 6.15       | % |  | $        | 160,403 |   |            |  | 6.46  | % |  | $ | 122,581 |  
|Consumer loans                                                     |  |                   | 17.94 |   |                   |   | 189,752 |                   |  |  | 17.96      |   |  |          | 193,382 |   |            |  | 18.26 |   |  |   | 189,886 |  
|Commercial loans                                                   |  |                   | 5.84  |   |                   |   | 73,574  |                   |  |  | 5.84       |   |  |          | 72,540  |   |            |  | 5.64  |   |  |   | 87,800  |  
|Investment securities                                              |  |                   | 3.32  |   |                   |   | 20,479  |                   |  |  | 3.99       |   |  |          | 20,784  |   |            |  | 4.87  |   |  |   | 20,056  |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Medallion Bank investments at cost (2)                             |  |                   | 9.83  |   |                   |   | 544,613 |                   |  |  | 11.11      |   |  |          | 447,109 |   |            |  | 11.54 |   |  |   | 420,323 |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Deferred loan acquisition costs                                    |  |                   |       |   |                   |   | 5,559   |                   |  |  |            |   |  |          | 5,633   |   |            |  |       |   |  |   | 5,994   |  
|Unrealized appreciation (depreciation) on investment securities    |  |                   |       |   |                   |   | 144     |                   |  |  |            |   |  |          | 92      |   |            |  |       |   |  |   | (64     | )
|Premiums paid on purchased securities                              |  |                   |       |   |                   |   | 164     |                   |  |  |            |   |  |          | 185     |   |            |  |       |   |  |   | 96      |  
|Unrealized depreciation on loans                                   |  |                   |       |   |                   |   | (13,645 | )                 |  |  |            |   |  |          | (13,610 | ) |            |  |       |   |  |   | (10,936 | )
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  
|Medallion Bank net investments                                     |  |                   |       |   |                   | $ | 536,835 |                   |  |  |            |   |  | $        | 439,409 |   |            |  |       |   |  | $ | 415,413 |  
|                                                                   |  |                   |       |   |                   |   |         |                   |  |  |            |   |  |          |         |   |            |  |       |   |  |   |         |  



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



|(2) | The weighted average interest rate for the entire managed loan portfolio (medallion, commercial, and consumer loans) was 8.86%, 9.56%, and 9.44% at December 31,
2010, 2009, and 2008.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35



---

##### Table of Contents

PORTFOLIO SUMMARY

Total Portfolio Yield

The weighted average yield of the total portfolio
at December 31, 2010 was 6.89% (7.30% for the loan portfolio), a decrease of 33 basis points from 7.22% at December 31, 2009, which was a decrease of 34 basis points from 7.56% at December 31, 2008. The weighted average yield of the
total managed portfolio at December 31, 2010 was 8.67% (8.86% for the loan portfolio), a decrease of 68 basis points from 9.35% at December 31, 2009, which was an increase of 13 basis points from 9.22% at December 31, 2008. The
decreases from 2009 reflected the general market condition of falling interest rates, and the 2009 increase in the managed portfolio reflected the greater concentration of Medallion Bank consumer assets to the totals.

Medallion Loan Portfolio

Our medallion loans comprised 67% of the net portfolio of $483,516,000 at December 31, 2010, compared to 68% of the net portfolio of $475,133,000 at December 31, 2009 and 70% of $570,597,000 at
December 31, 2008. Our managed medallion loans of $583,593,000 comprised 62% of the net portfolio of $946,343,000 at December 31, 2010, compared to 57% of $846,542,000 at December 31, 2009 and 57% of $922,007,000 at December 31,
2008. The medallion loan portfolio increased by $1,211,000 in 2010 ($101,506,000 or 21% on a managed basis), primarily reflecting increases in the Chicago and Cambridge markets, partially offset by decreases in all other markets, primarily
reflecting loan payoffs and the sale of participation interests to third parties. The increase in the managed portfolio was primarily driven by increases in the New York, Chicago, and Cambridge markets. Total medallion loans serviced for third
parties were $63,933,000, $102,307,000, and $66,041,000 at December 31, 2010, 2009, and 2008.

The weighted average yield
of the medallion loan portfolio at December 31, 2010 was 5.90%, a decrease of 33 basis points from 6.23% at December 31, 2009, which was a decrease of 19 basis points from 6.42% at December 31, 2008. The weighted average yield of the
managed medallion loan portfolio at December 31, 2010 was 5.75%, a decrease of 45 basis points from 6.20% at December 31, 2009, which was a decrease of 23 basis points from 6.43% at December 31, 2008. The decreases in yield primarily
reflected the impact of falling interest rates in the economy and the effects of borrower refinancings. At December 31, 2010, 26% of the medallion loan portfolio represented loans outside New York, compared to 24% and 24% at year-end 2009 and
2008. At December 31, 2010, 24% of the managed medallion loan portfolio represented loans outside New York, compared to 25% and 26% at year-end 2009 and 2008. We continue to focus our efforts on originating higher yielding medallion loans
outside the New York market.

Commercial Loan Portfolio

Our commercial loans represented 16% of the net investment portfolio as of December 31, 2010, compared to 16% at December 31,
2009 and 2008, and were 16%, 18%, and 19% on a managed basis. Commercial loans decreased by $1,056,000 or 1% during 2010 (increased $179,000 on a managed basis), primarily reflecting repayments of other secured commercial loans and reserve increases
in the high-yield mezzanine loan portfolio, mostly offset by portfolio growth in the mezzanine and asset-based portfolios. Net commercial loans serviced by third parties were $12,282,000, $13,376,000, and $8,646,000 at December 31, 2010, 2009,
and 2008.

The weighted average yield of the commercial loan portfolio at December 31, 2010 was 12.44%, a decrease of 27
basis points from 12.71% at December 31, 2009, which was up 74 basis points from 11.97% at December 31, 2008. The weighted average yield of the managed commercial loan portfolio at December 31, 2010 was 9.44%, a decrease of 6 basis
points from 9.50% at December 31, 2009, which was up 57 basis points from 8.93% at December 31, 2008. The 2010 decreases reflected the continued lowering of interest rates in the economy as loans repriced, and the 2009 increases reflected
the higher proportion of higher-yielding mezzanine loans in the portfolio. We continue to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate our interest rate risk in a rising interest rate environment. At
December 31, 2010, variable-rate loans represented approximately 20% of the commercial portfolio, compared to 17% and 22% at December 31, 2009 and 2008, and were 54%, 55%, and 59% on a managed basis. Although this strategy initially
produces a lower yield, we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources.



36



---

##### Table of Contents

Consumer Loan Portfolios

Our managed consumer loans, all of which are held in the portfolio managed by Medallion Bank, represented 19% of the managed net
investment portfolio as of December 31, 2010, compared to 22% and 20% at December 31, 2009 and 2008. Medallion Bank originates adjustable rate consumer loans secured by recreational vehicles, boats, motorcycles, trailers, and hearing aids
located in all 50 states. The portfolio is serviced by a third party subsidiary of a major commercial bank.

The weighted
average gross yield of the managed consumer loan portfolio was 17.94% at December 31, 2010, compared to 17.96% and 18.26% at December 31, 2009 and 2008. Adjustable rate loans represented 83% of the managed consumer portfolio at
December 31, 2010, compared to 85% and 89% at December 31, 2009 and 2008.

Delinquency and Loan Loss Experience

We generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to
payments for a period of 90 days or more. We deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances. A
loan is considered to be delinquent if the borrower fails to make a payment on time; however, during the course of discussion on delinquent status, we may agree to modify the payment terms of the loan with a borrower that cannot make payments in
accordance with the original loan agreement. For loan modifications, the loan will only be returned to accrual status if all past due interest 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 75% of 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 December 31,



|                                             |  |        |        |  |      |  |     |        |  |   |        |  |  |        |     |   |      |   |        |  |  |  |     |  
|-------------------------------------------- |  | ------ | ------ |  | ---- |  | --- | ------ |  | - | ------ |  |  | ------ | --- | - | ---- | - | ------ |  |  |  | --- | -
|                                             |  | 2010   |        |  | 2009 |  |     | 2008   | 
|(Dollars in thousands)                       |  | Amount |        |  | %(1) |  |     | Amount |  |   | %(1)   |  |  | Amount |     |   | %(1) |  
|Medallion loans                              |  | $      | 361    |  |      |  | 0.1 | %      |  | $ | 1,090  |  |  |        | 0.3 | % |      | $ | 765    |  |  |  | 0.2 | %
|                                             |  |        |        |  |      |  |     |        |  |   |        |  |  |        |     |   |      |   |        |  |  |  |     |  
|Commercial loans                             |  |        |        |  |      |  |     |        |  |   |        |  |  |        |     |   |      |   |        |  |  |  |     |  
|Secured mezzanine                            |  |        | 6,985  |  |      |  | 1.7 |        |  |   | 6,600  |  |  |        | 1.6 |   |      |   | 6,415  |  |  |  | 1.3 |  
|Asset-based receivable                       |  |        |       |  |      |  | 0.0 |        |  |   |       |  |  |        | 0.0 |   |      |   |       |  |  |  | 0.0 |  
|Other secured commercial                     |  |        | 1,364  |  |      |  | 0.3 |        |  |   | 295    |  |  |        | 0.1 |   |      |   | 190    |  |  |  | 0.0 |  
|                                             |  |        |        |  |      |  |     |        |  |   |        |  |  |        |     |   |      |   |        |  |  |  |     |  
|Total commercial loans                       |  |        | 8,349  |  |      |  | 2.0 |        |  |   | 6,895  |  |  |        | 1.7 |   |      |   | 6,605  |  |  |  | 1.3 |  
|                                             |  |        |        |  |      |  |     |        |  |   |        |  |  |        |     |   |      |   |        |  |  |  |     |  
|Total loans 90 days or more past due         |  | $      | 8,710  |  |      |  | 2.1 | %      |  | $ | 7,985  |  |  |        | 2.0 | % |      | $ | 7,370  |  |  |  | 1.5 | %
|                                             |  |        |        |  |      |  |     |        |  |   |        |  |  |        |     |   |      |   |        |  |  |  |     |  
|Total Medallion Bank loans                   |  | $      | 2,246  |  |      |  | 0.4 | %      |  | $ | 3,861  |  |  |        | 0.9 | % |      | $ | 4,345  |  |  |  | 1.1 | %
|                                             |  |        |        |  |      |  |     |        |  |   |        |  |  |        |     |   |      |   |        |  |  |  |     |  
|Total managed loans 90 days or more past due |  | $      | 10,956 |  |      |  | 1.2 | %      |  | $ | 11,846 |  |  |        | 1.4 | % |      | $ | 11,715 |  |  |  | 1.3 | %
|                                             |  |        |        |  |      |  |     |        |  |   |        |  |  |        |     |   |      |   |        |  |  |  |     |  



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

In general, collection efforts since the establishment of our collection department have contributed to the reduction in overall
delinquencies of medallion and other secured commercial loans. Medallion delinquencies declined significantly from 2009 due to an estate issue that was resolved in early 2010. Secured mezzanine delinquencies increased slightly although the
composition of the delinquent portfolio saw changes as new delinquencies replaced those brought current or written off through the workout process. Other secured commercial loan delinquencies increased due to the continued economic stress on a
number of small business enterprises, all of which were either in foreclosure or in the process of being sold. Medallion Bank experienced higher delinquencies in 2008 due to the recessions impact on a few loans secured by commercial real
estate, which improved in 2009 and 2010 as those loans were resolved. We are actively working with each delinquent borrower to bring them current, and believe that any potential loss exposure is reflected in our mark-to-market estimates on each
loan. Although there can be no assurances as to changes in the trend



37



---

##### Table of Contents

rate and further negative changes in the economy, management believes that any loss exposures are properly reflected in reported asset values.

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

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

The following table sets forth the changes in our unrealized appreciation
(depreciation) on investments, other than investments in controlled subsidiaries, for the years ended December 31, 2010, 2009, and 2008.



|                                                                       |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|---------------------------------------------------------------------- |  | -------------- | ---- | - | --------------- | -- | ------ | ----------------- |  | - | -------------------- | - |  | ----- | ------ | - |  | - | ------- | -
|(Dollars in thousands)                                                 |  | MedallionLoans |      |   | CommercialLoans |    |        | EquityInvestments |  |   | ForeclosedProperties |   |  | Total |       
|Balance December 31, 2007                                              |  |                | ($37 | ) |                 | ($ | 6,432  | )                 |  | $ | 2,742                |   |  |       | $8,341 |   |  |   | $4,614  |  
|Net change in unrealized                                               |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Appreciation on investments                                            |  |                |     |   |                 |    |       |                   |  |   | (1,995               | ) |  |       | 8,183  |   |  |   | 6,188   |  
|Depreciation on investments                                            |  |                | (3   | ) |                 |    | (4,073 | )                 |  |   | (110                 | ) |  |       | 168    |   |  |   | (4,018  | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Gains on investments                                                   |  |                |     |   |                 |    |       |                   |  |   |                     |   |  |       | (1,400 | ) |  |   | (1,400  | )
|Losses on investments                                                  |  |                | 40   |   |                 |    | 5,190  |                   |  |   |                     |   |  |       | 322    |   |  |   | 5,552   |  
|Other                                                                  |  |                |     |   |                 |    | 200    |                   |  |   | (200                 | ) |  |       |       |   |  |   |        |  
|                                                                       |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Balance December 31, 2008                                              |  |                |     |   |                 |    | (5,115 | )                 |  |   | 437                  |   |  |       | 15,614 |   |  |   | 10,936  |  
|Net change in unrealized                                               |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Appreciation on investments                                            |  |                |     |   |                 |    |       |                   |  |   | (333                 | ) |  |       | 4,242  |   |  |   | 3,909   |  
|Depreciation on investments(1)                                         |  |                | (3   | ) |                 |    | (3,504 | )                 |  |   | (8,205               | ) |  |       | (519   | ) |  |   | (12,231 | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Gains on investments                                                   |  |                |     |   |                 |    |       |                   |  |   |                     |   |  |       | (900   | ) |  |   | (900    | )
|Losses on investments                                                  |  |                | 3    |   |                 |    | 3,983  |                   |  |   |                     |   |  |       | 919    |   |  |   | 4,905   |  
|Other                                                                  |  |                |     |   |                 |    | 400    |                   |  |   |                     |   |  |       | (400   | ) |  |   |        |  
|                                                                       |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Balance December 31, 2009                                              |  |                |     |   |                 |    | (4,236 | )                 |  |   | (8,101               | ) |  |       | 18,956 |   |  |   | 6,619   |  
|Net change in unrealized                                               |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Appreciation on investments                                            |  |                |     |   |                 |    |       |                   |  |   | 545                  |   |  |       | 2,153  |   |  |   | 2,698   |  
|Depreciation on investments                                            |  |                |     |   |                 |    | (7,172 | )                 |  |   | (475                 | ) |  |       |       |   |  |   | (7,647  | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Gains on investments                                                   |  |                |     |   |                 |    |       |                   |  |   |                     |   |  |       |       |   |  |   |        |  
|Losses on investments(1)                                               |  |                |     |   |                 |    | 191    |                   |  |   | 8,232                |   |  |       |       |   |  |   | 8,423   |  
|                                                                       |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Balance December 31, 2010                                              |  |                | $   |   |                 | ($ | 11,217 | )                 |  | $ | 201                  |   |  | $     | 21,109 |   |  | $ | 10,093  |  
|                                                                       |  |                |      |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  



|(1) | Includes unrealized depreciation of $7,720 in 2009 related to investments in SPAC and SPAC 2, and the related write off of these investments in 2010. See Note 10 to the
consolidated financial statements for additional information on these investments.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



38



---

##### Table of Contents

The following table presents credit-related information for the investment portfolios as of
December 31.



|                                                                                               |  |      |          |    |      |   |          |      |  |   |          |   
|---------------------------------------------------------------------------------------------- |  | ---- | -------- | -- | ---- | - | -------- | ---- |  | - | -------- | --
|(Dollars in thousands)                                                                         |  | 2010 |          |    | 2009 |   |          | 2008 | 
|Total loans                                                                                    |  |      |          |    |      |   |          |      |  |   |          |   
|Medallion loans                                                                                |  | $    | 323,126  |    |      | $ | 321,915  |      |  | $ | 402,964  |   
|Commercial loans                                                                               |  |      | 76,866   |    |      |   | 77,922   |      |  |   | 89,611   |   
|                                                                                               |  |      |          |    |      |   |          |      |  |   |          |   
|Total loans                                                                                    |  |      | 399,992  |    |      |   | 399,837  |      |  |   | 492,575  |   
|Investment in Medallion Bank and other controlled subsidiaries                                 |  |      | 78,735   |    |      |   | 72,279   |      |  |   | 74,750   |   
|Equity investments(1)                                                                          |  |      | 4,789    |    |      |   | 3,017    |      |  |   | 3,272    |   
|Investment securities                                                                          |  |      |         |    |      |   |         |      |  |   |         |   
|                                                                                               |  |      |          |    |      |   |          |      |  |   |          |   
|Net investments                                                                                |  | $    | 483,516  |    |      | $ | 475,133  |      |  | $ | 570,597  |   
|                                                                                               |  |      |          |    |      |   |          |      |  |   |          |   
|Net investments at Medallion Bank and other controlled subsidiaries                            |  | $    | 536,835  |    |      | $ | 439,409  |      |  | $ | 415,413  |   
|Managed net investments                                                                        |  | $    | 946,343  |    |      | $ | 846,542  |      |  | $ | 922,007  |   
|Unrealized appreciation (depreciation) on investments                                          |  |      |          |    |      |   |          |      |  |   |          |   
|Medallion loans                                                                                |  | $    |         |    |      |   | $       |      |  |   | $       |   
|Commercial loans                                                                               |  |      | (11,217  | )  |      |   | (4,236   | )    |  |   | (5,115   | ) 
|                                                                                               |  |      |          |    |      |   |          |      |  |   |          |   
|Total loans                                                                                    |  |      | (11,217  | )  |      |   | (4,236   | )    |  |   | (5,115   | ) 
|Investment in Medallion Bank and other controlled subsidiaries(2)                              |  |      |         |    |      |   |         |      |  |   |         |   
|Equity investments                                                                             |  |      | 201      |    |      |   | (376     | )    |  |   | 437      |   
|Investment securities                                                                          |  |      |         |    |      |   |         |      |  |   |         |   
|                                                                                               |  |      |          |    |      |   |          |      |  |   |          |   
|Total unrealized depreciation on investments (2)                                               |  |      | ($11,016 | )  |      |   | ($4,612  | )    |  |   | ($4,678  | ) 
|                                                                                               |  |      |          |    |      |   |          |      |  |   |          |   
|Net unrealized depreciation on investments
at Medallion Bank and other controlled subsidiaries |  |      | ($13,501 | )  |      |   | ($13,519 | )    |  |   | ($11,000 | ) 
|Managed total unrealized depreciation on investments (2)                                       |  |      | ($24,517 | )  |      |   | ($18,131 | )    |  |   | ($15,678 | ) 
|                                                                                               |  |      |          |    |      |   |          |      |  |   |          |   
|Unrealized appreciation (depreciation) as a % of balances outstanding (3)                      |  |      |          |    |      |   |          |      |  |   |          |   
|Medallion loans                                                                                |  |      |         | %  |      |   |         | %    |  |   |         | % 
|Commercial loans                                                                               |  |      | (12.69   | )  |      |   | (5.13    | )    |  |   | (5.39    | ) 
|Total loans                                                                                    |  |      | (2.73    | )  |      |   | (1.05    | )    |  |   | (1.03    | ) 
|Investment in Medallion Bank and other controlled subsidiaries                                 |  |      |         |    |      |   |         |      |  |   |         |   
|Equity investments                                                                             |  |      | 4.37     |    |      |   | (11.10   | )    |  |   | 15.41    |   
|Investment securities                                                                          |  |      |         |    |      |   |         |      |  |   |         |   
|Net investments                                                                                |  |      | (2.23    | )  |      |   | (0.96    | )    |  |   | (0.81    | ) 
|                                                                                               |  |      |          |    |      |   |          |      |  |   |          |   
|Net investments at Medallion Bank and other controlled subsidiaries                            |  |      | (2.48    | %) |      |   | (3.02    | %)   |  |   | (2.62    | %)
|Managed net investments                                                                        |  |      | (2.54    | %) |      |   | (2.11    | %)   |  |   | (1.68    | %)



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



|(2) | Excludes $0, $6,966, and $0 for unrealized depreciation on the SPAC, and $1,389, $1,593, and $1,733 for unrealized appreciation on Medallion Hamptons Holding, a wholly
owned subsidiary, at December 31, 2010, 2009, and 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, the valuation of our portfolio is adjusted quarterly to reflect
estimates of the current realizable value of the loan portfolio. These percentages represent the discount or premiums that investments are carried on the books at, relative to their par or gross value.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



39



---

##### Table of Contents

The following table presents the gain/loss experience on the investment portfolios for the
years ended December 31, 2010, 2009, and 2008.



|                                                                                       |  |      |          |    |      |   |          |      |  |   |          |   
|-------------------------------------------------------------------------------------- |  | ---- | -------- | -- | ---- | - | -------- | ---- |  | - | -------- | --
|(Dollars in thousands)                                                                 |  | 2010 |          |    | 2009 |   |          | 2008 | 
|Realized gains (losses) on loans and equity investments(1)                             |  |      |          |    |      |   |          |      |  |   |          |   
|Medallion loans                                                                        |  | $    |         |    |      | $ | 915      |      |  | $ | 1,378    |   
|Commercial loans                                                                       |  |      | (40      | )  |      |   | (5,050   | )    |  |   | (5,266   | ) 
|                                                                                       |  |      |          |    |      |   |          |      |  |   |          |   
|Total loans                                                                            |  |      | (40      | )  |      |   | (4,135   | )    |  |   | (3,888   | ) 
|Investment in Medallion Bank and other controlled subsidiaries(2)                      |  |      | (8,258   | )  |      |   |         |      |  |   |         |   
|Equity investments                                                                     |  |      | 1,439    |    |      |   |         |      |  |   | 142      |   
|Investment securities                                                                  |  |      |         |    |      |   |         |      |  |   |         |   
|                                                                                       |  |      |          |    |      |   |          |      |  |   |          |   
|Total realized gains (losses) on loans and equity investments(2)                       |  |      | ($6,859  | )  |      |   | ($4,135  | )    |  |   | ($3,746  | ) 
|                                                                                       |  |      |          |    |      |   |          |      |  |   |          |   
|Net realized losses on investments at
Medallion Bank and other controlled subsidiaries |  |      | (11,474  | )  |      |   | (11,333  | )    |  |   | (7,893   | ) 
|                                                                                       |  |      |          |    |      |   |          |      |  |   |          |   
|Total managed realized gains (losses) on loans and equity investments(2)               |  |      | ($18,333 | )  |      |   | ($15,468 | )    |  |   | ($11,639 | ) 
|                                                                                       |  |      |          |    |      |   |          |      |  |   |          |   
|Realized gains (losses) as a % of average balances outstanding                         |  |      |          |    |      |   |          |      |  |   |          |   
|Medallion loans                                                                        |  |      |         | %  |      |   | 0.25     | %    |  |   | 0.32     | % 
|Commercial loans                                                                       |  |      | (0.05    | )  |      |   | (5.64    | )    |  |   | (5.21    | ) 
|Total loans                                                                            |  |      | (0.01    | )  |      |   | (0.90    | )    |  |   | (0.72    | ) 
|Investment in Medallion Bank and other controlled subsidiaries                         |  |      | (11.04   | )  |      |   |         |      |  |   |         |   
|Equity investments                                                                     |  |      | 41.04    |    |      |   |         |      |  |   | 5.74     |   
|Investment securities                                                                  |  |      |         |    |      |   |         |      |  |   |         |   
|Net investments                                                                        |  |      | (1.43    | )  |      |   | (0.77    | )    |  |   | (0.61    | ) 
|                                                                                       |  |      |          |    |      |   |          |      |  |   |          |   
|Net investments at Medallion Bank and other controlled subsidiaries                    |  |      | (2.33    | %) |      |   | (2.65    | %)   |  |   | (2.11    | %)
|Managed net investments                                                                |  |      | (2.03    | %) |      |   | (1.72    | %)   |  |   | (1.26    | %)



|(1) | Includes realized gains (losses) of $0, ($1), and $1,064 for the years ended December 31, 2010, 2009, and 2008, related to foreclosed properties, which are carried
in other assets on the consolidated balance sheet.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Excludes $779 of net realized losses in 2010, related to the investment in SPAC 2, which was carried in other assets on the consolidated balance sheet.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

The table below summarizes components of unrealized and realized gains and losses in the investment portfolios
for the years ended December 31, 2010, 2009, and 2008.



|                                                                                                                |  |      |         |   |      |   |         |      |  |   |          |  
|--------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|(Dollars in thousands)                                                                                          |  | 2010 |         |   | 2009 |   |         | 2008 | 
|Net change in unrealized appreciation (depreciation) on investments                                             |  |      |         |   |      |   |         |      |  |   |          |  
|Unrealized appreciation                                                                                         |  |      | $545    |   |      |   | ($333   | )    |  |   | ($1,994  | )
|Unrealized depreciation(1)                                                                                      |  |      | (7,139  | ) |      |   | (4,747  | )    |  |   | (4,186   | )
|Net unrealized appreciation (depreciation) on investment in
Medallion Bank and other controlled subsidiaries(2) |  |      | 12,535  |   |      |   | (5,671  | )    |  |   | (2,419   | )
|Realized gains                                                                                                  |  |      |        |   |      |   |        |      |  |   |         |  
|Realized losses(1)                                                                                              |  |      | 950     |   |      |   | 3,986   |      |  |   | 5,230    |  
|Unrealized gains on foreclosed properties                                                                       |  |      | 2,153   |   |      |   | 3,742   |      |  |   | 7,273    |  
|                                                                                                                |  |      |         |   |      |   |         |      |  |   |          |  
|Total                                                                                                           |  |      | $9,044  |   |      |   | ($3,023 | )    |  |   | $3,904   |  
|                                                                                                                |  |      |         |   |      |   |         |      |  |   |          |  
|Net realized gains (losses) on investments                                                                      |  |      |         |   |      |   |         |      |  |   |          |  
|Realized gains                                                                                                  |  | $    |        |   |      | $ |        |      |  | $ |         |  
|Realized losses(3)                                                                                              |  |      | (8,423  | ) |      |   | (3,986  | )    |  |   | (5,230   | )
|Other gains                                                                                                     |  |      | 1,581   |   |      |   |        |      |  |   | 470      |  
|Direct recoveries (charge-offs)(4)                                                                              |  |      | (796    | ) |      |   | (148    | )    |  |   | (50      | )
|Realized gains (losses) on foreclosed properties                                                                |  |      |        |   |      |   | (1      | )    |  |   | 1,064    |  
|                                                                                                                |  |      |         |   |      |   |         |      |  |   |          |  
|Total                                                                                                           |  |      | ($7,638 | ) |      |   | ($4,135 | )    |  |   | ($3,746) |  
|                                                                                                                |  |      |         |   |      |   |         |      |  |   |          |  



|(1) | Includes unrealized depreciation of $759 in 2009 related to the $759 investment in SPAC 2, and the related writeoff of $759 in 2010, which was carried in other assets
on the consolidated balance sheet.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes $6,966 of net unrealized depreciation related to the investment in SPAC, including $508 that was recorded in 2010, that was reversed during 2010, upon the
writeoff of the SPAC investment.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Represents the writeoff related to the investments in SPAC and SPAC 2 in 2010. See Note 10 for additional information on these investments.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Includes $817 of direct chargeoffs related to the settlement of the liabilities associated with the writeoff of SPAC and SPAC 2 in 2010, all of which represented a
reversal of accrued expenses.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



---

##### Table of Contents

Investment in Medallion Bank and Other Controlled Subsidiaries

Investment in Medallion Bank and other controlled subsidiaries were 16%, 15%, and 13% of our total portfolio at December 31, 2010,
2009, and 2008. The portfolio company investments primarily represent the wholly-owned unconsolidated subsidiaries of ours, substantially all of which is represented by our investment in Medallion Bank, a non-pass-through, taxpaying entity. We are
currently in discussions with the IRS to obtain LLC tax treatment for Medallion Bank, which would provide pass-through taxation for our shareholders, and which has already been agreed to by the State of Utah. We cannot assure you that we
will be successful in our efforts, but if we are successful, this treatment would reduce taxes and increase the reported net income of Medallion Bank. In addition, to facilitate maintenance of Medallion Banks capital ratio requirement and to
provide the necessary capital for continued growth, we periodically make capital contributions to Medallion Bank, including an aggregate of $1,750,000 contributed in January 2009, and an aggregate of $10,750,000 contributed over various months in
2008. Separately, Medallion Bank declared dividends to us of $4,000,000 in 2010, $4,000,000 in 2009, and $6,000,000 in 2008. Without the capital infusions by us, a portion of the Medallion Bank dividends would have been retained to ensure Medallion
Bank met its capital ratio requirements, and in such circumstance, if we maintained our dividend at the existing levels, a portion of those dividends would have represented a tax-free return of capital. See Note 3 of the consolidated financial
statements for additional information about these investments.

Equity Investments

Equity investments were 1% of our total portfolio at December 31, 2010, 2009, and 2008. Equity investments were 1% of our total
managed portfolio at December 31, 2010, and were less than 1% at December 31, 2009 and 2008. Equity investments are comprised of common stock, partnership interests, and warrants.

Investment Securities

Investment securities were 0% of our total portfolio at December 31, 2010, 2009, and 2008. Investment securities were 2% of our total managed portfolio at December 31, 2010, 2009, and 2008. The
investment securities are primarily adjustable-rate mortgage-backed securities purchased by Medallion Bank to better utilize required cash liquidity.

Trend in Interest Expense

Our interest expense is driven by the interest
rates payable on our short-term credit facilities with banks, bank certificates of deposit, fixed-rate, long-term debentures issued to the SBA, and other short-term notes payable. We established a medallion lending relationship with DZ Bank in
December 2008, that provides for growth in the portfolio at generally lower rates than under prior facilities, all of which have been fully paid off. In addition, Medallion Bank began raising brokered bank certificates of deposit during 2004, which
were at our lowest borrowing costs. As a result of Medallion Bank raising funds through certificates of deposits as previously noted, we were able to realign the ownership of some of our medallion loans and related assets to Medallion Bank allowing
us and our subsidiaries to use cash generated through these transactions to retire debt with higher interest rates. In addition, Medallion Bank is able to bid on these deposits at a wide variety of maturity levels which allows for improved interest
rate management strategies.

Our cost of funds is primarily driven by the rates paid on our various debt instruments and their
relative mix, and changes in the levels of average borrowings outstanding. See Note 4 to the consolidated financial statements for details on the terms of all outstanding debt. Our debentures issued to the SBA typically have terms of ten years.



41



---

##### Table of Contents

We measure our borrowing costs as our aggregate interest expense for all of our
interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The following table shows the average borrowings and related borrowing costs for the years ended December 31, 2010, 2009, and 2008.
Our average balances decreased and Medallion Banks average balances increased, reflecting the sourcing of more business to Medallion Bank, and an increase in loan participations sold during the year. The decrease in borrowing costs reflected
the trend of decreasing interest rates in the economy.



|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|------------------------- |  | --------------- | ------ |  | -------------- | - | ------- | --------------------- |  |  | ---- | -
|(Dollars in thousands)    |  | InterestExpense |        |  | AverageBalance |   |         | AverageBorrowingCosts | 
|December 31, 2010         |  |                 |        |  |                |   |         |                       |  |  |      |  
|Revolving lines of credit |  | $               | 3,205  |  |                | $ | 181,489 |                       |  |  | 1.77 | %
|SBA debentures            |  |                 | 5,449  |  |                |   | 85,113  |                       |  |  | 6.40 |  
|Notes payable to banks    |  |                 | 3,393  |  |                |   | 67,041  |                       |  |  | 5.06 |  
|Preferred securities      |  |                 | 2,538  |  |                |   | 33,000  |                       |  |  | 7.69 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|Total                     |  | $               | 14,585 |  |                | $ | 366,643 |                       |  |  | 3.98 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|Medallion Bank borrowings |  |                 | 7,478  |  |                |   | 416,062 |                       |  |  | 1.80 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|Total managed borrowings  |  | $               | 22,063 |  |                | $ | 782,705 |                       |  |  | 2.82 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|December 31, 2009         |  |                 |        |  |                |   |         |                       |  |  |      |  
|Revolving lines of credit |  | $               | 6,489  |  |                | $ | 253,388 |                       |  |  | 2.56 | %
|SBA debentures            |  |                 | 5,725  |  |                |   | 88,250  |                       |  |  | 6.49 |  
|Notes payable to banks    |  |                 | 2,124  |  |                |   | 44,165  |                       |  |  | 4.81 |  
|Preferred securities      |  |                 | 2,538  |  |                |   | 33,000  |                       |  |  | 7.69 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|Total                     |  | $               | 16,876 |  |                | $ | 418,803 |                       |  |  | 4.03 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|Medallion Bank borrowings |  |                 | 11,046 |  |                |   | 361,613 |                       |  |  | 3.06 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|Total managed borrowings  |  | $               | 27,922 |  |                | $ | 780,416 |                       |  |  | 3.58 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|December 31, 2008         |  |                 |        |  |                |   |         |                       |  |  |      |  
|Revolving lines of credit |  | $               | 15,161 |  |                | $ | 355,706 |                       |  |  | 4.26 | %
|SBA debentures            |  |                 | 5,253  |  |                |   | 81,319  |                       |  |  | 6.46 |  
|Preferred securities      |  |                 | 2,538  |  |                |   | 33,000  |                       |  |  | 7.69 |  
|Notes payable to banks    |  |                 | 759    |  |                |   | 11,982  |                       |  |  | 6.33 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|Total                     |  | $               | 23,711 |  |                | $ | 482,007 |                       |  |  | 4.92 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|Medallion Bank borrowings |  |                 | 14,934 |  |                |   | 324,141 |                       |  |  | 4.61 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  
|Total managed borrowings  |  | $               | 38,645 |  |                | $ | 806,148 |                       |  |  | 4.79 |  
|                          |  |                 |        |  |                |   |         |                       |  |  |      |  

We will continue to seek SBA funding to the extent it offers attractive rates. SBA financing
subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under Small Business Investment Act (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
December 31, 2010, 2009, and 2008, short-term adjustable rate debt constituted 67%, 70%, and 78% of total debt, and was 30%, 36%, and 44% on a fully managed basis including the borrowings of Medallion Bank, reflecting the payoff of the floating
rate Citi borrowings, and its partial replacement with fixed rate debt.

Factors Affecting Net Assets

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

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



42



---

##### Table of Contents

Our investment in Medallion Bank, as a wholly-owned portfolio investment, is also subject to
quarterly assessments of fair value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to valuation different than recorded book value, including various regulatory restrictions that were
established at Medallion Banks inception, by the FDIC and State of Utah, and also by additional marketplace and regulatory restrictions, such as the ability to transfer industrial bank charters. As a result of this valuation process, we used
Medallion Banks actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other
applicable factors could change these conclusions in the future.

Consolidated Results of Operations

For the Years Ended December 31, 2010 and 2009

Net increase in net assets resulting from operations was $11,279,000 or $0.64 per diluted common share in 2010, up $10,257,000 from $1,022,000 or $0.06 per share in 2009, primarily reflecting $9,342,000
of charges associated with writing off our investments in the SPACs in 2009. Aside from these writeoffs, the increase was $915,000 or 9%, primarily reflecting higher other net realized/unrealized gains, noninterest income, and lower operating
expenses, partially offset by lower net interest income. Net investment income after taxes was $9,873,000 or $0.56 per share in 2010, up $1,693,000 or 21% from $8,180,000 or $0.46 in 2009.

Investment income was $37,253,000 in 2010, down $4,150,000 or 10% from $41,403,000 a year ago, and included $2,678,000 from interest
recoveries and bonuses on certain investments in 2010, compared to $1,684,000 in 2009. Also included in 2010 and 2009 were $4,000,000 in dividends from Medallion Bank in each year. Excluding those items, investment income decreased $5,144,000 or
14%, primarily reflecting loan participations sold and loan prepayments, and to a lesser extent, changes in the yields earned. The yield on the investment portfolio was 7.91% in 2010, up 2% from 7.77% in 2009. Excluding the extra interest and
dividends, the 2010 yield was down 3% to 6.49% from 6.70% in 2009, reflecting the general decrease in market interest rates and changes in the portfolio mix. Average investments outstanding were $471,105,000 in 2010, down 12% from $533,106,000 a
year ago, primarily reflecting loan participations sold and loan prepayments.

Medallion loans were $323,126,000 at year end,
up $1,211,000 from $321,915,000 a year ago, representing 67% of the investment portfolio compared to 68% a year ago, and were yielding 5.90% compared to 6.23% a year ago, a decrease of 5%. The increase in outstandings primarily reflected portfolio
growth, partially offset by sold participations and repayments. The managed medallion portfolio, which includes loans at Medallion Bank and those serviced for third parties, was $647,527,000 at year end, up $63,133,000 or 11% from $584,394,000 a
year ago, reflecting the above and the strong overall portfolio growth at Medallion Bank. The commercial loan portfolio was $76,866,000 at year end, compared to $77,922,000 a year ago, a decrease of $1,056,000 or 1%, and represented 16% of the
investment portfolio in both years. The decrease primarily reflected repayments of other secured commercial loans and reserve increases in the high-yield mezzanine loan portfolio, mostly offset by portfolio growth in the mezzanine and asset-based
portfolios. Commercial loans yielded 12.45% at year end, down 2% from 12.71% a year ago, reflecting the general reduction in market interest rates. The net managed commercial loan portfolio, which includes loans at Medallion Bank and those serviced
for or by third parties, was $138,158,000 at year end, up $2,145,000 or 2% from $136,013,000 a year ago, primarily reflecting the changes described above and increases in Medallion Banks asset-based portfolio, and by the net decrease in third
party loan participations purchased. Investments in Medallion Bank and other controlled subsidiaries were $78,735,000 at year end, up $6,456,000 or 9% from $72,279,000 a year ago, primarily reflecting our equity in the earnings of Medallion Bank,
and which represented 16% of the investment portfolio, compared to 15% a year ago, and which yielded 5.08% at year end, compared to 5.53% a year ago. See Notes 3 and 10 of the consolidated financial statements for additional information about
Medallion Bank and the other controlled subsidiaries. Equity investments were $4,789,000 at year end, up $1,772,000 or 59% from $3,017,000 a year ago, primarily reflecting increased equity purchases and portfolio appreciation, and represented 1% of
the investment portfolio at both year ends, and had a dividend yield of 1.48%, compared to 2.50% a year ago. Investment securities were zero at both year ends. See page 34 for a table that shows balances and yields by type of investment.

Interest expense was $14,585,000 in 2010, down $2,291,000 or 14% from $16,876,000 in 2009. The decrease in interest expense was primarily
due to decreased levels of borrowings. The cost of borrowed funds was 3.98% in 2010, compared to 4.03% a year ago, a decrease of 1%, reflecting the stabilization of interest rates, the adjustable rate nature of much of our borrowings, and changes in
our funding mix. Average debt outstanding was $366,643,000 in 2010, compared to $418,803,000 a year ago, a decrease of 12%, primarily reflecting decreased borrowings as portfolio outstandings declined. See page 41 for a table which shows average
balances and cost of funds for our funding sources.



43



---

##### Table of Contents

Net interest income was $22,668,000 and the net interest margin was 4.81% in 2010, down
$1,859,000 or 8% from $24,527,000 a year ago, which represented a net interest margin of 4.60%, all reflecting the items discussed above.

Noninterest income, which is comprised of servicing fee income, prepayment fees, late charges, and other miscellaneous income was $3,533,000 in 2010, up $150,000 or 4% from $3,383,000 a year ago,
primarily reflecting higher servicing and other fees generated from a larger portfolio base at Medallion Bank, and higher prepayment fees; partially offset by lower fees earned from an unconsolidated portfolio company and lower late charges.
Excluded from noninterest income in 2010 was $412,000 of servicing fee income, which during the 2010 fourth quarter was assigned to Medallion Servicing Corp. (MSC), a wholly-owned unconsolidated portfolio company, established for the purpose of
conducting most of the servicing activities for Medallion Bank.

