**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D. C. 20549**




**FORM
10-Q**




x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934




**For
the quarterly period ended June 30, 2006**




o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934




Commission
file number: **000-51493**




**White
River Capital, Inc.**


(Exact
name of registrant as specified in its charter)




**Indiana**
    **35-1908796**(State
      or other jurisdiction ofincorporation
      or organization)
    (I.R.S.
      Employer Identification No.)







**1445
Brookville Way, Suite I**


**Indianapolis,
Indiana 46239**


(Address
of principal executive offices/zip code)




Registrant’s
telephone number, including area code: **(317)
806-2166**




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. x Yes o No




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




Large
      accelerated filero
    Accelerated
      filero
    Non-accelerated
      filerx


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes x No




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. As of August 9, 2006, there were
3,813,155 shares outstanding of the issuer’s Common Stock, without par
value.













**WHITE
RIVER CAPITAL, INC.**


**FORM
10-Q FOR THE THREE MONTHS ENDED JUNE 30, 2006**










**-
INDEX -**




**PAGE****PART
      I.**
    **FINANCIAL
      INFORMATION****Item
      1.**
    **Financial
      Statements****Unaudited
      Condensed Consolidated Balance Sheets as of June 30, 2006 and
      December 31, 2005**
    1**Unaudited
      Condensed Consolidated Statements of Operations for the quarters and six
      months ended June 30, 2006 and 2005**
    2**Unaudited
      Condensed Consolidated Statements of Cash Flows for the six months ended
      June 30, 2006 and 2005**
    3**Unaudited
      Condensed Consolidated Statements of Comprehensive Income for the quarters
      and six months ended June 30, 2006 and 2005**
    4**Notes
      to Unaudited Condensed Consolidated Financial
      Statements**
    5**Item
      2.**
    **Management’s
      Discussion and Analysis of Financial Condition****and Results of Operations**
    17**Item
      4.**
    **Controls
      and Procedures**
    41**PART
      II.**
    **OTHER
      INFORMATION****Item
      1.**
    **Legal
      Proceedings**
    42**Item
      4.**
    **Submission
      of Matters to a Vote of Security Holders**
    42**Item
      6.**
    **Exhibits
      and Reports on Form 8-K**
    43**SIGNATURES**
    44







ii
 
 **PART I****FINANCIAL
INFORMATION**




**PART
I**





**ITEM
1. FINANCIAL STATEMENTS.**




**WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES**


**CONDENSED
CONSOLIDATED BALANCE SHEETS**


(Unaudited)


(Dollars
in thousands)







**ASSETS**
    
    **June
      30, 2006**
    
    **December
      31, 2005**Cash
      and cash equivalents
    
    $
    6,409
    
    $
    6,878Restricted
      cash
    
    
    18,083
    
    
    22,739Securitized
      finance receivables—net
    
    
    55,080
    
    
    109,506Finance
      receivables—net
    
    
    77,758
    
    
    70,784Beneficial
      interest in Master Trust
    
    
    20,676
    
    
    13,968Goodwill
    
    
    35,097
    
    
    35,097Deferred
      tax assets
    
    
    5,756
    
    
    4,707Other
      assets
    
    
    5,810
    
    
    3,315TOTAL
    
    $
    224,669
    
    $
    266,994**LIABILITIES
      AND SHAREHOLDERS’ EQUITY**LIABILITIES:Collateralized
      financing
    
    $
    65,342
    
    $
    122,293Line
      of credit
    
    
    57,500
    
    
    51,500Secured
      note payable
    
    
    15,000
    
    
    15,000Subordinated
      debentures
    
    
    7,700
    
    
    7,700Note
      payable - Coastal Credit purchase holdback
    
    
    -
    
    
    3,840Accrued
      interest
    
    
    1,853
    
    
    2,131Amounts
      due to Master Trust
    
    
    7,314
    
    
    7,417Creditor
      notes payable
    
    
    1,634
    
    
    1,461Other
      payables and accrued expenses
    
    
    3,377
    
    
    2,291Total
      liabilities
    
    
    159,720
    
    
    213,633SHAREHOLDERS’
      EQUITY:Preferred
      Stock, without par value, authorized 3,000,000 shares; none issued and
      outstanding
    
    
    -
    
    
    -Common
      Stock, without par value, authorized 20,000,000 shares; 3,813,155 and
      3,810,155 issued and outstanding at June 30, 2006 and December 31, 2005,
      respectively
    
    
    179,259
    
    
    179,157Warrants
    
    
    534
    
    
    534Accumulated
      other comprehensive income
    
    
    20,025
    
    
    13,305Accumulated
      deficit
    
    
    (134,869
    )
    
    (139,635
    )Total
      shareholders’ equity
    
    
    64,949
    
    
    53,361TOTAL
    
    $
    224,669
    
    $
    266,994







See notes
to condensed consolidated financial statements.





1
 **PART
I****FINANCIAL
INFORMATION**


**WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES**


**CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS**


(Unaudited)


(Dollars
in thousands, except per share amounts)


**Quarters
      Ended June 30,**
    
    **Six
      Months Ended June 30,****2006**
    
    **2005**
    
    **2006**
    
    **2005**INTEREST:Interest
      on receivables
    
    $
    9,577
    
    $
    5,407
    
    $
    19,609
    
    $
    9,887Accretion
      and other interest
    
    
    2,697
    
    
    4,169
    
    
    3,407
    
    
    5,719Total
      interest income
    
    
    12,274
    
    
    9,576
    
    
    23,016
    
    
    15,606Interest
      expense
    
    
    (3,082
    )
    
    (4,320
    )
    
    (6,423
    )
    
    (8,344
    )Net
      interest margin
    
    
    9,192
    
    
    5,256
    
    
    16,593
    
    
    7,262Recovery
      (provision) for estimated credit losses
    
    
    523
    
    
    (1,363
    )
    
    385
    
    
    (1,812
    )Net
      interest margin after recovery (provision) for estimated credit
      losses
    
    
    9,715
    
    
    3,893
    
    
    16,978
    
    
    5,450OTHER
      REVENUES:Charge
      to Master Trust—net
    
    
    (5,614
    )
    
    (1,429
    )
    
    (8,001
    )
    
    (3,052
    )Gain
      (loss) from extinguishment of debt
    
    
    (202
    )
    
    11,061
    
    
    (202
    )
    
    11,061Other
      income
    
    
    3,563
    
    
    168
    
    
    3,670
    
    
    426Total
      other revenues, net
    
    
    (2,253
    )
    
    9,800
    
    
    (4,533
    )
    
    8,435OTHER
      EXPENSES:Salaries
      and benefits
    
    
    2,127
    
    
    78
    
    
    4,123
    
    
    171Third
      party servicing expense
    
    
    477
    
    
    817
    
    
    1,180
    
    
    1,627Other
      operating expenses
    
    
    1,611
    
    
    217
    
    
    3,217
    
    
    606Bankruptcy
      costs
    
    
    57
    
    
    61
    
    
    131
    
    
    170Total
      other expenses
    
    
    4,272
    
    
    1,173
    
    
    8,651
    
    
    2,574INCOME
      BEFORE INCOME TAXES
    
    
    3,190
    
    
    12,520
    
    
    3,794
    
    
    11,311INCOME
      TAX BENEFIT
    
    
    439
    
    
    -
    
    
    971
    
    
    -NET
      INCOME
    
    $
    3,629
    
    $
    12,520
    
    $
    4,765
    
    $
    11,311NET
      INCOME PER COMMON SHARE (BASIC)
    
    $
    0.95
    
    $
    40.36
    
    $
    1.25
    
    $
    36.46NET
      INCOME PER COMMON SHARE (DILUTED)
    
    $
    0.94
    
    $
    40.36
    
    $
    1.23
    
    $
    36.46BASIC
      WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    
    
    3,813,155
    
    
    310,191
    
    
    3,812,989
    
    
    310,191DILUTED
      WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    
    
    3,868,828
    
    
    310,191
    
    
    3,866,358
    
    
    310,191







See notes
to condensed consolidated financial statements.





2
 **PART
I****FINANCIAL
INFORMATION**


**WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES**


**CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS**


(Unaudited)


(Dollars
in thousands)




**Six
      Months Ended June 30,****2006**
    
    **2005**CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
    
    $
    4,765
    
    $
    11,311Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Accretion
      of beneficial interest in Master Trust
    
    
    (2,942
    )
    
    (5,395
    )Provision
      (recovery) for estimated credit losses
    
    
    (385
    )
    
    1,812Amortization
      and depreciation
    
    
    249
    
    
    13Amortization
      of discount and interest accrued on creditor notes payable
    
    
    630
    
    
    4,581Loss
      (gain) from extinguishment of debt
    
    
    202
    
    
    (11,061
    )Deferred
      income taxes
    
    
    (1,049
    )
    
    -Stock
      based compensation expense
    
    
    102
    
    
    -Changes
      in assets and liabilities:Accrued
      interest receivable and other assets
    
    
    (1,231
    )
    
    1,395Amounts
      due to Master Trust
    
    
    (103
    )
    
    472Payment
      of creditor notes payable accrued interest
    
    
    (251
    )
    
    (6,034
    )Other
      payables and accrued expenses
    
    
    791
    
    
    (23
    )Net
      cash provided by (used in) operating activities
    
    
    778
    
    
    (2,929
    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Payment
      of Coastal Credit purchase holdback
    
    
    (3,840
    )
    
    -Purchase
      of securitized finance receivables
    
    
    -
    
    
    (96,120
    )Principal
      collections and recoveries on securitized finance
    receivables
    
    
    53,466
    
    
    78,703Purchase
      of finance receivables
    
    
    (34,288
    )
    
    -Collections
      on finance receivables
    
    
    25,210
    
    
    -Principal
      collections and recoveries on receivables held for
    investment
    
    
    1,967
    
    
    -Collections
      on beneficial interest in Master Trust
    
    
    2,953
    
    
    6,264Change
      in restricted cash
    
    
    4,657
    
    
    (5,345
    )Capital
      expenditures
    
    
    (31
    )
    
    (3
    )Net
      cash provided by (used in) investing activities
    
    
    50,094
    
    
    (16,501
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from collateralized financings
    
    
    -
    
    
    98,426Principal
      payments on collateralized financings
    
    
    (56,952
    )
    
    (79,337
    )Principal
      payments on creditor notes payable
    
    
    (389
    )
    
    (3,432
    )Borrowing
      on line of credit
    
    
    6,000
    
    
    -Proceeds
      from notes payable to Castle Creek
    
    
    -
    
    
    2,375Net
      cash provided by (used in) financing activities
    
    
    (51,341
    )
    
    18,032DECREASE
      IN CASH AND CASH EQUIVALENTS
    
    
    (469
    )
    
    (1,398
    )CASH
      AND CASH EQUIVALENTS—Beginning of period
    
    
    6,878
    
    
    3,745CASH
      AND CASH EQUIVALENTS—End of period
    
    $
    6,409
    
    $
    2,347SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Income
      tax refunds
    
    $
    2
    
    $
    12Interest
      paid
    
    $
    5,899
    
    $
    7,378Non
      cash items:Transfer
      of securitized finance receivables—net to other assets after the
      collateralized financing for securitization
      2003-A was paid in full
    
    $
    2,771
    
    $
    -







See notes
to condensed consolidated financial statements.





3
 **PART
I****FINANCIAL
INFORMATION**





**WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES**


**CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**


(Unaudited)


(Dollars
in thousands)




**Quarters
      Ended June 30,**
    
    **Six
      Months Ended June 30,****2006**
    
    **2005**
    
    **2006**
    
    **2005**NET
      INCOME
    
    $
    3,629
    
    $
    12,520
    
    $
    4,765
    
    $
    11,311OTHER
      COMPREHENSIVE INCOME:Unrealized
      gain on beneficial interest in Master Trust
    
    
    5,787
    
    
    6,263
    
    
    9,662
    
    
    10,103Reclassification
      adjustment for gain included in net income
    
    
    (2,462
    )
    
    (3,970
    )
    
    (2,942
    )
    
    (5,395
    )Net
      other comprehensive income
    
    
    3,325
    
    
    2,293
    
    
    6,720
    
    
    4,708COMPREHENSIVE
      INCOME
    
    $
    6,954
    
    $
    14,813
    
    $
    11,485
    
    $
    16,019







See notes
to condensed consolidated financial statements.







4
 **PART
I****FINANCIAL
INFORMATION**





**WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES**


**NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**QUARTERS
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005**




**1.**
    **BASIS
      OF PRESENTATION**




The
foregoing condensed consolidated financial statements are unaudited. However, in
the opinion of management, all adjustments necessary for a fair presentation of
the results of the interim periods presented have been included. Results for any
interim period are not necessarily indicative of results to be expected for the
year ending December 31, 2006.




The
condensed consolidated unaudited interim financial statements have been prepared
in accordance with Form 10-Q specifications and therefore do not include all
information and footnotes normally shown in annual financial statements. As a
result of the share exchange that occurred August 9, 2005, the condensed
consolidated financial statements will show the results of Union Acceptance
Company LLC, formerly known as Union Acceptance Corporation, Inc. (“UAC”), and
White River Capital, Inc. (“White River”) as though they always coexisted, also
referred to as predecessor accounting. These interim period financial statements
should be read in conjunction with the consolidated financial statements that
are included in the Annual Report on Form 10-K for the year ended
December 31, 2005 of White River Capital, Inc., which is available online
at www.sec.gov.




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expense during
the reporting period. Actual results could differ from those
estimates.




**New
Accounting Pronouncements**




During
July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, *Accounting
for Uncertainty in Income Taxes* (“FIN
48”). FIN 48 establishes standards for measurement and recognition in financial
statements of positions taken by an entity in its income tax returns. In
addition, FIN 48 requires new disclosures about positions taken by an entity in
its tax returns that are not recognized in its financial statements, information
about potential significant changes in estimates related to tax positions and
descriptions of open tax years by major jurisdiction. The provisions of FIN 48
will become effective for fiscal years beginning after December 15, 2006, with
the cumulative effect of the change in accounting principle recorded as an
adjustment to retained earnings. We are currently evaluating the impact that FIN
48 will have on our results of operations and financial condition.