Operating expenses were $16,328,000 in 2010, down $3,402,000
or 17% from $19,730,000 in 2009, primarily reflecting $1,622,000 of expense charges in 2009 associated with potential liabilities of the SPACs, and their subsequent reversal to realized losses in 2010. Also, excluded from operating expenses in
2010 was $349,000 of servicing-related expenses, which during the 2010 fourth quarter were charged to MSC. Excluding the SPAC and MSC amounts, operating expenses increased $191,000 or 1% in 2010. Salaries and benefits expense was $10,539,000 in the
year, down $450,000 or 4% from $10,989,000 in 2009, primarily reflecting $225,000 of MSC allocations, and otherwise reflecting higher salary and bonus accruals, mostly offset by higher salary deferrals related to loan originations. Professional fees
were $2,339,000 in 2010, up $784,000 or 50% from $1,554,000 a year ago, primarily reflecting higher legal, accounting, and other professional expenses related to costs associated with a cancelled equity initiative, various investment opportunities,
and the MFC reorganization, and also reflected $25,000 of MSC allocations. Occupancy expense was $1,330,000 in 2010, up $55,000 or 4%, from $1,275,000 in 2009, primarily reflecting lower rent reimbursements received from an unconsolidated portfolio
company, and also reflected $43,000 of MSC allocations. Other operating expenses of $2,120,000 in 2010 were down $3,792,000 or 64% from $5,912,000 a year ago, primarily reflecting $1,622,000 of expense charges in 2009 associated with potential
liabilities of the SPACs, and their subsequent reversal to realized losses in 2010, and also reflected $56,000 of MSC allocations. Excluding the SPAC and MSC amounts, other operating expenses decreased $492,000 or 11% in 2010. The decrease
primarily reflected higher expense reimbursements from Medallion Bank, and lower travel and entertainment and depreciation and amortization expenses, partially offset by higher franchise tax accruals.

Income tax expense was $0 in 2010 and 2009.

Net change in unrealized appreciation on investments was $9,044,000 in 2010, compared to depreciation of $3,023,000 in 2009, an increase in appreciation of $12,067,000. Net change in unrealized
appreciation (depreciation), net of the net unrealized appreciation or depreciation on Medallion Bank and the other controlled subsidiaries was depreciation of $3,491,000 in 2010, compared to appreciation of $2,648,000 in 2009, resulting in
decreased appreciation of $6,139,000 in 2010. Unrealized appreciation (depreciation) arises when we make valuation adjustments to the investment portfolio. When investments are sold or written off, any resulting realized gain (loss) is grossed up to
reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The 2010 activity resulted from net appreciation on Medallion Bank and other controlled subsidiaries of $12,535,000, net appreciation on
foreclosed property of $2,153,000, reversals of unrealized depreciation associated with equity investments (SPAC 2) which were charged off of $759,000, net unrealized appreciation on equity investments of $556,000, and reversals of unrealized
depreciation associated with fully depreciated loans which were charged off of $191,000, partially offset by net unrealized depreciation on loans of $7,150,000. The 2009 activity resulted from net depreciation on Medallion Bank and other controlled
subsidiaries of $5,671,000, net unrealized depreciation on loans of $3,507,000, and net unrealized depreciation on equity investments of $1,573,000, partially offset by reversals of unrealized depreciation associated with fully depreciated loans
which were charged off of $3,986,000, net appreciation on foreclosed property of $3,724,000, and reversals of unrealized depreciation associated with foreclosed properties that were sold of $18,000. The net appreciation or depreciation on Medallion
Bank and other controlled subsidiaries described above is net of the dividends declared by them to us of $4,000,000 in each of 2010 and 2009. Also included were unrealized depreciation of $6,965,000 in 2009, and the subsequent reversal of unrealized
depreciation of $7,473,000 in 2010, related to the writeoffs of the SPAC investments realized in the 2010 first quarter.

Our
net realized losses on investments were $7,638,000 in 2010, compared to $4,135,000 in 2009, an increase in realized losses of $3,503,000 in 2010. The 2010 activity reflected the reversals described in the unrealized paragraph above and net direct
chargeoffs of $796,000, partially offset by net direct gains on the sale of investments of $1,581,000. The 2009 activity reflected the reversals described in the unrealized paragraph above and net direct charge offs of $148,000, partially offset by
net direct gains on the sale of foreclosed properties of $18,000.

Our net realized/unrealized gains/losses on investments
were a gain of $1,406,000 in 2010, compared to losses of $7,158,000 in 2009, an increase of $8,564,000 of net gains in the year, reflecting the above.



44



---

##### Table of Contents

For the Years Ended December 31, 2009 and 2008

Net increase in net assets resulting from operations was $1,022,000 or $0.06 per diluted common share in 2009, down $14,226,000 or 93%
from $15,248,000 or $0.86 per share in 2008, primarily reflecting $9,342,000 of charges associated with writing off our investments in the SPACs. Aside from these writeoffs, the 2009 decrease primarily reflected lower net interest income,
higher operating expenses, and lower noninterest income, partially offset by higher other net realized/unrealized gains. Net investment income after income taxes was $8,180,000 or $0.46 per share in 2009, down $6,910,000 or 46% from $15,090,000 or
$0.85 per share in 2008.

Investment income was $41,403,000 in 2009, down $10,881,000 or 21% from $52,284,000 a year ago, and
included $1,684,000 from interest recoveries and bonuses on certain investments in 2009, compared to $4,471,000 in 2008. Also included in 2009 were $4,000,000 in dividends from Medallion Bank, compared to $6,000,000 in 2008. Excluding those items,
investment income decreased $6,094,000 or 15%, primarily reflecting loan participations sold and loan prepayments, and to a lesser extent, changes in the yields earned. The yield on the investment portfolio was 7.77% in 2009, down 9% from 8.58% in
2008. Excluding the extra interest and dividends, the 2009 yield was down 2% to 6.70% from 6.86% in 2008, reflecting the general decrease in market interest rates and changes in the portfolio mix. Average investments outstanding were $533,106,000 in
2009, down 13% from $609,634,000 a year ago, primarily reflecting loan participations sold and loan prepayments.

Medallion
loans were $321,915,000 at year end, down $81,049,000 or 20% from $402,964,000 a year ago, representing 68% of the investment portfolio compared to 70% a year ago, and were yielding 6.23% compared to 6.42% a year ago, a decrease of 3%. The decrease
in outstandings primarily reflected sold participations and repayments. The managed medallion portfolio, which includes loans at Medallion Bank and those serviced for third parties, was $584,394,000 at year end, down $7,019,000 or 1% from
$591,413,000 a year ago, reflecting the above and the strong overall portfolio growth at Medallion Bank. The commercial loan portfolio was $77,922,000 at year end, compared to $89,611,000 a year ago, a decrease of $11,689,000 or 13%, and represented
16% of the investment portfolio in both periods. The decrease reflected repayments in all portfolios. Commercial loans yielded 12.71% at year end, up 6% from 11.97% a year ago, reflecting the increased share of high-yield mezzanine loans. The net
managed commercial loan portfolio, which includes loans at Medallion Bank and those serviced for or by third parties, was $136,013,000 at year end, down $31,563,000 or 19% from $167,576,000 a year ago, primarily reflecting the changes described
above, decreases in the asset-based and real estate loan portfolios at Medallion Bank, and by the net increase in third party loan participations purchased. Investments in Medallion Bank and other controlled subsidiaries were $72,279,000 at year
end, down $2,471,000 or 3% from $74,750,000 a year ago, primarily reflecting the writeoff of the SPAC investment, partially offset by increased investment in Medallion Bank, and our equity in the earnings of Medallion Bank, and which represented 15%
of the investment portfolio, compared to 13% a year ago, and which yielded 5.53% at year end, compared to 8.22% a year ago. See Notes 3 and 10 of the consolidated financial statements for additional information about Medallion Bank and the other
controlled subsidiaries. Equity investments were $3,017,000 at year end, down $255,000 or 8% from $3,272,000 a year ago, primarily reflecting portfolio depreciation, partially offset by increased equity purchases, and represented 1% of the
investment portfolio at both year ends, and had a dividend yield of 2.50%, compared to 4.33% a year ago. Investment securities were zero at both year ends. See page 34 for a table that shows balances and yields by type of investment.

Interest expense was $16,876,000 in 2009, down $6,835,000 or 29% from $23,711,000 in 2008. The decrease in interest expense was primarily
due to the decreased cost of borrowed funds, and to a lesser extent, to decreased levels of borrowings. The cost of borrowed funds was 4.03% in 2009, compared to 4.92% a year ago, a decrease of 18%, reflecting the sharp declines in interest rates as
the Fed lowered rates to address the economic crisis, and that impact on the adjustable rate nature of much of our borrowings. Average debt outstanding was $418,803,000 in 2009, compared to $482,007,000 a year ago, a decrease of 13%, primarily
reflecting decreased borrowings as portfolio outstandings declined. See page 41 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $24,527,000 and the net interest margin was 4.60% in 2009, down $4,046,000 or 14% from $28,573,000 a year ago, which represented a net interest margin of 4.69%, all reflecting the
items discussed above.

Noninterest income, which is comprised of servicing fee income, prepayment fees, late charges, and
other miscellaneous income was $3,383,000 in 2009, down $454,000 or 12% from $3,837,000 a year ago. Included in noninterest income in 2008 were unusually large prepayment penalties relating to the payoffs of several large fleets of $667,000.
Excluding those prepayment penalties, noninterest income increased 7% in 2009, primarily reflecting higher servicing and other fees generated from a larger portfolio base at Medallion Bank, partially offset by lower investment partnership income
distributions and audit and due diligence fees.



45



---

##### Table of Contents

Operating expenses were $19,730,000 in 2009, up $2,410,000 or 14% from $17,320,000 in 2008,
primarily reflecting $1,622,000 of charges associated with potential liabilities of the SPACs. Excluding the SPAC-related charges, operating expenses increased $788,000 or 5%. Salaries and benefits expense was $10,989,000 in the year, up
$300,000 or 3% from $10,689,000 in 2008, primarily reflecting an increase in salary levels and lower salary deferrals related to loan originations, partially offset by lower bonus accruals and stock compensation expense. Professional fees were
$1,554,000 in 2009, down $52,000 or 3% from $1,606,000 a year ago, primarily reflecting lower accounting costs, partially offset by higher other professional and legal expenses related to various investment opportunities. Occupancy expense was
$1,275,000 in 2009, up $4,000 from $1,271,000 in 2008. Other operating expenses of $5,912,000 in 2009 were up $2,158,000 or 57% from $3,754,000 a year ago, primarily reflecting $1,622,000 of charges associated with potential liabilities of the
SPACs. Excluding the SPAC-related charges, other operating expenses increased $536,000 or 14%, primarily reflecting higher travel and entertainment expense, director fees, computer costs, and printing expenses, partially offset by lower
franchise tax accruals and depreciation and amortization expenses.

Income tax expense was $0 in 2009 and 2008.

Net change in unrealized depreciation on investments was $3,023,000 in 2009, compared to appreciation of $3,904,000 in 2008, a decrease
in appreciation of $6,927,000. Net change in unrealized appreciation, net of the net unrealized depreciation on Medallion Bank and the other controlled subsidiaries was appreciation of $2,648,000 in 2009, compared to $6,323,000 in 2008, resulting in
decreased appreciation of $3,675,000 in 2009. Unrealized appreciation (depreciation) arises when we make valuation adjustments to the investment portfolio. When investments are sold or written off, any resulting realized gain (loss) is grossed up to
reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The 2009 activity resulted from net depreciation on Medallion Bank and other controlled subsidiaries of $5,671,000, net unrealized
depreciation on loans of $3,507,000, and net unrealized depreciation on equity investments of $1,573,000, partially offset by reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $3,986,000, net
appreciation on foreclosed property of $3,724,000, and reversals of unrealized depreciation associated with foreclosed properties that were sold of $18,000. The 2008 activity resulted from net unrealized appreciation on foreclosed property of
$8,351,000 and reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $5,230,000, partially offset by net unrealized depreciation on loans of $3,875,000, net depreciation on Medallion Bank and other
controlled subsidiaries of $2,419,000, net unrealized depreciation on equity investments of $2,305,000, and by net reversals of unrealized appreciation associated with foreclosed properties that were sold of $1,078,000. The net appreciation or
depreciation on Medallion Bank and other controlled subsidiaries described above is net of the dividends declared by them to us of $4,000,000 in 2009 and $6,000,000 in 2008, and also in 2009 includes depreciation of $6,965,000 related to the
writeoffs of the SPAC investments.

Our net realized losses on investments were $4,135,000 in 2009, compared to $3,746,000 in
2008, reflecting increased losses of $389,000 in 2009. The 2009 activity reflected the reversals described in the unrealized paragraph above and net direct charge offs of $148,000, partially offset by net direct gains on the sale of foreclosed
properties of $18,000. The 2008 activity reflected the reversals described above and net direct charge offs of $50,000 and net direct losses on foreclosed properties of $14,000, partially offset by net direct gains on sales of equity and other
investments of $470,000.

Our net realized/unrealized losses on investments were $7,158,000 in 2009, compared to gains of
$158,000 in 2008, an increase of $7,316,000 of net losses in 2009, reflecting the above.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

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



46



---

##### Table of Contents

earnings during periods of falling interest rates. This mismatch between maturities and interest rate sensitivities of our interest-earning assets and interest-bearing liabilities results in
interest rate risk.

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

In addition, we manage our exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year
subordinated SBA debentures, and by setting repricing intervals or the maturities of tranches drawn under the revolving lines of credit or issued as certificates of deposit, for terms of up to five years. We had outstanding SBA debentures of
$80,250,000 with a weighted average interest rate of 5.48%, constituting 21% of our total indebtedness as of December 31, 2010. Also, as of December 31, 2010, portions of the adjustable rate debt with banks repriced at intervals of as long
as 35 months, and certain of the certificates of deposit were for terms of up to 32 months, further mitigating the immediate impact of changes in market interest rates.

A relative measure of interest rate risk can be derived from our interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and
interest-bearing liabilities, which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities, and negative when repriceable liabilities exceed repriceable
assets. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets.

The following table presents our interest rate sensitivity gap at December 31, 2010, compared to the respective positions at the end
of 2009 and 2008. The principal amount of interest earning assets is assigned to the time frame 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.



|                                 |  |                                           |         |   |                                |   |           |                                |  |   |                                |  |  |                                |        |  |                               |   |        |            |  |   |        |  |  |    |        |   |  |   |         | 
|-------------------------------- |  | ----------------------------------------- | ------- | - | ------------------------------ | - | --------- | ------------------------------ |  | - | ------------------------------ |  |  | ------------------------------ | ------ |  | ----------------------------- | - | ------ | ---------- |  | - | ------ |  |  | -- | ------ | - |  | - | ------- | 
|                                 |  | December 31, 2010 Cumulative Rate Gap (1) |        
|(Dollars in thousands)           |  | Less Than 1Year                           |         |   | More Than 1and LessThan 2Years |   |           | More Than2 and LessThan 3Years |  |   | More Than3 and LessThan 4Years |  |  | More Than4 and LessThan 5Years |        |  | MoreThan 5and LessThan 6Years |   |        | Thereafter |  |   | Total  | 
|Earning assets                   |  |                                           |         |   |                                |   |           |                                |  |   |                                |  |  |                                |        |  |                               |   |        |            |  |   |        |  |  |    |        |   |  |   |         | 
|Floating-rate                    |  | $                                         | 13,331  |   |                                | $ |          |                                |  | $ |                               |  |  | $                              |       |  |                               | $ |       |            |  | $ |       |  |  | $  |       |   |  | $ | 13,331  | 
|Adjustable rate                  |  |                                           | 36,726  |   |                                |   | 18,605    |                                |  |   | 62                             |  |  |                                |       |  |                               |   | 577    |            |  |   |       |  |  |    |       |   |  |   | 55,970  | 
|Fixed-rate                       |  |                                           | 60,293  |   |                                |   | 64,539    |                                |  |   | 150,419                        |  |  |                                | 19,634 |  |                               |   | 38,557 |            |  |   | 3,695  |  |  |    | 4,797  |   |  |   | 341,934 | 
|Cash                             |  |                                           | 17,303  |   |                                |   |          |                                |  |   |                               |  |  |                                |       |  |                               |   |       |            |  |   |       |  |  |    |       |   |  |   | 17,303  | 
|                                 |  |                                           |         |   |                                |   |           |                                |  |   |                                |  |  |                                |        |  |                               |   |        |            |  |   |        |  |  |    |        |   |  |   |         | 
|Total earning assets             |  | $                                         | 127,653 |   |                                | $ | 83,144    |                                |  | $ | 150,481                        |  |  | $                              | 19,634 |  |                               | $ | 39,134 |            |  | $ | 3,695  |  |  | $  | 4,797  |   |  | $ | 428,538 | 
|                                 |  |                                           |         |   |                                |   |           |                                |  |   |                                |  |  |                                |        |  |                               |   |        |            |  |   |        |  |  |    |        |   |  |   |         | 
|Interest bearing liabilities     |  |                                           |         |   |                                |   |           |                                |  |   |                                |  |  |                                |        |  |                               |   |        |            |  |   |        |  |  |    |        |   |  |   |         | 
|Revolving lines of credit        |  | $                                         | 180,204 |   |                                | $ |          |                                |  | $ |                               |  |  | $                              |       |  |                               | $ |       |            |  | $ |       |  |  | $  |       |   |  | $ | 180,204 | 
|Notes payable to banks           |  |                                           | 61,307  |   |                                |   | 6,624     |                                |  |   | 11,888                         |  |  |                                |       |  |                               |   | 7,259  |            |  |   |       |  |  |    |       |   |  |   | 87,078  | 
|SBA debentures                   |  |                                           | 7,485   |   |                                |   | 7,500     |                                |  |   | 19,450                         |  |  |                                | 13,500 |  |                               |   | 9,250  |            |  |   | 3,565  |  |  |    | 19,500 |   |  |   | 80,250  | 
|Preferred securities             |  |                                           |        |   |                                |   | 33,000    |                                |  |   |                               |  |  |                                |       |  |                               |   |       |            |  |   |       |  |  |    |       |   |  |   | 33,000  | 
|                                 |  |                                           |         |   |                                |   |           |                                |  |   |                                |  |  |                                |        |  |                               |   |        |            |  |   |        |  |  |    |        |   |  |   |         | 
|Total liabilities                |  | $                                         | 248,996 |   |                                | $ | 47,124    |                                |  | $ | 31,338                         |  |  | $                              | 13,500 |  |                               | $ | 16,509 |            |  | $ | 3,565  |  |  | $  | 19,500 |   |  | $ | 380,532 | 
|                                 |  |                                           |         |   |                                |   |           |                                |  |   |                                |  |  |                                |        |  |                               |   |        |            |  |   |        |  |  |    |        |   |  |   |         | 
|Interest rate gap                |  | ($                                        | 121,343 | ) |                                | $ | 36,020    |                                |  | $ | 119,143                        |  |  | $                              | 6,134  |  |                               | $ | 22,625 |            |  |   | $130   |  |  | ($ | 14,703 | ) |  | $ | 48,006  | 
|                                 |  |                                           |         |   |                                |   |           |                                |  |   |                                |  |  |                                |        |  |                               |   |        |            |  |   |        |  |  |    |        |   |  |   |         | 
|Cumulative interest rate gap (2) |  | ($                                        | 121,343 | ) |                                |   | ($85,323  | )                              |  | $ | 33,820                         |  |  | $                              | 39,954 |  |                               | $ | 62,579 |            |  | $ | 62,709 |  |  | $  | 48,006 |   |  |   |        | 
|                                 |  |                                           |         |   |                                |   |           |                                |  |   |                                |  |  |                                |        |  |                               |   |        |            |  |   |        |  |  |    |        |   |  |   |         | 
|December 31, 2009(2)             |  | ($                                        | 129,336 | ) |                                |   | ($39,371  | )                              |  | $ | 28,151                         |  |  | $                              | 57,045 |  |                               | $ | 65,972 |            |  | $ | 65,089 |  |  | $  | 54,992 |   |  |   |        | 
|December 31, 2008(2)             |  | ($                                        | 240,998 | ) |                                |   | ($171,785 | )                              |  | $ | 48,841                         |  |  | $                              | 57,488 |  |                               | $ | 81,687 |            |  | $ | 76,954 |  |  | $  | 66,863 |   |  |   |        | 



|(1) | The ratio of the cumulative one year gap to total interest rate sensitive assets was (28%), (30%), and (46%), as of December 31, 2010, 2009, and 2008, and was
(29%), (25%), and (34%) on a combined basis with Medallion Bank.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Adjusted for the medallion loan 40% prepayment assumption results in a cumulative one year negative interest rate gap and related ratio of ($30,928) or (7%) for
December 31, 2010, compared to ($34,286) or (8%) and ($107,671) or (20%) for December 31, 2009 and 2008, respectively, and was ($114,994) or (12%), ($85,130) or (9%), and ($155,873) or (16%) on a combined basis with
Medallion Bank.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our interest rate sensitive assets were $428,538,000 and interest rate sensitive liabilities
were $380,532,000 at December 31, 2010. The one-year cumulative interest rate gap was a negative $121,343,000 or 28% of interest rate sensitive assets, compared to a negative $129,336,000 or 30% at December 31, 2009 and $240,998,000 or 46%
at December 31, 2008. However, using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative gap of $30,928,000 or 7% at



47



---

##### Table of Contents

December 31, 2010. We seek to manage interest rate risk by originating adjustable-rate loans, by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing
securitization opportunities, and by other options consistent with managing interest rate risk.

On a combined basis with
Medallion Bank, our interest rate sensitive assets were $990,131,000 and interest rate sensitive liabilities were $849,489,000 at December 31, 2010. The one-year cumulative interest rate gap was a negative $289,178,000 or 29% of interest rate
sensitive assets, compared to a negative $225,251,000 or 25% and 326,687,000 or 34% at December 31, 2009 and 2008. Using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative
gap of $114,994,000 or 12% at December 31, 2010.

Interest Rate Cap Agreements

The Company manages its exposure to increases in market rates of interest by periodically purchasing interest rate caps to lock in the
cost of funds of its variable-rate debt in the event of a rapid run up in interest rates. During 2010 and 2009, the Company entered into contracts to purchase interest rate caps on $125,000,000 and $252,000,000, respectively, of notional value of
principal from various multinational banks, of which $185,000,000 were active as of December 31, 2010, with termination dates ranging to June 2012. The caps provide for payments to the Company if various LIBOR thresholds are exceeded during the
cap terms. The 2010 and 2009 cap purchases of $142,000 and $171,000 were fully expensed in 2010 and 2009, respectively, and all are carried at $0 on the balance sheet at December 31, 2010. The Company had no interest rate cap agreements or
other derivative instruments outstanding during 2008.

Liquidity and Capital Resources

Our sources of liquidity are the revolving lines of credit with DZ Bank and Sterling Bank, unfunded commitments to purchase debentures
from the SBA, loan amortization and prepayments, private issuances of debt securities, and participations or sales of loans to third parties. As a RIC, we are required to distribute at least 90% of our investment company taxable income;
consequently, we have primarily relied upon external sources of funds to finance growth. Trust IIIs $200,000,000 revolving line of credit with DZ Bank had $19,796,000 of availability, and unfunded commitments from the SBA were $12,485,000.
Lastly, $10,500,000 was available under revolving credit agreements with commercial banks.

Additionally, Medallion Bank, our
wholly-owned, unconsolidated portfolio company has access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. At the current required capital levels, it is expected, although there
can be no guarantee, that deposits of approximately $72,400,000 could be raised by Medallion Bank to fund future loan origination activities, and Medallion Bank also has $27,000,000 available under Fed Funds lines with several commercial banks. In
addition, Medallion Bank, as a non-RIC subsidiary of ours, is allowed to retain all earnings in the business to fund future growth.

The components of our debt were as follows at December 31, 2010. See Note 4 to the consolidated financial statements on page F-17 for details of the contractual terms of our borrowings.



|                                                       |  |         |         |  |            |  |     |          |  |  |      |  
|------------------------------------------------------ |  | ------- | ------- |  | ---------- |  | --- | -------- |  |  | ---- | -
|(Dollars in thousands)                                 |  | Balance |         |  | Percentage |  |     | Rate (1) | 
|Revolving lines of credit                              |  | $       | 180,204 |  |            |  | 47  | %        |  |  | 1.31 | %
|Notes payable to banks                                 |  |         | 87,078  |  |            |  | 23  |          |  |  | 4.41 |  
|SBA debentures                                         |  |         | 80,250  |  |            |  | 21  |          |  |  | 5.48 |  
|Preferred securities                                   |  |         | 33,000  |  |            |  | 9   |          |  |  | 7.68 |  
|                                                       |  |         |         |  |            |  |     |          |  |  |      |  
|Total outstanding debt                                 |  | $       | 380,532 |  |            |  | 100 | %        |  |  | 3.45 |  
|                                                       |  |         |         |  |            |  |     |          |  |  |      |  
|Deposits and federal funds purchased at Medallion Bank |  |         | 468,957 |  |            |  |    |          |  |  | 1.34 | %
|                                                       |  |         |         |  |            |  |     |          |  |  |      |  
|Total outstanding debt, including Medallion Bank       |  | $       | 849,489 |  |            |  |    |          |  |  | 2.29 |  
|                                                       |  |         |         |  |            |  |     |          |  |  |      |  



|(1) | Weighted average contractual rate as of December 31, 2010.
|--- | ----------------------------------------------------------

Our contractual obligations expire on or mature at various dates through September 2037. The following table shows all contractual obligations at December 31, 2010.



|                                                       |  |                        |         |  |             |   |        |             |  |   |             |  |  |             |        |  |                  |   |        |       |  |   |        |  |  |   |         | 
|------------------------------------------------------ |  | ---------------------- | ------- |  | ----------- | - | ------ | ----------- |  | - | ----------- |  |  | ----------- | ------ |  | ---------------- | - | ------ | ----- |  | - | ------ |  |  | - | ------- | 
|                                                       |  | Payments due by period |        
|(Dollars in thousands)                                 |  | Less than1 year        |         |  | 1 - 2 years |   |        | 2 - 3 years |  |   | 3 - 4 years |  |  | 4 - 5 years |        |  | More than5 years |   |        | Total | 
|Revolving lines of credit                              |  | $                      |        |  |             | $ |       |             |  | $ | 180,204     |  |  | $           |       |  |                  | $ |       |       |  | $ |       |  |  | $ | 180,204 | 
|Notes payable to banks                                 |  |                        | 43,765  |  |             |   | 11,003 |             |  |   | 24,489      |  |  |             | 225    |  |                  |   | 6,722  |       |  |   | 874    |  |  |   | 87,078  | 
|SBA debentures                                         |  |                        | 7,485   |  |             |   | 7,500  |             |  |   | 19,450      |  |  |             | 13,500 |  |                  |   | 9,250  |       |  |   | 23,065 |  |  |   | 80,250  | 
|Preferred securities                                   |  |                        |        |  |             |   |       |             |  |   |            |  |  |             |       |  |                  |   |       |       |  |   | 33,000 |  |  |   | 33,000  | 
|                                                       |  |                        |         |  |             |   |        |             |  |   |             |  |  |             |        |  |                  |   |        |       |  |   |        |  |  |   |         | 
|Total                                                  |  | $                      | 51,250  |  |             | $ | 18,503 |             |  | $ | 224,143     |  |  | $           | 13,725 |  |                  | $ | 15,972 |       |  | $ | 56,939 |  |  | $ | 380,532 | 
|                                                       |  |                        |         |  |             |   |        |             |  |   |             |  |  |             |        |  |                  |   |        |       |  |   |        |  |  |   |         | 
|Deposits and federal funds purchased at Medallion Bank |  |                        | 358,219 |  |             |   | 43,389 |             |  |   | 67,349      |  |  |             |       |  |                  |   |       |       |  |   |       |  |  |   | 468,957 | 
|                                                       |  |                        |         |  |             |   |        |             |  |   |             |  |  |             |        |  |                  |   |        |       |  |   |        |  |  |   |         | 
|Total, including Medallion Bank                        |  | $                      | 409,469 |  |             | $ | 61,892 |             |  | $ | 291,492     |  |  | $           | 13,725 |  |                  | $ | 15,972 |       |  | $ | 56,939 |  |  | $ | 849,489 | 
|                                                       |  |                        |         |  |             |   |        |             |  |   |             |  |  |             |        |  |                  |   |        |       |  |   |        |  |  |   |         | 



48



---

##### Table of Contents

We value our portfolio at fair value as determined in good faith by management and approved
by the Board of Directors in accordance with our valuation policy. Unlike certain lending institutions, we are not permitted to establish reserves for loan losses. Instead, we must value each individual investment and portfolio loan on a quarterly
basis. We record unrealized depreciation on investments and loans when we believe that an asset has been impaired and full collection is unlikely. We record unrealized appreciation on equities if we have a clear indication that the underlying
portfolio company has appreciated in value and, therefore, our equity investment has also appreciated in value. Without a readily ascertainable market value, the estimated value of our portfolio of investments and loans may differ significantly from
the values that would be placed on the portfolio if there existed a ready market for the investments. We adjust the valuation of the portfolio quarterly to reflect managements estimate of the current fair value of each investment in the
portfolio. Any changes in estimated fair value are recorded in our statement of operations as net unrealized appreciation (depreciation) on investments. Our investment in Medallion Bank, as a wholly-owned portfolio investment, is also subject to
quarterly assessments of its fair value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to valuation different than recorded book value. As a result of this valuation process, we used
Medallion Banks actual results of operations as the best estimate of changes in fair value, and recorded the result as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other
applicable factors could change these conclusions in the future.

In addition, the illiquidity of our loan portfolio and
investments may adversely affect our ability to dispose of loans at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of the investments in the portfolio,
the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we
borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest
rates, our cost of funds would increase, which would reduce our net operating income before net realized and unrealized gains. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our
long-term fixed-rate investments are financed primarily with short-term floating-rate debt, and to a lesser extent by term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate
fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet
were to remain constant and no actions were taken to alter the existing interest rate sensitivity, and including the impact on Medallion Bank, a hypothetical immediate 1% increase in interest rates would have positively impacted net increase in net
assets resulting from operations as of December 31, 2010 by approximately $1,291,000 on an annualized basis, compared to a positive impact of $1,149,000 at December 31, 2009, and the impact of such an immediate increase of 1% over a one
year period would have been ($2,026,000) at December 31, 2010, compared to ($1,943,000) for December 31, 2009. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for
potential changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net increase in net assets resulting from operations in a particular quarter or for the year taken as a
whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

We continue to work with investment banking firms and other financial intermediaries to investigate the viability of a number of other financing options which include, among others, the sale or spin off
certain assets or divisions, the development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external
expansion and continuation of internal growth.



49



---

##### Table of Contents

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 December 31, 2010. See Note 4 to the consolidated financial statements for additional information about each
credit facility.



|                                                                     |  |             |            |   |     |   |           |     |  |   |           |   |  |      |       |  |      |   |           |       |  |   |            |   |  |   |           |   |  |   |            |  
|-------------------------------------------------------------------- |  | ----------- | ---------- | - | --- | - | --------- | --- |  | - | --------- | - |  | ---- | ----- |  | ---- | - | --------- | ----- |  | - | ---------- | - |  | - | --------- | - |  | - | ---------- | -
|(Dollars in thousands)                                               |  | The Company |            |   | MFC |   |           | MCI |  |   | MBC       |   |  | FSVC |       |  | UTAH |   |           | Total |  |   | 12/31/2009 |  
|Cash                                                                 |  | $           | 6,313      |   |     | $ | 5,523     |     |  | $ | 198       |   |  | $    | 2,747 |  |      | $ | 2,522     |       |  | $ |           |   |  | $ | 17,303    |   |  | $ | 33,401     |  
|Bank loans                                                           |  |             | 36,949     |   |     |   | 60,629    |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 97,578    |   |  |   | 72,867     |  
|Amounts undisbursed                                                  |  |             | 2,500      |   |     |   | 8,000     |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 10,500    |   |  |   | 8,957      |  
|Amounts outstanding                                                  |  |             | 34,449     |   |     |   | 52,629    |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 87,078    |   |  |   | 63,910     |  
|Average interest rate                                                |  |             | 4.04       | % |     |   | 4.66      | %   |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 4.41      | % |  |   | 4.48       | %
|Maturity                                                             |  |             | 1/11-12/13 |   |     |   | 3/11-2/17 |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 1/11-2/17 |   |  |   | 5/10-11/12 |  
|Preferred securities                                                 |  |             | 33,000     |   |     |   |          |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  | $ | 33,000    |   |  |   | 33,000     |  
|Average interest rate                                                |  |             | 7.68       | % |     |   |          |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 7.68      | % |  |   | 7.68       | %
|Maturity                                                             |  |             | 9/37       |   |     |   |          |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 9/37      |   |  |   | 9/37       |  
|Lines of credit                                                      |  |             |           |   |     |   | 200,000   |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  | $ | 200,000   |   |  |   | 235,000    |  
|Amounts undisbursed                                                  |  |             |           |   |     |   | 19,796    |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 19,796    |   |  |   | 37,638     |  
|Amounts outstanding                                                  |  |             |           |   |     |   | 180,204   |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 180,204   |   |  |   | 197,362    |  
|Average interest rate                                                |  |             |           |   |     |   | 1.31      | %   |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 1.31      | % |  |   | 1.32       | %
|Maturity                                                             |  |             |           |   |     |   | 12/13     |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   |           |   |  |   | 12/13     |   |  |   | 5/10-12/13 |  
|SBA debentures                                                       |  |             |           |   |     |   |          |     |  |   | 41,250    |   |  |      |      |  |      |   | 51,485    |       |  |   |           |   |  | $ | 92,735    |   |  |   | 96,750     |  
|Amounts undisbursed                                                  |  |             |           |   |     |   |          |     |  |   | 5,000     |   |  |      |      |  |      |   | 7,485     |       |  |   |           |   |  |   | 12,485    |   |  |   | 8,500      |  
|Amounts outstanding                                                  |  |             |           |   |     |   |          |     |  |   | 36,250    |   |  |      |      |  |      |   | 44,000    |       |  |   |           |   |  |   | 80,250    |   |  |   | 88,250     |  
|Average interest rate                                                |  |             |           |   |     |   |          |     |  |   | 4.94      | % |  |      |      |  |      |   | 5.93      | %     |  |   |           |   |  |   | 5.48      | % |  |   | 6.09       | %
|Maturity                                                             |  |             |           |   |     |   |          |     |  |   | 3/12-3/21 |   |  |      |      |  |      |   | 9/11-3/19 |       |  |   |           |   |  |   | 9/11-3/21 |   |  |   | 9/11-3/19  |  
|                                                                     |  |             |            |   |     |   |           |     |  |   |           |   |  |      |       |  |      |   |           |       |  |   |            |   |  |   |           |   |  |   |            |  
|Total cash and amounts remaining undisbursed under credit facilities |  | $           | 8,813      |   |     | $ | 33,319    |     |  | $ | 5,198     |   |  | $    | 2,747 |  |      | $ | 10,007    |       |  | $ |           |   |  | $ | 60,084    |   |  | $ | 88,496     |  
|                                                                     |  |             |            |   |     |   |           |     |  |   |           |   |  |      |       |  |      |   |           |       |  |   |            |   |  |   |           |   |  |   |            |  
|Total debt outstanding                                               |  | $           | 67,449     |   |     | $ | 232,833   |     |  | $ | 36,250    |   |  | $    |      |  |      | $ | 44,000    |       |  | $ |           |   |  | $ | 380,532   |   |  | $ | 382,522    |  
|                                                                     |  |             |            |   |     |   |           |     |  |   |           |   |  |      |       |  |      |   |           |       |  |   |            |   |  |   |           |   |  |   |            |  
|Including Medallion Bank                                             |  |             |            |   |     |   |           |     |  |   |           |   |  |      |       |  |      |   |           |       |  |   |            |   |  |   |           |   |  |   |            |  
|Cash                                                                 |  |             |           |   |     |   |          |     |  |   |          |   |  |      |      |  |      |   |          |       |  | $ | 16,980     |   |  | $ | 16,980    |   |  | $ | 13,340     |  
|Deposits and federal funds purchased                                 |  |             |           |   |     |   |          |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   | 468,957    |   |  |   | 468,957   |   |  |   | 371,719    |  
|Average interest rate                                                |  |             |           |   |     |   |          |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   | 1.34       | % |  |   | 1.34      | % |  |   | 1.85       | %
|Maturity                                                             |  |             |           |   |     |   |          |     |  |   |          |   |  |      |      |  |      |   |          |       |  |   | 1/11-9/13  |   |  |   | 1/11-9/13 |   |  |   | 1/10-12/12 |  
|                                                                     |  |             |            |   |     |   |           |     |  |   |           |   |  |      |       |  |      |   |           |       |  |   |            |   |  |   |           |   |  |   |            |  
|Total cash and amounts remaining undisbursed under credit facilities |  | $           | 8,813      |   |     | $ | 33,319    |     |  | $ | 5,198     |   |  | $    | 2,747 |  |      | $ | 10,007    |       |  | $ | 16,980     |   |  | $ | 77,064    |   |  | $ | 101,836    |  
|                                                                     |  |             |            |   |     |   |           |     |  |   |           |   |  |      |       |  |      |   |           |       |  |   |            |   |  |   |           |   |  |   |            |  
|Total debt outstanding                                               |  | $           | 67,449     |   |     | $ | 232,833   |     |  | $ | 36,250    |   |  | $    |      |  |      | $ | 44,000    |       |  | $ | 468,957    |   |  | $ | 849,489   |   |  | $ | 754,241    |  
|                                                                     |  |             |            |   |     |   |           |     |  |   |           |   |  |      |       |  |      |   |           |       |  |   |            |   |  |   |           |   |  |   |            |  

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

We
have available liquidity of $19,796,000 under our revolving credit agreement with DZ Bank as of December 31, 2010. 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.
Also, Medallion Bank is not a RIC, and therefore is able to retain earnings to finance growth.



50



---

##### Table of Contents

Recently Issued Accounting Standards

In January 2011, the FASB issued Accounting Standards Update 2011-01, Receivables (Topic 310): Deferral of the
Effective Date of Disclosures about Troubled Debt Restructuring in Update No. 2010-20, which defers the effective date of the new disclosures about troubled debt restructurings required by ASU 2010-20. The delay will allow
the FASB to complete its deliberations on what constitutes a troubled debt restructuring. The anticipated effective date for the new disclosures is for interim and annual periods ending after June 15, 2011.

In December 2010, the FASB issued Accounting Standards Update 2010-29, Disclosure of Supplementary Pro Forma Information
for Business Combinations, a consensus of the FASB Emerging Issues Task Force, the objective of which was to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business
combinations. The update specifies that a public entity which presents comparative financial statements should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had
occurred as of the beginning of the comparable prior annual period only. The amendments in this update are applicable to any public entity which enters into business combinations that are material on an individual or aggregate basis and is
effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010 with early adoption permitted. Adoption of ASU 2010-29 will
not have an impact on the financial condition of the Company as it will only amend future pro forma disclosures of material business combinations.

In July 2010, the FASB issued Accounting Standards Update 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses, which amends Subtopic 310-30 by requiring an entity to provide enhanced and disaggregated disclosures about the credit quality of an entitys financing receivables and its allowance for credit losses. The objective of
enhancing these disclosures is to improve financial statement users understanding of both the nature of an entitys credit risk associated with its financing receivables and the entitys assessment of that risk in
estimating its allowance for credit losses as well as changes in the allowance and the reason for those changes. The update is effective for the first interim or annual period ending on or after December 15, 2010. The Company has
adopted the provisions of FASB ASU 2010-20, and it does not have an impact on its financial condition or results of operations, as it is a disclosure standard.

In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements (FASB ASU
2010-06). FASB ASU 2010-06 amends Subtopic 820-10, Fair Value Measurements and Disclosures - Overall, and requires new disclosures related to the transfers in and out of Level 1 and 2, as well as requiring that a reporting entity present separately
information about purchases, sales, issuances, and settlements rather than as one net number. Additionally, FASB ASU 2010-06 amends Subtopic 820-10 by clarifying existing disclosures related to level of disaggregation as well as disclosures about
inputs and valuation techniques. FASB ASU 2010-06 is effective for reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements, these disclosures are effective for reporting periods beginning after December 15, 2010. The Company has adopted the provisions of FASB ASU 2010-06, and it does not have an impact on its financial condition or results
of operations, as it is a disclosure standard.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Our business activities contain elements of risk. We consider the principal types of risk to be fluctuations in interest rates and portfolio valuations. We consider the management of risk essential to
conducting our businesses. Accordingly, our risk management systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits, and to continually monitor these risks and limits by means of reliable
administrative and information systems and other policies and programs.