**2.**
    **GENERAL
      DISCUSSION**




White
River is a holding company for specialized indirect auto finance businesses,
with two principal operating subsidiaries, Coastal Credit LLC (“Coastal Credit”)
and UAC. Coastal Credit based in Virginia Beach, Virginia, is a specialized
sub-prime auto finance company engaged primarily in (1) acquiring retail
installment sales contracts from both franchised and independent automobile
dealers which have entered into contracts with purchasers of used and, to a much
lesser extent, new cars and light trucks, and (2) servicing its contract
portfolio. Coastal Credit operates in twenty-two states. UAC, based in
Indianapolis, Indiana, holds and oversees its portfolio of approximately $114.3
million in non-prime auto receivables, as of June 30, 2006. Its portfolio
is held approximately 47.4% in off-balance sheet securitizations, 51.4% through
subsidiary non-recourse collateralized financings and 1.2% directly or by
subsidiaries not subject to financing. UAC operates under a confirmed Second
Amended and Restated Plan of Reorganization under Chapter 11 of the U.S.







5
 **PART
I****FINANCIAL
INFORMATION**





Bankruptcy
Code (the “Plan”) under which net proceeds from its residual interest in its
receivables portfolios and other bankruptcy estate assets must be paid to
creditors holding notes and claims under the plan. During 2005, White River
purchased and owns directly approximately 90% of such notes and
claims.




During
the quarter ended June 30, 2006, White River offered to acquire the
remaining general unsecured claims of UAC not previously acquired by White
River. As of June 30, 2006, approximately 96% of these claim holders
accepted White River’s most recent offer. With this acquisition of claims, White
River owns directly approximately 99% of the general unsecured claims of
UAC.




On June
9, 2006, UAC sold receivables in Chapter 13 bankruptcy status from its portfolio
to an unrelated third party. These accounts had a combined secured and unsecured
receivable balance of approximately $10.6 million which, on each account, was
previously charged off to a book value of zero during the Chapter 13 bankruptcy
process. The sale proceeds were allocated between the Master Trust Account and
UAC based on the allocation of accounts that were collateral for the
collateralized financings and the accounts that were not, respectively. 15% of
the proceeds are held in escrow until September 25, 2006 in the event there are
any accounts that need to be repurchased. It is expected that the amount of
repurchase will be immaterial.




**3.**
    **NET
      ASSETS OF COLLATERALIZED
FINANCINGS**




UAC
Securitization Corporation (“UACSC”), a wholly owned special purpose subsidiary
of UAC, in conjunction with a conduit provider and its surety provider,
purchased receivables from outstanding securitizations that were eligible for
clean-up calls during 2005, 2004 and 2003. These receivables were re-securitized
through non-recourse asset backed note issuances. The associated future cash
flows from these receivables are subject to the same Master Trust Account
provisions as the securitizations called.




To
finance the receivable acquisitions, UAC used collateralized financings, secured
by the respective portfolio of the acquired receivables and related restricted
cash accounts. Timely payments of principal and interest on the non-recourse
collateralized financings are insured by surety policies. Such obligations are
also cross-collateralized through the Master Trust Agreement. Net interest cash
flows in excess of expenses are payable to the Master Trust Account and expensed
as a charge to Master Trust, net.




The
collateralized financing for 2003-A was paid in full during the first quarter of
2006. The remaining receivables were released from the related collateral
arrangements and inure directly to UACSC. These receivables were recorded in
other assets as receivables held for investment, net.





6
 **PART
I****FINANCIAL
INFORMATION**


The
following table represents the restricted net assets and liabilities related to
non-recourse collateralized financings (in millions) as of:


**June
      30, 2006**
    
    **December
      31, 2005**Securitized
      finance receivables—net
    
    $
    55.1
    
    $
    109.5Restricted
      cash
    
    
    18.1
    
    
    22.7Receivable
      from servicer included in other assets
    
    
    0.2
    
    
    1.1Collateralized
      financings
    
    
    (65.3
    )
    
    (122.3
    )Series
      2003-A excess collateral (1)
    
    
    -
    
    
    (2.7
    )Accrued
      interest payable
    
    
    (0.4
    )
    
    (0.5
    )Other
      payables and accrued expenses
    
    
    (0.4
    )
    
    (0.4
    )Amounts
      due to Master Trust
    
    $
    7.3
    
    $
    7.4


(1)
    On
      March 8, 2006 the 2003-A note was paid in full and no longer contributes
      to amounts due to Master Trust.




**4.**
    **SECURITIZED
      FINANCE RECEIVABLES—NET**




Securitized
finance receivables-net are recorded at the outstanding principal balance of the
receivables plus accrued interest receivable, net of an allowance for credit
losses. The collateralized financing for securitization 2003-A was paid in full
during the first quarter of 2006. The following table represents components of
securitized finance receivables—net (in thousands) as of:




**June
      30, 2006**
    
    **December
      31, 2005**Principal
      balance of securitized finance receivables
    
    $
    58,710
    
    $
    115,031Accrued
      interest receivable
    
    
    459
    
    
    978Allowance
      for credit losses
    
    
    (4,089
    )
    
    (6,503
    )Securitized
      finance receivables—net
    
    $
    55,080
    
    $
    109,506







Activity
in the allowance for credit losses on securitized finance receivables is as
follows (in thousands):




**Quarters
      Ended June 30,**
    
    **Six
      Months Ended June 30,****2006**
    
    **2005**
    
    **2006**
    
    **2005**Balance
      at the beginning of period
    
    $
    4,867
    
    $
    12,758
    
    $
    6,503
    
    $
    11,722Allowance
      at purchase
    
    
    -
    
    
    362
    
    
    -
    
    
    3,032Charge-offs
    
    
    (2,064
    )
    
    (4,901
    )
    
    (6,316
    )
    
    (10,599
    )Recoveries
    
    
    2,842
    
    
    3,843
    
    
    6,391
    
    
    7,458Provision
      (recovery) for estimated credit losses
    
    
    (1,556
    )
    
    1,363
    
    
    (2,489
    )
    
    1,812Balance
      at the end of the period
    
    $
    4,089
    
    $
    13,425
    
    $
    4,089
    
    $
    13,425







7




**5.**
    **COLLATERALIZED
      FINANCINGS**




The
collateralized financings’ principal and interest is paid monthly with total
cash received from the corresponding securitized finance receivables
collateralizing the notes. If the cash received within the month is insufficient
to pay the note principal and interest, funds are drawn from restricted cash
accounts or the Master Trust Account in accordance with the Master Trust
Agreement. Interest expense related to these collateralized financings,
including the amortization of debt issuance costs, was $1.0 million and
$2.1 million for the quarters ended June 30, 2006 and 2005,
respectively and $2.3 million and $3.8 million for the six months ended
June 30, 2006 and 2005, respectively.




The
following table summarizes the outstanding principal balance of the
collateralized financings (in thousands) at:




**Note**
    
    **Initial
      Note**
    
    **June
      30,**
    
    **December
      31,****Notes
      Series**
    
    **Rate**
    
    **Amount**
    
    **2006**
    
    **2005**Series
      2003-A
    
    
    3.95
    %
    
    $
    120,327
    
    $
    -
    
    $
    2,072Series
      2004-A1
    
    
    4.15
    
    
    
    29,485
    
    
    1,334
    
    
    3,743Series
      2004-A2
    
    
    4.55
    
    
    
    29,298
    
    
    2,227
    
    
    5,317Series
      2004-B
    
    
    5.02
    
    
    
    25,896
    
    
    2,674
    
    
    5,972Series
      2004-C
    
    
    4.89
    
    
    
    51,992
    
    
    9,136
    
    
    18,636Series
      2005-A
    
    
    4.49
    
    
    
    47,742
    
    
    11,325
    
    
    20,730Series
      2005-B
    
    
    4.69
    
    
    
    50,684
    
    
    15,759
    
    
    27,445Series
      2005-C
    
    
    5.40
    
    
    
    54,933
    
    
    22,887
    
    
    38,378$
    410,357
    
    $
    65,342
    
    $
    122,293







**6.**
    **BENEFICIAL
      INTEREST IN MASTER TRUST**




With the
establishment of the Master Trust Agreement in 2003, all excess cash flows, as
defined, from retained interest in securitized assets, finance receivables, and
restricted cash accounts are to be deposited in the Master Trust Account. Once
prescribed cash reserve levels are met, cash is released from the Master Trust
Account to UACSC. This estimated future discounted cash flow is reported as
beneficial interest in Master Trust. In determining the fair value of the
beneficial interest in Master Trust, estimates must be made for the future
prepayments, rates of gross credit losses and credit loss severity, and
delinquencies as they impact the amount and timing of the estimated cash flows
from the Master Trust. The average of the interest rates on the receivables
exceeds the interest rates on the securities issued in the securitizations and
the servicing and surety fees. This excess cash is held by the Master Trust
Account and released based on reserve requirements of the Master Trust. These
estimated cash flows from the Master Trust are then discounted to reflect the
present value.




The
assumptions used to calculate the beneficial interest in Master Trust are as
follows:




**·**
    *Credit
      Loss Assumptions*—Prior
      to December 31, 2005, estimated net credit losses were calculated
      using the loss to liquidation methodology for each securitized pool. The
      loss to liquidation methodology takes into account the current loss level
      of each securitized pool and its “pool factor,” which is the percentage
      remaining of the original pool balance. Dividing the current cumulative
      net loss for each pool by its corresponding pool factor, future projected
      cumulative net losses were calculated.





8
 **PART
I****FINANCIAL
INFORMATION**





Beginning
December 31, 2005, gross credit losses are calculated using the loss to
liquidation factor methodology as discussed above. However, recovery cash flows
from gross credit losses are estimated independently as two different cash flow
streams. These two recovery cash flow streams are:




o
    *Liquidation
      recovery*-
      consists of net auction proceeds, deficiency recoveries by the servicer,
      and scheduled payments from defaulted accounts. On a monthly basis for
      each pool, liquidation recovery cash dollars as a percentage of gross
      default dollars has been calculated for the previous year (this is
      typically in the 50-60% range). This twelve month average for each pool
      will be used to project monthly liquidation recovery by multiplying this
      value by the monthly estimated gross default dollars
      projected.




o
    *Bankruptcy
      recovery*-
      consists of cash recovered from accounts charged off and in bankruptcy
      status. Bankruptcy cash flows are somewhat independent of default rates
      due to bankruptcy court involvement and the latitude allowed debtors
      during the bankruptcy process. In recent months, UAC has observed a
      reasonably predictable cash flow stream from bankruptcy payments in each
      securitized pool. This cash flow stream will, however, eventually expire
      as the bankruptcy cases are dismissed from the various courts with either
      a successful or non-successful outcome. A previous twelve month average of
      bankruptcy cash flows is calculated for each pool. This value is then
      reduced on a straight line basis over either a 30 or 42 month period. The
      bankruptcy recovery has been adjusted to reflect the percentage of
      accounts remaining after the receivables were sold in the Chapter 13
      bankruptcy sale discussed in Note 2.





Finally,
gross credit losses are netted against the two recovery cash streams to estimate
future net credit losses.





The
weighted average net credit loss assumption as a percentage of the original
principal balance over the life of the receivables to value beneficial interest
in Master Trust was 8.78% and 8.93% at June 30, 2006 and December 31,
2005, respectively.




*Prepayment
Assumptions* —UAC
estimates prepayments by evaluating the historical prepayment performance of
each pool of receivables. UAC used annual prepayment rates ranging from 28.6% to
41.2% at June 30, 2006 as compared to 27.8% to 42.3% at December 31,
2005.




*Discount
Rate Assumptions* —UAC
determines the estimated fair value of its beneficial interest in Master Trust
by discounting the expected cash flows released from the Master Trust Account
(the cash out method) using a discount rate that UAC believes is commensurate
with the risks involved. UAC used a discount rate of 15% to value the beneficial
interest in Master Trust at June 30, 2006 and December 31, 2005 to
reflect current market conditions and UAC’s financial position. This discount
rate has remained constant not withstanding recent increases in market interest
rates due to management’s assessment that there has been reduction in risk
related to the distributions from the Master Trust Account.




**7.**
    **FINANCE
      RECEIVABLES - NET**




Finance
receivables - net were acquired as part of the acquisition of Coastal Credit on
August 31, 2005. Finance receivables - net generally have original terms ranging
from 32 to 48 months and are secured by the related vehicles.




A
significant number of contracts acquired by Coastal Credit are contracts made
with borrowers who are in the United States military. Coastal Credit requests
that all borrowers who are in the military use the military allotment system to
make payments on their contracts. Under this allotment system, the borrower







9
 **PART
I****FINANCIAL
INFORMATION**





authorizes
the military to make a payroll deduction for the amount of the borrower’s
monthly contract payment and to direct this deduction payment to Coastal Credit
on behalf of the borrower.




Finance
receivables - net outstanding is as follows (in thousands):




**June
      30, 2006**
    
    **December
      31, 2005**Finance
      receivables, gross
    
    $
    105,512
    
    $
    97,820Unearned
      interest
    
    
    (9,914
    )
    
    (9,868
    )Finance
      receivables, net of unearned finance charge income
    
    
    95,598
    
    
    87,952Accretable
      unearned acquisition discounts and fees
    
    
    (12,008
    )
    
    (11,137
    )Finance
      receivables, net of unearned finance charge income and discounts and
      fees
    
    
    83,590
    
    
    76,815Allowance
      for loan losses
    
    
    (5,832
    )
    
    (6,031
    )Finance
      receivables, net
    
    $
    77,758
    
    $
    70,784








10
 **PART
I****FINANCIAL
INFORMATION**


Activity
in the allowance for loan losses on finance receivables is as follows (dollars
in thousands):


**Quarter
      Ended**
      **June
      30, 2006**
    
    **Six
      Months Ended June 30, 2006**Balance
      at beginning of period
    
    $
    5,916
    
    $
    6,031Charge-offs,
      net of recoveries
    
    
    (1,117
    )
    
    (2,303
    )Provision
      for estimated credit losses
    
    
    1,033
    
    
    2,104Balance
      at the end of the period
    
    $
    5,832
    
    $
    5,832Net
      charge offs
    
    $
    1,117
    
    $
    2,303Finance
      receivables, net of unearned finance charges
    
    $
    95,598
    
    $
    95,598Allowance
      for loan losses as a percent of finance receivables, net of unearned
      finance charges
    
    
    6.10
    %
    
    6.10
    %Annualized
      net charge offs as a percent of finance receivables, net of unearned
      finance charges
    
    
    4.67
    %
    
    4.82
    %Allowance
      for loan losses as a percent of annualized net charge offs
    
    
    130.53
    %
    
    126.62
    %







**8.**
    **OTHER
      ASSETS**




Other
assets are as follows (in thousands) at:




**June
      30, 2006**
    
    **December
      31, 2005**Receivable
      from servicer
    
    $
    208
    
    $
    1,124Prepaid
      expenses
    
    
    510
    
    
    712Property,
      equipment and leasehold improvements, net
    
    
    513
    
    
    601Dealer
      premium rebate receivable, net
    
    
    84
    
    
    338Receivables
      held for investment, net
    
    
    1,392
    
    
    269Receivable
      from Master Trust account
    
    
    2,953
    
    
    -Other
    
    
    150
    
    
    271Total
      other assets
    
    $
    5,810
    
    $
    3,315





11
 **PART
I****FINANCIAL
INFORMATION**




**9.**
    **CREDITOR
      NOTES PAYABLE**




In
connection with UAC’s Plan of Reorganization and distributions and as a result
of White River’s purchase of the majority of UAC’s general unsecured claims and
Subordinated Notes, UAC’s creditor notes payable
principle amounts (in thousands) are as follows at:




**June
      30, 2006**
    
    **December
      31, 2005****Contractual**
    
    
    
    
    
    **Contractual****Remaining**
    
    **Total**
    
    
    
    **Remaining**
    
    **Total****Debt
      Not**
    
    **Contractual**
    
    
    
    **Debt
      Not**
    
    **Contractual****Carrying**
    
    **Owned
      by**
    
    **Remaining**
    
    **Carrying**
    
    **Owned
      by**
    
    **Remaining****Value**
    
    **White
      River**
    
    **Debt**
    
    **Value**
    
    **White
      River**
    
    **Debt**Restructured
      debt:Class
      2A general unsecured claims
    
    $
    9
    
    $
    18
    
    $
    1,322
    
    $
    164
    
    $
    405
    
    $
    1,330Class
      2A1 general unsecured claims
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Restructured
      senior notes
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Restructured
      subordinated notes
    
    
    1,624
    
    
    5,041
    
    
    46,383
    
    
    1,296
    
    
    5,041
    
    
    46,383Senior
      accrual notes
    
    
    -
    
    
    -
    
    
    4,106
    
    
    -
    
    
    -
    
    
    4,106Subordinated
      accrual notes
    
    
    1
    
    
    431
    
    
    3,964
    
    
    1
    
    
    431
    
    
    3,964Total
      creditor notes payable
    
    $
    1,634
    
    $
    5,490
    
    $
    55,775
    
    $
    1,461
    
    $
    5,877
    
    $
    55,783







**10.**
    **INCOME
      TAXES**




On August
31, 2005, White River acquired Coastal Credit, an operating business within
UAC’s historical line of business. With this acquisition, it is now more likely
than not that a portion of the deferred tax assts will be realized by White
River. As part of the acquisition purchase accounting, the taxable income of
Coastal Credit was estimated and partially offset by the taxable loss of UAC and
corporate expenses of White River for remainder of tax year 2005 and the
following five years. The results of these estimates were a reduction in the
valuation allowance of $4.7 million at August 31, 2005. This adjustment to the
valuation allowance was offset by a reduction to goodwill as part of the
purchase of Coastal Credit.




White
River reviews the valuation allowance based on the estimated taxable income for
the next five years and makes adjustments as required. The income tax benefit
approximated $439,000 for the quarter ended June 30, 2006 and $971,000 for
the six months ended June 30, 2006. This income tax benefit was the result
of a $470,000 and $1.0 million benefit for the quarter and six months ended
June 30, 2006, respectively, from the reversal of a portion of the
valuation allowance based on the estimated taxable income for the next five
years partially offset by state income tax expense of approximately $31,000 and
$78,000 for the quarter and six months ended June 30, 2006,
respectively.




**11.**
    **BUSINESS
      SEGMENT INFORMATION**




White
River is the holding company for Coastal Credit and UAC, which are specialized
auto finance companies. These subsidiaries are distinct legal entities and
managed separately. Corporate and Other is the White River holding company and
includes debt and interest expense related to the acquisition of Coastal Credit,
professional fees related to holding activities of White River and the
elimination of all inter-segment amounts, which generally relate to the holding
activities of White River.




Coastal
Credit is a specialized sub-prime auto finance company engaged primarily in (1)
acquiring retail installment sales contracts from both franchised and
independent automobile dealers which have entered into





12
 **PART
I****FINANCIAL
INFORMATION**




contracts with purchasers of used and, to a much lesser
extent, new cars and light trucks, and (2) servicing the contract portfolio.
Coastal Credit commenced operations in Virginia in 1987 and conducts business in
twenty-two states through its seventeen branch locations. All goodwill relates
to the Coastal Credit segment.





UAC is a
specialized auto finance company. Since confirmation of UAC’s bankruptcy Plan of
Reorganization in August 2003, UAC has carried out the terms and provisions of
the Plan of Reorganization. UAC is continuing business activities related to
oversight of collection and refinancing of its securitized and unsecuritized
auto receivable portfolios in compliance with its Plan of Reorganization.
Generally, UAC continues to collect cash as it becomes available from prescribed
assets of the bankruptcy estate and to distribute such cash to the creditors of
the bankruptcy estate who made allowed claims in the bankruptcy case. White
River purchased approximately 90% of such UAC notes and claims during
2005.




Set forth
in the table below is certain financial information with respect to White
River’s segments.






13
 **PART
I****FINANCIAL
INFORMATION**




**For
      The Quarter Ended June 30, 2006**
    
    **UAC**
    
    **Coastal
      Credit**
    
    **Corporate
      and Other**
    
    **Consolidated**Total
      interest income
    
    $
    5,052
    
    $
    7,208
    
    $
    14
    
    $
    12,274Interest
      expense
    
    
    (1,292
    )
    
    (1,367
    )
    
    (423
    )
    
    (3,082
    )Net
      interest margin
    
    
    3,760
    
    
    5,841
    
    
    (409
    )
    
    9,192Recovery
      (provision) for estimated credit losses
    
    
    1,556
    
    
    (1,033
    )
    
    -
    
    
    523Net
      interest margin (deficit) after recovery (provision) for estimated credit
      losses
    
    
    5,316
    
    
    4,808
    
    
    (409
    )
    
    9,715Total
      other revenues (charges), net
    
    
    (3,667
    )
    
    (151
    )
    
    1,565
    
    
    (2,253
    )Total
      other expenses
    
    
    802
    
    
    2,781
    
    
    689
    
    
    4,272Income
      before income taxes
    
    $
    847
    
    $
    1,876
    
    $
    467
    
    $
    3,190**For
      The Quarter Ended June 30, 2005**
    
    
    **UAC**
    
    
    **Coastal
      Credit**
    
    
    **Corporate
      and Other**
    
    
    **Consolidated**Total
      interest income
    
    $
    9,576
    
    $
    -
    
    $
    -
    
    $
    9,576Interest
      expense
    
    
    (4,313
    )
    
    -
    
    
    (7
    )
    
    (4,320
    )Net
      interest margin
    
    
    5,263
    
    
    -
    
    
    (7
    )
    
    5,256Provision
      for estimated credit losses
    
    
    (1,363
    )
    
    -
    
    
    -
    
    
    (1,363
    )Net
      interest margin (deficit) after provision for estimated credit
      losses
    
    
    3,900
    
    
    -
    
    
    (7
    )
    
    3,893Total
      other revenues (charges), net
    
    
    11,913
    
    
    -
    
    
    (2,113
    )
    
    9,800Total
      other expenses
    
    
    1,097
    
    
    -
    
    
    76
    
    
    1,173Income
      (loss) before income taxes
    
    $
    14,716
    
    $
    -
    
    $
    (2,196
    )
    $
    12,520**For
      The Six Months Ended June 30, 2006**
    
    
    **UAC**
    
    
    **Coastal
      Credit**
    
    
    **Corporate
      and Other**
    
    
    **Consolidated**Total
      interest income
    
    $
    8,937
    
    $
    14,055
    
    $
    24
    
    $
    23,016Interest
      expense
    
    
    (2,917
    )
    
    (2,565
    )
    
    (941
    )
    
    (6,423
    )Net
      interest margin
    
    
    6,020
    
    
    11,490
    
    
    (917
    )
    
    16,593Recovery
      (provision) for estimated credit losses
    
    
    2,489
    
    
    (2,104
    )
    
    -
    
    
    385Net
      interest margin (deficit) after recovery (provision) for estimated credit
      losses
    
    
    8,509
    
    
    9,386
    
    
    (917
    )
    
    16,978Total
      other revenues (charges), net
    
    
    (5,853
    )
    
    (245
    )
    
    1,565
    
    
    (4,533
    )Total
      other expenses
    
    
    2,083
    
    
    5,384
    
    
    1,184
    
    
    8,651Income
      (loss) before income taxes
    
    $
    573
    
    $
    3,757
    
    $
    (536
    )
    $
    3,794**For
      The Six Months Ended June 30, 2005**
    
    
    **UAC**
    
    
    **Coastal
      Credit**
    
    
    **Corporate
      and Other**
    
    
    **Consolidated**Total
      interest income
    
    $
    15,606
    
    $
    -
    
    $
    -
    
    $
    15,606Interest
      expense
    
    
    (8,337
    )
    
    -
    
    
    (7
    )
    
    (8,344
    )Net
      interest margin
    
    
    7,269
    
    
    -
    
    
    (7
    )
    
    7,262Provision
      for estimated credit losses
    
    
    (1,812
    )
    
    -
    
    
    -
    
    
    (1,812
    )Net
      interest margin (deficit) after provision for estimated credit
      losses
    
    
    5,457
    
    
    -
    
    
    (7
    )
    
    5,450Total
      other revenues (charges), net
    
    
    10,548
    
    
    -
    
    
    (2,113
    )
    
    8,435Total
      other expenses
    
    
    2,498
    
    
    -
    
    
    76
    
    
    2,574Income
      (loss) before income taxes
    
    $
    13,507
    
    $
    -
    
    $
    (2,196
    )
    $
    11,311







14
 **PART
I****FINANCIAL
INFORMATION**





The
following table presents assets with respect to White River’s segments (in
thousands) at:




**June
      30, 2006**
    
    **December
      31, 2005**Corporate
      and other
    
    $
    7,581
    
    $
    6,918Coastal
      Credit
    
    
    114,629
    
    
    108,165UAC
    
    
    102,459
    
    
    151,911$
    224,669
    
    $
    266,994







**12.**
    **STOCK
      BASED COMPENSATION**




Effective
January 1, 2006, the restated employment agreement between Coastal Credit and
William McKnight, president of Coastal Credit, includes a long-term incentive
award. This award provides for the payment, in cash, of the value of 100,000
shares of White River stock, vesting in three annual increments of 33,333.33
shares on January 1, 2007, 2008 and 2009. Statement of Financial Accounting
Standards (“SFAS”) No. 123R, Share-Based Payment, is used for guidance in
accounting for this award. The value of payment is to be determined based on the
mean of the trading value of White River shares for 20 trading days prior to the
vesting date. Compensation expense related to this award approximated $128,000
and $256,000 for the quarter and six months ended June 30, 2006,
respectively, and is included in salaries and benefits expense in the
accompanying condensed consolidated statements of operations.




On May 5,
2006, White River shareholders approved the White River Capital, Inc. 2005 Stock
Incentive Plan. The purpose of this plan is to offer certain employees,
non-employee directors, and consultants the opportunity to acquire a proprietary
interest in White River. The plan provides for the grant of options, restricted
stock awards and performance stock awards.




On June
1, 2006, White River granted restricted stock awards totaling 84,000 shares to
certain employees, vesting in three annual increments of 28,000 shares on
January 2, 2007, 2008 and 2009. In addition, White River granted restricted
stock awards totaling 9,000 shares that vest in three annual increments of 3,000
shares on March 31, 2007, 2008 and 2009. SFAS No. 123R, Share-Based Payment, is
used for guidance in accounting for these awards. The value of awards is to be
determined based on the trading value of White River shares on the June 1, 2006
grant date of $14.25 per share with an estimated forfeiture rate of 3%.
Compensation expense related to these awards approximated $56,000 for June 2006
and is included in salaries and benefits expense in the accompanying condensed
consolidated statements of operations.  As of
June 30, 2006, there was $1.2 million of total unrecognized compensation cost
related to non vested share-based compensation arrangements granted. That cost
is expected to be recognized over a weighted-average period of 2.5
years.