We value our portfolio at fair value as determined in
good faith by management and approved by the Board of Directors in accordance with our valuation policy. Unlike certain lending institutions, we are not permitted to establish reserves for loan losses. Instead, we must value each individual
investment and portfolio loan on a quarterly basis. We record unrealized depreciation on investments and loans when we believe that an asset has been impaired and full collection is unlikely. We record unrealized appreciation on equities if there is
a clear indication that the underlying portfolio company has appreciated in value and, therefore, our equity investment has also appreciated in value. Without a readily ascertainable market value, the estimated value of our portfolio of investments
and loans may differ significantly from the values that would be placed on the portfolio if there existed a ready market for the investments. We adjust the valuation of the portfolio quarterly to reflect managements estimate of the current
fair value of each investment in the portfolio. Any changes in estimated fair value are recorded in our statement of operations as net unrealized appreciation (depreciation) on investments. Our investment in Medallion Bank, as a wholly owned
portfolio investment, is also subject to quarterly assessments of fair value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to valuation different than recorded book value, including
various regulatory restrictions that were established at Medallion Banks inception, by the FDIC and State of Utah, and also by additional marketplace restrictions, such as on



51



---

##### Table of Contents

the ability to transfer industrial bank charters. As a result of this valuation process, we used Medallion Banks actual results of operations as the best estimate of changes in fair value,
and recorded the results as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other applicable factors could change these conclusions in the future.

In addition, the illiquidity of our loan portfolio and investments may adversely affect our ability to dispose of loans at times when it
may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such liquidation may be significantly less than the current value
of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no
assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net operating income
before net realized and unrealized gains. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate investments are financed primarily with short-term floating-rate
debt, and to a lesser extent by term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the
extent permitted by the 1940 Act. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate
sensitivity, and including the impact on Medallion Bank, a hypothetical immediate 1% increase in interest rates would have positively impacted net increase in net assets resulting from operations as of December 31, 2010 by approximately
$1,291,000 on an annualized basis, compared to a positive impact of $1,149,000 at December 31, 2009, and the impact of such an immediate increase of 1% over a one year period would have been ($2,026,000) at December 31, 2010, compared to
($1,943,000) for December 31, 2009. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size, and composition of the assets on the
balance sheet, and other business developments that could affect net increase in net assets resulting from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not
differ materially from the potential outcome simulated by these estimates.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Reference is made to the financial statements set forth under Item 15 (A) (1) in this Annual Report on Form 10-K, which financial statements are incorporated herein by reference in response
to this Item 8.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|------- | -------------------------------------------------------------------------------------

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Disclosure
Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief
Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal year covered by this annual report. As a result of this evaluation, we have concluded that our
disclosure controls and procedures were effective as of December 31, 2010.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief
Financial Officer, have evaluated our internal control over financial reporting to determine whether any changes occurred during the 2010 fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting, and have concluded that there have been no changes that occurred during the 2010 fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



52



---

##### Table of Contents

Managements Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors,
management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and
includes those policies and procedures that:



| |  |  | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a
material effect on the financial statements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on its assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 31, 2010.

We believe that the consolidated financial statements included in this report fairly represent our consolidated financial position and consolidated results of operations for all periods presented.

Our Independent Registered Public Accounting Firm, WeiserMazars LLP, has audited and issued a report on managements
assessment of our internal control over financial reporting. The report of WeiserMazars LLP appears below.



53



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Medallion Financial Corp.

We have audited Medallion Financial Corp. and subsidiaries (the Company) internal control over financial reporting as
of December 31, 2010, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

A Companys internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Companys internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could
have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company including the consolidated schedule of investments, as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three
years in the three-year period ended December 31, 2010, and the selected financial ratios and other data for each of the five years in the five-year period ended December 31, 2010 and our report dated March 11, 2011 expressed an
unqualified opinion on those consolidated financial statements.

WeiserMazars LLP

New York, New York

March 11, 2011



54



---

##### Table of Contents

|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.

PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
|-------- | -------------------------------------------------------

Incorporated by reference from our Definitive Proxy Statement expected to be filed by April 29, 2011 for its fiscal year 2011 Annual Meeting of Shareholders under the captions Our Directors and
Executive Officers and Corporate Governance.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Incorporated by reference from our Definitive Proxy Statement expected to be filed by April 29, 2011 for our fiscal year 2011 Annual
Meeting of Shareholders under the caption Executive Compensation.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

Incorporated by reference from our Definitive Proxy Statement expected to be filed by April 29, 2011 for our fiscal year 2011 Annual
Meeting of Shareholders under the captions Stock Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information.



|ITEM 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | ----------------------------------------------------------------------

Incorporated by reference from our Definitive Proxy Statement expected to be filed by April 29, 2011 for our fiscal year 2011 Annual Meeting of Shareholders under the caption Certain
Relationships and Related Party Transactions.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

Incorporated by reference from our Definitive Proxy Statement expected to be filed by April 29, 2011 for our fiscal year 2011 Annual Meeting of Shareholders under the caption Principal
Accountant Fees and Services.

PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------



| | (A) | 1. FINANCIAL STATEMENTS
| | --- | -----------------------

The
consolidated financial statements of Medallion Financial Corp. and the Report of Independent Public Accountants thereon are included as set forth on the Index to Financial Statements on F-1.

2. FINANCIAL STATEMENT SCHEDULES

See Index to Financial Statements on F-1.

3. EXHIBITS



|       |  |                                                                                                                                                                                                     
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                         
|       | 
|3.1(a) |  | Restated Medallion Financial Corp. Certificate of Incorporation. Filed as Exhibit 2(a) to the Companys Registration Statement on Form N-2 (File No. 333-1670) and incorporated
by reference herein.



55



---

##### Table of Contents

|       |  |                                                                                                                                                                                                                                                                                                                                                                             
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(b) |  | Amendment to Restated Certificate of Incorporation. Filed as Exhibit 3.1.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (File No.
814-00188) and incorporated by reference herein.                                                                                                                                                     
|       | 
|3.2    |  | Restated By-Laws. Filed as Exhibit (b) to the Companys Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein.                                                                                                                                                                                                                        
|       | 
|4.1    |  | Amended and Restated Revolving Secured Line of Credit Promissory Note, dated March 6, 2006, by Medallion Funding Corp., in favor of Atlantic Bank of New York. Filed as Exhibit 4.1
to the Current Report on Form 8-K filed on March 9, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                     
|       | 
|4.2    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated August 1, 2006, by Medallion Funding Corp., in favor of Atlantic Bank of New York. Filed as
Exhibit 4.1 to the Current Report on Form 8-K filed on August 4, 2006 (File No. 814-00188) and incorporated by reference herein.                                                      
|       | 
|4.3    |  | Amendment No. 2 to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated January 16, 2007, by Medallion Funding Corp., in favor of New York Commercial Bank,
formerly known as Atlantic Bank of New York. Filed as Exhibit 4.1 to the Current Report on Form 8-K filed on January 17, 2007 (File No. 814-00188) and incorporated by reference herein.
|       | 
|4.4    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated March 22, 2007, by Medallion Funding Corp., in favor of Atlantic Bank. Filed as Exhibit 4.1
to the Current Report on Form 8-K filed on April 18, 2007 (File No. 814-00188) and incorporated by reference herein.                                                                  
|       | 
|4.5    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated as of July 26, 2007, by Medallion Funding Corp., in favor of Atlantic Bank. Filed as
Exhibit 4.2 to the Current Report on Form 8-K filed on August 3, 2007 (File No. 814-00188) and incorporated by reference herein.                                                             
|       | 
|4.6    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated as of September 26, 2007, by Medallion Funding Corp., in favor of Atlantic Bank. Filed as
Exhibit 4.1 to the Current Report on Form 8-K filed on September 27, 2007 (File No. 814-00188) and incorporated by reference herein.                                                    
|       | 
|4.7    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated as of July 15, 2008, by Medallion Funding Corp., in favor of New York Commercial Bank.
Filed as Exhibit 4.1 to the Current Report on Form 8-K filed on July 22, 2008 (File No. 814-00188) and incorporated by reference herein.                                                   
|       | 
|4.8    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated as of December 12, 2008, by Medallion Funding Corp., in favor of New York Commercial Bank.
Filed as Exhibit 4.1 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                                           
|       | 
|4.9    |  | Amendment to Revolving Secured Line of Credit Promissory Note, dated as of July 28, 2009, by Medallion Funding Corp., in favor of New York Commercial Bank. Filed as Exhibit 4.1 to
the Current Report on Form 8-K filed on July 31, 2009 (File No. 814-00188) and incorporated by reference herein.                                                                        
|       | 
|4.10   |  | Amendment to Revolving Secured Line of Credit Promissory Note, dated as of April 27, 2010, by Medallion Funding LLC, in favor of New York Commercial Bank. Filed as Exhibit 4.1 to
the Current Report on Form 8-K filed on April 29, 2010 (File No. 814-00188) and incorporated by reference herein.                                                                        
|       | 
|4.11   |  | Amendment to Revolving Secured Line of Credit Promissory Note, dated as of May 1, 2010, by Medallion Funding LLC, in favor of New York Commercial Bank. Filed as Exhibit 4.1 to the
Current Report on Form 8-K filed on May 12, 2010 (File No. 814-00188) and incorporated by reference herein.                                                                             
|       | 
|4.12   |  | Substitute Revolving Credit Note, dated as of January 28, 2011, by Medallion Financial Corp., in favor of Sterling National Bank. Filed as Exhibit 4.1 to the Current Report on Form
8-K filed on January 31, 2011 (File No. 814-00188) and incorporated by reference herein.                                                                                               



56



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                     
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.13  |  | Fixed/Floating Rate Junior Subordinated Note, dated June 7, 2007, by Medallion Financial Corp., in favor of Medallion Financing Trust I. Filed as Exhibit 4.1 to the Current
Report on Form 8-K filed on June 11, 2007 (File No. 814-00188) and incorporated by reference herein.                                   
|      | 
|10.1  |  | First Amended and Restated Employment Agreement, between Medallion Financial Corp. and Alvin Murstein dated May 29, 1998. Filed as Exhibit 10.19 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (File No. 814-00188) and incorporated by reference herein.*                          
|      | 
|10.2  |  | First Amended and Restated Employment Agreement, between Medallion Financial Corp. and Andrew Murstein dated May 29, 1998. Filed as Exhibit 10.20 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (File No. 814-00188) and incorporated by reference herein.*                         
|      | 
|10.3  |  | Employment Agreement, dated August 3, 2006, by and between Medallion Financial Corp. and Michael Kowalsky. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 4,
2006 (File No. 814-00188) and incorporated by reference herein.*                                                              
|      | 
|10.4  |  | Medallion Financial Corp. Amended and Restated 1996 Stock Option Plan. Filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File
No. 814-00188) and incorporated by reference herein.*                                                                          
|      | 
|10.5  |  | Medallion Financial Corp. Amended and Restated 1996 Non-Employee Directors Stock Option Plan. Filed as Exhibit A to the Companys Request Form on Amendment and the Order by the
Commission approving the plan as of April 3, 2000 (File No. 812-11800) and incorporated by reference herein.*                      
|      | 
|10.6  |  | 2006 Employee Stock Option Plan. Filed as Exhibit II to our definitive proxy statement for our 2006 Annual Meeting of Shareholders filed on April 28, 2006 (File No. 814-00188) and
incorporated by reference herein.*                                                                                              
|      | 
|10.7  |  | 2006 Non-Employee Director Stock Option Plan. Filed as Exhibit I to our definitive proxy statement for our 2006 Annual Meeting of Shareholders filed on April 28, 2006 (File No.
814-00188) and incorporated by reference herein.*                                                                                  
|      | 
|10.8  |  | 2009 Employee Restricted Stock Plan. Filed as Exhibit I to our definitive proxy statement for our 2010 Annual Meeting of Shareholders filed on April 29, 2010 (File No. 814-00188)
and incorporated by reference herein.*                                                                                           
|      | 
|10.9  |  | Non-Employee Director Compensation Summary Sheet. Filed herewith.*                                                                                                                                                                                                                                                  
|      | 
|10.10 |  | Indenture of Lease, dated October 31, 1997, by and between Sage Realty Corporation, as Agent and Landlord, and Medallion Financial Corp., as Tenant. Filed as Exhibit 10.64 to the
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 814-00188) and incorporated by reference herein.
|      | 
|10.11 |  | First Amendment of Lease, dated September 6, 2005, by and between Medallion Financial Corp. and Sage Realty Corporation. Filed as Exhibit 10.1 to the Current Report on Form 8-K
filed on September 12, 2005 (File No. 814-00188) and incorporated by reference herein.                                             
|      | 
|10.12 |  | Loan and Security Agreement, dated April 26, 2004, by and between Medallion Financial Corp. and Sterling National Bank. Filed herewith. Filed as Exhibit 10.18 to the Annual Report
on Form 10-K for the fiscal year ended December 31, 2005 (File No. 814-00188) and incorporated by reference herein.             
|      | 
|10.13 |  | First Amendment to Loan and Security Agreement, dated as of July 28, 2005, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.2 to the
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 (File No. 814-00188) and incorporated by reference herein.  
|      | 
|10.14 |  | Second Amendment to Loan and Security Agreement, dated August 14, 2006, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on August 16, 2006 (File No. 814-00188) and incorporated by reference herein.                            



57



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                       
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  | Third Amendment to Loan and Security Agreement, dated July 31, 2007, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on August 3, 2007 (File No. 814-00188) and incorporated by reference herein.                                  
|      | 
|10.16 |  | Fourth Amendment to Loan and Security Agreement, dated December 31, 2008, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on January 3, 2008 (File No. 814-00188) and incorporated by reference herein.                            
|      | 
|10.17 |  | Fifth Amendment to Loan and Security Agreement, dated August 28, 2008, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on August 29, 2008 (File No. 814-00188) and incorporated by reference herein.                               
|      | 
|10.18 |  | Sixth Amendment to Loan and Security Agreement, dated January 12, 2009, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on January 14, 2009 (File No. 814-00188) and incorporated by reference herein.                             
|      | 
|10.19 |  | Seventh Amendment to Loan and Security Agreement, dated February 2, 2009, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on February 4, 2009 (File No. 814-00188) and incorporated by reference herein.                           
|      | 
|10.20 |  | Eighth Amendment to Loan and Security Agreement, dated July 8, 2009, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current Report
on Form 8-K filed on July 10, 2009 (File No. 814-00188) and incorporated by reference herein.                                   
|      | 
|10.21 |  | Ninth Amendment to Loan and Security Agreement, dated September 30, 2009, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on October 1, 2009 (File No. 814-00188) and incorporated by reference herein.                            
|      | 
|10.22 |  | Tenth Amendment to Loan and Security Agreement, dated as of February 26, 2010, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.3 to the
Current Report on Form 8-K filed on March 4, 2010 (File No. 814-00188) and incorporated by reference herein.                         
|      | 
|10.23 |  | Eleventh Amendment to Loan and Security Agreement, dated as of May 31, 2010, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the
Current Report on Form 8-K filed on June 2, 2010 (File No. 814-00188) and incorporated by reference herein.                            
|      | 
|10.24 |  | Twelfth Amendment to Loan and Security Agreement, dated as of July 1, 2010, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on July 2, 2010 (File No. 814-00188) and incorporated by reference herein.                             
|      | 
|10.25 |  | Thirteenth Amendment to Loan and Security Agreement, dated as of September 29, 2010, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to
the Current Report on Form 8-K filed on October 1, 2010 (File No. 814-00188) and incorporated by reference herein.                 
|      | 
|10.26 |  | Fourteenth Amendment to Loan and Security Agreement, dated as of November 23, 2010, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the
Current Report on Form 8-K filed on November 24, 2010 (File No. 814-00188) and incorporated by reference herein.                
|      | 
|10.27 |  | Fifteenth Amendment to Loan and Security Agreement, dated as of January 28, 2011, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the
Current Report on Form 8-K filed on January 31, 2011 (file No. 814-00188) and incorporated by reference herein.                   
|      | 
|10.28 |  | Commitment Letter, dated March 1, 2006, by the Small Business Administration to Medallion Capital, Inc., accepted and agreed to by Medallion Capital, Inc. on March 8, 2006. Filed as
Exhibit 10.1 to the Current Report on Form 8-K filed on March 9, 2006 (File No. 814-00188) and incorporated by reference herein.



58



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.29 |  | Commitment Letter, dated September 20, 2006, by the Small Business Administration to Freshstart Venture Capital Corp., accepted and agreed to by Freshstart Venture Capital
Corp. on October 10, 2006. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on October 11, 2006 (File No. 814-00188) and incorporated by reference herein.                                                   
|      | 
|10.30 |  | Commitment Letter, dated September 1, 2010, by the Small Business Administration to Medallion Capital, Inc., accepted and agreed to by Medallion Capital, Inc. on September 7, 2010.
Filed as Exhibit 10.2 to the Current Report on Form 8-K filed on September 13, 2010 (File No. 814-00188) and incorporated by reference herein.                                                                   
|      | 
|10.31 |  | Commitment Letter, dated September 1, 2010, by the Small Business Administration to Freshstart Venture Capital Corp., accepted and agreed to by Freshstart Venture Capital Corp. on
September 8, 2010. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on September 13, 2010 (File No. 814-00188) and incorporated by reference herein.                                                 
|      | 
|10.32 |  | Junior Subordinated Indenture, dated as of June 7, 2007, between Medallion Financing Trust I and Wilmington Trust Company as trustee. Filed as Exhibit 10.1 to the Current Report on
Form 8-K filed on June 11, 2007 (File No. 814-00188) and incorporated by reference herein.                                                                                                                       
|      | 
|10.33 |  | Amended and Restated Trust Agreement, dated as of June 7, 2007, among Medallion Financial Corp. as depositor, Wilmington Trust Company as property trustee and Delaware trustee and
the Administrative Trustees named therein. Filed as Exhibit 10.2 to the Current Report on Form 8-K filed on June 11, 2007 (File No. 814-00188) and incorporated by reference herein.                              
|      | 
|10.34 |  | Purchase Agreement, dated as of June 7, 2007, among Medallion Financial Corp., Medallion Financing Trust I, and Merrill Lynch International. Filed as Exhibit 10.3 to the Current
Report on Form 8-K filed on June 11, 2007 (File No. 814-00188) and incorporated by reference herein.                                                                                                                
|      | 
|10.35 |  | Loan and Security Agreement, dated as of December 12, 2008, among Taxi Medallion Loan Trust III, Autobahn Funding Company LLC, as Lender, and DZ Bank AG Deutsche
Zentral-Genossenschaftsbank, Frankfurt am Main, as Agent. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                             
|      | 
|10.36 |  | Amendment No. 1 to Loan and Security Agreement, dated as of August 5, 2009, by and among Taxi Medallion Loan Trust III, Autobahn Funding Company LLC, as Lender, and DZ Bank AG
Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, as Agent. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 10, 2009 (File No. 814-00188) and incorporated by reference herein.        
|      | 
|10.37 |  | Servicing Agreement, dated as of December 12, 2008, by and among Taxi Medallion Loan Trust III, Medallion Funding Corp., and DZ Bank AG Deutsche Zentral-Genossenschaftsbank,
Frankfurt am Main. Filed as Exhibit 10.2 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                                                        
|      | 
|10.38 |  | Loan Sale and Contribution Agreement, dated December 12, 2008, by and between Medallion Funding Corp. and Taxi Medallion Loan Trust III. Filed as Exhibit 10.3 to the Current Report
on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                                                                                                                
|      | 
|10.39 |  | Amended and Restated Trust Agreement, dated as of December 12, 2008, by and between Medallion Funding Corp. and U.S. Bank Trust, N.A. Filed as Exhibit 10.4 to the Current Report on
Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                                                                                                                   
|      | 
|10.40 |  | Limited Recourse Guaranty, dated as of December 12, 2008, by Medallion Funding Corp., in favor of Autobahn Funding Company LLC, as Lender, and DZ Bank AG Deutsche
Zentral-Genossenschaftsbank, Frankfurt am Main, as Agent. Filed as Exhibit 10.5 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                            
|      | 
|10.41 |  | Performance Guaranty, dated as of December 12, 2008, by Medallion Financial Corp., in favor of Taxi Medallion Loan Trust III, Autobahn Funding Company LLC, as Lender, and DZ Bank AG
Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, as Agent. Filed as Exhibit 10.6 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.



59



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                     
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.42 |  | Reaffirmation Agreement, dated as of February 26, 2010, by and among Medallion Funding LLC, Taxi Medallion Loan Trust III, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt
am Main, in its capacity as Agent, and Wells Fargo Bank, National Association.
|      | 
|12.1  |  | Computation of ratio of debt to equity. Filed herewith.                                                                                                                                                                                                             
|      | 
|21.1  |  | List of Subsidiaries of Medallion Financial Corp. Filed herewith.                                                                                                                                                                                                   
|      | 
|23.1  |  | Consent of WeiserMazars LLP, independent registered public accounting firm, related to reports on financial statements of Medallion Financial Corp. and Medallion Bank. Filed
herewith.                                                                             
|      | 
|31.1  |  | Certification of Alvin Murstein pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                      
|      | 
|31.2  |  | Certification of Larry D. Hall pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                       
|      | 
|32.1  |  | Certification of Alvin Murstein pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                            
|      | 
|32.2  |  | Certification of Larry D. Hall pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                             
|      | 
|99.1  |  | Certification of Alvin Murstein pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act of 2008. Filed herewith.                                                                                                                                  
|      | 
|99.2  |  | Certification of Larry D. Hall pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act of 2008. Filed herewith.                                                                                                                                   



|* | Compensatory plan or arrangement required to be identified pursuant to Item 15(a)(3) of this Annual Report on Form 10-K.
|- | ------------------------------------------------------------------------------------------------------------------------

IMPORTANT INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. In connection with certain forward-looking statements contained in this Form 10-K 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-K 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. Accordingly, there can be no assurance that the forward-looking statements contained in this Form 10-K will be realized or that actual results will not be significantly higher or lower. The
statements have not been audited by, examined by, compiled by, or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-K 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-K. The inclusion of the forward-looking statements contained in this Form 10-K should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form 10-K will be achieved. In
light of the foregoing, readers of this Form 10-K are cautioned not to place undue reliance on the forward-looking statements contained herein. These risks and others that are detailed in this Form 10-K and other documents that the Company files
from time to time with the Securities and Exchange Commission, including quarterly reports on Form 10-Q and any current reports on Form 8-K, must be considered by any investor or potential investor in the Company.



60



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange of Act of 1934, registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.



|                          |  |                                     
|------------------------- |  | ------------------------------------
|MEDALLION FINANCIAL CORP.
|                         
|Date: March 10, 2011     
|                          | 
|By:                       |  | /s/ Alvin Murstein                  
|                          |  | Alvin Murstein                      
|                          |  | Chairman and Chief Executive Officer



61



---

##### Table of Contents

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                                                  |  |                                                                                                |  |                  
|------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | -----------------
|Signatures                                        |  | Title                                                                                          |  | Date             
|                                                  |  |                                                                                               
|/s/ Alvin Murstein Alvin Murstein                 |  | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)   |  | March 10, 2011   
|                                                  |  |                                                                                               
|/s/ Larry D. Hall Larry D. Hall                   |  | Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |  | March 10, 2011   
|                                                  |  |                                                                                               
|/s/ Andrew M. Murstein
Andrew M. Murstein         |  | President and Director                                                                         |  | March 10, 2011   
|                                                  |  |                                                                                               
|/s/ Henry L. Aaron Henry L. Aaron                 |  | Director                                                                                       |  | March 10, 2011   
|                                                  |  |                                                                                               
|/s/ Mario M. Cuomo Mario M. Cuomo                 |  | Director                                                                                       |  | March 10, 2011   
|                                                  |  |                                                                                               
|/s/ Henry D. Jackson
Henry D. Jackson             |  | Director                                                                                       |  | March 10, 2011   
|                                                  |  |                                                                                               
|/s/ Stanley Kreitman
Stanley Kreitman             |  | Director                                                                                       |  | March 10, 2011   
|                                                  |  |                                                                                               
|/s/ Frederick A. Menowitz
Frederick A. Menowitz   |  | Director                                                                                       |  | February 24, 2011
|                                                  |  |                                                                                               
|/s/ David L. Rudnick
David L. Rudnick             |  | Director                                                                                       |  | March 10, 2011   
|                                                  |  |                                                                                               
|/s/ Lowell P. Weicker, Jr.
Lowell P. Weicker, Jr. |  | Director                                                                                       |  | March 10, 2011   



62



---

##### Table of Contents

MEDALLION FINANCIAL CORP.

INDEX TO FINANCIAL STATEMENTS



|                                                                                                        |  |      |      | 
|------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                        |  | Page |     
|                                                                                                        | 
|Report of Independent Registered Public Accounting Firm                                                 |  |      | F-2  | 
|                                                                                                        | 
|Consolidated Statements of Operations for the Years ended December 31, 2010, 2009, and
2008             |  |      | F-3  | 
|                                                                                                        | 
|Consolidated Balance Sheets as of December 31, 2010 and 2009                                            |  |      | F-4  | 
|                                                                                                        | 
|Consolidated Statements of Changes in Net Assets for the Years ended December 
31, 2010, 2009, and 2008 |  |      | F-5  | 
|                                                                                                        | 
|Consolidated Statements of Cash Flows for the Years ended December 31, 2010, 2009, and
2008             |  |      | F-6  | 
|                                                                                                        | 
|Notes to Consolidated Financial Statements                                                              |  |      | F-7  | 
|                                                                                                        | 
|Consolidated Schedules of Investments as of December 31, 2010 and 2009                                  |  |      | F-29 | 
|                                                                                                        | 
|Medallion Bank Financial Statements                                                                     |  |      | F-33 | 
|                                                                                                        | 
|Report of Independent Registered Public Accounting Firm                                                 |  |      | F-34 | 
|                                                                                                        | 
|Statements of Operations for the Years ended December 31, 2010, 2009, and 2008                          |  |      | F-35 | 
|                                                                                                        | 
|Balance Sheets as of December 31, 2010 and 2009                                                         |  |      | F-36 | 
|                                                                                                        | 
|Statements of Changes in Shareholders Equity for the Years ended December 
31, 2010, 2009, and 2008    |  |      | F-37 | 
|                                                                                                        | 
|Statements of Cash Flows for the Years ended December 31, 2010, 2009, and 2008                          |  |      | F-38 | 
|                                                                                                        | 
|Notes to Financial Statements                                                                           |  |      | F-39 | 



F-1



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Medallion
Financial Corp.

We have audited the accompanying consolidated balance sheets of Medallion Financial Corp. and subsidiaries (the
Company), including the consolidated schedule of investments, as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the
three-year period ended December 31, 2010 and the selected financial ratios and other data (see note 13) for each of the five years in the five-year period ended December 31, 2010. These consolidated financial statements and selected
financial ratios and other data are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and selected financial ratios and other data based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and selected financial ratios and other data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our procedures included physical inspection or confirmation of securities owned as of December 31, 2010 and 2009. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements and the selected financial ratios and other data referred to above present fairly, in all material
respects, the consolidated financial position of the Company as of December 31, 2010 and 2009, and the consolidated results of their operations, changes in net assets, and cash flows for each of the three years in the three-year period ended
December 31, 2010 and the selected financial ratios and other data for each of the five years in the five-year period ended December 31, 2010, in conformity with US generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal
control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control-Integrated Framework Issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 11, 2011 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.

WeiserMazars LLP

New York, New York

March 11, 2011



F-2



---

##### Table of Contents

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                         |  | Year Ended December 31, |           
|(Dollars in thousands, except per share data)                                                            |  | 2010                    |            |   | 2009 |   |            | 2008 | 
|Interest income on investments                                                                           |  | $                       | 31,918     |   |      | $ | 36,072     |      |  | $ | 44,914     |  
|Dividends and interest income on short-term investments(1)                                               |  |                         | 4,111      |   |      |   | 4,151      |      |  |   | 6,378      |  
|Medallion lease income                                                                                   |  |                         | 1,224      |   |      |   | 1,180      |      |  |   | 992        |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Total investment income                                                                                  |  |                         | 37,253     |   |      |   | 41,403     |      |  |   | 52,284     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Total interest expense(2)                                                                                |  |                         | 14,585     |   |      |   | 16,876     |      |  |   | 23,711     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net interest income                                                                                      |  |                         | 22,668     |   |      |   | 24,527     |      |  |   | 28,573     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Total noninterest income                                                                                 |  |                         | 3,533      |   |      |   | 3,383      |      |  |   | 3,837      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Salaries and benefits                                                                                    |  |                         | 10,539     |   |      |   | 10,989     |      |  |   | 10,689     |  
|Professional fees                                                                                        |  |                         | 2,339      |   |      |   | 1,554      |      |  |   | 1,606      |  
|Occupancy expense                                                                                        |  |                         | 1,330      |   |      |   | 1,275      |      |  |   | 1,271      |  
|Other operating expenses(3)                                                                              |  |                         | 2,120      |   |      |   | 5,912      |      |  |   | 3,754      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                                                                 |  |                         | 16,328     |   |      |   | 19,730     |      |  |   | 17,320     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net investment income before income taxes(1) (4)                                                         |  |                         | 9,873      |   |      |   | 8,180      |      |  |   | 15,090     |  
|Income tax (provision) benefit                                                                           |  |                         |           |   |      |   |           |      |  |   |           |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net investment income after income taxes                                                                 |  |                         | 9,873      |   |      |   | 8,180      |      |  |   | 15,090     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net realized losses on investments                                                                       |  |                         | (7,638     | ) |      |   | (4,135     | )    |  |   | (3,746     | )
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net change in unrealized appreciation (depreciation) on investments                                      |  |                         | (3,491     | ) |      |   | 2,648      |      |  |   | 6,323      |  
|Net change in unrealized appreciation (depreciation) on Medallion Bank and other controlled subsidiaries |  |                         | 12,535     |   |      |   | (5,671     | )    |  |   | (2,419     | )
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net unrealized appreciation (depreciation) on investments                                                |  |                         | 9,044      |   |      |   | (3,023     | )    |  |   | 3,904      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net realized/unrealized gains (losses) on investments                                                    |  |                         | 1,406      |   |      |   | (7,158     | )    |  |   | 158        |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase in net assets resulting from operations                                                     |  | $                       | 11,279     |   |      | $ | 1,022      |      |  | $ | 15,248     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase in net assets resulting from operations per common share                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Basic                                                                                                    |  | $                       | 0.64       |   |      | $ | 0.06       |      |  | $ | 0.87       |  
|Diluted                                                                                                  |  | $                       | 0.64       |   |      | $ | 0.06       |      |  | $ | 0.86       |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Dividends declared per share                                                                             |  | $                       | 0.61       |   |      | $ | 0.72       |      |  | $ | 0.76       |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Weighted average common shares outstanding                                                               |  |                         |            |   |      |   |            |      |  |   |            |  
|Basic                                                                                                    |  |                         | 17,501,414 |   |      |   | 17,569,688 |      |  |   | 17,520,966 |  
|Diluted                                                                                                  |  |                         | 17,631,928 |   |      |   | 17,691,437 |      |  |   | 17,722,575 |  



|(1) | Includes $4,000, $4,000, and $6,000 of dividend income in 2010, 2009, and 2008 from Medallion Bank.
|--- | ---------------------------------------------------------------------------------------------------



|(2) | Average borrowings outstanding were $366,643, $418,803, and $482,007, and the related average borrowing costs were 3.98%, 4.03%, and 4.92% for the years ended
December 31, 2010, 2009, and 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes $1,312 of expense reversals related to the costs of winding up the operations of the SPACs that were reclassified to realized losses on investments and
$310 that was reversed as a result of favorable negotiations with the creditors of SPAC in 2010, and includes $1,622 of costs related to the winding up of operations of the SPACs in 2009. See notes 10 and 12 for additional information.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Includes $3,422, $2,871, and $2,493 of net revenues received from Medallion Bank for the years ended December 31, 2010, 2009, and 2008 primarily for servicing
fees, loan origination fees, and expense reimbursements. See notes 3 and 10 for additional information.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



F-3



---

##### Table of Contents

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|(Dollars in thousands, except per share data)                                                                                                                   |  | December 31, 2010 |            |   | December 31, 2009 |  
|Assets                                                                                                                                                          |  |                   |            |   |                   |   |            |  
|Medallion loans, at fair value                                                                                                                                  |  | $                 | 323,126    |   |                   | $ | 321,915    |  
|Commercial loans, at fair value (1)                                                                                                                             |  |                   | 76,866     |   |                   |   | 77,922     |  
|Investment in Medallion Bank and other controlled subsidiaries, at fair value                                                                                   |  |                   | 78,735     |   |                   |   | 72,279     |  
|Equity investments, at fair value                                                                                                                               |  |                   | 4,789      |   |                   |   | 3,017      |  
|Investment securities, at fair value                                                                                                                            |  |                   |           |   |                   |   |           |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Net investments ($260,111 at December 31, 2010and $261,332 at December 31, 2009 pledged as collateral under
borrowing arrangements)                             |  |                   | 483,516    |   |                   |   | 475,133    |  
|Cash and cash equivalents ($0 at December 31, 2010 and 2009 restricted as to use by lender)                                                                     |  |                   | 17,303     |   |                   |   | 33,401     |  
|Accrued interest receivable                                                                                                                                     |  |                   | 1,441      |   |                   |   | 1,661      |  
|Fixed assets, net                                                                                                                                               |  |                   | 419        |   |                   |   | 302        |  
|Goodwill, net                                                                                                                                                   |  |                   | 5,069      |   |                   |   | 5,069      |  
|Other assets, net                                                                                                                                               |  |                   | 42,564     |   |                   |   | 39,608     |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Total assets                                                                                                                                                    |  | $                 | 550,312    |   |                   | $ | 555,174    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Liabilities                                                                                                                                                     |  |                   |            |   |                   |   |            |  
|Accounts payable and accrued expenses(2)                                                                                                                        |  | $                 | 5,102      |   |                   | $ | 7,468      |  
|Accrued interest payable                                                                                                                                        |  |                   | 1,913      |   |                   |   | 2,207      |  
|Funds borrowed                                                                                                                                                  |  |                   | 380,532    |   |                   |   | 382,522    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Total liabilities                                                                                                                                               |  |                   | 387,547    |   |                   |   | 392,197    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Commitments and contingencies                                                                                                                                   |  |                   |           |   |                   |   |           |  
|Shareholders equity (net assets)                                                                                                                               |  |                   |            |   |                   |   |            |  
|Preferred stock (1,000,000 shares of $0.01 par value stock authorized - none outstanding)                                                                       |  |                   |           |   |                   |   |           |  
|Common stock (50,000,000 shares of $0.01 par value stock authorized  18,992,319 shares at December 31, 2010 and
18,990,119 shares at December 31, 2009 issued) |  |                   | 190        |   |                   |   | 190        |  
|Treasury stock at cost (1,592,086 shares at December 31, 2010 and 1,414,242 shares at December 31,
2009)                                                        |  |                   | (14,225    | ) |                   |   | (13,012    | )
|Capital in excess of par value                                                                                                                                  |  |                   | 179,079    |   |                   |   | 178,845    |  
|Accumulated undistributed net investment loss                                                                                                                   |  |                   | (12,372    | ) |                   |   | (9,665     | )
|Accumulated undistributed net realized gains on investments                                                                                                     |  |                   |           |   |                   |   |           |  
|Net unrealized appreciation on investments                                                                                                                      |  |                   | 10,093     |   |                   |   | 6,619      |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Total shareholders equity (net assets)                                                                                                                         |  |                   | 162,765    |   |                   |   | 162,977    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Total liabilities and shareholders equity                                                                                                                      |  | $                 | 550,312    |   |                   | $ | 555,174    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Number of common shares outstanding                                                                                                                             |  |                   | 17,400,233 |   |                   |   | 17,575,877 |  
|Net asset value per share                                                                                                                                       |  | $                 | 9.35       |   |                   | $ | 9.27       |  



|(1) | Includes a $3,100 loan to an entity which is majority owned by one of our controlled subsidiaries.
|--- | --------------------------------------------------------------------------------------------------



|(2) | Includes $1,622 of costs related to the winding up of operations of the SPACs as of December 31, 2009. See notes 10 and 12 for additional information.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

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



F-4



---

##### Table of Contents

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS



|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                          |  | Year Ended December 31, |           
|(Dollars in thousands, except per share data)             |  | 2010                    |            |   | 2009 |   |            | 2008 | 
|Net investment income after income taxes                  |  | $                       | 9,873      |   |      | $ | 8,180      |      |  | $ | 15,090     |  
|Net realized losses on investments                        |  |                         | (7,638     | ) |      |   | (4,135     | )    |  |   | (3,746     | )
|Net unrealized appreciation (depreciation) on investments |  |                         | 9,044      |   |      |   | (3,023     | )    |  |   | 3,904      |  
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase in net assets resulting from operations      |  |                         | 11,279     |   |      |   | 1,022      |      |  |   | 15,248     |  
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Investment income, net                                    |  |                         | (10,511    | ) |      |   | (13,060    | )    |  |   | (13,276    | )
|Realized gains from investment transactions, net          |  |                         |           |   |      |   | (295       | )    |  |   | (38        | )
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Dividends and distributions to shareholders(1)            |  |                         | (10,511    | ) |      |   | (13,355    | )    |  |   | (13,314    | )
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Stock options                                             |  |                         | 233        |   |      |   | 364        |      |  |   | 663        |  
|Treasury stock acquired                                   |  |                         | (1,213     | ) |      |   |           |      |  |   | (74        | )
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Capital share transactions                                |  |                         | (980       | ) |      |   | 364        |      |  |   | 589        |  
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Total increase (decrease) in net assets                   |  |                         | (212       | ) |      |   | (11,969    | )    |  |   | 2,523      |  
|Net assets at the beginning of the year                   |  |                         | 162,977    |   |      |   | 174,946    |      |  |   | 172,423    |  
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Net assets at the end of the year(2)                      |  | $                       | 162,765    |   |      | $ | 162,977    |      |  | $ | 174,946    |  
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Capital share activity                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Common stock issued, beginning of year                    |  |                         | 18,990,119 |   |      |   | 18,963,466 |      |  |   | 18,902,416 |  
|Exercise of stock options                                 |  |                         | 2,200      |   |      |   | 26,653     |      |  |   | 61,050     |  
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Common stock issued, end of year                          |  |                         | 18,992,319 |   |      |   | 18,990,119 |      |  |   | 18,963,466 |  
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Treasury stock, beginning of year                         |  |                         | (1,414,242 | ) |      |   | (1,414,242 | )    |  |   | (1,406,551 | )
|Treasury stock acquired                                   |  |                         | (177,844   | ) |      |   |           |      |  |   | (7,691     | )
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Treasury stock, end of year                               |  |                         | (1,592,086 | ) |      |   | (1,414,242 | )    |  |   | (1,414,242 | )
|                                                          |  |                         |            |   |      |   |            |      |  |   |            |  
|Common stock outstanding                                  |  |                         | 17,400,233 |   |      |   | 17,575,877 |      |  |   | 17,549,224 |  



|(1) | Dividends declared were $0.61, $0.72, and $0.76 per share for the years ended December 31, 2010, 2009, and 2008.
|--- | ----------------------------------------------------------------------------------------------------------------



|(2) | Includes $2,941 of undistributed net investment income and $0 of undistributed net realized gains on investments at December 31, 2010.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

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



F-5



---

##### Table of Contents

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                                            |  | Year ended December 31, |         
|(Dollars in thousands)                                                                                                      |  | 2010                    |          |   | 2009 |   |          | 2008 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase in net assets resulting from operations                                                                        |  | $                       | 11,279   |   |      | $ | 1,022    |      |  | $ | 15,248   |  
|Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating
activities: |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                                                               |  |                         | 1,421    |   |      |   | 1,718    |      |  |   | 1,472    |  
|(Accretion) amortization of origination costs                                                                               |  |                         | (333     | ) |      |   | (57      | )    |  |   | 363      |  
|Increase in net unrealized (appreciation) depreciation on investments                                                       |  |                         | 3,491    |   |      |   | (2,648   | )    |  |   | (6,323   | )
|Increase in unrealized (appreciation) depreciation on Medallion Bank and other controlled subsidiaries                      |  |                         | (12,535  | ) |      |   | 5,671    |      |  |   | 2,419    |  
|Net realized losses on investments                                                                                          |  |                         | 7,638    |   |      |   | 4,135    |      |  |   | 3,746    |  
|Stock-based compensation expense                                                                                            |  |                         | 223      |   |      |   | 234      |      |  |   | 310      |  
|Decrease in accrued interest receivable                                                                                     |  |                         | 220      |   |      |   | 488      |      |  |   | 300      |  
|Increase in other assets, net                                                                                               |  |                         | (2,025   | ) |      |   | (1,223   | )    |  |   | (3,085   | )
|Increase (decrease) in accounts payable and accrued expenses                                                                |  |                         | (2,366   | ) |      |   | 394      |      |  |   | 2,870    |  
|Increase (decrease) in accrued interest payable                                                                             |  |                         | (294     | ) |      |   | 191      |      |  |   | (72      | )
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                                                   |  |                         | 6,719    |   |      |   | 9,925    |      |  |   | 17,248   |  
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Investments originated                                                                                                      |  |                         | (219,737 | ) |      |   | (174,868 | )    |  |   | (248,950 | )
|Proceeds from principal receipts, sales, and maturities of investments                                                      |  |                         | 213,139  |   |      |   | 262,970  |      |  |   | 342,523  |  
|Investments in Medallion Bank and other controlled subsidiaries, net                                                        |  |                         | (2,179   | ) |      |   | (3,200   | )    |  |   | (19,026  | )
|Capital expenditures                                                                                                        |  |                         | (336     | ) |      |   | (149     | )    |  |   | (240     | )
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used for) investing activities                                                                        |  |                         | (9,113   | ) |      |   | 84,753   |      |  |   | 74,307   |  
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Proceeds from funds borrowed                                                                                                |  |                         | 173,790  |   |      |   | 286,284  |      |  |   | 518,219  |  
|Repayments of funds borrowed                                                                                                |  |                         | (167,780 | ) |      |   | (366,411 | )    |  |   | (609,118 | )
|Issuance of SBA debentures                                                                                                  |  |                         | 8,500    |   |      |   |         |      |  |   | 11,000   |  
|Repayments of SBA debentures                                                                                                |  |                         | (16,500  | ) |      |   |         |      |  |   |         |  
|Proceeds from exercise of stock options                                                                                     |  |                         | 10       |   |      |   | 130      |      |  |   | 353      |  
|Purchase of treasury stock at cost                                                                                          |  |                         | (1,213   | ) |      |   |         |      |  |   | (74      | )
|Payments of declared dividends                                                                                              |  |                         | (10,511  | ) |      |   | (13,355  | )    |  |   | (13,314  | )
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash used for financing activities                                                                                      |  |                         | (13,704  | ) |      |   | (93,352  | )    |  |   | (92,934  | )
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                        |  |                         | (16,098  | ) |      |   | 1,326    |      |  |   | (1,379   | )
|CASH and cash equivalents, beginning of year                                                                                |  |                         | 33,401   |   |      |   | 32,075   |      |  |   | 33,454   |  
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH and cash equivalents, end of year                                                                                      |  | $                       | 17,303   |   |      | $ | 33,401   |      |  | $ | 32,075   |  
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|SUPPLEMENTAL INFORMATION                                                                                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash paid during the year for interest                                                                                      |  | $                       | 13,676   |   |      | $ | 15,225   |      |  | $ | 24,723   |  
|Cash paid during the year for income taxes                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Non-cash investing activities-net transfers to (from) other assets                                                          |  |                         |         |   |      |   | 480      |      |  |   | (642     | )

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



F-6



---

##### Table of Contents

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010

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

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

In December 2010, we formed a wholly-owned portfolio company, Medallion Servicing Corporation (MSC), to provide loan services to Medallion Bank, also a portfolio company wholly-owned by us. We have
assigned all of our loan servicing rights for Medallion Bank, which consists of servicing taxi medallion and commercial loans originated by Medallion Bank, to MSC, who will bill and collect the related service fee income from Medallion Bank, and
will be allocated and charged by the Company for MSCs share of these servicing costs.