15
 **PART
I****FINANCIAL
INFORMATION**


**13.**
    **EARNINGS
      PER SHARE**
  Basic
earnings per share are calculated by dividing the reported net income for the
period by the weighted average number of common shares outstanding. The weighted
average number of common shares outstanding during a period is weighted for the
portion of the period that the shares were outstanding. The issuance of
3,500,000 shares in the subscription offering occurred on August 31, 2005.
Diluted earnings per share include the dilutive effect of warrants that were
granted on August 31, 2005 and stock awards that were granted on June 1, 2006.
All stock options have been excluded from the 2005 earnings per share
calculation as the effect would have been anti-dilutive. Basic and diluted
earnings per share have been computed as follows (dollars in thousands except
per share data):




**Quarters
      Ended June 30,**
    
    **Six
      Months Ended June 30,****2006**
    
    **2005**
    
    **2006**
    
    **2005**Net
      income in thousands
    
    $
    3,629
    
    $
    12,520
    
    $
    4,765
    
    $
    11,311Weighted
      average shares outstanding
    
    
    3,813,155
    
    
    310,191
    
    
    3,812,989
    
    
    310,191Incremental
      shares from assumed conversions:Warrants
    
    
    51,321
    
    
    -
    
    
    51,197
    
    
    -Stock
      incentive plans
    
    
    4,352
    
    
    -
    
    
    2,172
    
    
    -Weighted
      average shares and assumed incremental shares
    
    
    3,868,828
    
    
    310,191
    
    
    3,866,358
    
    
    310,191Earnings
      per share:Basic
    
    $
    0.95
    
    $
    40.36
    
    $
    1.25
    
    $
    36.46Diluted
    
    $
    0.94
    
    $
    40.36
    
    $
    1.23
    
    $
    36.46







**14.**
    **COMMITMENTS
      AND CONTINGENCIES**




White
River and its subsidiaries, as consumer finance companies, are subject to
various consumer claims and litigation seeking damages and statutory penalties,
based upon, among other things, usury, disclosure inaccuracies, wrongful
repossession, violations of bankruptcy stay provisions, certificate of title
disputes, fraud, breach of contract and discriminatory treatment of credit
applicants. Some litigation against White River and its subsidiaries could take
the form of class action complaints by consumers. As the assignee of finance
contracts originated by dealers, White River and its subsidiaries may also be
named as a co-defendant in lawsuits filed by consumers principally against
dealers. The damages and penalties claimed by consumers in these types of
matters can be substantial. The relief requested by the plaintiffs varies but
can include requests for compensatory, statutory and punitive damages. White
River and its subsidiaries believe that it has taken prudent steps to address
and mitigate the litigation risks associated with its business
activities.







16
 **PART
I****FINANCIAL
INFORMATION**





**ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS.**




**General**




White
River is an Indiana corporation incorporated on December 30, 2004, for the
purpose of acting as a holding company and effecting a recapitalization
transaction proposed by the board of directors of UAC.




On August
9, 2005, the share exchange between White River and UAC became effective upon
the filing of Articles of Share Exchange with the State of Indiana. The
outstanding shares of common stock of UAC were exchanged for shares of common
stock of White River, at an exchange rate of one share of White River common
stock for 100 shares of UAC common stock. White River exchanged 310,155 shares
of its common stock for the outstanding shares of UAC. On August 31, 2005, White
River completed the acquisition of 100% of the ownership interest in Coastal
Credit with an aggregate purchase price of $50.8 million, including direct costs
of acquisition. $45.0 million was paid at closing and $3.8 million, net of a
$1.2 million receivable from the previous owners, was held back (subject to
offsetting adjustments) until March 31, 2006 and payable with interest at the
rate of 10% per annum. Upon completion of these transactions, White River became
the parent holding company of UAC and Coastal Credit.




On August
31, 2005, White River completed a $35 million subscription offering. In this
offering, White River issued 3,500,000 shares of common stock at the
subscription price of $10.00 per share. The net proceeds of this subscription
offering were used to acquire Coastal Credit, to repay the secured bridge note
payable to Castle Creek, to pay transaction costs, and for ongoing
operations.






**Critical
Accounting Policies**




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
significant estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. White River believes that the following represents
the material critical accounting policies used in the preparation of its
consolidated financial statements. Actual results could differ significantly
from estimates.






***Net
Assets of Collateralized Financings***




UACSC has
purchased receivables from off-balance sheet securitizations that were eligible
for clean-up calls. These receivables were re-securitized through non-recourse
collateralized financing issuances. The associated future cash flows from these
receivables are subject to the same Master Trust Account provisions as the
securitizations called.




To
finance the securitized receivable acquisitions, collateralized financings are
used, secured by the respective portfolios of the acquired receivables and
related restricted cash accounts. Timely payments of principal and interest on
the non-recourse collateralized financings are insured by surety policies. Such
obligations are also cross-collateralized through the Master Trust Agreement.
Net interest cash flows in excess of expense are payable to the Master Trust
Account and expensed as a charge to Master Trust, net.






***Valuation
of Beneficial Interest in Master Trust***




The
Master Trust Agreement established that all excess cash from securitizations is
to be deposited in the Master Trust Account. Once prescribed cash reserve levels
are met, cash will be released to UACSC from the Master Trust Account. This
future cash flow is reported as beneficial interest in Master Trust. In
determining







17
 **PART
I****FINANCIAL
INFORMATION**





the fair
value of the beneficial interest in Master Trust, estimates must be made for the
future prepayments, rates of gross credit losses and credit loss severity, and
delinquencies as they impact the amount and timing of the estimated cash flows
from the Master Trust. The average of the interest rates on the receivables
exceeds the interest rates on the securities issued in the securitizations. This
excess cash is held by the Master Trust Account and released based on reserve
requirements of the Master Trust. These estimated cash flows from the Master
Trust are then discounted to reflect the present value.






***Income
Recognition - Finance Receivables***




Finance
charge income is recognized for financial reporting purposes using the interest
method. Initial fees earned on add-on products such as collateral protection
insurance, credit life insurance, road service plans and warranty products are
recorded in income using the interest method. Late charges and deferment charges
on contracts are recorded in income as collected. Cash received from loans that
previously have been charged off is applied directly to the allowance for loan
losses in the consolidated balance sheets. Discounts and fees, which consist
primarily of non-refundable dealer acquisition discounts, are deferred and
amortized over the term of the related finance receivables using the interest
method and are removed from the balance sheet when the related finance
receivables are charged off or paid in full.






***Finance
Receivables***




Finance
receivables are recorded at cost, net of unearned finance charges, discounts and
fees. Coastal Credit purchases finance contracts from auto dealers without
recourse, and accordingly, the dealer usually has no liability to Coastal Credit
if the consumer defaults on the contract.




Coastal
Credit does not have any off-balance-sheet credit exposure related to this
contract portfolio.






***Allowance
for Loan Losses - Finance Receivables***




Provisions
for loan losses are charged to operations in amounts sufficient to maintain the
allowance for loan losses at a level considered adequate to cover probable
credit losses inherent in finance receivables.




The
allowance for loan losses is established systematically by management based on
the determination of the amount of probable credit losses inherent in the
finance receivables as of the reporting date. Coastal Credit reviews charge off
experience factors, delinquency reports, historical collection rates and other
information in order to make the necessary judgments as to probable credit
losses inherent in the portfolio as of the reporting date. Assumptions regarding
probable credit losses are reviewed quarterly and may be impacted by actual
performance of finance receivables and changes in any of the factors discussed
above. Should the credit loss assumptions increase, there could be an increase
in the amount of allowance for loan losses required, which could decrease the
net carrying value of finance receivables and increase the provision for loan
losses recorded on the consolidated statements of operations. Coastal Credit
believes that the existing allowance for loan losses is sufficient to absorb
probable finance receivable losses.






***Charge
off Policy - Finance Receivables***




The
policy is to charge off finance receivables against the allowance for loan
losses in the month in which the installment contract becomes 60 days delinquent
under recency terms and 180 days delinquent under contractual terms, if the
vehicle has not been repossessed. If the vehicle has been repossessed, the
receivable is charged off in the month the repossessed automobile is disposed of
at public auction unless cash collections on the receivable are foreseeable in
the near future. Receivables that are deemed uncollectible prior to the maximum
charge off period are charged off immediately.







18
 **PART
I****FINANCIAL
INFORMATION**





If
contact is not made with a delinquent borrower or if the borrower is unable to
make acceptable payment arrangements, a repossession firm repossesses the
vehicle and delivers it to a secure location specified by Coastal Credit. As
required by applicable state law, Coastal Credit notifies the borrower by
certified letter that the vehicle has been repossessed and that, to regain the
vehicle, he or she must make arrangements satisfactory to Coastal Credit and pay
the amount owed under the contract within the statutory redemption period
allowed by the applicable state law after delivery of the letter. If
satisfactory arrangements for return of the vehicle are not made within the
statutory period, Coastal Credit then sends the title to the vehicle to the
applicable state title transfer department, which then registers the vehicle in
Coastal Credit’s name. Coastal Credit then sells the vehicle by public auction.
On average, approximately 45 days lapse between the time Coastal Credit takes
possession of a vehicle and the time it is sold at auction.




All
charged off loans are transferred to a Profit and Loss (P&L) Department. The
P&L Department attempts to collect the contract until the borrower has paid
the contract or all legal remedies have been exhausted. Collection costs
are recaptured from these collections. Collections and expenses for the period
are netted and recorded as other income/expense. Amounts collected on a
charged-off account in excess of collection costs reduce the provision for
estimated credit losses.






***Income
Taxes***




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 respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.




The
ultimate realization of the deferred tax asset depends on White River’s ability
to generate sufficient taxable income in the future and its ability to prevent
an ownership change for tax purposes. The valuation allowance has been
determined pursuant to the provisions of FASB Statement No. 109, Accounting for
Income Taxes, including White River’s estimation of future taxable income, and
reduces the total deferred tax asset to an amount deemed more likely than not to
be realized.




On August
31, 2005, White River acquired Coastal Credit, an operating business within
UAC’s historical line of business. With this acquisition, it is now likely that
at least a portion of the deferred tax assts will be realized by White River. As
part of the acquisition purchase accounting, the taxable income of Coastal
Credit was estimated and partially offset by the taxable loss of UAC and
corporate expenses of White River for the remainder of tax year 2005 and the
following five years. The results of these estimates were a reduction in the
valuation allowance of $4.7 million at August 31, 2005. This adjustment to the
valuation allowance was offset by a reduction to goodwill as part of the
purchase of Coastal Credit.




White
River periodically reviews the valuation allowance based on the estimated
taxable income for the next five years and makes adjustments as required. These
future adjustments will be recorded as income tax expense (benefit). The income
tax benefit approximated $439,000 and $971,000 for the quarter and six months
ended June 30, 2006, respectively. This income tax benefit was the result
of a $470,000 and $1.0 million benefit for the quarter and six months ended
June 30, 2006, respectively, from the review of the valuation allowance
based on the estimated taxable income for the next five years partially offset
by state income tax expense of approximately $31,000 and $78,000 for the quarter
and six months ended June 30, 2006, respectively.







19
 **PART
I****FINANCIAL
INFORMATION**





**New
Accounting Pronouncements**




During
July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, *Accounting
for Uncertainty in Income Taxes* (“FIN
48”). FIN 48 establishes standards for measurement and recognition in financial
statements of positions taken by an entity in its income tax returns. In
addition, FIN 48 requires new disclosures about positions taken by an entity in
its tax returns that are not recognized in its financial statements, information
about potential significant changes in estimates related to tax positions and
descriptions of open tax years by major jurisdiction. The provisions of FIN 48
will become effective for fiscal years beginning after December 15, 2006, with
the cumulative effect of the change in accounting principle recorded as an
adjustment to retained earnings. We are currently evaluating the impact that FIN
48 will have on our results of operations and financial condition.






**Results
of Operations**




***Executive
Summary***




As a
result of the share exchange, management’s discussion and analysis of results of
operations include results of UAC and White River as though they always
coexisted. With the acquisition of Coastal Credit on August 31, 2005, results of
operations include results of Coastal Credit after that date.






*The
Quarter Ended June 30, 2006 Compared to the Quarter Ended June 30,
2005*




Net
income was $3.6 million, or $0.94 per diluted share, for the quarter ended
June 30, 2006, compared to $12.5 million, or $40.36 per diluted share, for
the quarter ended June 30, 2005. During the quarter ended June 30,
2005, White River purchased UAC creditor notes payable resulting in a gain from
the extinguishment of debt of approximately $11.1 million. Excluding this gain,
net income for the quarter ended June 30, 2005 was $1.3 million, or $4.70
per diluted share. The improvement in net income, excluding the gain from the
extinguishment of debt, is primarily due the acquisition of Coastal Credit on
August 31, 2005, which contributed $1.9 million and the tax benefit
recorded.






*The
Six Months Ended June 30, 2006 Compared to the Six Months Ended
June 30, 2005*




Net
income was $4.8 million, or $1.23 per diluted share, for the six months ended
June 30, 2006, compared to $11.3 million, or $36.46 per diluted share, for
the six months ended June 30, 2005. With the exclusion of the gain from
extinguishment of debt that occurred in the quarter ended June 30, 2005,
net income was $0.2 million, or $0.81 per diluted share, for the six months
ended June 30, 2005. The improvement from the prior year, excluding the
gain from extinguishment of debt, is primarily due to the elimination of a
substantial portion of the accretion and interest expense from creditor notes
payable resulting from the purchase by White River of UAC creditor notes
payable, the acquisition of Coastal Credit on August 31, 2005 which contributed
$3.8 million and the tax benefit, partially offset by the increase in other
expenses of Corporate and Other.