On March 26, 2009, the
Company formed a new wholly-owned New York limited liability company subsidiary, Medallion Funding LLC. On February 26, 2010, Medallion Funding Corp. merged into Medallion Funding LLC and following the merger, Medallion Funding LLC was the
surviving entity and the successor-in-interest to Medallion Funding Corp.s business. There is no business or operational change resulting from this corporate restructuring. For federal and state tax purposes, Medallion Funding LLC will be
treated as a disregarded entity. Medallion Funding LLC will not independently file any tax return, but will be subsumed in the tax return of the Company. Medallion Funding LLC will maintain its status as an SBIC.

The Company also conducts business through Medallion Capital, Inc. (MCI), an SBIC which conducts a mezzanine financing business, and
Freshstart Venture Capital Corp. (FSVC), an SBIC which originates and services taxicab medallion and commercial loans. MFC, MCI, and FSVC, as SBICs, are regulated by the Small Business Administration (SBA). MCI and FSVC are financed in part by the
SBA. The Company also conducts business through our asset-based lending division, Medallion Business Credit (MBC), an originator of loans to small businesses for the purpose of financing inventory and receivables.

In December 2008, MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust III (Trust III), for the purpose of owning
medallion loans originated by MFC or others. Trust III is a separate legal and corporate entity with its own creditors who, in any liquidation of Trust III, will be entitled to be satisfied out of Trust IIIs assets prior to any value in Trust
III becoming available to Trust IIIs equity holders. The assets of Trust III, aggregating $207,002,000 at December 31, 2010, 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.

In June 2007, 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 $36,167,000 at December 31,
2010, 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.

In December 2006, MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust II (Trust II), for the purpose of owning medallion
loans originated by MFC or others. Trust II was a separate legal and corporate entity with its own creditors who, in any liquidation of Trust II, would have been entitled to be satisfied out of Trust IIs assets prior to any value in Trust II
becoming available to Trust IIs equity holders. In 2010, Trust II ceased operations and its assets were reduced to $0.

In December 2006, September 2006, and previously in June 2003, MFC through several wholly-owned and newly formed subsidiaries which,
along with an existing subsidiary (together, Medallion Chicago), purchased certain City of Chicago taxicab medallions out of foreclosure which are leased to fleet operators while being held for sale.

A wholly-owned portfolio investment, Medallion Bank, a Federal Deposit Insurance Corporation (FDIC) insured industrial bank, originates
medallion loans, commercial loans, and consumer loans, raises deposits, and conducts other banking activities (see Note 3). Medallion Bank is subject to competition from other financial institutions and to the regulations of certain federal and
state agencies, and undergoes examinations by those agencies.

Medallion Bank is not an investment company, and therefore, is
not consolidated with the Company, but instead is treated as a portfolio investment. It was initially formed for the primary purpose of originating commercial loans in three categories: 1) loans to finance the purchase of taxicab medallions
(licenses), 2) asset-based commercial loans, and 3) SBA 7(a) loans. The loans are



F-7



---

##### Table of Contents

marketed and serviced by Medallion Banks affiliates who have extensive prior experience in these asset groups. Additionally, Medallion Bank began issuing brokered certificates of deposit in
January 2004, and purchased over $84,150,000 of taxicab medallion and asset-based loans from affiliates of the Company. On April 1, 2004, Medallion Bank purchased a consumer loan portfolio from an unrelated financial institution for
consideration of $86,309,000. In the 2004 third quarter, Medallion Bank began originating consumer loans similar to the acquired portfolio, which are serviced by a third party.

In September 2002, MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust I (Trust), for the purpose of owning medallion
loans originated by MFC or others. The Trust was a separate legal and corporate entity with its own creditors who, in any liquidation of the Trust, would have been entitled to be satisfied out of the Trusts assets prior to any value in the
Trust becoming available to the Trusts equity holders. In 2009, the Trust ceased operations and its assets were reduced to $0.

(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

Principles of
Consolidation

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

Cash and Cash Equivalents

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

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 entities own assumptions. Further, it specifies that
fair value measurement should consider adjustment for risk, such as the risk inherent in the valuation technique or its inputs. See also Notes 2, 15, and 16 to the consolidated financial statements.

Investment Valuation

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

Equity investments (common stock and stock warrants, including certain controlled subsidiary portfolio investments) and
investment securities (US Treasuries and mortgage backed bonds), in total representing 17% and 16% of the investment portfolio at December 31, 2010 and 2009, are recorded at fair value, represented as cost, plus or minus unrealized appreciation
or depreciation. The fair value of investments that have no ready market are determined in good faith by management, and approved by the Board of



F-8



---

##### Table of Contents

Directors, based upon the financial condition and operating performance of the underlying investee companies as well as general market trends for businesses in the same industry. Included in
equity investments were marketable securities of $1,669,000 and $1,212,000 at December 31, 2010 and 2009, and non-marketable securities of $3,120,000 and $1,805,000 in the comparable periods. The $78,735,000 and $72,279,000 related to portfolio
investments in controlled subsidiaries at December 31, 2010 and 2009 were all non-marketable in each period. Because of the inherent uncertainty of valuations, managements estimates of the values of the investments may differ
significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.

Our investment in Medallion Bank, as a wholly owned portfolio investment, is also subject to quarterly assessments of fair value. We conduct a thorough valuation analysis as described previously, and
determine whether any factors give rise to a valuation different than recorded book value, including various regulatory restrictions that were established at Medallion Banks inception, by the FDIC and State of Utah, and also by additional
marketplace restrictions, such as on the ability to transfer industrial bank charters. As a result of this valuation process, we used Medallion Banks actual results of operations as the best estimate of changes in- fair value, and recorded the
results as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other applicable factors could change these conclusions in the future. See Note 3 for additional information about Medallion
Bank.

A majority of the Companys investments consist of long-term loans to persons defined by SBA regulations as
socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 67% and 68% of the Companys investment portfolio at December 31, 2010 and 2009 had arisen in connection with the financing
of taxicab medallions, taxicabs, and related assets, of which 74% and 76% were in New York City at December 31, 2010 and 2009. These loans are secured by the medallions, taxicabs, and related assets, and are personally guaranteed by the
borrowers, or in the case of corporations, are generally guaranteed personally by the owners. A portion of the Companys portfolio (16% at December 31, 2010 and 2009) represents loans to various commercial enterprises in a wide variety of
industries, including manufacturing, wholesaling, administrative and support services, accommodation and food services, and various other industries. Approximately 28% of these loans are made primarily in the metropolitan New York City area, with
the balance widely scattered across the United States. Investments in controlled unconsolidated subsidiaries, equity investments, and investment securities were 16%, 1%, and 0% at December 31, 2010 and 15%, 1%, and 0% at December 31, 2009.

On a managed basis, which includes the investments of Medallion Bank after eliminating the Companys investment in
Medallion Bank, medallion loans were 62% and 57% at December 31, 2010 and 2009 (76% and 75% in New York City), commercial loans were 16% and 18%, and 19% and 22% were consumer loans in all 50 states collateralized by recreational vehicles,
boats, motorcycles, trailers, and hearing aids. Investment securities were 2% at December 31, 2010 and 2009, and equity investments (including investments in controlled subsidiaries) were 1%.

Investment Transactions and Income Recognition

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At December 31, 2010 and 2009, net loan origination fees
were $27,000 and $41,000. Net amortization income (expense) for the years ended December 31, 2010, 2009, and 2008 was $333,000, $57,000, and ($363,000).

Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and
recognized as an adjustment to the yield of the related investment. At December 31, 2010 and 2009, there were no premiums or discounts on investment securities, and their related income accretion or amortization was immaterial for 2010, 2009,
and 2008.

Interest income is recorded on the accrual basis. Taxicab medallion and commercial loans are placed on nonaccrual
status, and all uncollected accrued interest is reversed, when there is doubt as to the collectability of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the
process of collection. Interest income on nonaccrual loans is generally recognized when cash is received, unless a determination has been made to apply all cash receipts to principal. At December 31, 2010, 2009, and 2008, total non-accrual
loans were $22,477,000, $19,784,000, and $17,939,000, and represented 5%, 5%, and 4% of the gross medallion and commercial loan portfolio at each year end, and were primarily concentrated in the secured mezzanine portfolio. The amount of interest
income on nonaccrual loans that would have been recognized if the loans had been paying in accordance with their original terms was $10,612,000, $7,114,000, and $4,172,000 as of December 31, 2010, 2009, and 2008, of which $3,503,000,
$3,207,000, and $1,749,000 would have been recognized in the years ended December 31, 2010, 2009, and 2008.

Loan
Sales and Servicing Fee Receivable

The Company accounts for its sales of loans in accordance with FASB Accounting
Standards Codification Topic 860, Transfers and Servicing (FASB ASC 860). FASB ASC 860 provides accounting and reporting standards for transfers and servicing of



F-9



---

##### Table of Contents

financial assets and extinguishments of liabilities. In accordance with FASB ASC 860, we have elected the fair value measurement method for our servicing assets and liabilities. The principal
portion of loans serviced for others by the Company and its affiliates was $386,034,000 and $321,875,000 at December 31, 2010 and 2009, and included $332,053,000 and $229,810,000 of loans serviced for Medallion Bank. The Company has evaluated
the servicing aspect of its business in accordance with FASB ASC 860, most of which relates to servicing assets held by Medallion Bank, and determined that no material servicing asset or liability exists as of December 31, 2010 and 2009. In
December 2010, the Company assigned its servicing rights to the Medallion Bank portfolio to MSC, a wholly-owned unconsolidated portfolio investment. The costs of servicing are allocated to MSC by the Company, and the servicing fee income is billed
and collected from Medallion Bank by MSC.

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

Unrealized appreciation (depreciation) on investments is the amount by which the fair value estimated by the
Company is greater (less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and writeoffs of loans or assets acquired in
satisfaction of loans, net of recoveries. Unrealized appreciation on net investments was $10,093,000, $6,619,000, and $10,936,000 as of December 31, 2010, 2009, and 2008. Our investment in Medallion Bank, a wholly owned portfolio investment, is
a also subject to quarterly assessments of fair value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to valuation different than recorded book value, including various regulatory
restrictions that were established at Medallion Banks inception, by the FDIC and State of Utah, and also by additional marketplace restrictions, such as on the ability to transfer industrial bank charters. As a result of this valuation
process, we used Medallion Banks actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments, although changes in these
restrictions and other applicable factors could change these conclusions in the future. See Note 3 for the presentation of financial information for Medallion Bank.

The following table sets forth the changes in our unrealized appreciation (depreciation) on investments, other than investments in controlled subsidiaries, for the years ended December 31, 2010,
2009, and 2008.



|                                                                       |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|---------------------------------------------------------------------- |  | -------------- | -- | - | --------------- | -- | ------ | ----------------- |  | - | -------------------- | - |  | ----- | ------ | - |  | - | ------- | -
|(Dollars in thousands)                                                 |  | MedallionLoans |    |   | CommercialLoans |    |        | EquityInvestments |  |   | ForeclosedProperties |   |  | Total |       
|Balance December 31, 2007                                              |  | ($             | 37 | ) |                 | ($ | 6,432  | )                 |  | $ | 2,742                |   |  | $     | 8,341  |   |  | $ | 4,614   |  
|Net change in unrealized                                               |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Appreciation on investments                                            |  |                |   |   |                 |    |       |                   |  |   | (1,995               | ) |  |       | 8,183  |   |  |   | 6,188   |  
|Depreciation on investments                                            |  |                | (3 | ) |                 |    | (4,073 | )                 |  |   | (110                 | ) |  |       | 168    |   |  |   | (4,018  | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Gains on investments                                                   |  |                |   |   |                 |    |       |                   |  |   |                     |   |  |       | (1,400 | ) |  |   | (1,400  | )
|Losses on investments                                                  |  |                | 40 |   |                 |    | 5,190  |                   |  |   |                     |   |  |       | 322    |   |  |   | 5,552   |  
|Other                                                                  |  |                |   |   |                 |    | 200    |                   |  |   | (200                 | ) |  |       |       |   |  |   |        |  
|                                                                       |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Balance December 31, 2008                                              |  |                |   |   |                 |    | (5,115 | )                 |  |   | 437                  |   |  |       | 15,614 |   |  |   | 10,936  |  
|Net change in unrealized                                               |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Appreciation on investments                                            |  |                |   |   |                 |    |       |                   |  |   | (333                 | ) |  |       | 4,242  |   |  |   | 3,909   |  
|Depreciation on investments(1)                                         |  |                | (3 | ) |                 |    | (3,504 | )                 |  |   | (8,205               | ) |  |       | (519   | ) |  |   | (12,231 | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Gains on investments                                                   |  |                |   |   |                 |    |       |                   |  |   |                     |   |  |       | (900   | ) |  |   | (900    | )
|Losses on investments                                                  |  |                | 3  |   |                 |    | 3,983  |                   |  |   |                     |   |  |       | 919    |   |  |   | 4,905   |  
|Other                                                                  |  |                |   |   |                 |    | 400    |                   |  |   |                     |   |  |       | (400   | ) |  |   |        |  
|                                                                       |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Balance December 31, 2009                                              |  |                |   |   |                 |    | (4,236 | )                 |  |   | (8,101               | ) |  |       | 18,956 |   |  |   | 6,619   |  
|Net change in unrealized                                               |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Appreciation on investments                                            |  |                |   |   |                 |    |       |                   |  |   | 545                  |   |  |       | 2,153  |   |  |   | 2,698   |  
|Depreciation on investments                                            |  |                |   |   |                 |    | (7,172 | )                 |  |   | (475                 | ) |  |       |       |   |  |   | (7,647  | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Gains on investments                                                   |  |                |   |   |                 |    |       |                   |  |   |                     |   |  |       |       |   |  |   |        |  
|Losses on investments(1)                                               |  |                |   |   |                 |    | 191    |                   |  |   | 8,232                |   |  |       |       |   |  |   | 8,423   |  
|                                                                       |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  
|Balance December 31, 2010                                              |  | $              |   |   |                 | ($ | 11,217 | )                 |  | $ | 201                  |   |  | $     | 21,109 |   |  | $ | 10,093  |  
|                                                                       |  |                |    |   |                 |    |        |                   |  |   |                      |   |  |       |        |   |  |   |         |  

|(1) | Includes unrealized depreciation of $7,720 in 2009, related to investments in SPAC and SPAC 2, and the related writeoff of these investments in 2010. See Note 10 for
additional information on these investments.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-10



---

##### Table of Contents

The table below summarizes components of unrealized and realized gains and losses in the
investment portfolios for the years ended December 31, 2010, 2009, and 2008.



|                                                                                                                |  |      |        |   |      |    |        |      |  |    |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | -- | ------ | ---- |  | -- | ------ | -
|(Dollars in thousands)                                                                                          |  | 2010 |        |   | 2009 |    |        | 2008 | 
|Net change in unrealized appreciation (depreciation) on investments                                             |  |      |        |   |      |    |        |      |  |    |        |  
|Unrealized appreciation                                                                                         |  | $    | 545    |   |      | ($ | 333    | )    |  | ($ | 1,994  | )
|Unrealized depreciation(1)                                                                                      |  |      | (7,139 | ) |      |    | (4,747 | )    |  |    | (4,186 | )
|Net unrealized appreciation (depreciation) on investment in
Medallion Bank and other controlled subsidiaries(2) |  |      | 12,535 |   |      |    | (5,671 | )    |  |    | (2,419 | )
|Realized gains                                                                                                  |  |      |       |   |      |    |       |      |  |    |       |  
|Realized losses(1)                                                                                              |  |      | 950    |   |      |    | 3,986  |      |  |    | 5,230  |  
|Unrealized gains on foreclosed properties                                                                       |  |      | 2,153  |   |      |    | 3,742  |      |  |    | 7,273  |  
|                                                                                                                |  |      |        |   |      |    |        |      |  |    |        |  
|Total                                                                                                           |  | $    | 9,044  |   |      | ($ | 3,023  | )    |  | $  | 3,904  |  
|                                                                                                                |  |      |        |   |      |    |        |      |  |    |        |  
|Net realized gains (losses) on investments                                                                      |  |      |        |   |      |    |        |      |  |    |        |  
|Realized gains                                                                                                  |  | $    |       |   |      | $  |       |      |  | $  |       |  
|Realized losses(3)                                                                                              |  |      | (8,423 | ) |      |    | (3,986 | )    |  |    | (5,230 | )
|Other gains                                                                                                     |  |      | 1,581  |   |      |    |       |      |  |    | 470    |  
|Direct recoveries (charge-offs)(4)                                                                              |  |      | (796   | ) |      |    | (148   | )    |  |    | (50    | )
|Realized gains (losses) on foreclosed properties                                                                |  |      |       |   |      |    | (1     | )    |  |    | 1,064  |  
|                                                                                                                |  |      |        |   |      |    |        |      |  |    |        |  
|Total                                                                                                           |  | ($   | 7,638  | ) |      | ($ | 4,135  | )    |  | ($ | 3,746  | )
|                                                                                                                |  |      |        |   |      |    |        |      |  |    |        |  

|(1) | Includes unrealized depreciation of $759 in 2009 related to the $759 investment in SPAC 2, and the related writeoff of $759 in 2010, which was carried in other assets
on the consolidated balance sheet.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes $6,966 of net unrealized depreciation related to the investment in SPAC, including $508 that was recorded in 2010, that was reversed during 2010, upon the
writeoff of the SPAC investment.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents the writeoff related to the investments in SPAC and SPAC 2 in 2010. See Note 10 for additional information on these investments.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes $817 of direct chargeoffs related to the settlement of the liabilities associated with the writeoff of SPAC and SPAC 2 in 2010, all of which represented a
reversal of accrued expenses.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table provides additional information on attributes of the
nonperforming loan portfolio as of December 31, 2010.



|                                   |  |                         |        |  |                         |   |        |                           |  |   |                          |  |  |   |     | 
|---------------------------------- |  | ----------------------- | ------ |  | ----------------------- | - | ------ | ------------------------- |  | - | ------------------------ |  |  | - | --- | 
|(Dollars in thousands)             |  | RecordedInvestment 
(1) |        |  | Unpaid PrincipalBalance |   |        | AverageRecordedInvestment |  |   | InterestIncomeRecognized | 
|With no related allowance recorded |  |                         |        |  |                         |   |        |                           |  |   |                          |  |  |   |     | 
|Medallion                          |  | $                       |       |  |                         | $ |       |                           |  | $ |                         |  |  | $ |    | 
|Commercial                         |  | $                       | 22,477 |  |                         | $ | 22,592 |                           |  | $ | 21,846                   |  |  | $ | 389 | 



|(1) | As of December 31, 2010, $11,065 of unrealized depreciation has been recorded as a valuation allowance with regards the impaired commercial loans.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

The table below shows the aging of medallion and commercial loans as of December 31, 2010.



|                         |  |               |       |  |               |   |       |      |  |   |       |         |  |                                           |        |  |  |   |         |  |  |   |         |  |  |   |     | 
|------------------------ |  | ------------- | ----- |  | ------------- | - | ----- | ---- |  | - | ----- | ------- |  | ----------------------------------------- | ------ |  |  | - | ------- |  |  | - | ------- |  |  | - | --- | 
|                         |  | Days Past Due |       |  | TotalPast Due |   |       |      |  |   |       |         |  | Recorded Investment >90 Days and Accruing |       
|(Dollars in thousands)   |  | 31 - 60       |       |  | 61 - 90       |   |       | 90 + |  |   |       | Current |  |                                           | Total  |  | 
|Medallion Loans          |  | $             | 8,847 |  |               | $ | 2,395 |      |  | $ | 361   |         |  | $                                         | 11,603 |  |  | $ | 311,227 |  |  | $ | 322,830 |  |  | $ | 361 | 
|Commercial Loans         |  |               |       |  |               |   |       |      |  |   |       |         |  |                                           |        |  |  |   |         |  |  |   |         |  |  |   |     | 
|Secured mezzanine        |  |               |      |  |               |   |      |      |  |   | 6,985 |         |  |                                           | 6,985  |  |  |   | 61,314  |  |  |   | 68,299  |  |  |   |    | 
|Asset-based receivable   |  |               |      |  |               |   |      |      |  |   |      |         |  |                                           |       |  |  |   | 10,234  |  |  |   | 10,234  |  |  |   |    | 
|Other secured commercial |  |               |      |  |               |   | 345   |      |  |   | 1,364 |         |  |                                           | 1,709  |  |  |   | 8,164   |  |  |   | 9,873   |  |  |   |    | 
|                         |  |               |       |  |               |   |       |      |  |   |       |         |  |                                           |        |  |  |   |         |  |  |   |         |  |  |   |     | 
|Total Commercial Loans   |  |               |      |  |               |   | 345   |      |  |   | 8,349 |         |  |                                           | 8,694  |  |  |   | 79,712  |  |  |   | 88,406  |  |  |   |    | 
|                         |  |               |       |  |               |   |       |      |  |   |       |         |  |                                           |        |  |  |   |         |  |  |   |         |  |  |   |     | 
|Total                    |  | $             | 8,847 |  |               | $ | 2,740 |      |  | $ | 8,710 |         |  | $                                         | 20,297 |  |  | $ | 390,939 |  |  | $ | 411,236 |  |  | $ | 361 | 
|                         |  |               |       |  |               |   |       |      |  |   |       |         |  |                                           |        |  |  |   |         |  |  |   |         |  |  |   |     | 

Goodwill

In accordance with FASB ASC Topic 350, Intangibles  Goodwill and Other, the Company tests its goodwill for impairment, and engages a consultant to help management evaluate its carrying
value. The results of this evaluation demonstrated no impairment in goodwill for any period evaluated, and management believes, and the Board of Directors concurs, that there is no impairment as of December 31, 2010. The Company conducts
annual, and if necessary, more frequent, appraisals of its goodwill, and will recognize any impairment in the period any impairment is identified as a charge to operating expenses.

Fixed Assets

Fixed assets are carried at cost less accumulated
depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful lives of 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of



F-11



---

##### Table of Contents

the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense was $218,000, $258,000, and $387,000 for the years ended December 31, 2010,
2009, and 2008.

Deferred Costs

Deferred financing costs, included in other assets, represents costs associated with obtaining the Companys borrowing facilities, and is amortized on a straight line basis over the lives of the
related financing agreements. Amortization expense was $1,060,000, $1,289,000, and $1,085,000 for the years ended December 31, 2010, 2009, and 2008. In addition, the Company capitalizes certain costs for transactions in the process of
completion (other than business combinations), including those for potential investments, and the sourcing of other financing alternatives. Upon completion or termination of the transaction, any accumulated amounts will be amortized against income
over an appropriate period, or written off, including $759,000 related to the investment in SPAC 2, which was fully reserved for in 2009 and written off in 2010, and $485,000 related to costs associated with a canceled equity offering. The amounts
on the balance sheet for all of these purposes were $2,854,000 and $3,975,000 at December 31, 2010 and 2009.

Federal
Income Taxes

The Company and each of its major subsidiaries other than Medallion Bank and Medallion Funding LLC (the RIC
subsidiaries) have qualified to be treated for federal income tax purposes as regulated investment companies (RICs) under the Internal Revenue Code of 1986, as amended (the Code). As RICs, the Company and each of the RIC subsidiaries are not subject
to US federal income tax on any gains or investment company taxable income (which includes, among other things, dividends and interest income reduced by deductible expenses) that it distributes to its shareholders, if at least 90% of its investment
company taxable income for that taxable year is distributed. It is the Companys and the RIC subsidiaries policy to comply with the provisions of the Code. The Companys RIC qualification is determined on an annual basis, and it
qualified and filed its federal tax returns as a RIC for 2009 and 2008, and anticipates qualifying and filing as a RIC for 2010. As a result, no provisions for income taxes have been recorded for the years ended December 31, 2010, 2009, and
2008. State and local tax treatment follows the federal model.

In the fourth quarter of 2010, based on developments under the
Code and after discussions with external advisers, the Companys Board of Directors determined that the loans received in connection with the Companys lending activities were accounts or notes receivables acquired in the ordinary
course of a trade or business for services for purposes of Section 1221(a)(4) of the Code. As a result, commencing with the tax year beginning January 1, 2010, the Company intends to treat losses recognized on worthless loans as
ordinary losses rather than as capital losses. The Companys Board of Directors further determined that the Company may take such position in tax returns subsequently filed without obtaining prior IRS approval.

The change in the characterization of a loss resulting from a worthless loan from a capital loss to an ordinary loss could materially
impact the amount or character of the dividends received by the Companys shareholders. The Company is required to distribute 90% of its taxable income in order to maintain its RIC status. In the event losses from worthless loans are treated as
ordinary losses, those losses will offset taxable income in the taxable year in which such losses are recognized. This could result in a decrease in the Companys taxable income which could result in a decrease in the Companys dividend.
Alternatively, if the Company chooses to maintain its current level of dividend, an increased portion of the dividend could be deemed to be a return of capital to the shareholder.

The Company has filed tax returns in many states. The following are the more significant filings that are open for examination:



| |  |  | Federal tax filings of the Company for the tax years 2009 through the present;
| | - |  | ------------------------------------------------------------------------------



| |  |  | New York State tax filings of the Company for the tax years 2007 through the present; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | New York City tax filings of the Company for the tax years 2007 through the present.
| | - |  | ------------------------------------------------------------------------------------

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

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

Basic earnings per share are computed by dividing net
increase in net assets resulting from operations available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option
contracts to issue common stock were exercised, and has been computed after giving consideration to the weighted average dilutive effect of the Companys stock options. 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 in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period.



F-12



---

##### Table of Contents

The table below shows the calculation of basic and diluted EPS.



|                                                                                      |  |                          |            |  |      |   |            |      |  |   |            | 
|------------------------------------------------------------------------------------- |  | ------------------------ | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- | 
|                                                                                      |  | Years Ended December 31, |           
|(Dollars in thousands)                                                                |  | 2010                     |            |  | 2009 |   |            | 2008 | 
|Net increase in net assets resulting from operations available to common shareholders |  | $                        | 11,279     |  |      | $ | 1,022      |      |  | $ | 15,248     | 
|                                                                                      |  |                          |            |  |      |   |            |      |  |   |            | 
|Weighted average common shares outstanding applicable to basic EPS                    |  |                          | 17,501,414 |  |      |   | 17,569,688 |      |  |   | 17,520,966 | 
|Effect of dilutive stock options                                                      |  |                          | 130,514    |  |      |   | 121,749    |      |  |   | 201,609    | 
|                                                                                      |  |                          |            |  |      |   |            |      |  |   |            | 
|Adjusted weighted average common shares outstanding applicable to diluted EPS         |  |                          | 17,631,928 |  |      |   | 17,691,437 |      |  |   | 17,722,575 | 
|                                                                                      |  |                          |            |  |      |   |            |      |  |   |            | 
|Basic earnings per share                                                              |  | $                        | 0.64       |  |      | $ | 0.06       |      |  | $ | 0.87       | 
|Diluted earnings per share                                                            |  |                          | 0.64       |  |      |   | 0.06       |      |  |   | 0.86       | 
|                                                                                      |  |                          |            |  |      |   |            |      |  |   |            | 

Potentially dilutive common shares excluded from the above calculations aggregated 1,005,171, 1,061,602, and
1,328,537 shares as of December 31, 2010, 2009, and 2008.

Dividends to Shareholders

The table below shows the tax character of distributions for tax reporting purposes.



|                                                 |  |                          |        |  |      |   |        |      |  |   |        | 
|------------------------------------------------ |  | ------------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                 |  | Years Ended December 31, |       
|(Dollars in thousands)                           |  | 2010                     |        |  | 2009 |   |        | 2008 | 
|Dividends paid from                              |  |                          |        |  |      |   |        |      |  |   |        | 
|Investment income, net                           |  | $                        | 10,511 |  |      | $ | 13,060 |      |  | $ | 13,276 | 
|Realized gains from investment transactions, net |  |                          |       |  |      |   | 295    |      |  |   | 38     | 
|                                                 |  |                          |        |  |      |   |        |      |  |   |        | 
|Total dividends                                  |  | $                        | 10,511 |  |      | $ | 13,355 |      |  | $ | 13,314 | 
|                                                 |  |                          |        |  |      |   |        |      |  |   |        | 

Our ability to make dividend payments is restricted by SBA regulations and under the terms of the SBA
debentures. As of December 31, 2010, the Company anticipates paying an estimated $2,941,000 of ordinary income dividends for tax purposes by September 15, 2011.

Stock Compensation

The Company follows FASB Accounting Standard
Codification Topic 718 (ASC 718), Compensation  Stock Compensation, for its stock option plans, and accordingly, the Company recognizes the expense of these grants as required. Stock-based employee compensation costs pertaining to
stock options is reflected in net increase in net assets resulting from operations, for both any new grants, as well as for all unvested options outstanding at December 31, 2005, in both cases using the fair values established by usage of the
Black-Scholes option pricing model, expensed over the vesting period of the underlying option.

The Company elected the
modified prospective transition method in applying ASC 718. Under this method, the provisions of ASC 718 apply to all awards granted or modified after the date of adoption, as well as for all unvested options outstanding at December 31, 2005.
During 2010, 2009, and 2008, the Company issued 68,500, 68,667, and 429,918 shares of stock-based compensation awards, and recognized $223,000, $234,000, and $310,000, or $0.01, $0.01, and $0.02 per diluted common share for each respective year, of
non-cash stock-based compensation expense related to the option grants. As of December 31, 2010, the total remaining unrecognized compensation cost related to unvested stock options was $107,000, which is expected to be recognized over the next
ten quarters (see Note 5).

Derivatives

The Company manages its exposure to increases in market rates of interest by periodically purchasing interest rate caps to lock in the cost of funds of its variable-rate debt in the event of a rapid run
up in interest rates. During 2010 and 2009, the Company entered into contracts to purchase interest rate caps on $125,000,000 and $252,000,000, respectively, of notional value of principal from various multinational banks, of which $185,000,000 were
active as of December 31, 2010, with termination dates ranging to June 2012. The caps provide for payments to the Company if various LIBOR thresholds are exceeded during the cap terms. The 2010 and 2009 cap purchases of $142,000 and $171,000
were fully expensed in 2010 and 2009, respectively, and all are carried at $0 on the balance sheet at December 31, 2010. The Company had no interest rate cap agreements or other derivative instruments outstanding during 2008.

Reclassifications

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



F-13



---

##### Table of Contents

(3) INVESTMENT IN MEDALLION BANK AND OTHER CONTROLLED SUBSIDIARIES

The following table presents information derived from Medallion Banks statement of operations and other valuation adjustments on
other controlled subsidiaries for the years ended December 31, 2010, 2009, and 2008.



|                                                                                                                    |  |      |         |   |      |    |         |      |  |    |         |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -- | ------- | ---- |  | -- | ------- | -
|(Dollars in thousands)                                                                                              |  | 2010 |         |   | 2009 |    |         | 2008 | 
|Statement of operations                                                                                             |  |      |         |   |      |    |         |      |  |    |         |  
|Investment income                                                                                                   |  | $    | 47,273  |   |      | $  | 44,681  |      |  | $  | 41,373  |  
|Interest expense                                                                                                    |  |      | 7,478   |   |      |    | 11,046  |      |  |    | 14,934  |  
|                                                                                                                    |  |      |         |   |      |    |         |      |  |    |         |  
|Net interest income                                                                                                 |  |      | 39,795  |   |      |    | 33,635  |      |  |    | 26,439  |  
|Noninterest income                                                                                                  |  |      | 520     |   |      |    | 429     |      |  |    | 468     |  
|Operating expenses                                                                                                  |  |      | 10,827  |   |      |    | 9,858   |      |  |    | 8,554   |  
|                                                                                                                    |  |      |         |   |      |    |         |      |  |    |         |  
|Net investment income before income taxes                                                                           |  |      | 29,488  |   |      |    | 24,206  |      |  |    | 18,353  |  
|Income tax provision                                                                                                |  |      | 6,718   |   |      |    | 3,659   |      |  |    | 2,776   |  
|                                                                                                                    |  |      |         |   |      |    |         |      |  |    |         |  
|Net investment income after income taxes                                                                            |  |      | 22,770  |   |      |    | 20,547  |      |  |    | 15,577  |  
|Net realized/unrealized losses of Medallion Bank                                                                    |  |      | (11,502 | ) |      |    | (13,981 | )    |  |    | (11,452 | )
|                                                                                                                    |  |      |         |   |      |    |         |      |  |    |         |  
|Net increase in net assets resulting from operations of Medallion Bank                                              |  |      | 11,268  |   |      |    | 6,566   |      |  |    | 4,125   |  
|Unrealized depreciation on Medallion Bank(1)                                                                        |  |      | (5,230  | ) |      |    | (4,715  | )    |  |    | (6,000  | )
|Net realized/unrealized gains (losses) of controlled
subsidiaries other than Medallion Bank                         |  |      | 6,497   |   |      |    | (7,522  | )    |  |    | (544    | )
|                                                                                                                    |  |      |         |   |      |    |         |      |  |    |         |  
|Net increase (decrease) in net assets resulting from operations of Medallion Bank and other controlled
subsidiaries |  | $    | 12,535  |   |      | ($ | 5,671   | )    |  | ($ | 2,419   | )
|                                                                                                                    |  |      |         |   |      |    |         |      |  |    |         |  



|(1) | Unrealized depreciation on Medallion Bank reflects the adjustment to the investment carrying amount to reflect the dividends declared to the Company and the US
Treasury.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents Medallion Banks balance sheets and the net investment in other
controlled subsidiaries as of December 31, 2010 and 2009.



|                                                                                                          |  |      |         |  |      |   |         | 
|--------------------------------------------------------------------------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|(Dollars in thousands)                                                                                    |  | 2010 |         |  | 2009 |  
|Loans                                                                                                     |  | $    | 516,378 |  |      | $ | 418,853 | 
|Investment securities, at fair value                                                                      |  |      | 20,787  |  |      |   | 21,060  | 
|                                                                                                          |  |      |         |  |      |   |         | 
|Net investments ($0 pledged as collateral under borrowing arrangements at December 31, 2010 and 2009) (1) |  |      | 537,165 |  |      |   | 439,913 | 
|Cash ($0 at December 31, 2010 and 2009 restricted as to use by lender)                                    |  |      | 16,980  |  |      |   | 13,340  | 
|Other assets, net                                                                                         |  |      | 14,504  |  |      |   | 11,935  | 
|                                                                                                          |  |      |         |  |      |   |         | 
|Total assets                                                                                              |  | $    | 568,649 |  |      | $ | 465,188 | 
|                                                                                                          |  |      |         |  |      |   |         | 
|Other liabilities                                                                                         |  | $    | 2,519   |  |      | $ | 2,462   | 
|Due to affiliates                                                                                         |  |      | 1,113   |  |      |   | 630     | 
|Deposits and federal funds purchased, including accrued interest payable                                  |  |      | 470,112 |  |      |   | 373,228 | 
|                                                                                                          |  |      |         |  |      |   |         | 
|Total liabilities                                                                                         |  |      | 473,744 |  |      |   | 376,320 | 
|Medallion Bank equity(2)                                                                                  |  |      | 94,905  |  |      |   | 88,868  | 
|                                                                                                          |  |      |         |  |      |   |         | 
|Total liabilities and equity                                                                              |  | $    | 568,649 |  |      | $ | 465,188 | 
|                                                                                                          |  |      |         |  |      |   |         | 
|Investment in other controlled subsidiaries                                                               |  | $    | 4,727   |  |      | $ | 4,280   | 
|Total investment in Medallion Bank and other controlled subsidiaries                                      |  |      | 78,735  |  |      |   | 72,279  | 
|                                                                                                          |  |      |         |  |      |   |         | 



|(1) | Included in Medallion Banks net investments is $330 and $528 for purchased loan premium at December 31, 2010 and 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------



|(2) | Includes $21,498 of preferred stock issued to the US Treasury under the Troubled Asset Relief Program (TARP).
|--- | -------------------------------------------------------------------------------------------------------------

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

Investment securities are purchased from time-to-time in the open market at prices that are
greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized on a level yield basis as an adjustment to the yield of the related investment. At December 31, 2010 and 2009, the net premium
on investment securities totaled $164,000 and $185,000, and $67,000, $69,000, and ($14,000) was (accreted) amortized to interest income for the years ended December 31, 2010, 2009, and 2008.

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related
loans. At December 31, 2010 and 2009, net loan origination costs were $5,559,000 and $5,553,000. Net amortization expense for the years ended December 31, 2010, 2009, and 2008 was $2,242,000, $1,826,000, and $2,182,000.



F-14



---

##### Table of Contents

Medallion Banks policies regarding nonaccrual of medallion and commercial loans are
similar to those of the Company. The consumer portfolio has different characteristics compared to commercial loans, typified by a larger number of lower dollar loans that have similar characteristics. These loans are placed on nonaccrual, when they
become 90 days past due, or earlier if they enter bankruptcy, and are charged off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever occurs first, at which time appropriate collection and recovery efforts
against both the borrower and the underlying collateral are initiated. At December 31, 2010, $2,686,000 or 1% of consumer loans, $329,000 or less than 1% of commercial loans, and no medallion loans were on nonaccrual, compared to $3,321,000 or
2% of consumer loans, $1,124,000 or 2% of commercial loans, and no medallion loans on nonaccrual at December 31, 2009. The amount of interest income on nonaccrual loans that would have been recognized if the loans had been paying in accordance
with their original terms was $138,000, $233,000, and $131,000 for the year ended December 31, 2010, 2009, and 2008.

Medallion Banks loan and investment portfolios are assessed for collectability on a monthly basis, and a loan loss allowance is
established for any realizability concerns on specific investments, and general reserves have also been established for any unknown factors. The consumer portfolio purchase was net of unrealized depreciation of $4,244,000, or 5.0% of the balances
outstanding, and included a purchase premium of approximately $5,678,000 of which $198,000, $290,000, and $421,000 was amortized into interest income during 2010, 2009, and 2008. The premium amount on the balance sheet was $330,000 and $528,000 as
of December 31, 2010 and 2009. Adjustments to the fair value of this portfolio are based on the historical loan loss data obtained from the seller, adjusted for changes in delinquency trends and other factors as described previously in Note 2.

In January 2004, Medallion Bank commenced raising deposits to fund the purchase of various affiliates loan portfolios.
The deposits were raised through the use of investment brokerage firms who package deposits qualifying for FDIC insurance into pools that are sold to Medallion Bank. The rates paid on the deposits are highly competitive with market rates paid by
other financial institutions, and include a brokerage fee of 0.15% to 0.50%, depending on the maturity of the deposit, which is capitalized and amortized to interest expense over the life of the respective pool. The total amount capitalized at
December 31, 2010 and 2009 was $883,000 and $670,000, and $1,007,000, $1,069,000, and $956,000 was amortized to interest expense during 2010, 2009, and 2008. Interest on the deposits is accrued daily and paid monthly, quarterly, semiannually,
or at maturity.

The outstanding balances of fixed rate borrowings were as follows:



|                       |  |                                                      |         |  |                   |   |        |                   |  |   |                  |  |  |      |   |  |            |   |   |  |  |   |   |  |  |   |         |  |  |   |         |  |  |  |      |  
|---------------------- |  | ---------------------------------------------------- | ------- |  | ----------------- | - | ------ | ----------------- |  | - | ---------------- |  |  | ---- | - |  | ---------- | - | - |  |  | - | - |  |  | - | ------- |  |  | - | ------- |  |  |  | ---- | -
|                       |  | Payments Due for the Fiscal Year Ending December 31, |         |  | December 
31,2010 |   |        | December 
31,2009 |  |   | InterestRate (1) | 
|(Dollars in thousands) |  | 2011                                                 |         |  | 2012              |   |        | 2013              |  |   | 2014             |  |  | 2015 |   |  | Thereafter |   |   |  | 
|Deposits               |  | $                                                    | 358,219 |  |                   | $ | 43,389 |                   |  | $ | 67,349           |  |  | $    |  |  |            | $ |  |  |  | $ |  |  |  | $ | 468,957 |  |  | $ | 371,719 |  |  |  | 1.34 | %
|                       |  |                                                      |         |  |                   |   |        |                   |  |   |                  |  |  |      |   |  |            |   |   |  |  |   |   |  |  |   |         |  |  |   |         |  |  |  |      |  



|(1) | Weighted average contractual rate as of December 31, 2010.
|--- | ----------------------------------------------------------

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

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

Quantitative measures established by regulation to ensure capital adequacy require
Medallion Bank to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting Medallion Banks application for federal deposit insurance, the FDIC ordered that
beginning paid-in-capital funds of not less than $22,000,000 be provided, that the Tier I Leverage Capital to total assets ratio, as defined, be not less than 15%, and that an adequate allowance for loan losses be maintained. As a result, to
facilitate maintenance of the capital ratio requirement and to provide the necessary capital for continued growth, the Company periodically makes capital contributions to Medallion Bank, including an aggregate of $1,750,000 contributed in January
2009, and an aggregate of $10,750,000 contributed over various months in 2008. Separately, Medallion Bank declared dividends to the Company of $4,000,000 in 2010, $4,000,000 in 2009, and $6,000,000 in 2008. Without the capital infusions by us, a
portion of the Medallion Bank dividends would have been retained to ensure Medallion Bank met its capital ratio requirements, and in such circumstance, if we maintained our dividend at the existing levels, a portion of those dividends would have
represented a tax-free return of capital.



F-15



---

##### Table of Contents

On February 27, 2009, Medallion Bank issued and sold, and the US Treasury purchased
under the TARP Capital Purchase Program (the CPP), (1) 11,800 shares of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and (2) a warrant, which was immediately exercised, to purchase up to 590 shares
of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, for an aggregate purchase price of approximately $11,800,000 in cash. On December 22, 2009, Medallion Bank issued and sold, and the US Treasury purchased
under the CPP, (1) 9,698 shares of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, and (2) a warrant, which was immediately exercised, to purchase up to 55 shares of Medallion Banks Fixed Rate
Non-Cumulative Perpetual Preferred Stock, Series D, for an aggregate purchase price of approximately $9,698,000 in cash. The liquidation preference of each Series is $1,000 per share.

The securities were sold in private placements exempt from SEC registration.

Non-cumulative dividends on the Series A and C shares will accrue on the liquidation preference at a rate of 5% per annum for the
first five years, and at a rate of 9% per annum thereafter, and the dividends on the Series B and D shares will accrue on the liquidation preference at a rate of 9% per annum, both, if, as, and when declared by Medallion Banks Board
of Directors out of funds legally available thereof. The Preferred Shares have no maturity date and rank senior to Medallion Banks common stock (and pari passu with one another) with respect to the payment of dividends and distributions and
amounts payable upon liquidation, dissolution, and winding up of Medallion Bank. Medallion Banks Articles of Amendments provide that, subject to the approval of the FDIC, the Preferred Shares are redeemable at the option of Medallion Bank at
100% of their liquidation preference plus declared and unpaid dividends, provided, however, that the Preferred Shares may be redeemed prior to February 27, 2012 and December 22, 2012, respectively, only if (i) Medallion Bank has
raised aggregate gross proceeds in one or more Qualified Equity Offerings, as defined, of at least $3,097,500 and $2,438,250, respectively, and (ii) the aggregate redemption price does not exceed the aggregate net proceeds from such offerings.
The Series B shares cannot be redeemed until the Series A shares have been redeemed and the Series D shares cannot be redeemed until the Series A, B, and C shares have been redeemed.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the ARRA) was signed into law. The ARRA, among other
things, directs the US Treasury to permit CPP participants to redeem the preferred stock issued under the CPP without first requiring a Qualified Equity Offering, upon consultation with the appropriate Federal banking agency.

The agreements between Medallion Bank and the US Treasury pursuant to which the Preferred Shares and the Warrants were sold contain
limitations on the payment of common stock dividends to a quarterly rate of $1.00 per share or $1,000,000, and on Medallion Banks ability to repurchase its common stock, and subjects Medallion Bank and the Company to certain of the executive
compensation limitations and requirements included in the Emergency Economic Stabilization Act of 2008 (the EESA). As a condition to the closing of the transactions, the Company and its senior executive officers have agreed to all terms and
conditions.

The interim final rule promulgated pursuant to Section 111 of the EESA, as amended by the ARRA, prescribes
certain standards for compensation and corporate governance for CPP participants (which the Company believes to include parent companies such as the Company), which include, among other things, (i) the repayment by the senior executive officers
and the next twenty most highly compensated employees of any bonus, retention award, or incentive compensation if the payment was based on materially inaccurate financial information or other materially inaccurate performance metric criteria;
(ii) the prohibition of any payment for departure from a CPP participant or change of control event of a CPP participant, other than a payment for services performed or benefits accrued, to the senior executive officers and the next five most
highly compensated employees; (iii) the prohibition of the payment or accrual of any bonus, retention award, or incentive compensation to a CPP participants most highly compensated employee except through restricted stock with delayed
vesting and subject to dollar limits; and (iv) the prohibition from providing tax gross-ups or other reimbursements for the payment of taxes to senior executive officers and the next twenty most highly compensated employees relating to
severance payments, perquisites, or any other form of compensation. The interim final rule further requires (i) at least once every six months, the compensation committees of CPP participants to meet to discuss, evaluate, and review the CPP
participants compensation plans and the risks these plans pose to the CPP participant and annually in the CPP participants proxy statement describe how such risks were limited and certify that the compensation committee has completed its
reviews of the plans and provide such disclosures and certifications to the Treasury; (ii) CPP participants to disclose to the Treasury and their primary federal regulator on an annual basis, perquisites with a total value over $25,000 for any
employee who is subject to the bonus prohibition; (iii) CPP participants to disclose to the Treasury and their primary federal regulator whether they have engaged a compensation consultant and indicate the types of services the compensation
consultant or any of its affiliates has provided during the past three years, including any benchmarking or comparisons employed to identify certain percentile levels of compensation; (iv) CPP participants to adopt an excessive or
luxury expenditures policy; (v) CPP participants to permit stockholders to vote on a non-binding resolution approving the institutions compensation of executives; and (vi) the principal executive officer and principal financial
officer of CPP participants to annually certify compliance of the CPP participant with Section 111 of EESA and provide these certifications as an exhibit to the CPP participants annual report on Form 10-K and to the Treasury.



F-16



---

##### Table of Contents

The following table represents Medallion Banks actual capital amounts and related
ratios as of December 31, 2010 and 2009, compared to required regulatory minimum capital ratios and the ratio required to be considered well capitalized. As of December 31, 2010, Medallion Bank meets all capital adequacy requirements to
which it is subject, and is well-capitalized.



|                        |  |            |   |   |                  |   |    |                  |  |   |         |   |  |   |         |  
|----------------------- |  | ---------- | - | - | ---------------- | - | -- | ---------------- |  | - | ------- | - |  | - | ------- | -
|                        |  | Regulatory |   |   | December 31,2010 |   |    | December 31,2009 | 
|(Dollars in Thousands)  |  | Minimum    |   |   | Well-capitalized |   |    |                 
|Tier I capital          |  | $          |  |   |                  | $ |   |                  |  | $ | 93,866  |   |  | $ | 88,811  |  
|Total capital           |  |            |  |   |                  |   |   |                  |  |   | 100,762 |   |  |   | 94,455  |  
|Average assets          |  |            |  |   |                  |   |   |                  |  |   | 552,603 |   |  |   | 456,681 |  
|Risk-weighted assets    |  |            |  |   |                  |   |   |                  |  |   | 544,935 |   |  |   | 443,566 |  
|Leverage ratio(1)       |  |            | 4 | % |                  |   | 5  | %                |  |   | 17.0    | % |  |   | 19.5    | %
|Tier I capital ratio(2) |  |            | 4 |   |                  |   | 6  |                  |  |   | 17.2    |   |  |   | 20.0    |  
|Total capital ratio(2)  |  |            | 8 |   |                  |   | 10 |                  |  |   | 18.5    |   |  |   | 21.3    |  



|(1) | Calculated by dividing Tier I capital by average assets.
|--- | --------------------------------------------------------



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

(4) FUNDS BORROWED

The outstanding balances of funds borrowed were as
follows:



|                          |  |                                                      |        |  |                   |   |        |                   |  |   |                  |  |  |      |        |  |            |   |        |  |  |   |        |  |  |   |         |  |  |   |         |  |  |  |      |  
|------------------------- |  | ---------------------------------------------------- | ------ |  | ----------------- | - | ------ | ----------------- |  | - | ---------------- |  |  | ---- | ------ |  | ---------- | - | ------ |  |  | - | ------ |  |  | - | ------- |  |  | - | ------- |  |  |  | ---- | -
|                          |  | Payments Due for the Fiscal Year Ending December 31, |        |  | December 
31,2010 |   |        | December 
31,2009 |  |   | InterestRate (1) | 
|(Dollars in thousands)    |  | 2011                                                 |        |  | 2012              |   |        | 2013              |  |   | 2014             |  |  | 2015 |        |  | Thereafter |   |        |  | 
|Revolving lines of credit |  | $                                                    |       |  |                   | $ |       |                   |  | $ | 180,204          |  |  | $    |       |  |            | $ |       |  |  | $ |       |  |  | $ | 180,204 |  |  | $ | 197,362 |  |  |  | 1.31 | %
|Notes payable to banks    |  |                                                      | 43,765 |  |                   |   | 11,003 |                   |  |   | 24,489           |  |  |      | 225    |  |            |   | 6,722  |  |  |   | 874    |  |  |   | 87,078  |  |  |   | 63,910  |  |  |  | 4.41 |  
|SBA debentures            |  |                                                      | 7,485  |  |                   |   | 7,500  |                   |  |   | 19,450           |  |  |      | 13,500 |  |            |   | 9,250  |  |  |   | 23,065 |  |  |   | 80,250  |  |  |   | 88,250  |  |  |  | 5.48 |  
|Preferred securities      |  |                                                      |       |  |                   |   |       |                   |  |   |                 |  |  |      |       |  |            |   |       |  |  |   | 33,000 |  |  |   | 33,000  |  |  |   | 33,000  |  |  |  | 7.68 |  
|                          |  |                                                      |        |  |                   |   |        |                   |  |   |                  |  |  |      |        |  |            |   |        |  |  |   |        |  |  |   |         |  |  |   |         |  |  |  |      |  
|Total                     |  | $                                                    | 51,250 |  |                   | $ | 18,503 |                   |  | $ | 224,143          |  |  | $    | 13,725 |  |            | $ | 15,972 |  |  | $ | 56,939 |  |  | $ | 380,532 |  |  | $ | 382,522 |  |  |  | 3.45 |  
|                          |  |                                                      |        |  |                   |   |        |                   |  |   |                  |  |  |      |        |  |            |   |        |  |  |   |        |  |  |   |         |  |  |   |         |  |  |  |      |  



|(1) | Weighted average contractual rate as of December 31, 2010.
|--- | ----------------------------------------------------------

(A) REVOLVING LINES OF CREDIT

In December 2008, Trust III entered
into a revolving line of credit agreement with DZ Bank, to provide up to $200,000,000 of financing through a commercial paper conduit to acquire medallion loans from MFC (DZ line), of which $180,204,000 was outstanding at December 31, 2010.
Borrowings under Trust IIIs revolving line of credit are collateralized by Trust IIIs assets. MFC is the servicer of the loans owned by Trust III. The DZ line includes a borrowing base covenant and rapid amortization in certain
circumstances. In addition, if certain financial tests are not met, MFC can be replaced as the servicer. The DZ line matures in December 2013. The interest rate is the lesser of a pooled short-term commercial paper rate (which approximates LIBOR),
30 day LIBOR (0.26% at December 31, 2010) plus 0.75%, or 90 day LIBOR (0.30% at December 31, 2010) plus 0.50%; plus 0.95%.

In December 2006, Trust II entered into a revolving line of credit agreement with Citibank N.A., to provide up to $250,000,000 of financing through a commercial paper conduit to acquire medallion loans
from MFC, which was paid off in March 2010, in advance of the May 2010 maturity. In November 2008, the line of credit was reduced to $225,000,000, and was further reduced to $35,000,000 in November 2009. Borrowings under Trust IIs revolving
line of credit were collateralized by Trust IIs assets. MFC was the servicer of the loans owned by Trust II. The Citi line included a borrowing base covenant and rapid amortization in certain circumstances. In addition, if certain financial
tests were not met, MFC could have been replaced as the servicer. The interest rate was a pooled short-term commercial paper rate, which approximated LIBOR, plus 1.07% with a facility fee of 1.50% on the aggregate Citi line, and prior to November
2009 was plus 0.82% with a facility fee of 0.15% on the aggregate Citi line, and prior to November 2008 was plus 0.47% with a facility fee of 0.15%.

(B) SBA DEBENTURES

In September 2010, the SBA approved a $5,000,000
commitment for MCI to issue additional debentures during a four year period upon payment of a 1% fee. The SBA also approved a $7,485,000 commitment for FSVC to issue additional debentures during a four year period upon payment of a 1% fee, for the
purpose of repaying $7,485,000 of debentures which mature in September 2011. In September 2006, the SBA approved a $6,000,000 commitment for FSVC to issue additional debentures to the SBA during a four year period upon payment of a 1% fee and the
infusion of $2,000,000 of additional capital. In March 2006, the SBA approved a $13,500,000 commitment for MCI to issue additional debentures to the SBA during a four year period upon payment of a 1% fee and the infusion of $6,750,000 of additional
capital. In November 2003, the SBA approved an $8,000,000 commitment for FSVC, and during 2001, the SBA approved $36,000,000 each in commitments for FSVC and MCI. As of December 31, 2010, $99,500,000 of commitments had been fully utilized, and
$12,485,000 was available for borrowing.



F-17



---

##### Table of Contents

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

(C) NOTES PAYABLE TO BANKS

The Company and its subsidiaries have entered into (i) note agreements and (ii) participation agreements with a variety of local and regional banking institutions over the years. The notes are
typically secured by various assets of the underlying borrower. The Company believes the participation agreements represent legal true sales of the loans to the lender, but for accounting purposes these participations are treated as financings, and
are included in funds borrowed as shown on our consolidated balance sheets. The table below summarizes the key attributes of our various borrowing arrangements with banks as of December 31, 2010.



|                       |  |                  |      |  |            |  |              |               |  |  |              |  |             |                                                       |  |                                       |         |  |                 |   |                                         |  |  |                                                                  |  |  |                         |  |  |  |                                    | 
|---------------------- |  | ---------------- | ---- |  | ---------- |  | ------------ | ------------- |  |  | ------------ |  | ----------- | ----------------------------------------------------- |  | ------------------------------------- | ------- |  | --------------- | - | --------------------------------------- |  |  | ---------------------------------------------------------------- |  |  | ----------------------- |  |  |  | ---------------------------------- | 
|(Dollars in thousands) | 
|Borrower               |  | # ofBanks /Notes |      |  | Note Dates |  |              | MaturityDates |  |  | Type         |  | NoteAmounts |                                                       |  | BalanceOutstanding atDecember 31,2010 |         |  | Monthly Payment |   | Average InterestRate
atDecember 31,2010 |  |  | Interest RateIndex (1)                                           | 
|MFC                    |  |                  | 7/18 |  |            |  | 3/09 - 10/10 |               |  |  | 3/11 - 2/17  |  |             | Participated loans treated as financings (2)          |  | $                                     | 38,028  |  |                 | $ | 34,231                                  |  |  | Proportionate to the payments received on the participated loans |  |  | 4.47%                   |  |  |  | 4.47% (3)                          | 
|Medallion Chicago      |  |                  | 3/28 |  |            |  | 12/10        |               |  |  | 12/13 -12/15 |  |             | Term loans secured by owned Chicago medallions (4)    |  |                                       | 18,398  |  |                 |   | 18,398                                  |  |  | $108 principal & interest                                        |  |  | 5.00%                   |  |  |  | N/A                                | 
|The Company            |  |                  | 1/1  |  |            |  | 4/04         |               |  |  | 1/11         |  |             | Revolving line of credit secured by pledged loans     |  |                                       | 20,000  |  |                 |   | 17,500                                  |  |  | Interest only                                                    |  |  | 3.00% + 0.25%unused fee |  |  |  | LIBOR + 2.00%,minimum rateof 3.00% | 
|The Company            |  |                  | 2/6  |  |            |  | 1/09 - 12/10 |               |  |  | 3/11 - 12/13 |  |             | Participated loans treated as financings              |  |                                       | 23,046  |  |                 |   | 16,949                                  |  |  | Proportionate to the payments received on the participated loans |  |  | 5.11%                   |  |  |  | N/A                                | 
|MFC                    |  |                  | 1/1  |  |            |  | 1/05         |               |  |  | 5/11         |  |             | Revolving line of credit secured by pledged loans (5) |  |                                       | 8,000   |  |                 |   |                                        |  |  | Interest only                                                    |  |  | 3.75%                   |  |  |  | Prime + 0.50%                      | 
|                       |  |                  |      |  |            |  |              |               |  |  |              |  |             |                                                       |  |                                       |         |  |                 |   |                                         |  |  |                                                                  |  |  |                         |  |  |  |                                    | 
|                       |  |                  |      |  |            |  |              |               |  |  |              |  |             |                                                       |  | $                                     | 107,472 |  |                 | $ | 87,078                                  |  |  |                                                                  |  |  |                         |  |  |  |                                    | 
|                       |  |                  |      |  |            |  |              |               |  |  |              |  |             |                                                       |  |                                       |         |  |                 |   |                                         |  |  |                                                                  |  |  |                         |  |  |  |                                    | 

|(1) | At December 31, 2010, 30 day LIBOR was 0.26%, 360 day LIBOR was 0.78%, and the prime rate was 3.25%.
|--- | ----------------------------------------------------------------------------------------------------



|(2) | $4,227 guaranteed by the Company.
|--- | ---------------------------------



|(3) | Generally, each of these notes reprice on their one year anniversary date at the greater of the current interest rate, or the prime rate plus an index, which ranges
from 0.25% to 1.375%. One $899 loan remains fixed to term at 5.50%, one $3,395 loan remains fixed to term at 4.50%, and one $4,520 loan remains fixed to term at 4.70%.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | $11,139 guaranteed by the Company.
|--- | ----------------------------------



|(5) | Guaranteed by the Company.
|--- | --------------------------

(D) PREFERRED SECURITIES

In June 2007, the Company issued and sold $36,083,000 aggregate principal amount of unsecured junior subordinated notes to Fin Trust which, in turn, sold $35,000,000 of preferred securities to Merrill
Lynch International and issued 1,083 shares of common stock to the Company. The notes bear a fixed rate of interest of 7.68% to September 2012, and thereafter a variable rate of interest of 90 day LIBOR (0.30% at December 31, 2010) plus 2.13%.
The notes mature in September 2037, and are prepayable at par on or after September 6, 2012. Interest is payable quarterly in arrears. The terms of the preferred securities and the notes are substantially identical. At December 31, 2010,
$33,000,000 was outstanding on the preferred securities. In December 2007, $2,000,000 of the preferred securities were repurchased from a third party investor.

(E) COVENANT COMPLIANCE

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



F-18



---

##### Table of Contents

(5) STOCK OPTIONS AND RESTRICTED STOCK

The Company has a stock option plan (2006 Stock Option Plan) available to grant both incentive and nonqualified stock options to
employees. The 2006 Stock Option Plan, which was approved by the Board of Directors on February 15, 2006 and shareholders on June 16, 2006, provides for the issuance of a maximum of 800,000 shares of common stock of the Company. At
December 31, 2010, 159,883 shares of the Companys common stock remained available for future grants. The 2006 Stock Option Plan is administered by the Compensation Committee of the Board of Directors. The option price per share may not be
less than the current market value of the Companys common stock on the date the option is granted. The term and vesting periods of the options are determined by the Compensation Committee, provided that the maximum term of an option may not
exceed a period of ten years.

The Companys Board of Directors approved a new non-employee director stock option plan
(the 2006 Director Plan) on February 15, 2006, which was approved by shareholders on June 16, 2006, and on which exemptive relief to implement the 2006 Director Plan was received from the SEC on August 28, 2007. The 2006 Director Plan
provides for an automatic grant of options to purchase 9,000 shares of the Companys common stock to an Eligible Director upon election to the Board, with an adjustment for directors who are elected to serve less than a full term. A total of
100,000 shares of the Companys common stock are issuable under the 2006 Director Plan. At December 31, 2010, no shares of the Companys common stock remained available for future grants. The option price per share may not be less
than the current market value of the Companys common stock on the date the option is granted. Options granted under the 2006 Director Plan are exercisable annually, as defined in the 2006 Director Plan. The term of the options may not exceed
ten years.

The Companys Board of Directors approved the 2009 Employee Restricted Stock Plan (the Employee Restricted
Stock Plan) on April 16, 2009. The Employee Restricted Stock Plan became effective upon the Companys receipt of exemptive relief from the SEC and approval of the Employee Restricted Stock Option Plan by the Companys shareholders on
June 11, 2010. The terms of the Employee Restricted Stock Plan provide for grants of restricted stock awards to the Companys employees. A grant of restricted stock is a grant of shares of the Companys common stock that, at the time
of issuance, is subject to certain forfeiture provisions, and thus are restricted as to transferability until such forfeiture restrictions have lapsed. A total of 800,000 shares of the Companys common stock are issuable under the Employee
Restricted Stock Plan. Awards under the 2009 Employee Plan are subject to certain limitations as set forth in the Employee Restricted Stock Plan. The Employee Restricted Stock Plan will terminate when all shares of common stock authorized for
delivery under the Employee Restricted Stock Plan have been delivered and the forfeiture restrictions on all awards have lapsed, or by action of the Board of Directors pursuant to the Employee Restricted Stock Plan, whichever first occurs.

The Companys Board of Directors approved an amendment to the 2006 Director Plan (the Amended Director Plan) on
April 16, 2009, which was approved by the Companys shareholders on June 5, 2009. The Amended Director Plan will become effective upon the Companys receipt of exemptive relief from the SEC. The Amended Director Plan is intended
to amend and restate the 2006 Director Plan by increasing the maximum number of shares of the Companys common stock that will be available for issuance under the Amended Director Plan from 100,000 to 200,000. Under the Amended Director Plan,
unless otherwise determined by a committee of the Board of Directors comprised of directors who are not eligible for grants under the Amended Director Plan, the Company will grant options to purchase 9,000 shares of the Companys common stock
to an Eligible Director upon election to the Board, with an adjustment for directors who are elected to serve less than a full term. The option price per share may not be less than the current market value of the Companys common stock on the
date the option is granted. Options granted under the 2006 Director Plan are exercisable annually, as defined in the Amended Director Plan. The term of the options may not exceed ten years.

The Companys 1996 Stock Option Plan and 1996 Director Plan terminated on May 21, 2006 and no additional shares are available
for future issuance. At December 31, 2010, 1,495,968 shares of the Companys common stock were outstanding under the 1996 and 2006 plans, of which 1,232,807 shares were exercisable.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average
fair value of options granted was $0.96, $0.91, and $1.11 per share for the years ended December 31, 2010, 2009, and 2008. The following assumptions were used for the shares granted during 2010, 2009 and 2008.



|                                    |  |                         |       |   |      |  |       |      |  |  |       |  
|----------------------------------- |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                    |  | Year ended December 31, |      
|                                    |  | 2010                    |       |   | 2009 |  |       | 2008 | 
|Risk free interest rate             |  |                         | 2.77  | % |      |  | 2.89  | %    |  |  | 3.00  | %
|Expected dividend yield             |  |                         | 8.00  |   |      |  | 8.00  |      |  |  | 8.00  |  
|Expected life of option in years(1) |  |                         | 6.00  |   |      |  | 6.00  |      |  |  | 5.98  |  
|Expected volatility(2)              |  |                         | 30.00 |   |      |  | 30.00 |      |  |  | 30.00 |  



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



|(2) | We determine our expected volatility using the Black-Scholes option pricing model based on our historical volatility.
|--- | ---------------------------------------------------------------------------------------------------------------------



F-19



---

##### Table of Contents

The following table presents the activity for the stock option program under the 1996 and
2006 Stock Option Plans and the 1996 and 2006 Director Plans for the years ended December 31, 2010, 2009, and 2008.



|                                    |  |                  |           |   |                         |   |            |                                |  |   |       | 
|----------------------------------- |  | ---------------- | --------- | - | ----------------------- | - | ---------- | ------------------------------ |  | - | ----- | 
|                                    |  | Number ofOptions |           |   | Exercise PricePer Share |   |            | Weighted AverageExercise Price | 
|Outstanding at December 31, 2007    |  |                  | 1,468,055 |   |                         | $ | 3.50-29.25 |                                |  | $ | 11.12 | 
|Granted                             |  |                  | 429,918   |   |                         |   | 7.79-9.99  |                                |  |   | 9.16  | 
|Cancelled                           |  |                  | (107,736  | ) |                         |   | 6.50-29.25 |                                |  |   | 20.33 | 
|Exercised(1)                        |  |                  | (61,050   | ) |                         |   | 3.87-7.03  |                                |  |   | 5.79  | 
|                                    |  |                  |           |   |                         |   |            |                                |  |   |       | 
|Outstanding at December 31, 2008    |  |                  | 1,729,187 |   |                         |   | 3.50-18.75 |                                |  |   | 10.25 | 
|Granted                             |  |                  | 68,667    |   |                         |   | 7.49-7.62  |                                |  |   | 7.57  | 
|Cancelled                           |  |                  | (295,269  | ) |                         |   | 7.68-18.75 |                                |  |   | 16.68 | 
|Exercised(1)                        |  |                  | (26,653   | ) |                         |   | 3.50-5.51  |                                |  |   | 4.87  | 
|                                    |  |                  |           |   |                         |   |            |                                |  |   |       | 
|Outstanding at December 31, 2009    |  |                  | 1,475,932 |   |                         |   | 3.50-17.94 |                                |  |   | 8.93  | 
|Granted                             |  |                  | 68,500    |   |                         |   | 7.17-8.21  |                                |  |   | 8.06  | 
|Cancelled                           |  |                  | (46,264   | ) |                         |   | 9.22-17.94 |                                |  |   | 13.79 | 
|Exercised(1)                        |  |                  | (2,200    | ) |                         |   | 4.85       |                                |  |   | 4.85  | 
|                                    |  |                  |           |   |                         |   |            |                                |  |   |       | 
|Outstanding at December 31, 2010(2) |  |                  | 1,495,968 |   |                         | $ | 3.50-14.63 |                                |  | $ | 8.75  | 
|                                    |  |                  |           |   |                         |   |            |                                |  |   |       | 
|Options exercisable at              |  |                  |           |   |                         |   |            |                                |  |   |       | 
|December 31, 2008                   |  |                  | 1,169,585 |   |                         | $ | 3.50-29.25 |                                |  | $ | 9.70  | 
|December 31, 2009                   |  |                  | 1,084,562 |   |                         |   | 3.50-17.94 |                                |  |   | 8.84  | 
|December 31, 2010(2)                |  |                  | 1,232,807 |   |                         |   | 3.50-14.63 |                                |  |   | 8.73  | 



|(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 $8,000, $45,000, and $242,000 for 2010, 2009, and 2008.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The aggregate intrinsic value, which represents the difference between the price of the Companys common stock at December 31, 2010 and the related exercise
price of the underlying options, was $1,230,000 for outstanding options and $1,190,000 for exercisable options as of December 31, 2010.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents the activity for the unvested options outstanding under the plan for the year ended December 31, 2010.



|                                 |  |                  |          |   |                         |   |            |                               |  |   |      | 
|-------------------------------- |  | ---------------- | -------- | - | ----------------------- | - | ---------- | ----------------------------- |  | - | ---- | 
|                                 |  | Number ofOptions |          |   | Exercise PricePer Share |   |            | WeightedAverageExercise Price | 
|Outstanding at December 31, 2009 |  |                  | 391,370  |   |                         | $ | 7.49-11.24 |                               |  | $ | 9.20 | 
|Granted                          |  |                  | 68,500   |   |                         |   | 7.17-8.21  |                               |  |   | 8.06 | 
|Cancelled                        |  |                  | (602     | ) |                         |   | 9.22       |                               |  |   | 9.22 | 
|Vested                           |  |                  | (196,107 | ) |                         |   | 7.49-11.24 |                               |  |   | 9.29 | 
|                                 |  |                  |          |   |                         |   |            |                               |  |   |      | 
|Outstanding at December 31, 2010 |  |                  | 263,161  |   |                         | $ | 7.17-11.21 |                               |  | $ | 8.83 | 
|                                 |  |                  |          |   |                         |   |            |                               |  |   |      | 

The intrinsic value of the options vested was $3,000, $1,000, and $4,000 in 2010, 2009, and 2008.

The following table summarizes information regarding options outstanding and options exercisable at December 31, 2010
under the 1996 and 2006 Stock Option Plans and the 1996 and 2006 Director Plans.



|                        |            |  |                           |                                   |           |                     |                |  |                           |  |                                   |                  |       |                |  |  |           |  |  |  |      |  |  |   |       | 
|----------------------- | ---------- |  | ------------------------- | --------------------------------- | --------- | ------------------- | -------------- |  | ------------------------- |  | --------------------------------- | ---------------- | ----- | -------------- |  |  | --------- |  |  |  | ---- |  |  | - | ----- | 
|                        |            |  | Options Outstanding       |                                   |           | Options Exercisable |               
|                        |            |  | Shares
atDecember 31,2010 |                                   |           | Weighted average    |                |  | Shares atDecember 31,2010 |  |                                   | Weighted average |      
|Range of ExercisePrices |            |  |                           | Remainingcontractual lifein years |           |                     | Exercise price |  |                           |  | Remainingcontractual lifein years |                  |       | Exercise price | 
|$                       | 3.50-5.51  |  |                           |                                   | 348,797   |                     |                |  | 1.53                      |  |                                   | $                | 4.91  |                |  |  | 348,797   |  |  |  | 1.53 |  |  | $ | 4.91  | 
|                        | 6.89-13.06 |  |                           |                                   | 1,130,504 |                     |                |  | 6.08                      |  |                                   |                  | 9.84  |                |  |  | 867,343   |  |  |  | 5.53 |  |  |   | 10.15 | 
|                        | 14.63      |  |                           |                                   | 16,667    |                     |                |  | .01                       |  |                                   |                  | 14.63 |                |  |  | 16,667    |  |  |  | .01  |  |  |   | 14.63 | 
|                        |            |  |                           |                                   |           |                     |                |  |                           |  |                                   |                  |       |                |  |  |           |  |  |  |      |  |  |   |       | 
|$                       | 3.50-14.63 |  |                           |                                   | 1,495,968 |                     |                |  | 4.95                      |  |                                   |                  | 8.75  |                |  |  | 1,232,807 |  |  |  | 4.33 |  |  |   | 8.73  | 
|                        |            |  |                           |                                   |           |                     |                |  |                           |  |                                   |                  |       |                |  |  |           |  |  |  |      |  |  |   |       | 



F-20



---

##### Table of Contents

(6) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table presents the Companys quarterly results of operations for the years ended December 31, 2010, 2009, and
2008.



|                                                                                 |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     
|-------------------------------------------------------------------------------- |  | -------- | ------ |  | ------- | - | ------ | ------------ |  | - | ----------- |  |  | -- | ------ | ----
|(Dollars in thousands except per share data)                                     |  | March 31 |        |  | June 30 |   |        | September 30 |  |   | December 31 | 
|2010 Quarter Ended                                                               |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     
|Investment income                                                                |  | $        | 9,230  |  |         | $ | 9,360  |              |  | $ | 9,553       |  |  | $  | 9,110  |     
|Net investment income (loss) after income taxes                                  |  |          | 2,232  |  |         |   | 2,940  |              |  |   | 2,368       |  |  |    | 2,333  |     
|Net increase (decrease) in net assets resulting from operations                  |  |          | 109    |  |         |   | 3,035  |              |  |   | 3,468       |  |  |    | 4,667  |     
|Net increase (decrease) in net assets resulting
from operations per common share |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     
|Basic                                                                            |  | $        | 0.01   |  |         | $ | 0.17   |              |  | $ | 0.20        |  |  | $  | 0.27   |     
|Diluted                                                                          |  |          | 0.01   |  |         |   | 0.17   |              |  |   | 0.20        |  |  |    | 0.27   |     
|                                                                                 |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     
|2009 Quarter Ended                                                               |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     
|Investment income                                                                |  | $        | 10,734 |  |         | $ | 10,613 |              |  | $ | 10,196      |  |  | $  | 9,560  |     
|Net investment income (loss) after income taxes                                  |  |          | 1,909  |  |         |   | 2,116  |              |  |   | 2,001       |  |  |    | 2,154  |     
|Net increase (decrease) in net assets resulting from operations                  |  |          | 1,889  |  |         |   | 2,003  |              |  |   | 2,889       |  |  |    | (5,759 | )(1)
|Net increase (decrease) in net assets resulting from operations per common share |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     
|Basic                                                                            |  | $        | 0.11   |  |         | $ | 0.11   |              |  | $ | 0.16        |  |  | ($ | 0.33   | )   
|Diluted                                                                          |  |          | 0.11   |  |         |   | 0.11   |              |  |   | 0.16        |  |  |    | (0.33  | )   
|                                                                                 |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     
|2008 Quarter Ended                                                               |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     
|Investment income                                                                |  | $        | 14,444 |  |         | $ | 12,730 |              |  | $ | 11,743      |  |  | $  | 13,367 |     
|Net investment income (loss) after income taxes                                  |  |          | 3,397  |  |         |   | 3,825  |              |  |   | 3,425       |  |  |    | 4,443  |     
|Net increase in net assets resulting from operations                             |  |          | 3,921  |  |         |   | 4,377  |              |  |   | 4,118       |  |  |    | 2,832  |     
|Net increase in net assets resulting from operations per common share            |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     
|Basic                                                                            |  | $        | 0.22   |  |         | $ | 0.25   |              |  | $ | 0.23        |  |  | $  | 0.16   |     
|Diluted                                                                          |  |          | 0.22   |  |         |   | 0.25   |              |  |   | 0.23        |  |  |    | 0.16   |     
|                                                                                 |  |          |        |  |         |   |        |              |  |   |             |  |  |    |        |     



|(1) | Includes $9,342 of charges associated with writing off the Companys investments in the SPACs.
|--- | -----------------------------------------------------------------------------------------------

(7) RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2011, the FASB issued Accounting Standards Update 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructuring in
Update No. 2010-20, which defers the effective date of the new disclosures about troubled debt restructurings required by ASU 2010-20. The delay will allow the FASB to complete its deliberations on what constitutes a
troubled debt restructuring. The anticipated effective date for the new disclosures is for interim and annual periods ending after June 15, 2011.

In December 2010, the FASB issued Accounting Standards Update 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, a consensus of the FASB Emerging Issues
Task Force, the objective of which was to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The update specifies that a public entity which
presents comparative financial statements should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual period
only. The amendments in this update are applicable to any public entity which enters into business combinations that are material on an individual or aggregate basis and is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010 with early adoption permitted. Adoption of ASU 2010-29 will not have an impact on the financial condition of the Company
as it will only amend future pro forma disclosures of material business combinations.

In July 2010,
the FASB issued Accounting Standards Update 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which amends Subtopic 310-30 by requiring an
entity to provide enhanced and disaggregated disclosures about the credit quality of an entitys financing receivables and its allowance for credit losses. The objective of enhancing these disclosures is to improve financial statement
users understanding of both the nature of an entitys credit risk associated with its financing receivables and the entitys assessment of that risk in estimating its allowance for credit losses as well as changes in
the allowance and the reason for those changes. The update is effective for the first interim or annual period ending on or after December 15, 2010. The Company has adopted the provisions of FASB ASU 2010-20, and it does not
have an impact on its financial condition or results of operations, as it is a disclosure standard.



F-21



---

##### Table of Contents

In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value
Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements (FASB ASU 2010-06). FASB ASU 2010-06 amends Subtopic 820-10, Fair Value Measurements and Disclosures - Overall, and requires new disclosures related
to the transfers in and out of Level 1 and 2, as well as requiring that a reporting entity present separately information about purchases, sales, issuances, and settlements rather than as one net number. Additionally, FASB ASU 2010-06 amends
Subtopic 820-10 by clarifying existing disclosures related to level of disaggregation as well as disclosures about inputs and valuation techniques. FASB ASU 2010-06 is effective for reporting periods beginning after December 15, 2009, except
for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, these disclosures are effective for reporting periods beginning after December 15, 2010. The Company has
adopted the provisions of FASB ASU 2010-06, and it does not have an impact on its financial condition or results of operations, as it is a disclosure standard.

(8) SEGMENT REPORTING

We have one business segment, our lending and
investing operations. This segment originates and services medallion, secured commercial, and consumer loans, and invests in both marketable and nonmarketable securities.

(9) COMMITMENTS AND CONTINGENCIES

(a) Employment Agreements

The Company has employment agreements with certain key officers for either a one 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 one-year term will renew for new one-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 (see Note 3). As part of Medallion Banks participation in the CPP, certain restrictions have been imposed on the compensation
of the Companys senior executive officers that are expected to apply for as long as Medallion Bank continues its participation in the CPP. These restrictions prohibit any payment for departure from a CPP participant or change of control
event of a CPP participant, other than a payment for services performed or benefits accrued, to the Companys senior executive officers and the next five most highly compensated employees.

Employment agreements expire at various dates through 2015. At December 31, 2010, minimum payments under employment agreements are
as follows:



|                       |  |   |       | 
|---------------------- |  | - | ----- | 
|(Dollars in thousands) |  |   |      
|2011                   |  | $ | 991   | 
|2012                   |  |   | 673   | 
|2013                   |  |   | 673   | 
|2014                   |  |   | 673   | 
|2015                   |  |   | 256   | 
|Thereafter             |  |   |      | 
|                       |  |   |       | 
|Total                  |  | $ | 3,266 | 
|                       |  |   |       | 

(b) Other Commitments

The Company had portfolio commitments outstanding of $414,000 at December 31, 2010. Generally, commitments are on the same terms as loans to or investments in existing borrowers or investees, and
generally have fixed expiration dates. Since some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. In addition, the Company had approximately $5,517,000
of undisbursed funds relating to revolving credit facilities with borrowers. These amounts may be drawn upon at the customers request if they meet certain credit requirements.