20
 **PART
I****FINANCIAL
INFORMATION**


**Discussion
of Results**
  The
following table presents consolidated financial information for White River for
the periods indicated (in thousands):


**Quarters
      Ended June 30,**
    
    **Six
      Months Ended June 30,****2006**
    
    **2005**
    
    **2006**
    
    **2005**INTEREST:Interest
      on receivables
    
    $
    9,577
    
    $
    5,407
    
    $
    19,609
    
    $
    9,887Accretion
      and other interest
    
    
    2,697
    
    
    4,169
    
    
    3,407
    
    
    5,719Total
      interest income
    
    
    12,274
    
    
    9,576
    
    
    23,016
    
    
    15,606Interest
      expense
    
    
    (3,082
    )
    
    (4,320
    )
    
    (6,423
    )
    
    (8,344
    )Net
      interest margin
    
    
    9,192
    
    
    5,256
    
    
    16,593
    
    
    7,262Recovery
      (provision) for estimated credit losses
    
    
    523
    
    
    (1,363
    )
    
    385
    
    
    (1,812
    )Net
      interest margin after recovery (provision) for estimated credit
      losses
    
    
    9,715
    
    
    3,893
    
    
    16,978
    
    
    5,450OTHER
      REVENUES:Charge
      to Master Trust—net
    
    
    (5,614
    )
    
    (1,429
    )
    
    (8,001
    )
    
    (3,052
    )Gain
      (loss) from extinguishment of debt
    
    
    (202
    )
    
    11,061
    
    
    (202
    )
    
    11,061Other
      income
    
    
    3,563
    
    
    168
    
    
    3,670
    
    
    426Total
      other revenues, net
    
    
    (2,253
    )
    
    9,800
    
    
    (4,533
    )
    
    8,435OTHER
      EXPENSES:Salaries
      and benefits
    
    
    2,127
    
    
    78
    
    
    4,123
    
    
    171Third
      party servicing expense
    
    
    477
    
    
    817
    
    
    1,180
    
    
    1,627Operating
      expenses
    
    
    1,611
    
    
    217
    
    
    3,217
    
    
    606Bankruptcy
      costs
    
    
    57
    
    
    61
    
    
    131
    
    
    170Total
      other expenses
    
    
    4,272
    
    
    1,173
    
    
    8,651
    
    
    2,574INCOME
      BEFORE INCOME TAXES
    
    
    3,190
    
    
    12,520
    
    
    3,794
    
    
    11,311INCOME
      TAXES BENEFIT
    
    
    439
    
    
    -
    
    
    971
    
    
    -NET
      INCOME
    
    $
    3,629
    
    $
    12,520
    
    $
    4,765
    
    $
    11,311







***The
Quarter Ended June 30, 2006 Compared to the Quarter Ended June 30,
2005 - Consolidated***




Interest
on receivables increased 77.1% to $9.6 million compared to $5.4 million for the
quarters ended June 30, 2006 and 2005, respectively. Interest on
receivables from UAC decreased $3.0 million due to a lower average securitized
finance receivable and receivables held for investment balance of $71.5 million
during the quarter ended June 30, 2006 as compared to $150.9 million during
the quarter ended June 30, 2005. Coastal Credit contributed $7.2 million to
the increase based on an average finance receivable balance of $81.7 million for
the quarter ended June 30, 2006.




Accretion
and other interest decreased 35.3% to $2.7 million compared to $4.2 million for
the quarters ended June 30, 2006 and 2005, respectively. UAC contributed
$1.5 million to this decrease from a decrease in accretion income of the
beneficial interest in Master Trust. The fair value of beneficial interest in
Master Trust has increased between the periods primarily as a result of
reductions in estimated securitized finance receivable net losses. As an
increase in the fair value of beneficial interest in Master Trust is recorded,
an adjustment is recorded to increase accumulated other comprehensive income in
the shareholders’ equity section of the consolidated balance sheet. The
accumulated other comprehensive income is accreted over time




21
 **PART
I****FINANCIAL
INFORMATION**




as interest income. This increase in the quarter ended
June 30, 2005 coupled with the cash distribution that was occurring from
the Master Trust Account resulted in higher accretion income for the
quarter.




Interest
expense decreased 28.7% to $3.1 million compared to $4.3 million for the
quarters ended June 30, 2006 and 2005, respectively. UAC interest expense
decreased by $3.0 million due to the decrease in the average
collateralized financings of $77.4 million during the quarter ended
June 30, 2006 compared to $160.3 million during the same period ended
June 30, 2005. The UAC interest expense decrease was partially offset by
the interest expense from Coastal Credit and Corporate and Other. Coastal Credit
interest expense was $1.4 million. Interest expense of Corporate and Other was
$0.4 million which is primarily related to the secured note
payable.




Recovery
for estimated credit losses was $0.5 million compared to a provision of $(1.4)
million for the quarters ended June 30, 2006 and 2005, respectively. UAC
contributed a recovery of $1.6 million to the provision from estimated credit
losses due to the continued improved performance of the securitized finance
receivable portfolio and the reduction of the allowance for credit losses from
reduced securitized receivable balances at June 30, 2006 as compared to the
same period in 2005. On June 9, 2006, UAC sold receivables in Chapter 13
bankruptcy status from its portfolio to an unrelated third party. These accounts
had a combined secured and unsecured receivable balance of approximately $10.6
million which, on each account, was previously charged off to a book value of
zero during the Chapter 13 bankruptcy process. Payments received from these
accounts were treated as recovery. Therefore, the sale of these accounts in
conjunction with the seasonal trends may result in a reduction of the recovery
for estimated credit losses or the need for a provision in future periods. This
recovery was offset by a $1.0 million provision at Coastal Credit for the
quarter ended June 30, 2006.




The
charge to Master Trust, net was $5.6 million for the quarter ended June 30,
2006 compared to $1.4 million for the quarter ended June 30, 2005. Charge
to Master Trust is expense related to future transfers of funds to the Master
Trust from securitized finance receivables of UAC. As additional securitized
finance receivables were purchased and the projected losses of UAC’s securitized
finance receivables decreased during 2005, interest income increased, and thus
the amounts related to future transfers of funds to the Master Trust increased,
resulting in an increase in the charge to Master Trust. UAC is the only segment
that reports this activity. The sale of receivables in Chapter 13 bankruptcy
status that were collateral for the collateralized financings on June 9, 2006
also contributed to the increase in the charge to Master Trust for the
period.




Gain
(loss) from extinguishment of debt was $(0.2) million and $11.1 million for the
quarters ended June 30, 2006 and 2005, respectively. The amount White River
paid to acquire UAC creditor notes payable exceeded book value of the UAC
creditor notes payable during the quarter ended June 30, 2006 resulting in
a loss. In contrast, the amount White River paid to acquire UAC creditor notes
payable during the quarter ended June 30, 2005 was less than book value of
the UAC creditor notes payable which resulted in the corresponding
gain.




Other
income was $3.6 million compared to $0.2 million for the quarters ended
June 30, 2006 and 2005, respectively. UAC contributed $3.5 million to this
increase. On June 9, 2006, UAC sold receivables in Chapter 13 bankruptcy status
from its portfolio to an unrelated third party. The sale was recorded as other
income. This was partially offset by a decline in refunds of dealer rebates from
charged-off and prepaid finance contracts and amounts collected on previously
charged-off balances net of expenses. Coastal Credit activity reduced the other
income by $0.1 million for the quarter ended June 30, 2006.




Salaries
and benefits increased to $2.1 million for the quarter ended June 30, 2006
compared to $0.1 million for the quarter ended June 30, 2005. There was no
significant change in salaries and benefits for UAC during these periods.
Coastal Credit contributed $1.9 million to the increase. Corporate and Other
contributed $0.1 million to the increase in salaries and benefits.





22
 **PART
I****FINANCIAL
INFORMATION**





Operating
expenses increased to $1.6 million for the quarter ended June 30, 2006
compared to $0.2 million for the quarter ended June 30, 2005. UAC operating
expenses contributed $0.1 million to this increase primarily from professional
fees. Coastal Credit contributed $0.8 million to the increase in operating
expense. Corporate and Other contributed $0.6 million to the increase in
operating expense between these periods.




Third
party servicing expenses decreased 41.6% to $0.5 million for the quarter ended
June 30, 2006 compared to $0.8 million for the quarter ended June 30,
2005. UAC is the only segment that incurs this expense. This decrease is the
result of decline in the number of accounts serviced by the third party servicer
during the quarter ended June 30, 2006 as compared to June 30, 2005.
UAC pays a monthly servicing fee per active receivable. As the number of
accounts decrease from the receivables, the third party servicing expense
decreases.




Bankruptcy
costs are professional fees and expenses associated with the bankruptcy
proceedings of UAC. These costs were $0.1 million for the quarters ended
June 30, 2006 and 2005. UAC is the only segment that incurs these costs,
which were for the purpose of assisting the reorganized company in complying
with its bankruptcy plan.




Income
tax benefit approximated $439,000 for the quarter ended June 30, 2006. This
income tax benefit was the result of a $470,000 benefit from the reduction of a
portion of the valuation allowance based on the estimated taxable income for the
next five years partially offset by state income tax expense of approximately
$31,000.




With the
acquisition of Coastal Credit on August 31, 2005, White River has a historically
profitable subsidiary that will enable White River to recognize a portion of the
net operating loss (“NOL”) carryforwards. White River currently projects taxable
income for five years for this purpose. During the quarter ended June 30,
2006, White River’s determination of net income tax benefit took account of
projections for the first quarter 2011 which resulted in an increase in the
deferred tax asset of $0.5 million for the quarter ended June 30,
2006.




The
availability of these tax benefits would be jeopardized if an ownership change
(as defined in IRS regulations governing NOL carryforward limitations) were to
occur in the future with respect to White River. In general, an ownership change
occurs when, as of any testing date, the aggregate of the increase in percentage
points of the total amount of a corporation's stock owned by each 5-percent
shareholder within the meaning of the NOL carryforward limitations whose
percentage ownership of the stock has increased as of such date over the lowest
percentage of the stock owned by each such 5-percent shareholder at any time
during the three-year period preceding such date, is more than 50 percentage
points. In general, persons who own 5% or more of a corporation's stock are
5-percent shareholders, and all other persons who own less than 5% of a
corporation's stock are treated together, as a single, public group 5-percent
shareholder, regardless of whether they own an aggregate of 5% of a
corporation's stock. Calculating whether an ownership change has occurred is
subject to inherent uncertainty. This uncertainty results from the complexity
and ambiguity of the NOL carryforward limitations as well as the limitations on
the knowledge of a publicly-traded corporation concerning the ownership of, and
transactions in, its securities. White River is not aware of any facts
indicating that an ownership change has occurred with respect to White
River.




***The
Six Months Ended June 30, 2006 Compared to the Six Months Ended
June 30, 2005 - Consolidated***




Interest
on receivables increased 98.3% to $19.6 million compared to $9.9 million for the
six months ended June 30, 2006 and 2005, respectively. Interest on
receivables from UAC decreased $4.3 million due to a lower average securitized
finance receivable and receivables held for investment balance of $85.5 million
during the six months ended June 30, 2006 as compared to $142.1 million
during the six months ended June


23
 **PART
I****FINANCIAL
INFORMATION**





30,
2005. Coastal Credit contributed $14.0 million to the increase based on an
average finance receivable balance of $80.0 million for the six months ended
June 30, 2006.  Accretion
and other interest decreased 40.8% to $3.4 million compared to $5.7 million for
the six months




Interest
expense decreased 23.0% to $6.4 million compared to $8.3 million for the six
months ended June 30, 2006 and 2005, respectively. UAC interest expense
decreased by $5.4 million due to the decrease in interest expense and accretion
expense from the UAC creditor notes payable purchased by White River and by the
decrease in the average collateralized financings of $91.9 million during the
six months ended June 30, 2006 compared to $150.3 million during the same
period ended June 30, 2005. The UAC interest expense decrease was partially
offset by the interest expense from Coastal Credit and Corporate and Other.
Coastal Credit interest expense was $2.6 million. Interest expense of Corporate
and Other was $0.9 million which is primarily related to the secured note
payable.




Recovery
(provision) for estimated credit losses was a recovery of $0.4 million compared
to a provision of $(1.8) million for the six months ended June 30, 2006 and
2005, respectively. UAC contributed a recovery of $2.5 million to the recovery
(provision) for estimated credit losses due to the continued improved
performance of the securitized finance receivable portfolio and the reduction of
the allowance for credit losses from reduced securitized receivable balances at
June 30, 2006 as compared to the same period in 2005. On June 9, 2006, UAC
sold receivables in Chapter 13 bankruptcy status from its portfolio to an
unrelated third party. These accounts had a combined secured and unsecured
receivable balance of approximately $10.6 million which, on each account, was
previously charged off to a book value of zero during the Chapter 13 bankruptcy
process. Payments received from these accounts were treated as recovery.
Therefore, the sale of these accounts in conjunction with the seasonal trends
may result in a reduction of the recovery for estimated credit losses or the
need for a provision in future periods. This recovery was offset by a $(2.1)
million provision at Coastal Credit for the six months ended June 30,
2006.




The
charge to Master Trust, net was $8.0 million for the six months ended
June 30, 2006 compared to $3.1 million for the six months ended
June 30, 2005. Charge to Master Trust is expense related to future
transfers of funds to the Master Trust from securitized finance receivables of
UAC. As additional securitized finance receivables were purchased and the
projected losses of UAC’s securitized finance receivables decreased during 2005,
the receivable base was larger resulting in an increase in interest income for
the six months ended June 30, 2006 as compared to the six months ended
June 30, 2005, and thus the amounts related to future transfers of funds to
the Master Trust increased, resulting in an increase in the charge to Master
Trust. The sale of receivables in Chapter 13 bankruptcy status that were
collateralization for the collateralized financings on June 9, 2006 also
contributed to the increase in the charge to Master Trust for the period. UAC is
the only segment that reports this activity.




Gain
(loss) from extinguishment of debt was $(0.2) million and $11.1 million for the
six months ended June 30, 2006 and 2005, respectively. During the quarters
ended June 30, 2006 and 2005, White River purchased UAC creditor notes
payable which resulted in the corresponding gain (loss) from extinguishment of
debt.







24
 **PART
I****FINANCIAL
INFORMATION**





Other
income was $3.7 million compared to $0.4 million for the quarters ended
June 30, 2006 and 2005, respectively. UAC contributed $3.5 million to this
increase. On June 9, 2006, UAC sold receivables in Chapter 13 bankruptcy status
from its portfolio to an unrelated third party. The sale was recorded as other
income. This was partially offset by a decline in refunds of dealer rebates from
charged-off and prepaid




Salaries
and benefits increased to $4.1 million for the six months ended June 30,
2006 compared to $0.2 million for the six months ended June 30, 2005. There
was no significant change in salaries and benefits for UAC during these periods.
Coastal Credit contributed $3.7 million to the increase. Corporate and Other
contributed $0.2 million to the increase in salaries and benefits.