Commitments for leased premises expire at various dates through June 30, 2016. At December 31, 2010, minimum rental commitments
for non-cancelable leases are as follows:



|                       |  |   |       | 
|---------------------- |  | - | ----- | 
|(Dollars in thousands) |  |   |      
|2011                   |  | $ | 1,187 | 
|2012                   |  |   | 1,067 | 
|2013                   |  |   | 907   | 
|2014                   |  |   | 907   | 
|2015                   |  |   | 907   | 
|Thereafter             |  |   | 452   | 
|                       |  |   |       | 
|Total                  |  | $ | 5,427 | 
|                       |  |   |       | 



F-22



---

##### Table of Contents

Occupancy expense was $1,330,000, $1,275,000, and $1,271,000 for the years ended
December 31, 2010, 2009, and 2008.

(c) Litigation

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 would result in a material adverse impact on the financial condition or results of operations of the Company.

(10) RELATED PARTY TRANSACTIONS

Certain directors, officers, and shareholders of the Company are also directors and officers of its wholly-owned subsidiaries, MFC, MCI, FSVC, and Medallion Bank, as well as of certain portfolio
investment companies. Officer salaries are set by the Board of Directors of the Company, subject to various regulatory constraints imposed by the TARP program (see Note 3).

A member of the Board of Directors of the Company since 1996 is also of counsel in the Companys primary law firm. Amounts paid to the law firm were approximately $468,000, $522,000, and $404,000 in
2010, 2009, and 2008.

At December 31, 2010, 2009, and 2008 we serviced $332,053,000, $229,810,000 and $204,055,000 of
loans for Medallion Bank. Included in net investment income were amounts as described below that were received from Medallion Bank for services rendered in originating and servicing loans, and also for reimbursement of certain expenses incurred on
their behalf.

In December 2010, the Company assigned its servicing rights to the Medallion Bank portfolio to MSC, a
wholly-owned unconsolidated portfolio investment. The costs of servicing are allocated to MSC by the Company, and the servicing fee income is billed and collected from Medallion Bank by MSC. As a result, in December 2010, $412,000 of servicing fee
income was earned by MSC.

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



|                                    |  |                         |       |  |      |   |       |      |  |   |       | 
|----------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                    |  | Year ended December 31, |      
|(Dollars in thousands)              |  | 2010                    |       |  | 2009 |   |       | 2008 | 
|Servicing fees                      |  | $                       | 2,094 |  |      | $ | 1,805 |      |  | $ | 1,492 | 
|Loan origination fees               |  |                         | 819   |  |      |   | 849   |      |  |   | 804   | 
|Reimbursement of operating expenses |  |                         | 509   |  |      |   | 215   |      |  |   | 192   | 
|Interest income                     |  |                         |      |  |      |   | 2     |      |  |   | 5     | 
|                                    |  |                         |       |  |      |   |       |      |  |   |       | 
|Total other income                  |  | $                       | 3,422 |  |      | $ | 2,871 |      |  | $ | 2,493 | 
|                                    |  |                         |       |  |      |   |       |      |  |   |       | 

SPAC

Included in investments in controlled subsidiaries at December 31, 2009 was $6,961,000 of investments in and loans to a special purpose acquisition company, Sports Properties Acquisition Corp. (the
SPAC), 18%-owned by the Company, which consummated its initial public offering (IPO) in January 2008. Immediately prior to the IPO, the Company purchased warrants for $5,900,000 from the SPAC in a private placement which would have allowed it to
acquire 5,900,000 additional shares of common stock in the future under various conditions and restrictions. The SPAC was unable to consummate an approved business combination within 24 months of the IPO, as a result, the Companys entire
investment in the SPAC became worthless in January 2010, and was therefore fully reserved for with a $6,961,000 charge to unrealized depreciation during the year ended December 31, 2009, and was fully written off to realized losses in the 2010
first quarter. All of the assets of the SPAC have been used to repay the public stockholders.

The Company had entered into a
consulting agreement with ProEminent Sports, whose principal acted as a consultant to the Company for sports related investments and, included within the scope of his duties, also provided services to the SPAC, including serving as its Chief
Executive Officer, and assisting generally with the SPACs offering and business combination. The Company had paid ProEminent Sports a monthly fee of $20,000, which during 2009 was reduced to $10,000, and then $0. The Company had



F-23



---

##### Table of Contents

previously entered into a consulting agreement with GamePlan, LLC which was terminated as of June 1, 2008, when the SPAC entered into its own consulting agreement with GamePlan, LLC. The
Company had paid GamePlan, LLC a monthly fee of $10,000.

The Company had agreed to indemnify the SPAC in the event of the
SPACs liquidation for all claims of any vendors, service providers, or other entities that are owed money by the SPAC for services rendered or contracted for, or for products sold to the SPAC, including claims of any prospective acquisition
targets. At December 31, 2009, the SPACs liabilities exceeded its cash on hand by $1,581,000. The SPAC negotiated these liabilities downwards, and obtained forbearance from those associated with a failed deal, and during 2010, $1,292,000
of the expenses were paid, $310,000 were forgiven, and there were no remaining claims outstanding.

Certain of the
Companys officers and directors also served as officers and directors of the SPAC, and in that role entered into agreements with the SPAC and its underwriter(s) to present to the SPAC, prior to presentation to any other person or entity,
opportunities to acquire entities, until the earlier of the SPACs consummation of a business combination, the SPACs liquidation, or until such time as they ceased to be an officer or director of the SPAC. The Company entered into a
similar agreement.

SPAC 2

Included in deferred costs in other assets at December 31, 2009 was $759,000 of investments in and loans to a special purpose acquisition company, National Security Solutions, Inc. (SPAC 2),
74%-owned by the Company, which was in organization prior to registration with the SEC to register units for sale in an initial public offering. As a result of the market conditions which led to the failure of the SPAC, it was determined to cease
activities related to SPAC 2, and as a result, the investment was fully reserved for with a $759,000 charge to unrealized depreciation during the year ended December 31, 2009, and was fully written off to realized losses in the 2010 first
quarter. In addition, the Company had additional realized losses of $20,000 in 2010.

(11) SHAREHOLDERS EQUITY

In November 2003, the Company announced a stock repurchase program which authorized the repurchase of up to $10,000,000 of common stock
during the following six months, with an option for the Board of Directors to extend the time frame for completing the purchases, which expires in May 2011. In November 2004, the repurchase program was increased by an additional $10,000,000. As of
December 31, 2010, 1,571,968 shares were repurchased for $13,893,646.

(12) NONINTEREST INCOME AND OTHER OPERATING EXPENSES

The major components of noninterest income were as follows.



|                         |  |                         |       |  |      |   |       |      |  |   |       | 
|------------------------ |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                         |  | Year ended December 31, |      
|(Dollars in thousands)   |  | 2010                    |       |  | 2009 |   |       | 2008 | 
|Servicing fees           |  | $                       | 2,462 |  |      | $ | 2,181 |      |  | $ | 1,798 | 
|Prepayment penalties     |  |                         | 729   |  |      |   | 662   |      |  |   | 1,343 | 
|Late charges             |  |                         | 192   |  |      |   | 277   |      |  |   | 294   | 
|Other                    |  |                         | 150   |  |      |   | 263   |      |  |   | 402   | 
|                         |  |                         |       |  |      |   |       |      |  |   |       | 
|Total noninterest income |  | $                       | 3,533 |  |      | $ | 3,383 |      |  | $ | 3,837 | 
|                         |  |                         |       |  |      |   |       |      |  |   |       | 

The increases in servicing fees primarily reflected the fees earned on the larger serviced Medallion Bank
portfolio. Included in prepayment penalties in 2008 was $718,000 related to the early payoff of several large loans. Included in other noninterest income was $90,000 and $86,000 of management fees from the SPAC in 2009 and 2008, and 2008 also
included the receipt of an investment partnership income distribution.

The major components of other operating expenses were
as follows.



|                                                 |  |                         |       |   |      |   |       |      |  |   |       | 
|------------------------------------------------ |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | 
|                                                 |  | Year ended December 31, |      
|(Dollars in thousands)                           |  | 2010                    |       |   | 2009 |   |       | 2008 | 
|Loan collection costs and other investment costs |  | ($                      | 1,545 | ) |      | $ | 1,810 |      |  | $ | 139   | 
|Travel, meals, and entertainment                 |  |                         | 866   |   |      |   | 1,135 |      |  |   | 620   | 
|Directors fees                                   |  |                         | 537   |   |      |   | 579   |      |  |   | 471   | 
|Miscellaneous taxes                              |  |                         | 485   |   |      |   | 371   |      |  |   | 546   | 
|Office expense                                   |  |                         | 338   |   |      |   | 365   |      |  |   | 429   | 
|Telephone                                        |  |                         | 246   |   |      |   | 242   |      |  |   | 225   | 
|Insurance                                        |  |                         | 223   |   |      |   | 237   |      |  |   | 232   | 
|Depreciation and amortization                    |  |                         | 218   |   |      |   | 258   |      |  |   | 387   | 
|Other expenses                                   |  |                         | 752   |   |      |   | 915   |      |  |   | 705   | 
|                                                 |  |                         |       |   |      |   |       |      |  |   |       | 
|Total other operating expenses                   |  | $                       | 2,120 |   |      | $ | 5,912 |      |  | $ | 3,754 | 
|                                                 |  |                         |       |   |      |   |       |      |  |   |       | 



F-24



---

##### Table of Contents

Loan collection and other investment costs decreased primarily reflecting $1,312,000 of
expense reversals related to the costs of winding up the operations of the SPACs in 2010 that were reclassed to realized losses on investments, and $310,000 that was reversed as a result of favorable negotiations with the creditors of the
SPAC, as well as generally more favorable collection activities on the portfolio as a whole. Travel, meals, and entertainment decreased due to a decrease in investment development activities in 2010. Office expense decreased due to lower office
repairs and maintenance expenses in 2010, and improved cost cutting measures. Depreciation and amortization expense decreased as more assets became fully depreciated.

(13) SELECTED FINANCIAL RATIOS AND OTHER DATA

The following table provides
selected financial ratios and other data:



|                                                                    |  |                         |         |   |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |  
|------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -- |  | ---- | ------- | -- |  | - | ------- | -
|                                                                    |  | Year ended December 31, |        
|(Dollars in thousands, except per share data)                       |  | 2010                    |         |   | 2009 |   |         | 2008 |  |   | 2007    |    |  | 2006 |        
|Net share data                                                      |  |                         |         |   |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |  
|Net asset value at the beginning of the year                        |  | $                       | 9.27    |   |      | $ | 9.97    |      |  | $ | 9.86    |    |  | $    | 9.73    |    |  | $ | 9.69    |  
|Net investment income                                               |  |                         | 0.56    |   |      |   | 0.46    |      |  |   | 0.85    |    |  |      | 0.30    |    |  |   | 0.18    |  
|Income tax (provision) benefit                                      |  |                         | 0.00    |   |      |   | 0.00    |      |  |   | 0.00    |    |  |      | 0.00    |    |  |   | 0.00    |  
|Net realized gains (losses) on investments                          |  |                         | (0.43   | ) |      |   | (0.23   | )    |  |   | (0.21   | )  |  |      | 0.80    |    |  |   | 0.17    |  
|Net change in unrealized appreciation (depreciation) on investments |  |                         | 0.51    |   |      |   | (0.17   | )    |  |   | 0.22    |    |  |      | (0.23   | )  |  |   | 0.39    |  
|                                                                    |  |                         |         |   |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |  
|Net increase in net assets resulting from operations                |  |                         | 0.64    |   |      |   | 0.06    |      |  |   | 0.86    |    |  |      | 0.87    |    |  |   | 0.74    |  
|Issuance of common stock                                            |  |                         |        |   |      |   |        |      |  |   |        |    |  |      | (0.01   | )  |  |   | (0.04   | )
|Repurchase of common stock                                          |  |                         | 0.03    |   |      |   |        |      |  |   |        |    |  |      | 0.01    |    |  |   |        |  
|Distribution of net investment income                               |  |                         | (0.60   | ) |      |   | (0.76   | )    |  |   | (0.76   | )  |  |      | (0.45   | )  |  |   | (0.44   | )
|Distribution of net realized gains on investments                   |  |                         |        |   |      |   |        |      |  |   |        |    |  |      | (0.31   | )  |  |   | (0.22   | )
|Other                                                               |  |                         | 0.01    |   |      |   |        |      |  |   | 0.01    |    |  |      | 0.02    |    |  |   |        |  
|                                                                    |  |                         |         |   |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |  
|Total increase (decrease) in net asset value                        |  |                         | 0.08    |   |      |   | (0.70   | )    |  |   | 0.11    |    |  |      | 0.13    |    |  |   | 0.04    |  
|                                                                    |  |                         |         |   |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |  
|Net asset value at the end of the year (1)                          |  | $                       | 9.35    |   |      | $ | 9.27    |      |  | $ | 9.97    |    |  | $    | 9.86    |    |  | $ | 9.73    |  
|                                                                    |  |                         |         |   |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |  
|Per share market value at beginning of year                         |  | $                       | 8.17    |   |      | $ | 7.63    |      |  | $ | 10.02   |    |  | $    | 12.37   |    |  | $ | 11.26   |  
|Per share market value at end of year                               |  |                         | 8.20    |   |      |   | 8.17    |      |  |   | 7.63    |    |  |      | 10.02   |    |  |   | 12.37   |  
|Total return (2)                                                    |  |                         | 8       | % |      |   | 18      | %    |  |   | (16     | %) |  |      | (13     | %) |  |   | 16      | %
|                                                                    |  |                         |         |   |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |  
|Ratios/supplemental data                                            |  |                         |         |   |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |  
|Average net assets                                                  |  | $                       | 161,620 |   |      | $ | 172,558 |      |  | $ | 174,082 |    |  | $    | 171,503 |    |  | $ | 167,528 |  
|Total expense ratio(3) (4)                                          |  |                         | 19      | % |      |   | 21      | %    |  |   | 24      | %  |  |      | 28      | %  |  |   | 23      | %
|Operating expenses to average net assets(4)                         |  |                         | 10.10   |   |      |   | 11.43   |      |  |   | 9.95    |    |  |      | 10.40   |    |  |   | 8.91    |  
|Net investment income after taxes to average net assets             |  |                         | 6.11    |   |      |   | 4.74    |      |  |   | 8.67    |    |  |      | 3.09    |    |  |   | 1.89    |  
|                                                                    |  |                         |         |   |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |  



|(1) | Includes $0.17, $0.29, $0.08, $0.16, and $0.08 of undistributed net investment income per share as of December 31, 2010, 2009, 2008, 2007, and 2006, and $0.00 of
undistributed net realized gains per share for all years presented.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(4) | Includes $1,312 of expense reversals related to the costs of winding up the operation of the SPACs that were reclassified to realized losses on investments and
$310 that was reversed as a result of favorable negotiations with the creditors of SPAC in 2010, and includes $1622 of costs related to winding up the operations of SPACs in 2009. Excluding these amounts, the total expense ratios were 20% in
2010 and 2009, and the operating expense ratios were 11.11% and 10.49%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(14) EMPLOYEE BENEFIT PLANS

The Company has a 401(k) Investment Plan (the 401(k) Plan) which covers all full-time and part-time employees of the Company who have
attained the age of 21 and have a minimum of one year of service, including the employees of Medallion Bank. Under the 401(k) Plan, an employee may elect to defer not less than 1% and no more than 15% of the total annual compensation that would
otherwise be paid to the employee, provided, however, that employees contributions may not exceed certain maximum amounts determined under the Internal Revenue Code. Employee contributions are invested in various mutual funds according to the
directions of the employee. The Company matches employee contributions to the 401(k) Plan in an amount per employee up to one-third of such employees contribution but in no event greater than 2% of the portion of such employees annual
salary eligible for 401(k) Plan benefits. The Companys 401(k) plan expense, including amounts for the employees of Medallion Bank, was approximately $134,000, $111,000, and $82,000 for the years ended December 31, 2010, 2009, and 2008.



F-25



---

##### Table of Contents

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

(c) Commitments to extend credit -The fair value of commitments to extend credit is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the agreements and present creditworthiness of the counter parties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the
current levels of interest rates and the committed rates. At December 31, 2010 and 2009, the estimated fair value of these off-balance-sheet instruments was not material.

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



|                            |  |                   |         |  |                   |   |         |                |  |   |            |  |  |   |         | 
|--------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------- | -------------- |  | - | ---------- |  |  | - | ------- | 
|                            |  | December 31, 2010 |         |  | December 31, 2009 |  
|(Dollars in thousands)      |  | CarryingAmount    |         |  | Fair Value        |   |         | CarryingAmount |  |   | Fair Value | 
|Financial assets            |  |                   |         |  |                   |   |         |                |  |   |            |  |  |   |         | 
|Investments                 |  | $                 | 483,516 |  |                   | $ | 483,516 |                |  | $ | 475,133    |  |  | $ | 475,133 | 
|Cash                        |  |                   | 17,303  |  |                   |   | 17,303  |                |  |   | 33,401     |  |  |   | 33,401  | 
|Accrued interest receivable |  |                   | 1,441   |  |                   |   | 1,441   |                |  |   | 1,661      |  |  |   | 1,661   | 
|Financial liabilities       |  |                   |         |  |                   |   |         |                |  |   |            |  |  |   |         | 
|Funds borrowed              |  |                   | 380,532 |  |                   |   | 380,532 |                |  |   | 382,522    |  |  |   | 382,522 | 
|Accrued interest payable    |  |                   | 1,913   |  |                   |   | 1,913   |                |  |   | 2,207      |  |  |   | 2,207   | 

(16) FAIR VALUE OF ASSETS AND
LIABILITIES

The Company follows the provisions of FASB ASC Topic 820, which defines fair value, establishes a framework
for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. The Company accounts for substantially all of its financial
instruments at fair value or considers fair value in its measurement, in accordance with the accounting guidance for investment companies. See Note 2 sections Fair Value of Assets and Liabilities and Investment Valuation for
a description of our valuation methodology which is unchanged during 2010.

In accordance with FASB ASC Topic 820, the Company
has categorized its financial instruments, 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).

As required by FASB ASC Topic 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).

Financial assets and liabilities recorded on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:



F-26



---

##### Table of Contents

Level 1. Financial 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, exchanged-traded derivatives, most US Government and agency securities, and certain
other sovereign government obligations).

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



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



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



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



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

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

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 financial 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 tables present Medallions fair value hierarchy for those assets and liabilities
measured at fair value on a recurring basis as of December 31, 2010 and 2009.



|                                                               |  |         |     |  |         |   |        |         |  |   |         |  |  |   |         | 
|-------------------------------------------------------------- |  | ------- | --- |  | ------- | - | ------ | ------- |  | - | ------- |  |  | - | ------- | 
|2010 (Dollars in thousands)                                    |  | Level 1 |     |  | Level 2 |   |        | Level 3 |  |   | Total   | 
|Assets                                                         |  |         |     |  |         |   |        |         |  |   |         |  |  |   |         | 
|Medallion loans                                                |  | $       |    |  |         | $ |       |         |  | $ | 323,126 |  |  | $ | 323,126 | 
|Commercial loans                                               |  |         |    |  |         |   |       |         |  |   | 76,866  |  |  |   | 76,866  | 
|Investment in Medallion Bank and other controlled subsidiaries |  |         |    |  |         |   |       |         |  |   | 78,735  |  |  |   | 78,735  | 
|Equity investments                                             |  |         | 280 |  |         |   |       |         |  |   | 4,509   |  |  |   | 4,789   | 
|Other assets                                                   |  |         |    |  |         |   | 37,476 |         |  |   |        |  |  |   | 37,476  | 



|                                                               |  |         |     |  |         |   |        |         |  |   |         |  |  |   |         | 
|-------------------------------------------------------------- |  | ------- | --- |  | ------- | - | ------ | ------- |  | - | ------- |  |  | - | ------- | 
|2009 (Dollars in thousands)                                    |  | Level 1 |     |  | Level 2 |   |        | Level 3 |  |   | Total   | 
|Assets                                                         |  |         |     |  |         |   |        |         |  |   |         |  |  |   |         | 
|Medallion loans                                                |  | $       |    |  |         | $ |       |         |  | $ | 321,915 |  |  | $ | 321,915 | 
|Commercial loans                                               |  |         |    |  |         |   |       |         |  |   | 77,922  |  |  |   | 77,922  | 
|Investment in Medallion Bank and other controlled subsidiaries |  |         | 543 |  |         |   |       |         |  |   | 71,736  |  |  |   | 72,279  | 
|Equity investments                                             |  |         | 248 |  |         |   |       |         |  |   | 2,769   |  |  |   | 3,017   | 
|Other assets                                                   |  |         |    |  |         |   | 33,822 |         |  |   |        |  |  |   | 33,822  | 

Included in level 3
investments in other controlled subsidiaries is the investment in Medallion Bank, the SPAC, and an investment in a start-up business engaged in media-buying consulting. Also included in level 3 equity investments are unregistered shares of common
stock in a publicly-held company, as well as certain private equity positions in non-marketable securities.



F-27



---

##### Table of Contents

The following tables provide a summary of changes in fair value of Medallions level 3
financial assets and liabilities for the year ended December 31, 2010 and 2009.



|                                                  |  |                 |          |   |                  |    |         |                                                    |  |   |                   |   |  |              |        |   |  |  |   | 
|------------------------------------------------- |  | --------------- | -------- | - | ---------------- | -- | ------- | -------------------------------------------------- |  | - | ----------------- | - |  | ------------ | ------ | - |  |  | - | 
|(Dollars in thousands)                            |  | Medallion Loans |          |   | Commercial Loans |    |         | Investment inMedallion Bank &Other Controlled Subs |  |   | EquityInvestments |   |  | Other Assets |       
|December 31, 2009                                 |  | $               | 321,915  |   |                  | $  | 77,922  |                                                    |  | $ | 71,736            |   |  | $            | 2,769  |   |  |  |  | 
|Gains (losses) included in earnings               |  |                 |         |   |                  |    | (7,021  | )                                                  |  |   | 9,569             |   |  |              | 1,985  |   |  |  |  | 
|Purchases, investments, and issuances             |  |                 | 201,372  |   |                  |    | 17,111  |                                                    |  |   | 2,519             |   |  |              | 1,254  |   |  |  |  | 
|Sales, maturities, settlements, and distributions |  |                 | (200,161 | ) |                  |    | (11,146 | )                                                  |  |   | (5,089            | ) |  |              | (1,499 | ) |  |  |  | 
|Transfers in (out)                                |  |                 |         |   |                  |    |        |                                                    |  |   |                  |   |  |              |       |   |  |  |  | 
|                                                  |  |                 |          |   |                  |    |         |                                                    |  |   |                   |   |  |              |        |   |  |  |   | 
|December 31, 2010                                 |  |                 | 323,126  |   |                  |    | 76,866  |                                                    |  |   | 78,735            |   |  |              | 4,509  |   |  |  |  | 
|                                                  |  |                 |          |   |                  |    |         |                                                    |  |   |                   |   |  |              |        |   |  |  |   | 
|Amounts related to held assets(1)                 |  | $               |         |   |                  | ($ | 7,203   | )                                                  |  | $ | 9,569             |   |  | $            | 545    |   |  |  |  | 
|                                                  |  |                 |          |   |                  |    |         |                                                    |  |   |                   |   |  |              |        |   |  |  |   | 



|(1) | Total realized and unrealized gains (losses) included in income for the year which relate to assets held as of December 31, 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------



|                                                  |  |                 |          |   |                  |    |         |                                                    |  |    |                   |     |  |              |       |   |  |    |        |  
|------------------------------------------------- |  | --------------- | -------- | - | ---------------- | -- | ------- | -------------------------------------------------- |  | -- | ----------------- | --- |  | ------------ | ----- | - |  | -- | ------ | -
|(Dollars in thousands)                            |  | Medallion Loans |          |   | Commercial Loans |    |         | Investment inMedallion Bank &Other Controlled Subs |  |    | EquityInvestments |     |  | Other Assets |      
|December 31, 2008                                 |  | $               | 402,964  |   |                  | $  | 89,611  |                                                    |  | $  | 71,100            |     |  | $            | 3,026 |   |  | $  | 759    |  
|Gains (losses) included in earnings               |  |                 | (3       | ) |                  |    | (3,253  | )                                                  |  |    | (1,526            | )   |  |              | (816  | ) |  |    | (1,266 | )
|Purchases, investments, and issuances             |  |                 | 169,609  |   |                  |    | 4,702   |                                                    |  |    | 2,539             |     |  |              | 559   |   |  |    |       |  
|Sales, maturities, settlements, and distributions |  |                 | (250,655 | ) |                  |    | (12,631 | )                                                  |  |    | (4,027            | )   |  |              |      |   |  |    |       |  
|Transfers in (out)(1)                             |  |                 |         |   |                  |    | (507    | )                                                  |  |    | 3,650             | (1) |  |              |      |   |  |    | 507    |  
|                                                  |  |                 |          |   |                  |    |         |                                                    |  |    |                   |     |  |              |       |   |  |    |        |  
|December 31, 2009                                 |  |                 | 321,915  |   |                  |    | 77,922  |                                                    |  |    | 71,736            |     |  |              | 2,769 |   |  |    |       |  
|                                                  |  |                 |          |   |                  |    |         |                                                    |  |    |                   |     |  |              |       |   |  |    |        |  
|Amounts related to held assets(2)                 |  | $               |         |   |                  | ($ | 3,505   | )                                                  |  | ($ | 5,666             | )   |  | ($           | 816   | ) |  | ($ | 759    | )
|                                                  |  |                 |          |   |                  |    |         |                                                    |  |    |                   |     |  |              |       |   |  |    |        |  



|(1) | Reflects the transfer of the investment in Medallion Hamptons Holdings from level 2 to level 3 as of December 31, 2009.
|--- | ------------------------------------------------------------------------------------------------------------------------



|(2) | Total realized and unrealized gains (losses) included in income for the year which relate to assets held as of December 31, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

(17) SUBSEQUENT EVENTS

We have evaluated subsequent events that have occurred through March 11, 2011, the date of financial statement issuance.

On March 1, 2011, FSVC utilized its $7,485,000 commitment from the SBA and issued debentures in the aggregate of $7,485,000, whose
proceeds were used to prepay a debenture $7,485,000 that was to mature on September 1, 2011. The debenture will mature in 2021 and carries an interest rate to be set at the pooling date in March 2011, approximating 5.50%.

On February 18, 2011, the Companys board of directors declared a $0.16 per share common stock dividend, payable on
March 25, 2011 to shareholders of record on March 15, 2011.

On January 28, 2011, the Company extended its
revolving note agreement with Sterling National Bank to June 30, 2011.



F-28



---

##### Table of Contents

Medallion Financial Corp.

Consolidated Schedule of Investments

December 31, 2010



|                                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  |  | ----- |  |  | ------------ |  |  | ----- |  |  | ----------- |  | --- | --------- |  | --- | --------------- | - |  | ------------------ | ----- | - |  | ----- | ------- | - | - | ------- | 
|(Dollars in thousands)                                                                                                                    |  | Industry |  |  | State |  |  | SecurityType |  |  | %Held |  |  | # ofInvest. |  |     | % ofTotal |  |     | InterestRate(1) |   |  | InvestmentBalances |      
|Medallion loans                                                                                                                           |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|New York                                                                                                                                  |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 604 |                 |   |  | 48                 | %     |   |  | 5.52  | %       |   | $ | 239,537 | 
|Chicago                                                                                                                                   |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 148 |                 |   |  | 7                  |       |   |  | 6.68  |         |   |   | 34,762  | 
|Newark                                                                                                                                    |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 127 |                 |   |  | 4                  |       |   |  | 7.81  |         |   |   | 19,777  | 
|Boston                                                                                                                                    |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 71  |                 |   |  | 4                  |       |   |  | 6.74  |         |   |   | 18,237  | 
|Cambridge                                                                                                                                 |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 20  |                 |   |  | 1                  |       |   |  | 6.72  |         |   |   | 5,501   | 
|Other                                                                                                                                     |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 20  |                 |   |  | 1                  |       |   |  | 7.05  |         |   |   | 5,016   | 
|                                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Total                                                                                                                                     |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  | 990 |           |  |     | 65              | % |  |                    | 5.90  | % |  |       | 322,830 |  
|Deferred loan acquisition costs                                                                                                           |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       | 296     |  
|Unrealized depreciation on loans                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |        |  
|                                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Medallion loans, net                                                                                                                      |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  | $     | 323,126 |  
|                                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Commercial loans                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Secured mezzanine (21% Minnesota, 14% Florida, 10% Oklahoma, 8% Indiana, 7% California, 7% Wisconsin, 6% Texas,
and 27% all other states) |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |          
|Manufacturing                                                                                                                             |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 18  |                 |   |  | 8                  | %     |   |  | 15.07 | %       |   | $ | 37,484  | 
|Administrative and support services                                                                                                       |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 4   |                 |   |  | 2                  |       |   |  | 15.88 |         |   |   | 8,872   | 
|Wholesale trade                                                                                                                           |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 3   |                 |   |  | 2                  |       |   |  | 14.13 |         |   |   | 8,614   | 
|Accommodation and food services                                                                                                           |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 3   |                 |   |  | 1                  |       |   |  | 9.87  |         |   |   | 3,892   | 
|Arts, Entertainment, and Recreation                                                                                                       |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 1   |                 |   |  | 1                  |       |   |  | 10.00 |         |   |   | 3,071   | 
|Professional, scientific, and technical services                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 1   |                 |   |  | *                  |       |   |  | 10.00 |         |   |   | 2,406   | 
|Health care and social assistance                                                                                                         |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 1   |                 |   |  | *                  |       |   |  | 7.00  |         |   |   | 1,586   | 
|Information                                                                                                                               |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 3   |                 |   |  | *                  |       |   |  | 17.63 |         |   |   | 1,527   | 
|Retail trade                                                                                                                              |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 1   |                 |   |  | *                  |       |   |  | 10.00 |         |   |   | 847     | 
|                                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Total                                                                                                                                     |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 35  |                 |   |  | 14                 | %     |   |  | 14.16 |         |   | $ | 68,299  | 
|Asset-based (85% New York, 9% New Jersey, and 6% all other states)                                                                        |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |          
|Wholesale trade                                                                                                                           |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 12  |                 |   |  | 1                  | %     |   |  | 5.18  | %       |   | $ | 4,587   | 
|Transportation and warehousing                                                                                                            |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 5   |                 |   |  | *                  |       |   |  | 6.59  |         |   |   | 1,698   | 
|Retail trade                                                                                                                              |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 7   |                 |   |  | *                  |       |   |  | 5.58  |         |   |   | 1,185   | 
|Health care and social assistance                                                                                                         |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 2   |                 |   |  | *                  |       |   |  | 6.38  |         |   |   | 723     | 
|Finance and insurance                                                                                                                     |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 5   |                 |   |  | *                  |       |   |  | 6.25  |         |   |   | 598     | 
|Manufacturing                                                                                                                             |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 7   |                 |   |  | *                  |       |   |  | 6.29  |         |   |   | 509     | 
|Administrative and support services                                                                                                       |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 2   |                 |   |  | *                  |       |   |  | 5.93  |         |   |   | 479     | 
|Construction                                                                                                                              |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 2   |                 |   |  | *                  |       |   |  | 5.68  |         |   |   | 455     | 
|                                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Total                                                                                                                                     |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 42  |                 |   |  | 2                  | %     |   |  | 5. 72 |         |   | $ | 10,234  | 
|Other secured commercial (86% New York, 12% New Jersey, and 2% Illinois)                                                                  |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |          
|Accommodation and food services                                                                                                           |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 8   |                 |   |  | 1                  | %     |   |  | 6.10  | %       |   | $ | 4,510   | 
|Retail trade                                                                                                                              |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 16  |                 |   |  | 1                  |       |   |  | 10.38 |         |   |   | 3,131   | 
|Transportation and warehousing                                                                                                            |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 26  |                 |   |  | *                  |       |   |  | 6.16  |         |   |   | 805     | 
|Other services (except public administration)                                                                                             |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 6   |                 |   |  | *                  |       |   |  | 6.18  |         |   |   | 550     | 
|Real estate and rental and leasing                                                                                                        |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 3   |                 |   |  | *                  |       |   |  | 6.32  |         |   |   | 447     | 
|Arts, entertainment, and recreation                                                                                                       |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 2   |                 |   |  | *                  |       |   |  | 6.66  |         |   |   | 430     | 
|                                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Total                                                                                                                                     |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  | 61  |                 |   |  | 2                  | %     |   |  | 7.50  |         |   | $ | 9,873   | 
|Total                                                                                                                                     |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  | 138 |           |  |     | 18              | % |  |                    | 12.44 | % |  | $     | 88,406  |  
|Deferred loan acquisition income                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       | (323    | )
|Unrealized depreciation on loans                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       | (11,217 | )
|                                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Commercial loans, net                                                                                                                     |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  | $     | 76,866  |  
|                                                                                                                                          |  |          |  |  |       |  |  |              |  |  |       |  |  |             |  |     |           |  |     |                 |   |  |                    |       |   |  |       |         |   |   |         | 



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



F-29



---

##### Table of Contents

Medallion Financial Corp.

Consolidated Schedule of Investments

December 31, 2010



|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | -------- | -------------------------- |  | ----- |  | ---- | ------------- |  |  | -------------------------- |  |  | ----------- | ---- | ------- | ---------- |  | ----- | --------------- |  |  | ------------------ | - |  |  | ---- | - |  | - | ------- | -
|(Dollars in thousands)                                                                             |  | Industry |                            |  | State |  |      | Security Type |  |  | % Held                     |  |  | # ofInvest. |      |         | % of Total |  |       | InterestRate(1) |  |  | InvestmentBalances |  
|Investment in Medallion Bank and other controlled subsidiaries                                     |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |           
|Medallion Bank**
Salt Lake City, Utah                                                              |  |          | Commercialbanking          |  |       |  | Utah |               |  |  | Commonstock                |  |  |             | 100  | %       |            |  | 1     |                 |  |  | 15                 | % |  |  | 5.41 | % |  | $ | 74,008  |  
|Medallion Hamptons
Holding LLC 437 Madison Avenue New York, NY 10022                               |  |          | Real Estate                |  |       |  | NY   |               |  |  | MembershipInterests        |  |  |             | 100  | %       |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   | 2,261   |  
|Generation Outdoor, Inc.
437 Madison Avenue
New York, NY 10022                                     |  |          | Advertising                |  |       |  | NY   |               |  |  | Commonstock                |  |  |             | 100  | %       |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   | 1,044   |  
|Medallion Servicing
Corp. 437 Madison Avenue New York, NY 10022                                    |  |          | Loan Service               |  |       |  | NY   |               |  |  | Common Stock               |  |  |             | 100  | %       |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   | 33      |  
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Total                                                                                              |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  | 4     |                 |  |  | 16                 | % |  |  | 5.08 | % |  | $ | 77,346  |  
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries         |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      | 1,389   |           
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Investment in Medallion Bank and other controlled subsidiaries, net                                |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             | $    | 78,735  |           
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Equity investments                                                                                 |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Convergent Capital, Ltd
505 N. Highway 169
Minneapolis MN 35441                                    |  |          | CommercialFinance          |  |       |  |      |               |  |  | LimitedPartnershipInterest |  |  |             | 7    | %       |            |  | 1     |                 |  |  | *                  | % |  |  | 0.00 | % |  | $ | 1,180   |  
|Restaurant Technologies
940 Apollo Rd. Suite 110
Eagan, MN 55121                                   |  |          | RestaurantServiceProvider  |  |       |  |      |               |  |  | CommonStock                |  |  |             | *    |         |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   | 990     |  
|PMC Commercial Trust **
17950 Preston Road, Suite 600
Dallas, TX 75252                             |  |          | Real EstateInvestmentTrust |  |       |  |      |               |  |  | CommonStock                |  |  |             | *    |         |            |  | 1     |                 |  |  | *                  |   |  |  | 7.55 |   |  |   | 901     |  
|Aeration Industries International, LLC
4100 Peavey Road Chaska, MN 55318                           |  |          | EquipmentManufacturing     |  |       |  |      |               |  |  | LimitedLiabilityInterest   |  |  |             | 7.25 | %       |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   | 500     |  
|RPAC Racing, LLC
311 Branson Mill Road
Randleman, NC 27317                                         |  |          | NASCARRace Team            |  |       |  |      |               |  |  | LimitedLiabilityInterest   |  |  |             | 40.8 | %       |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   | 454     |  
|Tulsa Power, Inc.
913 North Wheeling Ave
Tulsa, OK 74110                                           |  |          | MachineryManufacturer      |  |       |  |      |               |  |  | CommonStock                |  |  |             | 2    | %       |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   | 318     |  
|On Top
2435 North Central Expressway
Richardson, TX 75080                                          |  |          | Radio StationBroadcasting  |  |       |  |      |               |  |  | OwnershipShares            |  |  |             | 12   | %       |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   | 200     |  
|Star Concessions, Ltd.
8008 Cedar Springs Road,
Terminal Building LB
Dallas, TX 75235              |  |          | Airport Foodand Retail     |  |       |  |      |               |  |  | LimitedPartnershipInterest |  |  |             | 45   | %       |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   | 40      |  
|Metlife                                                                                            |  |          | Insurance                  |  |       |  |      |               |  |  | CommonStock                |  |  |             | *    |         |            |  | 1     |                 |  |  | *                  |   |  |  | 1.67 |   |  |   | 5       |  
|Appliance Recycling
Centers of America, Inc.**
7400 Excelsior Boulevard
Minneapolis, MN 55426-4516 |  |          | ApplianceRecycler          |  |       |  |      |               |  |  | CommonStock                |  |  |             | 8    | %       |            |  | 1     |                 |  |  | *                  |   |  |  | 0.00 |   |  |   |        |  
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Total                                                                                              |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  | 10    |                 |  |  | 1                  | % |  |  | 1.48 | % |  | $ | 4,588   |  
|Unrealized appreciation on equities                                                                |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   | 201     |  
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Equity investments, net                                                                            |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  | $ | 4,789   |  
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Investment securities                                                                              |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Total                                                                                              |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |      |                 |  |  |                   | % |  |  |     | % |  | $ |        |  
|Unrealized appreciation on investment securities                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |  | 
|Investment securities, net                                                                         |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  | $ |        |  
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Total investments at cost                                                                          |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  | 1,142 |                 |  |  | 100                | % |  |  | 6.89 | % |  | $ | 493,170 |  
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Deferred loan acquisition income                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   | (27     | )
|Unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries         |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      | 1,389   |           
|Unrealized depreciation on equities                                                                |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   | 201     |  
|Unrealized depreciation on loans                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   | (11,217 | )
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  
|Net Investments ($260,111 pledged as collateral under borrowing arrangements)                      |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             | $    | 483,516 |           
|                                                                                                   |  |          |                            |  |       |  |      |               |  |  |                            |  |  |             |      |         |            |  |       |                 |  |  |                    |   |  |  |      |   |  |   |         |  



|* | Less than 1.0%
|- | --------------



|** | Not an eligible portfolio company as such term is defined in Section 2(a)(46) of the 1940 Act.
|-- | ----------------------------------------------------------------------------------------------



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



F-30



---

##### Table of Contents

Medallion Financial Corp.