Operating
expenses increased to $3.2 million for the six months ended June 30, 2006
compared to $0.6 million for the six months ended June 30, 2005. UAC
operating expenses were $0.6 million for the six months ended June 30, 2006
compared to $0.5 million for the same period during 2005. Coastal Credit
contributed $1.6 million to the increase in operating expenses. Corporate and
Other contributed $1.0 million to the increase in operating expenses between
these periods. These Corporate and Other expenses were primarily professional
fees.




Third
party servicing expenses decreased 27.5% to $1.2 million for the six months
ended June 30, 2006 compared to $1.6 million for the six months ended
June 30, 2005. UAC is the only segment that incurs this expense. This
decrease is the result of decline in the number of accounts serviced by the
third party servicer during the six months ended June 30, 2006 as compared
to June 30, 2005. UAC pays a monthly servicing fee per active receivable.
As the number of accounts decrease from the receivables, the third party
servicing expense decreases.




Bankruptcy
costs are professional fees and expenses associated with the bankruptcy
proceedings of UAC. There was no significant change in bankruptcy costs for UAC
during these periods. UAC is the only segment that incurs these costs, which
were for the purpose of assisting the reorganized company in complying with its
bankruptcy plan.




Income
tax benefit approximated $971,000 for the six months ended June 30, 2006.
This income tax benefit was the result of a $1.1 million benefit from the
reduction of a portion of the valuation allowance based on the estimated taxable
income for the next five years partially offset by state income tax expense of
approximately $78,000.




With the
acquisition of Coastal Credit on August 31, 2005, White River has a historically
profitable subsidiary that will enable White River to recognize a portion of the
net operating loss (“NOL”) carryforwards. White River currently projects taxable
income for five years for this purpose. During the six months ended
June 30, 2006, White River’s determination of net income tax benefit took
account of projections for the first six months 2011 which resulted in an
increase in the deferred tax asset of $1.1 million for the six months ended
June 30, 2006.




The
availability of these tax benefits would be jeopardized if an ownership change
(as defined in IRS regulations governing NOL carryforward limitations) were to
occur in the future with respect to White River. In general, an ownership change
occurs when, as of any testing date, the aggregate of the increase in percentage
points of the total amount of a corporation's stock owned by each 5-percent
shareholder within the meaning of the NOL carryforward limitations whose
percentage ownership of the stock has increased as of such date over the lowest
percentage of the stock owned by each such 5-percent shareholder at any time
during the three-year period preceding such date, is more than 50 percentage
points. In general, persons who own 5% or more of a corporation's stock are
5-percent shareholders, and all other persons who own less than





25
 **PART
I****FINANCIAL
INFORMATION**




5% of a
corporation's stock are treated together, as a single, public group 5-percent
shareholder, regardless of whether they own an aggregate of 5% of a
corporation's stock. Calculating whether an ownership change has occurred is
subject to inherent uncertainty. This uncertainty results from the complexity
and ambiguity of the NOL carryforward limitations as well as the limitations on
the knowledge of a publicly-traded corporation concerning the ownership of, and
transactions in, its securities. White River is not aware of any facts
indicating that an ownership change has occurred with respect to White
River.






**Discussion
of Results of Operations of UAC**




The
following table presents consolidated financial information for UAC for the
periods indicated (in thousands):




**Quarters
      Ended June 30,**
    
    **Six
      Months Ended June 30,****2006**
    
    **2005**
    
    **2006**
    
    **2005**INTEREST:Interest
      on receivables
    
    $
    2,369
    
    $
    5,407
    
    $
    5,554
    
    $
    9,887Accretion
      and other interest
    
    
    2,683
    
    
    4,169
    
    
    3,383
    
    
    5,719Total
      interest income
    
    
    5,052
    
    
    9,576
    
    
    8,937
    
    
    15,606Interest
      expense
    
    
    (1,292
    )
    
    (4,313
    )
    
    (2,917
    )
    
    (8,337
    )Net
      interest margin
    
    
    3,760
    
    
    5,263
    
    
    6,020
    
    
    7,269Recovery
      (provision) for estimated credit losses
    
    
    1,556
    
    
    (1,363
    )
    
    2,489
    
    
    (1,812
    )Net
      interest margin after recovery (provision) for estimated credit
      losses
    
    
    5,316
    
    
    3,900
    
    
    8,509
    
    
    5,457OTHER
      REVENUES:Charge
      to Master Trust—net
    
    
    (5,614
    )
    
    (1,429
    )
    
    (8,001
    )
    
    (3,052
    )Gain
      (loss) from extinguishment of debt and intercompany transfers related to
      creditor notes payable
    
    
    (1,767
    )
    
    13,187
    
    
    (1,767
    )
    
    13,187Other
      income
    
    
    3,714
    
    
    155
    
    
    3,915
    
    
    413Total
      other revenues, net
    
    
    (3,667
    )
    
    11,913
    
    
    (5,853
    )
    
    10,548OTHER
      EXPENSES:Salaries
      and benefits
    
    
    52
    
    
    78
    
    
    171
    
    
    171Third
      party servicing expense
    
    
    477
    
    
    817
    
    
    1,180
    
    
    1,627Operating
      expenses
    
    
    216
    
    
    141
    
    
    601
    
    
    530Bankruptcy
      costs
    
    
    57
    
    
    61
    
    
    131
    
    
    170Total
      other expenses
    
    
    802
    
    
    1,097
    
    
    2,083
    
    
    2,498INCOME
      BEFORE INCOME TAXES
    
    
    847
    
    
    14,716
    
    
    573
    
    
    13,507INCOME
      TAXES BENEFIT
    
    
    -
    
    
    -
    
    
    -
    
    
    -NET
      INCOME
    
    $
    847
    
    $
    14,716
    
    $
    573
    
    $
    13,507




***The
Quarter Ended June 30, 2006 Compared to the Quarter Ended June 30,
2005 - UAC***




Interest
on receivables decreased 56.2% to $2.4 million compared to $5.4 million for the
quarters ended June 30, 2006 and 2005, respectively. This decrease is
attributable to a lower average securitized finance receivable balance of $71.5
million during the quarter ended June 30, 2006 as compared to $150.9
million during the quarter ended June 30, 2005.




26
 **PART
I****FINANCIAL
INFORMATION**





Accretion and
other interest decreased 35.3% to $2.7 million compared to $4.2 million for the
quarters ended June 30, 2006 and 2005, respectively, due to a decrease in
accretion income of the beneficial interest in Master Trust. The fair value of
beneficial interest in Master Trust has increased between the periods primarily




**Quarters
      Ended June 30,****2006**
    
    **2005**UAC
      discount accretion for beneficial interest in Master Trust
    
    $
    2,462
    
    $
    3,970UAC
      interest on restricted cash balances
    
    
    221
    
    
    199UAC
      accretion and other interest income
    
    $
    2,683
    
    $
    4,169







Interest
expense decreased 70.0% to $1.3 million compared to $4.3 million for the
quarters ended June 30, 2006 and 2005, respectively. The decrease in
interest expense of $3.0 million is due to the decrease in interest expense and
accretion expense from the UAC creditor notes payable purchased by White River
and the decrease in the average collateralized financings of $77.4 million
during the quarter ended June 30, 2006 compared to $160.3 million during
the same period ended June 30, 2005.




Recovery
(provision) for estimated credit losses was a recovery of $1.6 million compared
to a provision of $(1.4) million for the quarters ended June 30, 2006 and
2005, respectively. The $3.0 million change in provision for estimated credit
losses is due to stronger than projected cash flows from recoveries on defaulted
receivables during the quarter ended June 30, 2006. On June 9, 2006, UAC
sold previously charged-off receivables in Chapter 13 bankruptcy status from its
portfolio to an unrelated third party. Payments received from these accounts
prior to the sale were treated as recoveries. Therefore, the sale of these
accounts will, in conjunction with the seasonal trends, result in a reduction of
recovery for estimated credit losses and/or the need for a provision in future
periods.




The
charge to Master Trust, net was $5.6 million for the quarter ended June 30,
2006 compared to $1.4 million for the quarter ended June 30, 2005. Charge
to Master Trust is expense related to future transfers of funds to the Master
Trust from securitized finance receivables of UAC. As additional securitized
finance receivables were purchased and the projected losses of UAC’s securitized
finance receivables decreased during 2005, interest income increased, and thus
the amounts related to future transfers of funds to the Master Trust increased,
resulting in an increase in the charge to Master Trust. The sale of receivables
in Chapter 13 bankruptcy status that were collateralization for the
collateralized financings on June 9, 2006 also contributed to the increase in
the charge to Master Trust for the period.




Gain
(loss) from extinguishment of debt and intercompany transfers related to
creditor notes payable was $(1.8) million and $13.2 million for the quarters
ended June 30, 2006 and 2005, respectively. White River purchased UAC
creditor notes payable during the quarters ended June 30, 2006 and 2005
which resulted in a gain from extinguishment of debt for both periods. The gain
from extinguishment of debt for the quarter ended June 30, 2006, however,
was offset by a $1.9 million intercompany loss from a UAC creditor notes payable
distribution to White River during the period.





27
 **PART
I****FINANCIAL
INFORMATION**




Other
income was $3.7 million compared to $0.2 million for the quarters ended
June 30, 2006 and 2005, respectively. On June 9, 2006, UAC sold charged-off
receivables in Chapter 13 bankruptcy status from its portfolio
to an unrelated third party. The sale was recorded as other income. This was
partially offset by a decline in refunds of dealer rebates from charged-off and
prepaid finance contracts and amounts collected on previously charged-off
balances net of expenses.




Salaries
and benefits was $52,000 for the quarter ended June 30, 2006 compared to
$78,000 for the quarter ended June 30, 2005. The decrease in the quarter
ended June 30, 2006 was primarily the result of a reduction in staff during
2006.




Operating
expenses was $0.2 million compared to $0.1 million for the quarters ended
June 30, 2006 and 2005. These expenses are primarily the result of
professional fees.




Third
party servicing expenses decreased 41.6% to $0.5 million for the quarter ended
June 30, 2006 compared to $0.8 million for the quarter ended June 30,
2005. UAC is the only segment that incurs this expense. This decrease is the
result of decline in the number of accounts serviced by the third party servicer
during the quarter ended June 30, 2006 as compared to June 30, 2005.
UAC pays a monthly servicing fee per active receivable. As the number of
serviced receivables decreases, the third party servicing expense
decreases.




Bankruptcy
costs are professional fees and expenses associated with the bankruptcy
proceedings of UAC. These costs were $0.1 million for the quarters ended
June 30, 2006 and 2005.






***The
Six Months Ended June 30, 2006 Compared to the Six Months Ended
June 30, 2005 - UAC***




Interest
on receivables decreased 43.8% to $5.6 million compared to $9.9 million for the
six months ended June 30, 2006 and 2005, respectively. This decrease is
attributable to a lower average securitized finance receivable balance of $85.5
million during the six months ended June 30, 2006 as compared to $142.1
million during the six months ended June 30, 2005.




Accretion
and other interest decreased 40.8% to $3.4 million compared to $5.7 million for
the six months ended June 30, 2006 and 2005, respectively, due to a
decrease in accretion income of the beneficial interest in Master Trust. The
fair value of beneficial interest in Master Trust has increased between the
periods primarily as a result of reductions in estimated securitized finance
receivable net losses. As an increase in the fair value of beneficial interest
in Master Trust is recorded, an adjustment is recorded to increase accumulated
other comprehensive income in the shareholders’ equity section of the
consolidated balance sheet. The accumulated other comprehensive income is
accreted over time as interest income. This increase in the six months ended
June 30, 2005 coupled with the cash distribution that was occurring from
the Master Trust Account resulted in higher accretion income. The individual
components of accretion and other interest income are shown in the following
table (in thousands):


**Six
      Months Ended June 30,****2006**
    
    **2005**UAC
      discount accretion for beneficial interest in Master Trust
    
    $
    2,942
    
    $
    5,395UAC
      interest on restricted cash balances
    
    
    441
    
    
    324UAC
      accretion and other interest income
    
    $
    3,383
    
    $
    5,719






28
 **PART
I****FINANCIAL
INFORMATION**




Interest
expense decreased 65.0% to $2.9 million compared to $8.3 million for the six
months ended June 30, 2006 and 2005, respectively. The decrease in interest
expense of $5.4 million is due to the decrease in
interest expense and accretion expense from the UAC creditor notes payable
purchased by White River and the decrease in the average collateralized
financings of $91.9 million during the six months ended June 30, 2006
compared to $150.3 million during the same period ended June 30,
2005.




Recovery
(provision) for estimated credit losses was a recovery of $2.5 million compared
to a provision of $(1.8) million for the six months ended June 30, 2006 and
2005, respectively. The $4.3 million change in provision for estimated credit
losses is due to stronger than projected cash flows from recoveries on defaulted
receivables during the six months ended June 30, 2006. On June 9, 2006, UAC
sold receivables in Chapter 13 bankruptcy status from its portfolio to an
unrelated third party. Payments received from these accounts were treated as
recovery. Therefore, the sale of these accounts in conjunction with the seasonal
trends may result in a reduction of the recovery for estimated credit losses or
the need for a provision in future periods.




The
charge to Master Trust, net was $8.0 million for the six months ended
June 30, 2006 compared to $3.1 million for the six months ended
June 30, 2005. Charge to Master Trust is expense related to future
transfers of funds to the Master Trust from securitized finance receivables of
UAC. As additional securitized finance receivables were purchased and the
projected losses of UAC’s securitized finance receivables decreased during 2005,
the receivable base was larger resulting in an increase in interest income for
the six months ended June 30, 2006 as compared to the six months ended
June 30, 2005, and thus the amounts related to future transfers of funds to
the Master Trust increased, resulting in an increase in the charge to Master
Trust. The sale of receivables in Chapter 13 bankruptcy status that were
collateral for the collateralized financings on June 9, 2006 also contributed to
the increase in the charge to Master Trust for the period.