Consolidated Schedule of Investments

December 31, 2009



|                                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|------------------------------------------------------------------------------------------------------------------------------------------ |  | -------- |  |  | ----- |  |  | ------------- |  |  | ------ |  |  | ----------- |  | --- | --------- |  | ----- | --------------- | - |  | ------------------ | ----- | - |  | ----- | ------- | - | - | ------- | 
|(Dollars in thousands)                                                                                                                     |  | Industry |  |  | State |  |  | Security Type |  |  | % Held |  |  | # ofInvest. |  |     | % ofTotal |  |       | InterestRate(1) |   |  | InvestmentBalances |      
|Medallion loans                                                                                                                            |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|New York                                                                                                                                   |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 741   |                 |   |  | 51                 | %     |   |  | 5.90  | %       |   | $ | 244,082 | 
|Chicago                                                                                                                                    |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 119   |                 |   |  | 5                  |       |   |  | 6.91  |         |   |   | 25,868  | 
|Newark                                                                                                                                     |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 148   |                 |   |  | 5                  |       |   |  | 7.98  |         |   |   | 21,790  | 
|Boston                                                                                                                                     |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 87    |                 |   |  | 5                  |       |   |  | 7.14  |         |   |   | 21,383  | 
|Cambridge                                                                                                                                  |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 17    |                 |   |  | 1                  |       |   |  | 7.10  |         |   |   | 3,025   | 
|Other                                                                                                                                      |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 22    |                 |   |  | 1                  |       |   |  | 7.14  |         |   |   | 5,435   | 
|                                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Total                                                                                                                                      |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 1,134 |                 |   |  | 68                 | %     |   |  | 6.23  | %       |   |   | 321,583 | 
|Deferred loan acquisition costs                                                                                                            |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       | 332     |  
|Unrealized depreciation on loans                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |        |  
|                                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Medallion loans, net                                                                                                                       |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  | $     | 321,915 |  
|                                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Commercial loans                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Secured mezzanine (20% Minnesota, 11% Oklahoma, 11% Wisconsin, 11% Florida, 8% California, 7% Indiana, 7% Texas,
and 25% all other states) |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |          
|Manufacturing                                                                                                                              |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 17    |                 |   |  | 7                  | %     |   |  | 14.68 | %       |   | $ | 33,918  | 
|Administrative and support services                                                                                                        |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 6     |                 |   |  | 2                  |       |   |  | 17.32 |         |   |   | 9,316   | 
|Wholesale trade                                                                                                                            |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 3     |                 |   |  | 2                  |       |   |  | 13.54 |         |   |   | 8,750   | 
|Accommodation and food services                                                                                                            |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 3     |                 |   |  | 1                  |       |   |  | 10.02 |         |   |   | 3,308   | 
|Professional, scientific, and technical services                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 1     |                 |   |  | *                  |       |   |  | 19.00 |         |   |   | 2,436   | 
|Health care and social assistance                                                                                                          |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 1     |                 |   |  | *                  |       |   |  | 7.00  |         |   |   | 1,703   | 
|Information                                                                                                                                |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 2     |                 |   |  | *                  |       |   |  | 17.63 |         |   |   | 1,527   | 
|Retail trade                                                                                                                               |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 1     |                 |   |  | *                  |       |   |  | 10.00 |         |   |   | 876     | 
|                                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Total                                                                                                                                      |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 34    |                 |   |  | 12                 | %     |   |  | 14.63 |         |   | $ | 61,834  | 
|Asset-based (77% New York, 17% New Jersey, and 6% all other states)                                                                        |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |  
|Wholesale trade                                                                                                                            |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 10    |                 |   |  | 1                  | %     |   |  | 5.17  | %       |   | $ | 4,185   | 
|Transportation and warehousing                                                                                                             |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 5     |                 |   |  | *                  |       |   |  | 6.70  |         |   |   | 1,662   | 
|Retail trade                                                                                                                               |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 6     |                 |   |  | *                  |       |   |  | 5.64  |         |   |   | 700     | 
|Manufacturing                                                                                                                              |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 6     |                 |   |  | *                  |       |   |  | 6.42  |         |   |   | 679     | 
|Finance and insurance                                                                                                                      |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 6     |                 |   |  | *                  |       |   |  | 6.15  |         |   |   | 676     | 
|Administrative and support services                                                                                                        |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 2     |                 |   |  | *                  |       |   |  | 5.74  |         |   |   | 405     | 
|Health care and social assistance                                                                                                          |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 1     |                 |   |  | *                  |       |   |  | 5.50  |         |   |   | 377     | 
|Construction                                                                                                                               |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 3     |                 |   |  | *                  |       |   |  | 6.47  |         |   |   | 307     | 
|                                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Total                                                                                                                                      |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 39    |                 |   |  | 2                  | %     |   |  | 5. 74 |         |   | $ | 8,991   | 
|Other secured commercial (88% New York, 10% New Jersey, and 2% Illinois)                                                                   |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |          
|Accommodation and food services                                                                                                            |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 8     |                 |   |  | 1                  | %     |   |  | 6.29  | %       |   | $ | 4,781   | 
|Retail trade                                                                                                                               |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 18    |                 |   |  | 1                  |       |   |  | 10.44 |         |   |   | 3,920   | 
|Other services (except public administration)                                                                                              |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 7     |                 |   |  | *                  |       |   |  | 7.38  |         |   |   | 1,131   | 
|Transportation and warehousing                                                                                                             |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 69    |                 |   |  | *                  |       |   |  | 6.79  |         |   |   | 903     | 
|Real estate and rental and leasing                                                                                                         |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 4     |                 |   |  | *                  |       |   |  | 7.27  |         |   |   | 525     | 
|Arts, entertainment, and recreation                                                                                                        |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 2     |                 |   |  | *                  |       |   |  | 8.50  |         |   |   | 446     | 
|                                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Total                                                                                                                                      |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  | 108   |                 |   |  | 2                  | %     |   |  | 7.95  |         |   | $ | 11,706  | 
|Total                                                                                                                                      |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  | 181 |           |  |       | 16              | % |  |                    | 12.71 | % |  | $     | 82,531  |  
|Deferred loan acquisition income                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       | (373    | )
|Unrealized depreciation on loans                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       | (4,236  | )
|                                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 
|Commercial loans, net                                                                                                                      |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  | $     | 77,922  |  
|                                                                                                                                           |  |          |  |  |       |  |  |               |  |  |        |  |  |             |  |     |           |  |       |                 |   |  |                    |       |   |  |       |         |   |   |         | 



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



F-31



---

##### Table of Contents

Medallion Financial Corp.

Consolidated Schedule of Investments

December 31, 2009



|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------------- |  | ----- | ---- |  | ------------- |  | -------------------------- | ----- |  |  | ----------- | - | - | --------- | ----- |  | --------------- | ------ | --- | ------------------ |  |  | ---- | - |  | - | ------- | -
|(Dollars in thousands)                                                                             |  | Industry                          |  | State |      |  | Security Type |  |                            | %Held |  |  | # ofInvest. |   |   | % ofTotal |       |  | InterestRate(1) |        |     | InvestmentBalances | 
|Investment in Medallion Bank and other controlled subsidiaries                                     |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |      
|Medallion Bank**
Salt Lake City, Utah                                                              |  | Commercialbanking                 |  |       | Utah |  |               |  | Commonstock                |       |  |  | 100         | % |   |           | 1     |  |                 |        | 14  | %                  |  |  | 5.88 | % |  | $ | 68,000  |  
|Medallion Hamptons
Holding LLC 437 Madison Avenue New York, NY 10022                               |  | Real Estate                       |  |       | NY   |  |               |  | MembershipInterests        |       |  |  | 100         | % |   |           | 1     |  |                 |        | *   |                    |  |  | 0.00 |   |  |   | 2,057   |  
|Sports Properties
Acquisition Corp 437 Madison Avenue New York, NY 10022                           |  | Special PurposeAcquisitionCompany |  |       | NY   |  |               |  | CommonStock                |       |  |  | 18          | % |   |           | 1     |  |                 |        | 1   |                    |  |  | 0.00 |   |  |   | 543     |  
|Generation Outdoor, Inc.
437 Madison Avenue
New York, NY 10022                                     |  | Advertising                       |  |       | NY   |  |               |  | Commonstock                |       |  |  | 100         | % |   |           | 1     |  |                 |        | *   |                    |  |  | 0.00 |   |  |   | 86      |  
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Total                                                                                              |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           | 4     |  |                 |        | 15  | %                  |  |  | 5.53 | % |  | $ | 70,686  |  
|Unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries         |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   | 1,593     |      
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Investment in Medallion Bank and other controlled subsidiaries, net                                |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  | $               | 72,279 |    
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Equity investments                                                                                 |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Restaurant Technologies
940 Apollo Rd. Suite 110
Eagan, MN 55121                                   |  | RestaurantServiceProvider         |  |       |      |  |               |  | CommonStock                |       |  |  | *           |   |   |           | 1     |  |                 |        | *   | %                  |  |  | 0.00 | % |  | $ | 990     |  
|Tulsa Power, Inc.
913 North Wheeling Ave
Tulsa, OK 74110                                           |  | MachineryManufacturer             |  |       |      |  |               |  | CommonStock                |       |  |  | 2           | % |   |           | 1     |  |                 |        | *   |                    |  |  | 0.00 |   |  |   | 318     |  
|PMC Commercial Trust **
17950 Preston Road, Suite 600
Dallas, TX 75252                             |  | Real EstateInvestmentTrust        |  |       |      |  |               |  | CommonStock                |       |  |  | *           |   |   |           | 1     |  |                 |        | *   |                    |  |  | 9.39 |   |  |   | 901     |  
|Convergent Capital, Ltd
505 N. Highway 169
Minneapolis MN 35441                                    |  | CommercialFinance                 |  |       |      |  |               |  | LimitedPartnershipInterest |       |  |  | 7           | % |   |           | 1     |  |                 |        | *   |                    |  |  | 0.00 |   |  |   | 880     |  
|On Top
2435 North Central Expressway
Richardson, TX 75080                                          |  | Radio StationBroadcasting         |  |       |      |  |               |  | OwnershipShares            |       |  |  | 12          | % |   |           | 1     |  |                 |        | *   |                    |  |  | 0.00 |   |  |   | 200     |  
|Micromedics, Inc.
1270 Eagan Industrial Road
St. Paul, MN 55121-1385                               |  | Medical DeviceManufacturer        |  |       |      |  |               |  | CommonStock                |       |  |  | *           |   |   |           | 1     |  |                 |        | *   |                    |  |  | 0.00 |   |  |   | 59      |  
|Star Concessions, Ltd.
8008 Cedar Springs Road,
Terminal Building LB
Dallas, TX 75235              |  | Airport Foodand Retail            |  |       |      |  |               |  | LimitedPartnershipInterest |       |  |  | 45          | % |   |           | 1     |  |                 |        | *   |                    |  |  | 0.00 |   |  |   | 40      |  
|Metlife                                                                                            |  | Insurance                         |  |       |      |  |               |  | CommonStock                |       |  |  | *           |   |   |           | 1     |  |                 |        | *   |                    |  |  | 2.09 |   |  |   | 5       |  
|Appliance Recycling
Centers of America, Inc.**
7400 Excelsior Boulevard
Minneapolis, MN 55426-4516 |  | ApplianceRecycler                 |  |       |      |  |               |  | CommonStock                |       |  |  | *           |   |   |           | 1     |  |                 |        | *   |                    |  |  | 0.00 |   |  |   |        |  
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Total                                                                                              |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           | 9     |  |                 |        | 1   | %                  |  |  | 2.50 | % |  | $ | 3,393   |  
|Unrealized appreciation on equities                                                                |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   | (376    | )
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Equity investments, net                                                                            |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  | $ | 3,017   |  
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Investment securities                                                                              |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Total                                                                                              |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |      |  |                 |        |    | %                  |  |  |     | % |  | $ |        |  
|Unrealized appreciation on investment securities                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |       |    
|Investment securities, net                                                                         |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  | $ |        |  
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Total investments at cost                                                                          |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           | 1,328 |  |                 |        | 100 | %                  |  |  | 7.22 | % |  | $ | 478,193 |  
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Deferred loan acquisition income                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   | (41     | )
|Unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries         |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   | 1,593     |      
|Unrealized depreciation on equities                                                                |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   | (376    | )
|Unrealized depreciation on loans                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   | (4,236  | )
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  
|Net Investments ($261,332 pledged as collateral under borrowing arrangements)                      |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   | $ | 475,133   |      
|                                                                                                   |  |                                   |  |       |      |  |               |  |                            |       |  |  |             |   |   |           |       |  |                 |        |     |                    |  |  |      |   |  |   |         |  



|* | Less than 1.0%
|- | --------------



|** | Not an eligible portfolio company as such term is defined in Section 2(a)(46) of the 1940 Act.
|-- | ----------------------------------------------------------------------------------------------



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



F-32



---

##### Table of Contents

Medallion Bank

(A wholly owned subsidiary of Medallion Financial Corp.)

Financial Statements for the years ended December 31, 2010, 2009, and, 2008



F-33



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholder of Medallion Bank

We have audited the accompanying balance sheets of Medallion Bank (the Bank) (a wholly owned subsidiary of Medallion Financial Corp.) as of December 31, 2010 and 2009, and the related
statements of operations and other comprehensive income (loss), changes in shareholders equity, and cash flows for each of the three years in the three-year period ended December 31, 2010. These financial statements are the responsibility
of the Banks management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31, 2010 and 2009, and the results of its
operations and its cash flows for each of the three years in the three-year period ended December 31, 2010, in conformity with US generally accepted accounting principles.

WeiserMazars LLP

New York, New York

March 11, 2011



F-34



---

##### Table of Contents

Medallion Bank

Statements of Operations and Other Comprehensive Income (Loss)

For the years ended December 31,



|                                                    |  |      |            |  |      |   |            |      |  |   |            |  
|--------------------------------------------------- |  | ---- | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                    |  | 2010 |            |  | 2009 |   |            | 2008 | 
|Interest income                                     |  |      |            |  |      |   |            |      |  |   |            |  
|Investments                                         |  | $    | 733,062    |  |      | $ | 843,811    |      |  | $ | 1,365,464  |  
|Loan interest including fees                        |  |      | 46,539,768 |  |      |   | 43,837,041 |      |  |   | 39,938,001 |  
|                                                    |  |      |            |  |      |   |            |      |  |   |            |  
|Total interest income                               |  |      | 47,272,830 |  |      |   | 44,680,852 |      |  |   | 41,303,465 |  
|Interest expense                                    |  |      | 7,477,813  |  |      |   | 11,045,599 |      |  |   | 14,933,771 |  
|                                                    |  |      |            |  |      |   |            |      |  |   |            |  
|Net interest income                                 |  |      | 39,795,017 |  |      |   | 33,635,253 |      |  |   | 26,369,694 |  
|Provision for loan losses                           |  |      | 12,137,566 |  |      |   | 14,770,611 |      |  |   | 11,300,146 |  
|                                                    |  |      |            |  |      |   |            |      |  |   |            |  
|Net interest income after provision for loan losses |  |      | 27,657,451 |  |      |   | 18,864,642 |      |  |   | 15,069,548 |  
|Noninterest income                                  |  |      | 520,346    |  |      |   | 429,192    |      |  |   | 538,514    |  
|Gain (loss) on sale of assets                       |  |      | 602,501    |  |      |   | 692,209    |      |  |   | (88,794    | )
|Noninterest expense                                 |  |      |            |  |      |   |            |      |  |   |            |  
|Loan servicing                                      |  |      | 4,256,213  |  |      |   | 3,540,161  |      |  |   | 3,140,221  |  
|Salaries and benefits                               |  |      | 2,644,882  |  |      |   | 2,477,571  |      |  |   | 2,276,077  |  
|Collection costs                                    |  |      | 1,454,941  |  |      |   | 1,661,197  |      |  |   | 1,050,886  |  
|Regulatory fees                                     |  |      | 670,272    |  |      |   | 709,944    |      |  |   | 408,248    |  
|Professional fees                                   |  |      | 537,919    |  |      |   | 472,183    |      |  |   | 356,579    |  
|Affiliate services                                  |  |      | 368,666    |  |      |   | 91,859     |      |  |   | 97,377     |  
|Occupancy and equipment                             |  |      | 185,638    |  |      |   | 202,753    |      |  |   | 201,214    |  
|Insurance                                           |  |      | 125,096    |  |      |   | 110,748    |      |  |   | 61,945     |  
|Credit reports                                      |  |      | 105,282    |  |      |   | 146,214    |      |  |   | 199,321    |  
|Other                                               |  |      | 478,192    |  |      |   | 445,356    |      |  |   | 762,451    |  
|                                                    |  |      |            |  |      |   |            |      |  |   |            |  
|Total noninterest expense                           |  |      | 10,827,101 |  |      |   | 9,857,986  |      |  |   | 8,554,319  |  
|                                                    |  |      |            |  |      |   |            |      |  |   |            |  
|Income before income taxes                          |  |      | 17,953,197 |  |      |   | 10,128,057 |      |  |   | 6,964,949  |  
|Provision for income taxes                          |  |      | 6,717,896  |  |      |   | 3,659,200  |      |  |   | 2,775,621  |  
|                                                    |  |      |            |  |      |   |            |      |  |   |            |  
|Net income                                          |  |      | 11,235,301 |  |      |   | 6,468,857  |      |  |   | 4,189,328  |  
|Other comprehensive income (loss), net of tax       |  |      | 32,546     |  |      |   | 97,327     |      |  |   | (64,096    | )
|                                                    |  |      |            |  |      |   |            |      |  |   |            |  
|Total comprehensive income                          |  | $    | 11,267,847 |  |      | $ | 6,566,184  |      |  | $ | 4,125,232  |  
|                                                    |  |      |            |  |      |   |            |      |  |   |            |  

The accompanying notes are an integral part of these financial statements.



F-35



---

##### Table of Contents

Medallion Bank

Balance Sheets

December 31,



|                                                                                          |  |      |             |   |      |   |             |  
|----------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                          |  | 2010 |             |   | 2009 |  
|Assets                                                                                    |  |      |             |   |      |   |             |  
|Cash and cash equivalents, substantially all of which are federal funds sold              |  | $    | 16,980,157  |   |      | $ | 13,340,004  |  
|Investment securities, available-for-sale                                                 |  |      | 20,786,953  |   |      |   | 21,060,613  |  
|Loans, inclusive of net deferred loan acquisition costs                                   |  |      | 529,991,684 |   |      |   | 432,406,130 |  
|Allowance for loan losses                                                                 |  |      | (13,613,958 | ) |      |   | (13,553,258 | )
|                                                                                          |  |      |             |   |      |   |             |  
|Loans, net                                                                                |  |      | 516,377,726 |   |      |   | 418,852,872 |  
|Repossessed loan collateral                                                               |  |      | 1,520,374   |   |      |   | 1,561,008   |  
|Fixed assets, net                                                                         |  |      | 90,096      |   |      |   | 138,418     |  
|Deferred and other tax assets                                                             |  |      | 4,978,573   |   |      |   | 3,272,806   |  
|Accrued interest receivable and other assets                                              |  |      | 7,915,618   |   |      |   | 6,962,481   |  
|                                                                                          |  |      |             |   |      |   |             |  
|Total assets                                                                              |  |      | 568,649,497 |   |      | $ | 465,188,202 |  
|                                                                                          |  |      |             |   |      |   |             |  
|Liabilities and shareholders equity                                                      |  |      |             |   |      |   |             |  
|Liabilities                                                                               |  |      |             |   |      |   |             |  
|Federal funds purchased                                                                   |  | $    | 3,000,000   |   |      | $ |            |  
|Time deposits                                                                             |  |      | 465,957,000 |   |      |   | 371,719,000 |  
|Accrued interest payable                                                                  |  |      | 1,155,010   |   |      |   | 1,508,527   |  
|Other liabilities                                                                         |  |      | 2,519,070   |   |      |   | 2,362,364   |  
|Due to affiliates                                                                         |  |      | 1,113,014   |   |      |   | 730,377     |  
|                                                                                          |  |      |             |   |      |   |             |  
|Total liabilities                                                                         |  |      | 473,744,094 |   |      |   | 376,320,268 |  
|                                                                                          |  |      |             |   |      |   |             |  
|Commitments and contingencies                                                             |  |      |            |   |      |   |            |  
|Shareholders equity                                                                      |  |      |             |   |      |   |             |  
|Preferred stock, $0.01 par value, 22,143 shares authorized, 22,143 issued and outstanding |  |      | 21,498,000  |   |      |   | 21,498,000  |  
|Common stock, $1 par value, 1,000,000
shares authorized, 1,000,000 issued and outstanding |  |      | 1,000,000   |   |      |   | 1,000,000   |  
|Additional paid in capital                                                                |  |      | 51,500,000  |   |      |   | 51,500,000  |  
|Accumulated other comprehensive income, net of tax                                        |  |      | 89,885      |   |      |   | 57,339      |  
|Retained earnings                                                                         |  |      | 20,817,518  |   |      |   | 14,812,595  |  
|                                                                                          |  |      |             |   |      |   |             |  
|Total shareholders equity                                                                |  |      | 94,905,403  |   |      |   | 88,867,934  |  
|                                                                                          |  |      |             |   |      |   |             |  
|Total liabilities and shareholders equity                                                |  | $    | 568,649,497 |   |      | $ | 465,188,202 |  
|                                                                                          |  |      |             |   |      |   |             |  

The accompanying notes are an integral part of these financial statements.



F-36



---

##### Table of Contents

Medallion Bank

Statements of Changes in Shareholders Equity

For the
years ended December 31, 2010, 2009, and 2008



|                                                                     |  |                   |        |  |              |   |            |                          |  |  |                                            |  |  |                  |           |  |                          |   |            |  |  |   |         |   |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------- |  | ----------------- | ------ |  | ------------ | - | ---------- | ------------------------ |  |  | ------------------------------------------ |  |  | ---------------- | --------- |  | ------------------------ | - | ---------- |  |  | - | ------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                     |  | Preferred Stock   |        |  | Common Stock |   |            | AdditionalPaid inCapital |  |  | AccumulatedOtherComprehensiveIncome (Loss) |  |  | RetainedEarnings |           |  | TotalShareholdersEquity |  
|                                                                     |  | SharesOutstanding |        |  | Amount       |   |            | SharesOutstanding        |  |  | Amount                                     |  |  |                  |           | 
|Balance at December 31, 2007                                         |  |                   |       |  |              | $ |           |                          |  |  | 1,000,000                                  |  |  | $                | 1,000,000 |  |                          | $ | 39,000,000 |  |  | $ | 24,108  |   |  | $ | 14,869,013 |   |  | $ | 54,893,121 |  
|Capital contributions                                                |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   | 10,750,000 |  |  |   |        |   |  |   |           |   |  |   | 10,750,000 |  
|Net income                                                           |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   |        |   |  |   | 4,189,328  |   |  |   | 4,189,328  |  
|Dividends paid to parent                                             |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   |        |   |  |   | (6,000,000 | ) |  |   | (6,000,000 | )
|Net change in unrealized losses on investment securities, net of tax |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   | (64,096 | ) |  |   |           |   |  |   | (64,096    | )
|                                                                     |  |                   |        |  |              |   |            |                          |  |  |                                            |  |  |                  |           |  |                          |   |            |  |  |   |         |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2008                                         |  |                   |        |  |              |   |           |                          |  |  | 1,000,000                                  |  |  |                  | 1,000,000 |  |                          |   | 49,750,000 |  |  |   | (39,988 | ) |  |   | 13,058,341 |   |  |   | 63,768,353 |  
|Sale of preferred stock to US Treasury under TARP                    |  |                   | 22,143 |  |              |   | 21,498,000 |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   |        |   |  |   |           |   |  |   | 21,498,000 |  
|Capital contributions                                                |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   | 1,750,000  |  |  |   |        |   |  |   |           |   |  |   | 1,750,000  |  
|Net income                                                           |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   |        |   |  |   | 6,468,857  |   |  |   | 6,468,857  |  
|Dividends declared to parent                                         |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   |        |   |  |   | (4,000,000 | ) |  |   | (4,000,000 | )
|Dividends declared to US Treasury                                    |  |                   |        |  |              |   |            |                          |  |  |                                            |  |  |                  |           |  |                          |   |            |  |  |   |         |   |  |   | (714,603   | ) |  |   | (714,603   | )
|Net change in unrealized gains on investment securities, net of tax  |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   | 97,327  |   |  |   |           |   |  |   | 97,327     |  
|                                                                     |  |                   |        |  |              |   |            |                          |  |  |                                            |  |  |                  |           |  |                          |   |            |  |  |   |         |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2009                                         |  |                   | 22,143 |  |              |   | 21,498,000 |                          |  |  | 1,000,000                                  |  |  |                  | 1,000,000 |  |                          |   | 51,500,000 |  |  |   | 57,339  |   |  |   | 14,812,595 |   |  |   | 88,867,934 |  
|Net income                                                           |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   |        |   |  |   | 11,235,301 |   |  |   | 11,235,301 |  
|Dividends declared to parent                                         |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   |        |   |  |   | (4,000,000 | ) |  |   | (4,000,000 | )
|Dividends declared to US Treasury                                    |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   |        |   |  |   | (1,230,378 | ) |  |   | (1,230,378 | )
|Net change in unrealized gains on investment securities, net of tax  |  |                   |       |  |              |   |           |                          |  |  |                                           |  |  |                  |          |  |                          |   |           |  |  |   | 32,546  |   |  |   |           |   |  |   | 32,546     |  
|                                                                     |  |                   |        |  |              |   |            |                          |  |  |                                            |  |  |                  |           |  |                          |   |            |  |  |   |         |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2010                                         |  |                   | 22,143 |  |              | $ | 21,498,000 |                          |  |  | 1,000,000                                  |  |  | $                | 1,000,000 |  |                          | $ | 51,500,000 |  |  | $ | 89,885  |   |  | $ | 20,817,518 |   |  | $ | 94,905,403 |  
|                                                                     |  |                   |        |  |              |   |            |                          |  |  |                                            |  |  |                  |           |  |                          |   |            |  |  |   |         |   |  |   |            |   |  |   |            |  

The accompanying notes are an integral part of these financial statements.



F-37



---

##### Table of Contents

Medallion Bank

Statements of Cash Flows

For the years ended December 31,



|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|--------------------------------------------------------------------------------------- |  | ---- | ------------ | - | ---- | - | ------------ | ---- |  | - | ------------ | -
|                                                                                        |  | 2010 |              |   | 2009 |   |              | 2008 | 
|Cash flows from operating activities                                                    |  |      |              |   |      |   |              |      |  |   |              |  
|Net income from operations                                                              |  | $    | 11,235,301   |   |      | $ | 6,468,857    |      |  | $ | 4,189,328    |  
|Adjustments to reconcile net income to net cash flows provided by operating activities: |  |      |              |   |      |   |              |      |  |   |              |  
|Depreciation and amortization                                                           |  |      | 3,528,235    |   |      |   | 3,327,188    |      |  |   | 2,269,245    |  
|Provision for loan losses                                                               |  |      | 12,137,566   |   |      |   | 14,770,611   |      |  |   | 11,300,146   |  
|Deferred and other tax assets                                                           |  |      | (1,725,294   | ) |      |   | (1,681,690   | )    |  |   | (679,890     | )
|Loss from disposal of premises and equipment                                            |  |      |             |   |      |   | 28,043       |      |  |   |             |  
|(Gain) loss from sale of repossessed loan collateral                                    |  |      | (612,055     | ) |      |   | (669,139     | )    |  |   | 84,132       |  
|Gain from sale of investments                                                           |  |      |             |   |      |   | (34,426      | )    |  |   | (91,624      | )
|Changes in operating assets and liabilities:                                            |  |      |              |   |      |   |              |      |  |   |              |  
|Interest receivable                                                                     |  |      | 178,746      |   |      |   | 21,585       |      |  |   | (488,116     | )
|Other assets                                                                            |  |      | (338,846     | ) |      |   | (2,532,716   | )    |  |   | (397,208     | )
|Interest payable                                                                        |  |      | (353,517     | ) |      |   | (2,147,012   | )    |  |   | (61,783      | )
|Other liabilities                                                                       |  |      | 8,933        |   |      |   | (12,199      | )    |  |   | (2,015,653   | )
|Taxes payable                                                                           |  |      |             |   |      |   | (106,199     | )    |  |   | (792,726     | )
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Net cash provided by operating activities                                               |  |      | 24,059,069   |   |      |   | 17,432,903   |      |  |   | 13,315,851   |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Cash flows from investing activities                                                    |  |      |              |   |      |   |              |      |  |   |              |  
|Increase in loans, net                                                                  |  |      | (117,996,963 | ) |      |   | (45,413,424  | )    |  |   | (99,249,706  | )
|Purchase of investments                                                                 |  |      | (8,786,206   | ) |      |   | (7,308,237   | )    |  |   | (7,026,468   | )
|Purchase of other investment assets                                                     |  |      | (1,800,000   | ) |      |   |             |      |  |   |             |  
|Proceeds from sale of investments                                                       |  |      |             |   |      |   | 3,095,541    |      |  |   |             |  
|Proceeds from maturity of investments                                                   |  |      | 9,088,732    |   |      |   | 3,361,187    |      |  |   | 8,669,300    |  
|Proceeds from sale of repossessed inventory                                             |  |      | 6,547,376    |   |      |   | 7,310,441    |      |  |   | 3,242,090    |  
|Purchase of premises and equipment                                                      |  |      | (9,888       | ) |      |   | (32,582      | )    |  |   |             |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Net cash used in investing activities                                                   |  |      | (112,956,949 | ) |      |   | (38,987,074  | )    |  |   | (94,364,784  | )
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Cash flows from financing activities                                                    |  |      |              |   |      |   |              |      |  |   |              |  
|Issuance of time deposits                                                               |  |      | 659,538,000  |   |      |   | 497,230,000  |      |  |   | 446,205,000  |  
|Payments made at maturity of time deposits                                              |  |      | (565,300,000 | ) |      |   | (491,919,000 | )    |  |   | (378,880,000 | )
|Federal funds purchased                                                                 |  |      | 33,000,000   |   |      |   | 26,000,000   |      |  |   | 10,500,000   |  
|Payments made at maturity of federal funds purchased                                    |  |      | (30,000,000  | ) |      |   | (26,000,000  | )    |  |   | (10,500,000  | )
|Issuance of Preferred Stock                                                             |  |      |             |   |      |   | 21,498,000   |      |  |   |             |  
|Change in due to affiliates                                                             |  |      | 382,637      |   |      |   | 395,308      |      |  |   | 1,349,887    |  
|Proceeds from capital contributions                                                     |  |      |             |   |      |   | 1,750,000    |      |  |   | 10,750,000   |  
|Dividends paid to parent                                                                |  |      | (4,000,000   | ) |      |   | (3,000,000   | )    |  |   | (6,000,000   | )
|Dividends paid to US Treasury                                                           |  |      | (1,082,604   | ) |      |   | (460,888     | )    |  |   |             |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Net cash provided by financing activities                                               |  |      | 92,538,033   |   |      |   | 25,493,420   |      |  |   | 73,424,887   |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Net change in cash and cash equivalents                                                 |  |      | 3,640,153    |   |      |   | 3,939,249    |      |  |   | (7,624,046   | )
|Cash and cash equivalents, beginning of the year                                        |  |      | 13,340,004   |   |      |   | 9,400,755    |      |  |   | 17,024,801   |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Cash and cash equivalents, end of the year                                              |  | $    | 16,980,157   |   |      | $ | 13,340,004   |      |  | $ | 9,400,755    |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Cash paid for interest                                                                  |  | $    | 6,824,341    |   |      | $ | 12,122,869   |      |  | $ | 14,039,515   |  
|Cash paid for income taxes                                                              |  |      | 8,445,000    |   |      |   | 5,390,000    |      |  |   | 3,400,625    |  
|Non-cash investing activities-loans transferred to repossessed loan collateral          |  |      | 13,478,072   |   |      |   | 13,138,867   |      |  |   | 9,535,278    |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  

The accompanying notes are an integral part of these financial statements.



F-38



---

##### Table of Contents

Medallion Bank

Notes to Financial Statements

For the year ended December 31, 2010



|1. | Organization and summary of significant accounting policies
|-- | -----------------------------------------------------------

Description of business Medallion Bank (the Bank) is a limited service industrial bank headquartered in Salt Lake City, Utah. The Bank was formed in May 2002 for the purpose of
obtaining an industrial bank (IB) charter pursuant to the laws of the State of Utah. The Bank is a wholly owned subsidiary of Medallion Financial Corp. (Medallion). The Bank originates asset-based commercial loans and commercial loans to finance the
purchase of taxi medallions (licenses), both of which are marketed and serviced by the Banks affiliates who have extensive prior experience in these asset groups. The Bank originates consumer loans on a national basis that are secured by
marine, recreational vehicle, and trailer products to customers with prior credit blemishes. The Bank also originates unsecured consumer loans to finance hearing aids. The loans are financed primarily with time certificates of deposits which are
originated nationally through a variety of brokered deposit relationships.

Basis of presentation The
Banks financial statements are presented in accordance with accounting principles generally accepted in the US and prevailing industry practices, which require management to make estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities. Estimates, by their nature, are based upon judgment and available information. Actual results could differ materially from those estimates.

Cash and cash equivalents The Bank considers all highly liquid instruments with an original purchased maturity of
three months or less to be cash equivalents. A non-interest bearing compensating balance of $100,000 is maintained at Zions Bank. Cash balances are generally held in accounts at large national or regional banking organizations in amounts that
frequently exceed the federally insured limits.

Investment securities FASB ASC Topic 320,
Investments  Debt and Equity Securities, requires that all applicable investments 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.
At December 31, 2010 and 2009, the net premium on investment securities totaled $164,000 and $185,000, and $67,000, $69,000, and ($14,000) was (accreted) amortized to interest income for the years ended December 31, 2010, 2009, and 2008.
The Bank had $20,787,000 and $21,061,000 of available-for-sale securities at fair value as of December 31, 2010 and 2009. The topic 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 financial statements, and reported in accumulated other comprehensive income (loss) as a separate component of shareholders
equity, net of the effect of income taxes, until they are sold. The Bank had $144,000 of pretax net unrealized gains and $92,000 of pretax net unrealized gains on available-for-sale securities as of December 31, 2010 and 2009. At the time of
sale, any gains or losses, calculated by the specific identification method, will be recognized as a component of operating results and any amounts previously included in shareholders equity, which were recorded net of the income tax effect,
will be reversed.

Loans 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.

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At December 31, 2010 and 2009, net loan origination costs
were $5,528,000 and $5,553,000. Net amortization expense for the years ended December 31, 2010, 2009, and 2008 was $2,242,000, $1,826,000, and $2,182,000.

Interest income is recognized on an 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 compared to commercial loans, typified by a larger number of lower dollar loans that have similar
characteristics. A loan is considered to be impaired when, based on current information and events, it is likely the Bank 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. Other loans are charged off



F-39



---

##### Table of Contents

when management determines that a loss has occurred. All interest accrued but not collected for loans that are charged off is reversed against interest income. For the recreational consumer loan
portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged off. If the collateral is repossessed, a loss is recorded to
write the loan 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, and any excess proceeds are
recorded as a realized gain. Proceeds collected on charged off accounts are recorded as a recovery. Total loans 90 days or more past due were $2,246,000, $3,861,000, and $4,345,000 at December 31, 2010, 2009, and 2008.

At December 31, 2010, $2,686,000 or 1% of consumer loans, $329,000 or less than 1% of commercial loans, and no medallion loans were
on nonaccrual, compared to $3,321,000 or 2% of consumer loans, $1,124,000 or 2% of commercial loans, and no medallion loans on nonaccrual at December 31, 2009. The amount of interest income on nonaccrual loans that would have been recognized if
the loans had been paying in accordance with their original terms was $138,000, $233,000, and $131,000 for the year ended December 31, 2010, 2009, and 2008.

These loans are charged-down to fair value and placed on nonaccrual status. Fair value is determined based upon comparable market prices for substantially similar collateral plus managements
estimate of disposal costs. All interest accrued but not collected for loans that are placed on nonaccrual is reversed against interest income. The interest on these loans is accounted for on the cash basis until qualifying for return to accrual
status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for loan losses  In analyzing the adequacy of the allowance for loan losses, the Bank uses historical delinquency and actual loss rates. 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. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant
revision as more information becomes available. Credit losses are deducted from the allowance and subsequent recoveries are added.

Fixed assets Fixed assets are stated at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to expense while significant improvements are
capitalized. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets. Capitalized leasehold improvements are amortized over the lesser of the estimated useful life of the asset
or the remaining lease term.

Income taxes The Bank uses the asset and liability method in providing
income taxes on all transactions that have been recognized in the financial statements. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their existing tax bases. The Bank files its tax returns on a separate company basis.

Other comprehensive income (loss) The Bank had $33,000, $97,000, and ($64,000) of net unrealized gains (losses) due
to the mark-to-market of available-for-sale securities for the years ended December 31, 2010, 2009, and 2008. The Bank had no other components of comprehensive income (loss).

Restrictions on dividends, loans, and advances Banking regulations place certain restrictions on dividends paid and
loans or advances made by the Bank to Medallion. The total amount of dividends that may be paid at any date is generally limited to the retained earnings of the Bank. However, dividends paid by the Bank would be prohibited if the effect thereof
would cause the Banks capital to be reduced below applicable minimum standards. The Bank was restricted from paying dividends in the first three years of operations, and was further limited to $4,000,000 per annum under the Troubled Asset
Relief Program (TARP) program (see Note 13).

Fair value of financial instruments The fair value of a
financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. 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.

Fair value of assets and liabilities The Bank follows FASB ASC 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



F-40



---

##### Table of Contents

distinguishes between assumptions developed based on market data obtained from independent external sources and the reporting entities 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 11 and 12 to the financial statements.

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

Recently issued accounting standards In January 2011, the FASB issued Accounting Standards Update 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructuring in Update No. 2010-20, which
defers the effective date of the new disclosures about troubled debt restructurings required by ASU 2010-20. The delay will allow the FASB to complete its deliberations on what constitutes a troubled debt
restructuring. The anticipated effective date for the new disclosures is for interim and annual periods ending after June 15, 2011.

In December 2010, the FASB issued Accounting Standards Update 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, a consensus of the FASB Emerging Issues
Task Force, the objective of which was to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The update specifies that a public entity which
presents comparative financial statements should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual period
only. The amendments in this update are applicable to any public entity which enters into business combinations that are material on an individual or aggregate basis and is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010 with early adoption permitted. Adoption of ASU 2010-29 will not have an impact on the financial condition of the Company
as it will only amend future pro forma disclosures of material business combinations.

In July 2010,
the FASB issued Accounting Standards Update 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which amends Subtopic 310-30 by requiring an
entity to provide enhanced and disaggregated disclosures about the credit quality of an entitys financing receivables and its allowance for credit losses. The objective of enhancing these disclosures is to improve financial statement
users understanding of both the nature of an entitys credit risk associated with its financing receivables and the entitys assessment of that risk in estimating its allowance for credit losses as well as changes in
the allowance and the reason for those changes. The update is effective for the first interim or annual period ending on or after December 15, 2010. The Company has adopted the provisions of FASB ASU 2010-20, and it does not
have an impact on its financial condition or results of operations, as it is a disclosure standard.

In January 2010, the FASB
issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements (FASB ASU 2010-06). FASB ASU 2010-06 amends Subtopic 820-10, Fair Value Measurements and
Disclosures - Overall, and requires new disclosures related to the transfers in and out of Level 1 and 2, as well as requiring that a reporting entity present separately information about purchases, sales, issuances, and settlements rather than as
one net number. Additionally, FASB ASU 2010-06 amends Subtopic 820-10 by clarifying existing disclosures related to level of disaggregation as well as disclosures about inputs and valuation techniques. FASB ASU 2010-06 is effective for reporting
periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, these disclosures are effective for reporting periods
beginning after December 15, 2010. The Company has adopted the provisions of FASB ASU 2010-06, and it does not have an impact on its financial condition or results of operations, as it is a disclosure standard.



|2. | Loans and allowance for loan losses
|-- | -----------------------------------

Loans are summarized as follows at December 31.



|                                     |  |      |             |  |      |   |             | 
|------------------------------------ |  | ---- | ----------- |  | ---- | - | ----------- | 
|Loans                                |  | 2010 |             |  | 2009 |  
|Consumer                             |  | $    | 190,081,160 |  |      | $ | 193,910,007 | 
|Medallion                            |  |      | 260,808,393 |  |      |   | 160,402,960 | 
|Commercial:                          |  |      |             |  |      |   |             | 
|Asset-based                          |  |      | 67,593,066  |  |      |   | 66,333,326  | 
|Construction                         |  |      | 5,275,581   |  |      |   | 4,716,052   | 
|Other commercial                     |  |      | 705,372     |  |      |   | 1,490,611   | 
|                                     |  |      |             |  |      |   |             | 
|Total commercial                     |  |      | 73,574,019  |  |      |   | 72,539,989  | 
|Deferred loan acquisition costs, net |  |      | 5,528,112   |  |      |   | 5,553,174   | 
|                                     |  |      |             |  |      |   |             | 
|Total loans                          |  | $    | 529,991,684 |  |      | $ | 432,406,130 | 
|                                     |  |      |             |  |      |   |             | 



F-41



---

##### Table of Contents

Changes in the allowance for loan losses are summarized as follows.



|                          |  |   |             |  
|------------------------- |  | - | ----------- | -
|Balance at 12/31/07       |  | $ | 7,311,430   |  
|Provision for loan losses |  |   | 11,300,146  |  
|Loan charge-offs          |  |   | (9,565,538  | )
|Recoveries                |  |   | 1,761,779   |  
|                          |  |   |             |  
|Balance at 12/31/08       |  |   | 10,807,817  |  
|Provision for loan losses |  |   | 14,770,611  |  
|Loan charge-offs          |  |   | (15,049,272 | )
|Recoveries                |  |   | 3,024,102   |  
|                          |  |   |             |  
|Balance at 12/31/09       |  |   | 13,553,258  |  
|Provision for loan losses |  |   | 12,137,566  |  
|Loan charge-offs          |  |   | (15,090,072 | )
|Recoveries                |  |   | 3,013,206   |  
|                          |  |   |             |  
|Balance at 12/31/10       |  | $ | 13,613,958  |  
|                          |  |   |             |  

The loan charge-offs and recoveries resulted primarily from the consumer portfolio.