Gain
(loss) from extinguishment of debt and intercompany transfers related to
creditor notes payable was $(1.8) million and $13.2 million for the six months
ended June 30, 2006 and 2005, respectively. During the quarters ended
June 30, 2006 and 2005, White River purchased UAC creditor notes payable
during the quarters ended June 30, 2006 and 2005 which resulted in a gain
from extinguishment of debt for both periods. The gain from extinguishment of
debt for the quarter ended June 30, 2006 was, however, offset by a $1.9
million intercompany loss from a UAC creditor notes payable distribution to
White River during the period.




Other
income was $3.9 million compared to $0.4 million for the six months ended
June 30, 2006 and 2005, respectively. On June 9, 2006, UAC sold receivables
previously charged-off in Chapter 13 bankruptcy status from its portfolio to an
unrelated third party. The sale was recorded as other income. This was partially
offset by a decline in refunds of dealer rebates from charged-off and prepaid
finance contracts and amounts collected on previously charged-off balances net
of expenses.




Salaries
and benefits was $171,000 for the quarters ended June 30, 2006 and
2005.




Operating
expenses was $0.6 million compared to $0.5 million for the six months ended
June 30, 2006 and 2005. These expenses are primarily the result of
professional fees.




Third
party servicing expenses decreased 27.5% to $1.2 million for the six months
ended June 30, 2006 compared to $1.6 million for the six months ended
June 30, 2005. UAC is the only segment that incurs this expense. This
decrease is the result of decline in the number of accounts serviced by the
third party servicer during the six months ended June 30, 2006 as compared
to June 30, 2005. UAC pays a monthly servicing fee per active receivable.
As the number of serviced receivables decreases, the third party servicing
expense decreases.







29
 **PART
I****FINANCIAL
INFORMATION**




Bankruptcy
costs are professional fees and expenses associated with the bankruptcy
proceedings of UAC. There was no significant change in bankruptcy costs for UAC
during these periods.





**Discussion
of Results of Operations of Coastal Credit**




The
following table presents financial information for Coastal Credit for the period
indicated (in thousands):




**Quarter
      Ended June 30, 2006**
    
    **Six
      Months Ended June 30, 2006**INTEREST:Interest
      on receivables
    
    $
    7,208
    
    $
    14,055Interest
      expense
    
    
    (1,367
    )
    
    (2,565
    )Net
      interest margin
    
    
    5,841
    
    
    11,490Provision
      for estimated credit losses
    
    
    (1,033
    )
    
    (2,104
    )Net
      interest margin after provision for estimated credit
losses
    
    
    4,808
    
    
    9,386OTHER
      REVENUES:Other
      income
    
    
    (151
    )
    
    (245
    )Total
      other revenues, net
    
    
    (151
    )
    
    (245
    )OTHER
      EXPENSES:Salaries
      and benefits
    
    
    1,942
    
    
    3,746Operating
      expenses
    
    
    839
    
    
    1,638Total
      other expenses
    
    
    2,781
    
    
    5,384INCOME
      BEFORE INCOME TAXES
    
    
    1,876
    
    
    3,757INCOME
      TAXES BENEFIT
    
    
    -
    
    
    -NET
      INCOME
    
    $
    1,876
    
    $
    3,757







***The
Quarter Ended June 30, 2006 - Coastal Credit***




Net
income at Coastal Credit was $1.9 million for the quarter ended June 30,
2006.




Interest
on receivables was $7.2 million for the quarter ended June 30, 2006. This
was attributable to an average finance receivable balance of $81.7 million for
the quarter. In addition, Coastal Credit acquires contracts from automobile
dealers at a negotiated price that is less than the original principal amount
being financed by the purchaser of the automobile. Accordingly, dealer
acquisition discounts and fees reduce the carrying value of finance receivables
and are accreted as an adjustment to yield over the life of the
loans.




Interest
expense was $1.4 million for the quarter ended June 30, 2006. This was
attributable to an average line of credit balance and subordinated debentures of
$56.8 million and $7.7 million, respectively, for the quarter.




Provision
for estimated credit losses is charged to income to bring Coastal Credit’s
allowance for estimated credit losses to a level which management considers
adequate to absorb probable credit losses inherent in the portfolio of finance
receivables. The provision for estimated credit losses was $1.0 million for the
quarter ended June 30, 2006.





30
 **PART
I****FINANCIAL
INFORMATION**


***Six
Months Ended June 30, 2006 - Coastal Credit***
  Net
income at Coastal Credit was $3.8 million for the six months ended June 30,
2006.




Interest
on receivables was $14.1 million for the six months ended June 30, 2006.
This was attributable to an average finance receivable balance of $80.0 million
for the quarter. In addition, Coastal Credit acquires contracts from automobile
dealers at a negotiated price that is less than the original principal amount
being financed by the purchaser of the automobile. Accordingly, dealer
acquisition discounts and fees reduce the carrying value of finance receivables
and are accreted as an adjustment to yield over the life of the
loans.




Interest
expense was $2.6 million for the six months ended June 30, 2006. This was
attributable to an average line of credit balance and subordinated debentures of
$54.5 million and $7.7 million, respectively, for the quarter.




Provision
for estimated credit losses is charged to income to bring Coastal Credit’s
allowance for estimated credit losses to a level which management considers
adequate to absorb probable credit losses inherent in the portfolio of finance
receivables. The provision for estimated credit losses was $2.1 million for the
six months ended June 30, 2006.






**Discussion
of Results of Operations of Corporate and Other**




The
following table presents financial information for Corporate and Other for the
period indicated (in thousands):




**Quarters
      Ended June 30,**
    
    **Six
      Months Ended June 30,****2006**
    
    **2005**
    
    **2006**
    
    **2005**INTEREST:Interest
      on receivables
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Accretion
      and other interest
    
    
    14
    
    
    -
    
    
    24
    
    
    -Total
      interest income
    
    
    14
    
    
    -
    
    
    24
    
    
    -Interest
      expense
    
    
    (423
    )
    
    (7
    )
    
    (941
    )
    
    (7
    )Net
      interest margin
    
    
    (409
    )
    
    (7
    )
    
    (917
    )
    
    (7
    )Provision
      for estimated credit losses
    
    
    -
    
    
    -
    
    
    -
    
    
    -Net
      interest margin after provision for estimated credit
losses
    
    
    (409
    )
    
    (7
    )
    
    (917
    )
    
    (7
    )OTHER
      REVENUES:Gain
      (loss) from extinguishment of debt and intercompany transfers related to
      creditor notes payable
    
    
    1,565
    
    
    (2,126
    )
    
    1,565
    
    
    (2,126
    )Other
      income
    
    
    -
    
    
    13
    
    
    -
    
    
    13Total
      other revenues, net
    
    
    1,565
    
    
    (2,113
    )
    
    1,565
    
    
    (2,113
    )OTHER
      EXPENSES:Salaries
      and benefits
    
    
    133
    
    
    -
    
    
    206
    
    
    -Operating
      expenses
    
    
    556
    
    
    76
    
    
    978
    
    
    76Total
      other expenses
    
    
    689
    
    
    76
    
    
    1,184
    
    
    76INCOME
      (LOSS) BEFORE INCOME TAXES
    
    
    467
    
    
    (2,196
    )
    
    (536
    )
    
    (2,196
    )INCOME
      TAXES BENEFIT
    
    
    439
    
    
    -
    
    
    971
    
    
    -NET
      INCOME (LOSS)
    
    $
    906
    
    $
    (2,196
    )
    $
    435
    
    $
    (2,196
    )




31
 **PART
I****FINANCIAL
INFORMATION**




***The
Quarter Ended June 30, 2006 Compared to the Quarter Ended June 30,
2005 - Corporate and Other***




Accretion
and other interest was $14,000 for the quarter ended June 30, 2006. This
amount represents interest income related to interest bearing cash
accounts.




Interest
expense was $423,000 for the quarter ended June 30, 2006 compared to $7,000
for the quarter ended June 30, 2005. The interest for the quarter ended
June 30, 2006 is related to the secured note payable. Interest expense is a
result of the secured bridge note to Castle Creek and revolving note to Castle
Creek that White River entered into during the quarter ended June 30,
2005.




Gain
(loss) from extinguishment of debt and intercompany transfers related to
creditor notes payable was $1.6 million and $(2.1) million for the quarters
ended June 30, 2006 and 2005, respectively. During the quarters ended
June 30, 2006 and 2005, White River purchased UAC creditor notes payable
which resulted in a loss from extinguishment of debt for both periods. The loss
from extinguishment of debt for the quarter ended June 30, 2006, however,
was offset by a $1.9 million intercompany gain from a UAC creditor notes payable
distribution to White River during the period.




Total
other expenses were $556,000 and $76,000 for the quarters ended June 30,
2006 and 2005, respectively. These expenses are primarily professional fees
incurred by the holding company.






***The
Six Months Ended June 30, 2006 Compared to the Six Months Ended
June 30, 2005 - Corporate and Other***




Accretion
and other interest was $24,000 for the six months ended June 30, 2006. This
amount represents interest income related to interest bearing cash
accounts.




Interest
expense was $941,000 for the six months ended June 30, 2006 compared to
$7,000 for the quarter ended June 30, 2005. The interest for the six months
ended June 30, 2006 is related to the secured note payable and notes
payable-Coastal Credit purchase holdback. The principal and interest related to
the notes payable-Coastal Credit purchase holdback was paid in full on March 31,
2006. Interest expense is a result of the secured bridge note to Castle Creek
and revolving note to Castle Creek that White River entered into during the six
months ended June 30, 2005.




Gain
(loss) from extinguishment of debt and intercompany transfers related to
creditor notes payable was $1.6 million and $(2.1) million for the six months
ended June 30, 2006 and 2005, respectively. During the quarters ended
June 30, 2006 and 2005, White River purchased UAC creditor notes payable
which resulted in a loss from extinguishment of debt for both periods. The loss
from extinguishment of debt for the quarter ended June 30, 2006, however,
was offset by a $1.9 million intercompany gain from a UAC creditor notes payable
distribution to White River during the period.




Total
other expenses were $941,000 and $76,000 for the six months ended June 30,
2006 and 2005, respectively. These expenses are primarily professional fees
incurred by the holding company.






**Financial
Condition as of June 30, 2006 and December 31,
2005**




***Securitized
Finance Receivables, Net***




Securitized
finance receivables, net balance is 49.7% less at June 30, 2006 compared to
December 31, 2005. This decrease is attributable to the normal runoff of
the portfolio. The collateralized financing for







32
 **PART
I****FINANCIAL
INFORMATION**





securitization
2003-A was paid in full during the first quarter of 2006. The 2003-A receivables
were released from collateral arrangements and, accordingly, are now recorded as
receivables held for investment, net. Principal balances of receivables held for
investment, securitized finance receivables and the off-balance sheet
securitization portfolios are summarized in the following table (in
thousands):




**June
      30, 2006**
    
    **December
      31, 2005****UAC
      and Subsidiary Receivables Held for Investment**UAC
      Owned
    
    $
    245
    
    $
    336UACSC
      Owned (1)
    
    
    1,181
    
    
    -1,426
    
    
    336**Securitized
      Finance Receivables (2)**2003-A
    
    
    -
    
    
    4,1672004-A1
    
    
    1,307
    
    
    3,7952004-A2
    
    
    1,919
    
    
    4,7122004-B
    
    
    2,333
    
    
    5,3562004-C
    
    
    8,084
    
    
    16,8372005-A
    
    
    10,062
    
    
    19,0422005-B
    
    
    14,127
    
    
    25,4052005-C
    
    
    20,878
    
    
    35,71758,710
    
    
    115,031**Off-Balance
      Sheet Securitizations**2001-B
    
    
    7,901
    
    
    12,7432001-C
    
    
    22,961
    
    
    35,0092002-A
    
    
    23,284
    
    
    34,54854,146
    
    
    82,300Total
      Portfolios
    
    $
    114,282
    
    $
    197,667






(1)
    On
      March 8, 2006 the 2003-A note was paid in full. The receivable portfolio
      is still owned by UACSC but is now recorded as held for
      investment.




(2)
    On-balance
      sheet portfolios held by UACSC for collateralized
    financings.








***Finance
Receivables, Net***




Finance
receivables, net generally have original terms ranging from 32 to 48 months and
are secured by the related vehicles.




During
the six months ended June 30, 2006, 33.7% of contracts acquired by Coastal
Credit are contracts made with borrowers who are in the United States military.
Coastal Credit believes that having in the portfolio a significant percentage of
contracts for which the borrowers are United States military personnel







33
 **PART
I****FINANCIAL
INFORMATION**





contributes
to lower payment delinquency and greater collection personnel efficiencies.
Coastal Credit requests that all borrowers who are in the military use the
military allotment system to make payments on their contracts. Under this
allotment system, the borrower authorizes the military to make a payroll
deduction for the amount of the borrower’s monthly contract payment and to
direct this deduction payment to Coastal Credit on behalf of the borrower.
Delinquency of payments on contracts paid by allotment historically has been
less than delinquency of payments on contracts not paid by allotment. As a
result, the collection effort associated with the military contracts requires
substantially less time, allowing Coastal Credit’s collection staff to focus on
an increasing number of non-military contracts.




As of
June 30, 2006, Coastal Credit’s finance receivables consisted exclusively
of contracts acquired by Coastal Credit without credit recourse to the dealer.
Although all the contracts in Coastal Credit’s portfolio were acquired without
credit recourse, each dealer remains liable to Coastal Credit for liabilities
arising from certain representations and warranties made by the dealer with
respect to compliance with applicable federal and state laws and valid title to
the vehicle.




Coastal
Credit’s policy is to only acquire a contract after the dealer has provided
Coastal Credit with the requisite proof that Coastal Credit will have a first
priority lien on the financed vehicle, that the borrower has obtained the
required collision insurance naming Coastal Credit as loss payee and that the
contract has been fully and accurately completed and validly executed. Coastal
Credit typically buys contracts on an individual basis and occasionally
considers portfolio acquisitions as part of its growth strategy.