The composition of and changes in the allowance for credit losses and recorded investment in loans were as follows for the year ended as
of December 31, 2010.



|                                                |  |           |             |  |                          |   |            |              |  |   |           |   |  |       |             |   |  |   |             |  
|----------------------------------------------- |  | --------- | ----------- |  | ------------------------ | - | ---------- | ------------ |  | - | --------- | - |  | ----- | ----------- | - |  | - | ----------- | -
|                                                |  | Medallion |             |  | Asset-basedandcommercial |   |            | Construction |  |   | Consumer  |   |  | Total |            
|Balance at 12/31/09                             |  | $         | 724,477     |  |                          | $ | 995,000    |              |  | $ | 319,605   |   |  | $     | 11,514,176  |   |  | $ | 13,553,258  |  
|Provision for loan losses                       |  |           | 534,576     |  |                          |   | 18,894     |              |  |   | 494,955   |   |  |       | 11,089,141  |   |  |   | 12,137,566  |  
|Loan charge-offs                                |  |           |            |  |                          |   |           |              |  |   | (739,430  | ) |  |       | (14,350,642 | ) |  |   | (15,090,072 | )
|Recoveries                                      |  |           |            |  |                          |   |           |              |  |   |          |   |  |       | 3,013,206   |   |  |   | 3,013,206   |  
|                                                |  |           |             |  |                          |   |            |              |  |   |           |   |  |       |             |   |  |   |             |  
|Balance at 12/31/10                             |  | $         | 1,259,053   |  |                          | $ | 1,013,894  |              |  | $ | 75,130    |   |  | $     | 11,265,881  |   |  | $ | 13,613,958  |  
|                                                |  |           |             |  |                          |   |            |              |  |   |           |   |  |       |             |   |  |   |             |  
|Individually evaluated for impairment           |  | $         |            |  |                          | $ | 1,013,894  |              |  | $ | 75,130    |   |  | $     |            |   |  | $ | 1,089,024   |  
|Collectively evaluated for impairment           |  |           | 1,259,053   |  |                          |   |           |              |  |   |          |   |  |       | 11,265,881  |   |  |   | 12,524,934  |  
|Loans acquired with deteriorated credit quality |  |           |            |  |                          |   |           |              |  |   |          |   |  |       |            |   |  |   |            |  
|                                                |  |           |             |  |                          |   |            |              |  |   |           |   |  |       |             |   |  |   |             |  
|Loan balances at 12/31/10                       |  | $         | 260,808,393 |  |                          | $ | 68,298,438 |              |  | $ | 5,275,581 |   |  | $     | 190,081,160 |   |  | $ | 524,463,572 |  
|                                                |  |           |             |  |                          |   |            |              |  |   |           |   |  |       |             |   |  |   |             |  
|Individually evaluated for impairment           |  |           |            |  |                          |   | 68,298,438 |              |  |   | 5,275,581 |   |  |       |            |   |  |   | 73,574,019  |  
|Collectively evaluated for impairment           |  |           | 260,808,393 |  |                          |   |           |              |  |   |          |   |  |       | 190,081,160 |   |  |   | 450,889,553 |  
|Loans acquired with deteriorated credit quality |  |           |            |  |                          |   |           |              |  |   |          |   |  |       |            |   |  |   |            |  

See Note 1 to
the financial statements, which describes the nature of the portfolios, their collection and income recognition processes, and the methodology used to assess the adequacy of the allowance.

The medallion and asset-based loan portfolios are primarily collateral-based lending, whereby the collateral value exceeds the
amount of the loan, providing sufficient excess collateral to protect against losses to the Bank. The adequacy of these amounts is demonstrated by the minimal loss experience in these portfolios since the Banks
inception. Generally, these portfolios are analyzed and evaluated in the aggregate, as a pool of loans, until becoming nonperforming, at which time they receive more individualized attention.

The consumer loan portfolio is primarily customer driven, whereby borrowers are assessed a score based on income level, home
ownership, FICO score, and other factors weighted in a credit scoring model that determines whether a borrower is qualified. Loan losses in this portfolio fluctuate with economic conditions, and can range widely over time. The consumer
loan portfolio is analyzed and evaluated in the aggregate, as a pool of loans.

Other commercial or construction loans are
infrequent, and made on a case by case basis, after performing thorough borrower review, credit, and collateral checks. The risks associated with these types of loans is individual to that particular credit, and they are monitored and tracked
closely.



F-42



---

##### Table of Contents

Allocations for the allowance for credit losses may be made for specific loans, but the
allowance is general in nature and is available to absorb losses from any loan type.



F-43



---

##### Table of Contents

The following table provides a summary of the loan portfolio by its performance status and
by type.



|                           |  |            |             |  |               |   |             |       |  |   |           |  |  |      |           |  |      |   |             |  |  |   |             | 
|-------------------------- |  | ---------- | ----------- |  | ------------- | - | ----------- | ----- |  | - | --------- |  |  | ---- | --------- |  | ---- | - | ----------- |  |  | - | ----------- | 
|                           |  | Performing |             |  | Nonperforming |   |             | Total | 
|                           |  | 2010       |             |  | 2009          |   |             | 2010  |  |   | 2009      |  |  | 2010 |           |  | 2009 |  
|Medallion                  |  | $          | 260,808,393 |  |               | $ | 160,402,960 |       |  | $ |          |  |  | $    |          |  |      | $ | 260,808,393 |  |  | $ | 160,402,960 | 
|Asset-based and commercial |  |            | 68,298,438  |  |               |   | 67,823,937  |       |  |   |          |  |  |      |          |  |      |   | 68,298,438  |  |  |   | 67,823,937  | 
|Construction               |  |            | 4,946,581   |  |               |   | 3,592,052   |       |  |   | 329,000   |  |  |      | 1,124,000 |  |      |   | 5,275,581   |  |  |   | 4,716,052   | 
|Consumer                   |  |            | 187,395,160 |  |               |   | 190,589,007 |       |  |   | 2,686,000 |  |  |      | 3,321,000 |  |      |   | 190,081,160 |  |  |   | 193,910,007 | 
|                           |  |            |             |  |               |   |             |       |  |   |           |  |  |      |           |  |      |   |             |  |  |   |             | 
|Total                      |  | $          | 521,448,572 |  |               | $ | 422,407,956 |       |  | $ | 3,015,000 |  |  | $    | 4,445,000 |  |      | $ | 524,463,572 |  |  | $ | 426,852,956 | 
|                           |  |            |             |  |               |   |             |       |  |   |           |  |  |      |           |  |      |   |             |  |  |   |             | 

The following table provides additional information on attributes of the nonperforming loan portfolio.



|                                   |  |                    |           |  |                         |   |           |                  |  |   |                            |  |  |                           |           |  |  |   |         | 
|---------------------------------- |  | ------------------ | --------- |  | ----------------------- | - | --------- | ---------------- |  | - | -------------------------- |  |  | ------------------------- | --------- |  |  | - | ------- | 
|December 31, 2010                  |  | RecordedInvestment |           |  | Unpaid PrincipalBalance |   |           | RelatedAllowance |  |   | Average RecordedInvestment |  |  | Interest IncomeRecognized |          
|With no related allowance recorded |  |                    |           |  |                         |   |           |                  |  |   |                            |  |  |                           |           |  |  |   |         | 
|Medallion                          |  | $                  |          |  |                         | $ |          |                  |  | $ |                           |  |  | $                         |          |  |  | $ |        | 
|Asset based and commercial        |  |                    |          |  |                         |   |          |                  |  |   |                           |  |  |                           |          |  |  |   |        | 
|Construction                       |  |                    | 267,000   |  |                         |   | 267,000   |                  |  |   |                           |  |  |                           | 602,627   |  |  |   |        | 
|Consumer                           |  |                    |          |  |                         |   |          |                  |  |   |                           |  |  |                           |          |  |  |   |        | 
|With an allowance recorded         |  |                    |           |  |                         |   |           |                  |  |   |                            |  |  |                           |           |  |  |   |         | 
|Medallion                          |  |                    |          |  |                         |   |          |                  |  |   |                           |  |  |                           |          |  |  |   |        | 
|Asset based and commercial        |  |                    |          |  |                         |   |          |                  |  |   |                           |  |  |                           |          |  |  |   |        | 
|Construction                       |  |                    | 62,396    |  |                         |   | 62,396    |                  |  |   | 936                        |  |  |                           | 62,396    |  |  |   | 4,078   | 
|Consumer                           |  |                    | 2,686,000 |  |                         |   | 2,686,000 |                  |  |   | 159,047                    |  |  |                           | 2,770,412 |  |  |   | 238,640 | 
|                                   |  |                    |           |  |                         |   |           |                  |  |   |                            |  |  |                           |           |  |  |   |         | 
|Total                              |  |                    |           |  |                         |   |           |                  |  |   |                            |  |  |                           |           |  |  |   |         | 
|Medallion                          |  |                    |          |  |                         |   |          |                  |  |   |                           |  |  |                           |          |  |  |   |        | 
|Asset based and commercial        |  |                    |          |  |                         |   |          |                  |  |   |                           |  |  |                           |          |  |  |   |        | 
|Construction                       |  |                    | 329,396   |  |                         |   | 329,396   |                  |  |   | 936                        |  |  |                           | 665,023   |  |  |   | 4,078   | 
|Consumer                           |  | $                  | 2,686,000 |  |                         | $ | 2,686,000 |                  |  | $ | 159,047                    |  |  | $                         | 2,770,412 |  |  | $ | 238,640 | 
|                                   |  |                    |           |  |                         |   |           |                  |  |   |                            |  |  |                           |           |  |  |   |         | 

The table below shows the aging of all loan types as of December 31, 2010.



|                                  |  |               |           |  |         |   |           |       |  |   |                                       |  |  |   |            |  |  |   |             |  |  |   |             |  |  |   |         | 
|--------------------------------- |  | ------------- | --------- |  | ------- | - | --------- | ----- |  | - | ------------------------------------- |  |  | - | ---------- |  |  | - | ----------- |  |  | - | ----------- |  |  | - | ------- | 
|                                  |  | Days Past Due |           |  | Current |   |           | Total |  |   | RecordedInvestment>90Days andAccruing | 
|                                  |  | 31-60         |           |  | 61-90   |   |           | 90 +  |  |   | Total Past Due                        |  |  |   |           
|Medallion loans                   |  | $             | 399,942   |  |         | $ |          |       |  | $ | 194,348                               |  |  | $ | 594,290    |  |  | $ | 260,214,103 |  |  | $ | 260,808,393 |  |  | $ | 194,348 | 
|Asset based and commercial loans |  |               |          |  |         |   |          |       |  |   |                                      |  |  |   |           |  |  |   | 68,298,438  |  |  |   | 68,298,438  |  |  |   |        | 
|Construction loans                |  |               |          |  |         |   |          |       |  |   | 329,396                               |  |  |   | 329,396    |  |  |   | 4,946,185   |  |  |   | 5,275,581   |  |  |   |        | 
|Consumer loans                    |  |               | 7,980,517 |  |         |   | 2,445,193 |       |  |   | 1,722,636                             |  |  |   | 12,148,346 |  |  |   | 177,932,814 |  |  |   | 190,081,160 |  |  |   |        | 
|                                  |  |               |           |  |         |   |           |       |  |   |                                       |  |  |   |            |  |  |   |             |  |  |   |             |  |  |   |         | 
|Total                             |  | $             | 8,380,459 |  |         | $ | 2,445,193 |       |  | $ | 2,246,380                             |  |  | $ | 13,072,032 |  |  | $ | 511,391,540 |  |  | $ | 524,463,572 |  |  | $ | 194,348 | 
|                                  |  |               |           |  |         |   |           |       |  |   |                                       |  |  |   |            |  |  |   |             |  |  |   |             |  |  |   |         | 



|3. | Investment securities
|-- | ---------------------

Fixed maturity securities available-for-sale at December 31, 2010 consist of the following.



|                                                                           |  |               |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|-------------------------------------------------------------------------- |  | ------------- | ---------- |  | -------------------- | - | ------- | --------------------- |  | - | ---------- |  |  | - | ---------- | 
|                                                                           |  | AmortizedCost |            |  | GrossUnrealizedGains |   |         | GrossUnrealizedLosses |  |   | Fair Value | 
|Mortgage-backed securities, principally obligations of US federal agencies |  | $             | 19,491,568 |  |                      | $ | 374,432 |                       |  | $ | 215,580    |  |  | $ | 19,650,420 | 
|State and municipalities                                                   |  |               | 1,151,570  |  |                      |   | 2,873   |                       |  |   | 17,910     |  |  |   | 1,136,533  | 
|                                                                           |  |               |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|Total                                                                      |  | $             | 20,643,138 |  |                      | $ | 377,305 |                       |  | $ | 233,490    |  |  | $ | 20,786,953 | 
|                                                                           |  |               |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 

Fixed maturity securities available-for-sale at December 31, 2009 consist of the following.



|                                                                           |  |               |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|-------------------------------------------------------------------------- |  | ------------- | ---------- |  | -------------------- | - | ------- | --------------------- |  | - | ---------- |  |  | - | ---------- | 
|                                                                           |  | AmortizedCost |            |  | GrossUnrealizedGains |   |         | GrossUnrealizedLosses |  |   | Fair Value | 
|Mortgage-backed securities, principally obligations of US federal agencies |  | $             | 18,073,870 |  |                      | $ | 280,066 |                       |  | $ | 138,807    |  |  | $ | 18,215,129 | 
|State and municipalities                                                   |  |               | 2,895,000  |  |                      |   | 8,712   |                       |  |   | 58,228     |  |  |   | 2,845,484  | 
|                                                                           |  |               |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 
|Total                                                                      |  | $             | 20,968,870 |  |                      | $ | 288,778 |                       |  | $ | 197,035    |  |  | $ | 21,060,613 | 
|                                                                           |  |               |            |  |                      |   |         |                       |  |   |            |  |  |   |            | 



F-44



---

##### Table of Contents

The amortized cost and estimated market value of investment securities as of
December 31, 2010 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.



|                                       |  |                |            |  |              |   |            | 
|-------------------------------------- |  | -------------- | ---------- |  | ------------ | - | ---------- | 
|                                       |  | Amortized Cost |            |  | Market Value |  
|Due in one year or less                |  | $              |           |  |              | $ |           | 
|Due after one year through five years  |  |                |           |  |              |   |           | 
|Due after five years through ten years |  |                | 4,094,307  |  |              |   | 4,165,088  | 
|Due after ten years                    |  |                | 16,548,831 |  |              |   | 16,621,865 | 
|                                       |  |                |            |  |              |   |            | 
|Total                                  |  | $              | 20,643,138 |  |              | $ | 20,786,953 | 
|                                       |  |                |            |  |              |   |            | 

Information pertaining to securities with gross unrealized losses at December 31, 2010 and 2009
aggregated by investment category and length of time that individual securities have been in a continuous loss position follows.



|                                                                           |  |                         |         |  |                    |   |           |                       |  |   |            |  |  |   |   | 
|-------------------------------------------------------------------------- |  | ----------------------- | ------- |  | ------------------ | - | --------- | --------------------- |  | - | ---------- |  |  | - | - | 
|                                                                           |  | Less than Twelve Months |         |  | Over Twelve Months |  
|December 31, 2010                                                          |  | GrossUnrealizedLosses   |         |  | Fair Value         |   |           | GrossUnrealizedLosses |  |   | Fair Value | 
|Mortgage-backed securities, principally obligations of US federal agencies |  | $                       | 215,580 |  |                    | $ | 4,910,469 |                       |  | $ |           |  |  | $ |  | 
|State and municipalities                                                   |  |                         | 17,910  |  |                    |   | 482,090   |                       |  |   |           |  |  |   |  | 
|                                                                           |  |                         |         |  |                    |   |           |                       |  |   |            |  |  |   |   | 
|Total                                                                      |  | $                       | 233,490 |  |                    | $ | 5,392,559 |                       |  | $ |           |  |  | $ |  | 
|                                                                           |  |                         |         |  |                    |   |           |                       |  |   |            |  |  |   |   | 



|                                                                           |  |                         |         |  |                    |   |           |                       |  |   |            |  |  |   |         | 
|-------------------------------------------------------------------------- |  | ----------------------- | ------- |  | ------------------ | - | --------- | --------------------- |  | - | ---------- |  |  | - | ------- | 
|                                                                           |  | Less than Twelve Months |         |  | Over Twelve Months |  
|December 31, 2009                                                          |  | GrossUnrealizedLosses   |         |  | Fair Value         |   |           | GrossUnrealizedLosses |  |   | Fair Value | 
|Mortgage-backed securities, principally obligations of US federal agencies |  | $                       | 138,807 |  |                    | $ | 4,070,002 |                       |  |   |           |  |  |   |        | 
|State and municipalities                                                   |  |                         | 47,913  |  |                    |   | 1,497,087 |                       |  | $ | 10,315     |  |  | $ | 489,685 | 
|                                                                           |  |                         |         |  |                    |   |           |                       |  |   |            |  |  |   |         | 
|Total                                                                      |  | $                       | 186,720 |  |                    | $ | 5,567,089 |                       |  | $ | 10,315     |  |  | $ | 489,685 | 
|                                                                           |  |                         |         |  |                    |   |           |                       |  |   |            |  |  |   |         | 

Unrealized losses on securities have not been recognized into income because the issuers bonds are of
high credit quality, and the Bank 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. | Fixed assets
|-- | ------------

Fixed
assets and their related useful lives at December 31 were as following.



|                                               |  |              |            |  |      |   |          |      |  |   |          |  
|---------------------------------------------- |  | ------------ | ---------- |  | ---- | - | -------- | ---- |  | - | -------- | -
|                                               |  | Useful lives |            |  | 2010 |   |          | 2009 | 
|Computer software                              |  |              | 3 years    |  |      | $ | 121,657  |      |  | $ | 117,153  |  
|Furniture and fixtures                         |  |              | 5-10 years |  |      |   | 95,740   |      |  |   | 92,895   |  
|Leasehold improvements                         |  |              | 3-5 years  |  |      |   | 75,568   |      |  |   | 75,568   |  
|Equipment                                      |  |              | 5 years    |  |      |   | 61,022   |      |  |   | 58,483   |  
|Telephone equipment                            |  |              | 3 years    |  |      |   | 36,846   |      |  |   | 36,846   |  
|Deposit system                                 |  |              | 3 years    |  |      |   | 13,975   |      |  |   | 13,975   |  
|                                               |  |              |            |  |      |   |          |      |  |   |          |  
|                                               |  |              |            |  |      |   | 404,808  |      |  |   | 394,920  |  
|Less accumulated depreciation and amortization |  |              |            |  |      |   | (314,712 | )    |  |   | (256,502 | )
|                                               |  |              |            |  |      |   |          |      |  |   |          |  
|Net fixed assets                               |  |              |            |  |      | $ | 90,096   |      |  | $ | 138,418  |  
|                                               |  |              |            |  |      |   |          |      |  |   |          |  

Depreciation expense was $58,000, $73,000, and $81,000 for the years ended December 31,
2010, 2009, and 2008.



F-45



---

##### Table of Contents

|5. | Deposits and federal funds purchased
|-- | ------------------------------------

At December 31, 2010 the scheduled maturities of all time deposits were as follows.



|      |  |   |             | 
|----- |  | - | ----------- | 
|2011  |  | $ | 355,219,000 | 
|2012  |  |   | 43,389,000  | 
|2013  |  |   | 67,349,000  | 
|      |  |   |             | 
|Total |  | $ | 465,957,000 | 
|      |  |   |             | 

All time deposits are in denominations of less than $100,000 and have been originated through Certificate of
Deposit Broker relationships. The weighted average interest rate of deposits outstanding at December 31, 2010 was 1.34%.

In January 2004, Medallion Bank commenced raising deposits to fund the purchase of various affiliates loan portfolios. Deposits are
raised through the use of investment brokerage firms who package deposits qualifying for FDIC insurance into pools that are sold to Medallion Bank. The rates paid on the deposits are highly competitive with market rates paid by other financial
institutions. Additionally, a brokerage fee of 0.15% to 0.50% is paid, depending on the maturity of the deposit, which is capitalized and amortized to interest expense over the life of the respective pool. The total amount capitalized at
December 31, 2010 and 2009 was $883,000 and $670,000, and $1,007,000, $1,069,000, and $956,000 was amortized to interest expense during 2010, 2009, and 2008. Interest on the deposits is accrued daily and paid monthly, quarterly, semiannually,
or at maturity.

At December 31, 2010, the Bank had unsecured Federal Funds lines with correspondent banks of
$30,000,000, of which $3,000,000 was borrowed at December 31, 2010.



|6. | Income taxes
|-- | ------------

The
components of the provisions for income taxes were as follows for the years ended December 31,



|                               |  |      |           |  |      |   |            |      |  |   |           |  
|------------------------------ |  | ---- | --------- |  | ---- | - | ---------- | ---- |  | - | --------- | -
|                               |  | 2010 |           |  | 2009 |   |            | 2008 | 
|Current                        |  |      |           |  |      |   |            |      |  |   |           |  
|Federal                        |  | $    | 5,746,992 |  |      | $ | 4,175,929  |      |  | $ | 2,979,078 |  
|State                          |  |      | 947,996   |  |      |   | 688,800    |      |  |   | 476,433   |  
|Deferred                       |  |      |           |  |      |   |            |      |  |   |           |  
|Federal                        |  |      | 19,971    |  |      |   | (1,050,974 | )    |  |   | (592,725  | )
|State                          |  |      | 2,937     |  |      |   | (154,555   | )    |  |   | (87,165   | )
|                               |  |      |           |  |      |   |            |      |  |   |           |  
|Net provision for income taxes |  | $    | 6,717,896 |  |      | $ | 3,659,200  |      |  | $ | 2,775,621 |  
|                               |  |      |           |  |      |   |            |      |  |   |           |  

The following table reconciles the provision for income taxes to the US federal statutory income tax rate
for the years ended December 31, 2010, 2009, and 2008.



|                                |  |      |      |   |      |  |      |      |  |  |      |  
|------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                |  | 2010 |      |   | 2009 |  |      | 2008 | 
|US federal statutory tax rate   |  |      | 34.0 | % |      |  | 34.0 | %    |  |  | 34.0 | %
|State taxes                     |  |      | 3.5  |   |      |  | 4.5  |      |  |  | 5.6  |  
|Prior year under (over) accrual |  |      |     |   |      |  | (1.0 | )    |  |  |     |  
|Other                           |  |      | (0.1 | ) |      |  | (1.4 | )    |  |  | 0.3  |  
|                                |  |      |      |   |      |  |      |      |  |  |      |  
|Effective income tax rate       |  |      | 37.4 | % |      |  | 36.1 | %    |  |  | 39.9 | %
|                                |  |      |      |   |      |  |      |      |  |  |      |  

The Bank files its tax returns on a separate company basis.



F-46



---

##### Table of Contents

Deferred tax and other asset balances reflected in the balance sheet were as follows as of
December 31,



|                                         |  |      |            |   |      |   |            |  
|---------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                         |  | 2010 |            |   | 2009 |  
|Provision for loan losses                |  | $    | 5,077,949  |   |      | $ | 5,055,307  |  
|Deferred loan acquisition costs          |  |      | (2,138,361 | ) |      |   | (2,118,211 | )
|Unrealized (gains) losses on investments |  |      | (53,931    | ) |      |   | (34,404    | )
|Other                                    |  |      | (131,448   | ) |      |   | (106,048   | )
|                                         |  |      |            |   |      |   |            |  
|Net deferred tax asset (liability)       |  |      | 2,754,209  |   |      |   | 2,796,644  |  
|Overpayment of estimated taxes           |  |      | 2,224,364  |   |      |   | 476,162    |  
|                                         |  |      |            |   |      |   |            |  
|Net deferred tax and other assets        |  | $    | 4,978,573  |   |      | $ | 3,272,806  |  
|                                         |  |      |            |   |      |   |            |  

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 Topic 740, Income Taxes. Management considers the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Management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 on these
considerations, no valuation allowance was deemed necessary as of December 31, 2010 and 2009.

The Bank has filed US
Federal tax returns as well as tax returns with the State of Utah. Tax years 2007 through the present are open for examination.



|7. | Other transactions with affiliates
|-- | ----------------------------------

The Banks taxi medallion, asset-based commercial, and certain other construction loans aggregated $332,053,000 and $229,810,000 at December 31, 2010 and 2009. These loans are originated and
serviced by the affiliates. The Bank paid $2,094,000, $1,805,000, and $1,492,000 for loan servicing fees to Medallion for 2010, 2009, and 2008, and also in 2010, paid $412,000 to another Medallion affiliate. Origination fees of $819,000, $849,000,
and $804,000 that were capitalized as deferred costs were recognized as interest income by Medallion for 2010, 2009, and 2008. Amortization costs were $1,133,000, $717,000, and $680,000 for 2010, 2009, and 2008.

At December 31, 2010 and 2009, the Bank owed $992,000 and $630,000 to affiliates for origination fees, monthly servicing fees on
loans, charges for corporate overhead, legal and business development expenses due to the affiliates, partially offset by payments due the Bank from collection of loan payments by affiliates. The Bank reimbursed the parent for expenses incurred on
its behalf of $509,000, $215,000, and $192,000 for 2010, 2009, and 2008.



|8. | 401(k) plan
|-- | -----------

The Bank
participates in the 401(k) plan offered by Medallion. The 401(k) Plan covers all full and part-time employees of the Bank who have attained the age of 21 and have a minimum of one year of service. Under the 401(k) Plan, an employee may elect to
defer not less than 1% and no more than 15% of the total annual compensation that would otherwise be paid to the employee, provided however, that employees contributions may not exceed certain maximum amounts determined under the Internal
Revenue Code. Employee contributions are invested in various mutual funds according to the directions of the employee. At the discretion of Medallions Board of Directors, the Bank can provide for employer matching contributions. Medallion has
elected to match employee contributions up to one-third of the employees contribution, but not greater than 2% of the portion of the employees annual salary eligible for 401(k) benefits. For the years ended December 31, 2010, 2009,
and 2008, the Bank provided $15,000, $14,000, and $20,000 in employer matching, which amount is included in salaries and benefits expense on the accompanying statement of operations.



|9. | Commitments and contingencies
|-- | -----------------------------

Loans At December 31, 2010, the Bank had commitments to extend credit of $34,089,000 to asset-based customers as long as there is no violation of any condition established in the
contract. The Bank had commitments to extend credit of $471,000 to taxi medallion customers for unfunded amounts.



F-47



---

##### Table of Contents

Leases The Bank leases office space under a non-cancelable operating
lease that expires November 2012. Rental expense related to the lease was $127,000, $130,000, and $120,000 for the years ended December 31, 2010, 2009, and 2008. The Bank has the option to extend the lease term for an additional five years.

Future minimum lease payments under this operating lease as of December 31, 2010 were as follows:



|      |  |   |         | 
|----- |  | - | ------- | 
|2011  |  | $ | 129,208 | 
|2012  |  |   | 121,691 | 
|      |  |   |         | 
|Total |  | $ | 250,899 | 
|      |  |   |         | 



|10. | Capital requirements
|--- | --------------------

The
Bank is subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions (UDFI). 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.

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 beginning paid-in-capital funds of not less than $22,000,000 be provided, that the Tier 1 leverage capital to total assets
ratio, as defined, be not less than 15%, and that an adequate allowance for loan losses be maintained. As of December 31, 2010, the Banks Tier 1 leverage capital ratio was 17.0%.

The Banks actual capital amounts and ratios as of December 31, 2010 and 2009, and the regulatory minimum ratios are presented
in the following tables.



|                                         |  |                         |             |  |                         |  |      |                                           |  |   |                                                                             |  |  |  |      |   |  |  |     |   |  |  |      |  
|---------------------------------------- |  | ----------------------- | ----------- |  | ----------------------- |  | ---- | ----------------------------------------- |  | - | --------------------------------------------------------------------------- |  |  |  | ---- | - |  |  | --- | - |  |  | ---- | -
|                                         |  | As of December 31, 2010 |             |  | As of December 31, 2009 |  |      | Minimum Ratio forCapital AdequacyPurposes |  |   | Minimum Ratio To be WellCapitalized Under PromptCorrective
ActionProvisions | 
|                                         |  | Amount                  |             |  | Ratio                   |  |      | Amount                                    |  |   | Ratio                                                                       |  |  | 
|Tier 1 Capital (to average assets)       |  | $                       | 93,866,000  |  |                         |  | 17.0 | %                                         |  | $ | 88,811,000                                                                  |  |  |  | 19.5 | % |  |  | 4.0 | % |  |  | 5.0  | %
|Tier 1 Capital (to risk-weighted assets) |  |                         | 93,866,000  |  |                         |  | 17.2 |                                           |  |   | 88,811,000                                                                  |  |  |  | 20.0 |   |  |  | 4.0 |   |  |  | 6.0  |  
|Total Capital (to risk-weighted assets)  |  |                         | 100,762,000 |  |                         |  | 18.5 |                                           |  |   | 94,455,000                                                                  |  |  |  | 21.3 |   |  |  | 8.0 |   |  |  | 10.0 |  



|11. | Fair value of financial instruments
|--- | -----------------------------------

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

(a) Loans Current fair
value most closely approximates book value.

(b) Investments -The Banks investments are recorded at the
estimated fair value of such investments.

(c) Cash  Book value equals market value.

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

(e) 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 December 31, 2010 and 2009, the estimated fair value of these off-balance-sheet instruments was not material.

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



F-48



---

##### Table of Contents

|                            |  |                   |         |  |                   |   |         |                |  |   |            |  |  |   |         | 
|--------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------- | -------------- |  | - | ---------- |  |  | - | ------- | 
|                            |  | December 31, 2010 |         |  | December 31, 2009 |  
|(Dollars in thousands)      |  | CarryingAmount    |         |  | Fair Value        |   |         | CarryingAmount |  |   | Fair Value | 
|Financial Assets            |  |                   |         |  |                   |   |         |                |  |   |            |  |  |   |         | 
|Loans                       |  | $                 | 516,378 |  |                   | $ | 516,378 |                |  | $ | 418,853    |  |  | $ | 418,853 | 
|Investment securities       |  |                   | 20,787  |  |                   |   | 20,787  |                |  |   | 21,061     |  |  |   | 21,061  | 
|Cash                        |  |                   | 16,980  |  |                   |   | 16,980  |                |  |   | 13,340     |  |  |   | 13,340  | 
|Accrued interest receivable |  |                   | 3,171   |  |                   |   | 3,171   |                |  |   | 3,350      |  |  |   | 3,350   | 
|Financial Liabilities       |  |                   |         |  |                   |   |         |                |  |   |            |  |  |   |         | 
|Funds borrowed              |  |                   | 468,957 |  |                   |   | 468,957 |                |  |   | 371,719    |  |  |   | 371,719 | 
|Accrued interest payable    |  |                   | 1,155   |  |                   |   | 1,155   |                |  |   | 1,508      |  |  |   | 1,508   | 



|12. | Fair value of assets and liabilities
|--- | ------------------------------------

The Company follows the provisions of FASB ASC Topic 820, which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used
to measure fair value, and enhances disclosure requirements for fair value measurements. The Company accounts for a substantially all of its financial instruments at fair value or considers fair value in its measurement, in accordance with the
accounting guidance for investment companies. See Note 1 Fair value of financial instruments and Fair value of assets and liabilities for a description of our valuation methodology which is unchanged during 2010.

In accordance with FASB ASC Topic 820, the Bank has categorized its financial instruments, 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).

As required by FASB ASC Topic 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).

Financial assets and liabilities recorded on the balance sheets are categorized
based on the inputs to the valuation techniques as follows:

Level 1. Financial assets and liabilities whose values are
based on unadjusted quoted prices for identical assets or liabilities in an active market that the Bank 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.Financial assets and liabilities whose values
are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:



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



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



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



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

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



F-49



---

##### Table of Contents

derivatives), and long-dated or complex derivatives including certain equity derivatives and long-dated options on gas and power).

Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities.
Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers in/out of the level 3 category.

The
following tables present the Banks fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009.



|                                            |  |         |   |  |         |   |        |         |  |   |       |  |  |   |        | 
|------------------------------------------- |  | ------- | - |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------ | 
|2010 (Dollars in thousands)                 |  | Level 1 |   |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Assets                                      |  |         |   |  |         |   |        |         |  |   |       |  |  |   |        | 
|Available-for-sale investment securities(1) |  | $       |  |  |         | $ | 20,787 |         |  | $ |      |  |  | $ | 20,787 | 



|(1) | Total unrealized gains of $33 were included in accumulated other comprehensive income (loss) for 2010 related to these assets.
|--- | ------------------------------------------------------------------------------------------------------------------------------



|                                            |  |         |   |  |         |   |        |         |  |   |       |  |  |   |        | 
|------------------------------------------- |  | ------- | - |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------ | 
|2009 (Dollars in thousands)                 |  | Level 1 |   |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Assets                                      |  |         |   |  |         |   |        |         |  |   |       |  |  |   |        | 
|Available-for-sale investment securities(1) |  | $       |  |  |         | $ | 21,061 |         |  | $ |      |  |  | $ | 21,061 | 



|(1) | Total unrealized gains of $97 were included in accumulated other comprehensive income for 2009 related to these assets.
|--- | -----------------------------------------------------------------------------------------------------------------------

The following tables present the Banks fair value hierarchy for those assets and liabilities measured at fair value on a
non-recurring basis as of December 31, 2010 and 2009.



|                            |  |         |   |  |         |   |   |         |  |   |       |  |  |   |       | 
|--------------------------- |  | ------- | - |  | ------- | - | - | ------- |  | - | ----- |  |  | - | ----- | 
|2010 (Dollars in thousands) |  | Level 1 |   |  | Level 2 |   |   | Level 3 |  |   | Total | 
|Assets(1)                   |  |         |   |  |         |   |   |         |  |   |       |  |  |   |       | 
|Impaired loans              |  | $       |  |  |         | $ |  |         |  | $ | 2,855 |  |  | $ | 2,855 | 



|(1) | Total unrealized losses of $160 for impaired loans were included in income for 2010 related to these assets.
|--- | ------------------------------------------------------------------------------------------------------------



|                            |  |         |   |  |         |   |   |         |  |   |       |  |  |   |       | 
|--------------------------- |  | ------- | - |  | ------- | - | - | ------- |  | - | ----- |  |  | - | ----- | 
|2009 (Dollars in thousands) |  | Level 1 |   |  | Level 2 |   |   | Level 3 |  |   | Total | 
|Assets(1)                   |  |         |   |  |         |   |   |         |  |   |       |  |  |   |       | 
|Impaired loans              |  | $       |  |  |         | $ |  |         |  | $ | 3,984 |  |  | $ | 3,984 | 



|(1) | Total unrealized losses of $304 for impaired loans were included in income for 2009 related to these assets.
|--- | ------------------------------------------------------------------------------------------------------------



|13. | Troubled Assets Relief Program (TARP)
|--- | -------------------------------------

On February 27, 2009, Medallion Bank issued and sold, and the US Treasury purchased under the TARP Capital Purchase Program (the CPP), (1) 11,800 shares of Medallion Banks Fixed Rate
Non-Cumulative Perpetual Preferred Stock, Series A, and (2) a warrant, which was immediately exercised, to purchase up to 590 shares of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, for an aggregate
purchase price of approximately $11,800,000 in cash. On December 22, 2009, Medallion Bank issued and sold, and the US Treasury purchased under the CPP, (1) 9,698 shares of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred
Stock, Series C, and (2) a warrant, which was immediately exercised, to purchase up to 55 shares of Medallion Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series D, for an aggregate purchase price of approximately $9,698,000
in cash. The liquidation preference of each Series is $1,000 per share.

The securities were sold in private placements exempt
from SEC registration.

Non-cumulative dividends on the Series A and C shares will accrue on the liquidation preference at a
rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter, and the dividends on the Series B and D shares will accrue on the liquidation preference at a rate of 9% per annum, both, if, as, and when
declared by Medallion Banks Board of Directors out of funds legally available thereof. The Preferred Shares have no maturity date and rank senior to Medallion Banks common stock (and pari passu with one another) with respect to the
payment of dividends and distributions and amounts payable upon liquidation, dissolution, and winding up of Medallion Bank. Medallion Banks Articles of Amendments provide that, subject to the approval of the FDIC, the Preferred Shares are
redeemable at the option of Medallion Bank at 100% of their liquidation preference plus declared and unpaid dividends, provided, however, that the Preferred Shares may be redeemed prior to February 27, 2012 and December 22, 2012,
respectively, only if (i) Medallion Bank has raised aggregate gross proceeds in one or more Qualified Equity Offerings, as defined, of at least $3,097,500 and $2,438,250, respectively, and (ii) the aggregate redemption price does not
exceed the aggregate net proceeds from such offerings. The Series B shares cannot be redeemed until the Series A shares have been redeemed and the Series D shares cannot be redeemed until the Series A, B, and C shares have been redeemed.



F-50



---

##### Table of Contents

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the ARRA) was
signed into law. The ARRA, among other things, directs the US Treasury to permit CPP participants to redeem the preferred stock issued under the CPP without first requiring a Qualified Equity Offering, upon consultation with the appropriate Federal
banking agency.

The agreements between Medallion Bank and the US Treasury pursuant to which the Preferred Shares and the
Warrants were sold contain limitations on the payment of common stock dividends to a quarterly rate of $1.00 per share or $1,000,000, and on Medallion Banks ability to repurchase its common stock, and subjects Medallion Bank and Medallion to
certain of the executive compensation limitations and requirements included in the Emergency Economic Stabilization Act of 2008 (the EESA). As a condition to the closing of the transactions, the Company and its senior executive officers have agreed
to all terms and conditions.

The interim final rule promulgated pursuant to Section 111 of the EESA, as amended by the
ARRA, prescribes certain standards for compensation and corporate governance for CPP participants, which include, among other things, (i) the repayment by the senior executive officers and the next twenty most highly compensated employees of
any bonus, retention award, or incentive compensation if the payment was based on materially inaccurate financial information or other materially inaccurate performance metric criteria; (ii) the prohibition of any payment for departure from a
CPP participant or change of control event of a CPP participant, other than a payment for services performed or benefits accrued, to the senior executive officers and the next five most highly compensated employees; (iii) the prohibition of the
payment or accrual of any bonus, retention award, or incentive compensation to a CPP participants most highly compensated employee except through restricted stock with delayed vesting and subject to dollar limits; and (iv) the prohibition
from providing tax gross-ups or other reimbursements for the payment of taxes to senior executive officers and the next twenty most highly compensated employees relating to severance payments, perquisites, or any other form of compensation. The
interim final rule further requires (i) at least once every six months, the compensation committees of CPP participants to meet to discuss, evaluate, and review the CPP participants compensation plans and the risks these plans pose to the
CPP participant and annually in the CPP participants proxy statement describe how such risks were limited and certify that the compensation committee has completed its reviews of the plans and provide such disclosures and certifications to the
Treasury; (ii) CPP participants to disclose to the Treasury and their primary federal regulator on an annual basis, perquisites with a total value over $25,000 for any employee who is subject to the bonus prohibition; (iii) CPP
participants to disclose to the Treasury and their primary federal regulator whether they have engaged a compensation consultant and indicate the types of services the compensation consultant or any of its affiliates has provided during the past
three years, including any benchmarking or comparisons employed to identify certain percentile levels of compensation; (iv) CPP participants to adopt an excessive or luxury expenditures policy; (v) CPP participants to permit
stockholders to vote on a non-binding resolution approving the institutions compensation of executives; and (vi) the principal executive officer and principal financial officer of CPP participants to annually certify compliance of the CPP
participant with Section 111 of EESA and provide these certifications as an exhibit to the CPP participants annual report on Form 10-K and to the Treasury.



|14. | Subsequent Events
|--- | -----------------

We
have evaluated subsequent events that have occurred through March 11, 2011, the date of financial statement issuance.



F-51