***Beneficial
Interest in Master Trust***




Beneficial
interest in Master Trust increased to $20.7 million at June 30, 2006
compared to $14.0 million at December 31, 2005. This increase is primarily
due to lower than projected net credit losses on the UAC finance receivables
underlying the Master Trust. UAC used a 15% discount rate to value the
beneficial interest in Master Trust as of June 30, 2006 and
December 31, 2005.




UAC
continually assesses the adequacy of its beneficial interest in Master Trust
cash flow model and, as necessary, adjusts both its cash flow model and the
balance of the beneficial interest in Master Trust accordingly. Adjustments to
beneficial interest in Master Trust are recorded as accumulated other
comprehensive income in the shareholders’ equity section of the consolidated
balance sheet and are accreted over time as accretion and other interest. The
anticipated amortization period of the accumulated other comprehensive income is
based on the estimated cash flows from the Master Trust which are projected to
be completed by 2010. Accumulated other comprehensive income was $20.0 million
and $13.3 million at June 30, 2006 and December 31, 2005,
respectively.




***Collateralized
Financings***




Collateralized
financings were $65.3 million at June 30, 2006, compared to $122.3 million
at December 31, 2005. The decrease was the result of principal payments to
note holders that correspond to the principal reduction of securitized finance
receivable-net.




***Accrued
Interest Payable***




Accrued
interest payable was $1.9 million at June 30, 2006, compared to $2.1
million at December 31, 2005. The change in accrued interest payable is the
result of the declining collateralized financing balance partially offset by an
increase in the line of credit balance and the line of credit interest
rate.







34
 **PART
I****FINANCIAL
INFORMATION**




***Creditor
Notes Payable***




Creditor
notes payable was $1.6 million at June 30, 2006, compared to $1.5 million
at December 31, 2005. The increase was the result of the accretion of the
valuation discount.






**Liquidity
and Capital Resources for the Six Months Ended June 30, 2006 and
2005**




Net cash
provided by (used in) operating activities was $0.8 million and $(2.9) million
for the six months ended June 30, 2006 and 2005, respectively. The increase
in net cash flows from operating activities was primarily from Coastal Credit
during the periods.




Net cash
provided by investing activities was $50.1 million for the six months ended
June 30, 2006 compared to net cash used in investing activities of $(16.5)
million for the six months ended June 30, 2005. Included in the net cash
used in investing activities for the six months ended June 30, 2005 was
$96.1 million related to the purchase of securitized finance receivables. No
such purchases occurred during the six months ended June 30, 2006. This
change was partially offset by the subsequent collection of securitized finance
receivables and to changes in restricted cash.




Net cash
used in financing activities was $(51.3) million for the six months ended
June 30, 2006 compared to net cash provided by financing activities of
$18.0 million for the six months ended June 30, 2005. Net cash flows used
in financing activities for the six months ended June 30, 2006 primarily
resulted from the $57.0 million principal payments of collateralized financing
partially offset by borrowings on the line of credit during the period. Net cash
provided by financing activities for the six months ended June 30, 2005
primarily resulted from net proceeds from collateralized financings of $98.4
million partially offset by the principal payment on UAC creditor notes payable
of $3.4 million and principal payments on collateralized financings of $79.3
million.




At
June 30, 2006, White River and its subsidiaries had cash and cash
equivalents of $6.4 million compared to $2.3 million at June 30, 2005.
White River and its subsidiaries have ongoing cash flow requirements to support
their operations.




Coastal
Credit has a revolving credit facility from a lending institution with a maximum
borrowing limit at June 30, 2006, of $80.0 million. This facility increased
to $100 million in July 2006. The maturity date is December 31, 2009. As of
June 30, 2006, Coastal Credit had $57.5 million of indebtedness outstanding
under this facility. Total availability under the line of credit was $70.0
million based upon the level of eligible collateral with $12.5 million available
in excess of the amount utilized at June 30, 2006. The credit facility is
secured by substantially all of the assets of Coastal Credit. In addition, White
River has provided an unconditional corporate guaranty. Coastal Credit must
maintain specified financial ratios within guidelines established by the lender
and is in compliance with these ratios. Interest is paid monthly at a variable
rate, based on meeting certain financial criteria. At June 30, 2006, the
rate was the London Interbank Offered Rate (“LIBOR”) plus 2.85% (7.96%). There
is an annual commitment fee of 1/8 of 1% on the average daily unused commitment.
In the event of a significant pay down or an earlier retirement of the revolver
commitment, Coastal Credit would sustain certain prepayment penalties. This
facility limits distributions Coastal Credit may make to White River to 50% of
Coastal Credit’s net income in addition to permitted payments on subordinated
debt (including White River debt guaranteed by Coastal Credit.)




Coastal
Credit has $7.7 million in subordinated debentures outstanding at June 30,
2006. Interest on the notes is payable quarterly at a fixed rate of interest of
12% per annum. At June 30, 2006, approximately 73% of the holders of
subordinated debentures were related parties. All of the subordinated debt
matures in 2008 and is subordinated to the line of credit and White River’s
secured note payable.







35
 **PART
I****FINANCIAL
INFORMATION**





UAC’s
sources of liquidity are limited and consist of cash on hand, escrowed cash for
operations, funds from consolidated operations and distributions from the Master
Trust. UAC's beneficial interest in Master Trust reflected on the balance
sheet reflects the discounted value of projected cash flows that UAC expects to
receive from its outstanding securitizations and non-recourse financings of its
portfolios of auto finance receivables. White River, as owner of approximately
90% of UAC's notes and claims outstanding under the Plan of Reorganization, will
become entitled to distribution of the substantial majority of these cash
flows as they are realized by UAC. However, the realization of such
projected cash flows is dependent upon the performance of the
underlying auto receivable portfolios and the effective servicing of such
receivables. In particular, if gross defaults, recoveries on defaulted
receivables or prepayments on such receivables are less favorable than the
rates projected by management, UAC's realization of such cash flows will
be reduced or delayed relative to such projections. Such reduction may
be material.




White
River has outstanding $15.0 million in a secured note at June 30, 2006.
Interest on the note is payable quarterly in arrears at a fixed rate of 10.75%
per annum. The secured note payable is secured by White River’s ownership
interest in Coastal Credit and is guaranteed by Coastal Credit, but subordinate
to Coastal Credit’s revolving credit facility. Principal is payable in sixteen
quarterly installments of $937,500. The first of these principal payments was
paid on July 3, 2006. Prepayment of the note is allowed beginning July 1, 2007.
There is a 2% prepayment penalty if prepayment occurs between July 1, 2007 and
June 30, 2008. This prepayment is 1% if prepayment occurs between July 1,
2008 and June 30, 2009. There is no penalty if the prepayment occurs after
June 30, 2009.




White
River’s sources of liquidity, as the parent company, are limited and consist of
cash on hand, payments by UAC on the UAC creditor notes payable owned by White
River and distributions by Coastal Credit (subject to restrictions under Coastal
Credit’s credit facility).




White
River currently intends to retain its earnings to finance the growth and
development of its businesses and has no present intention of paying any cash
dividends in the foreseeable future.






**Asset
Quality**




Set forth
below is certain information concerning the credit loss experiences on the fixed
rate retail automobile receivables of White River. There can be no assurance
that future net credit loss experience on the receivables will be comparable to
that set forth below. See “Discussion of Forward-Looking
Statements.”







36
 **PART
I****FINANCIAL
INFORMATION**





***Securitized
Finance Receivables***




Selected
information about active UAC securitizations (dollars in
thousands):




**Current
      Transaction**
    
    **Initial
      Transaction**
    
    **Original
      Amount of Initial Transaction**
    
    **Remaining
      Balance at June 30, 2006**
    
    **Remaining
      Balance as a Percentage of Original Amount**
    
    **Net
      Loss Incurred to Original Amount at June 30, 2006**On
      Balance Sheet Securitized Finance Receivables:2004-A1
    
    
    1999-C
    
    $
    364,792
    
    $
    1,307
    
    
    0.36
    %
    
    9.49
    %2004-A2
    
    
    1999-D
    
    
    302,693
    
    
    1,919
    
    
    0.63
    %
    
    10.99
    %2004-B
    
    
    2000-A
    
    
    282,721
    
    
    2,333
    
    
    0.83
    %
    
    9.05
    %2004-C
    
    
    2000-B
    
    
    534,294
    
    
    8,084
    
    
    1.51
    %
    
    11.66
    %2005-A
    
    
    2000-C
    
    
    499,999
    
    
    10,062
    
    
    2.01
    %
    
    9.68
    %2005-B
    
    
    2000-D
    
    
    510,000
    
    
    14,127
    
    
    2.77
    %
    
    10.30
    %2005-C
    
    
    2001-A
    
    
    573,000
    
    
    20,878
    
    
    3.64
    %
    
    9.42
    %3,067,499
    
    
    58,710Off
      Balance Sheet Securitized Finance Receivables:2001-B
    
    
    
    
    
    150,002
    
    
    7,901
    
    
    5.27
    %
    
    7.58
    %2001-C
    
    
    
    
    
    330,000
    
    
    22,961
    
    
    6.96
    %
    
    7.05
    %2002-A
    
    
    
    
    
    300,000
    
    
    23,284
    
    
    7.76
    %
    
    5.24
    %780,002
    
    
    54,146Total
    
    
    
    
    $
    3,847,501
    
    $
    112,856
    
    
    2.93
    %
    
    8.78
    %










37
 **PART
I****FINANCIAL
INFORMATION**





Delinquency
experience of securitized finance receivables at UAC (dollars in
thousands):




**June
      30, 2006**
    
    **December
      31, 2005****Securitized
      finance receivables principal balance**
    
    $
    58,710
    
    $
    115,031Delinquencies:30-59
      days
    
    
    4,134
    
    
    7,70360-89
      days
    
    
    1,001
    
    
    2,39090+
      days
    
    
    410
    
    
    1,271Total
      delinquencies
    
    $
    5,545
    
    $
    11,364Delinquencies
      as a percentage of securitized finance receivables
    
    
    9.4
    %
    
    9.9
    %**Off-balance
      sheet finance receivables principal balance**
    
    $
    54,146
    
    $
    82,300Delinquencies:30-59
      days
    
    
    2,122
    
    
    2,73760-89
      days
    
    
    394
    
    
    85990+
      days
    
    
    195
    
    
    553Total
      delinquencies
    
    $
    2,711
    
    $
    4,149Delinquencies
      as a percentage of securitized finance receivables
    
    
    5.0
    %
    
    5.0
    %







Provisions
are made for estimated net credit losses of securitized finance receivables in
conjunction with each repurchase of an off-balance sheet securitization. The
cumulative credit loss assumptions used for the pools of receivables repurchased
as of June 30, 2006 ranged from 9.01% to 11.70%, compared to a range of
7.34% to 11.87% as of December 31, 2005. The receivables related to the
2003-A securitization were recorded as receivables held for investment during
March 2006 and have been excluded from the Securitized finance receivable
principal balance and delinquencies of the June 30, 2006
results.




On June
9, 2006, UAC sold receivables in Chapter 13 bankruptcy status from its portfolio
to an unrelated third party. These accounts had a combined secured and unsecured
receivable balance of approximately $10.6 million which, on each account, was
previously charged off to a book value of zero during the Chapter 13 bankruptcy
process. Payments received from these accounts were treated as recoveries.
Therefore, the sale of these accounts will, in conjunction with the seasonal
trends, result in a reduction of recovery for estimated credit losses and/or the
need for a provision in future periods.







38
 **PART
I****FINANCIAL
INFORMATION**





Allowance
for loan losses of securitized finance receivables at UAC ($ in
thousands):




**Quarters
      Ended June 30,**
    
    **Six
      Months Ended June 30,****2006**
    
    
    
    **2005**
    
    **2006**
    
    
    
    **2005**Balance
      at the beginning of period
    
    $
    4,867
    
    
    
    
    $
    12,758
    
    $
    6,503
    
    
    
    
    $
    11,722Allowance
      at purchase
    
    
    -
    
    
    
    
    
    362
    
    
    -
    
    
    
    
    
    3,032Charge-offs
    
    
    (2,064
    )
    
    
    
    
    (4,901
    )
    
    (6,316
    )
    
    
    
    
    (10,599
    )Recoveries
    
    
    2,842
    
    
    
    
    
    3,843
    
    
    6,391
    
    
    
    
    
    7,458Provision
      (recovery) for estimated credit losses
    
    
    (1,556
    )
    
    
    
    
    1,363
    
    
    (2,489
    )
    
    
    
    
    1,812Balance
      at the end of the period
    
    $
    4,089
    
    
    
    
    $
    13,425
    
    $
    4,089
    
    
    
    
    $
    13,425Net
      charge offs (recoveries)
    
    $
    (778
    )
    
    
    
    $
    1,058
    
    $
    (75
    )
    
    
    
    $
    3,141Securitized
      finance receivables
    
    $
    58,710
    
    
    
    
    $
    142,338
    
    $
    58,710
    
    
    
    
    $
    142,338Allowance
      for loan losses as a percent of securitized finance
      receivables
    
    
    6.96
    %
    
    
    
    
    9.43
    %
    
    6.96
    %
    
    
    
    
    9.43
    %Annualized
      net charge offs (recoveries) as a percent of securitized finance
      receivables
    
    
    (5.30
    )%
    
    
    
    
    2.97
    %
    
    (0.26
    )%
    
    
    
    
    4.41
    %Allowance
      for loan losses as a percent of annualized net charge offs
    
    
    n/m
    *
    
    
    
    
    317.23
    %
    
    n/m
    *
    
    
    
    
    213.71
    %











***Finance
Receivables***




Delinquency
experience of finance receivables at Coastal Credit, including unearned interest
($ in thousands):




**June
      30, 2006**
    
    **December
      31, 2005**Finance
      receivables - gross balance
    
    $
    105,512
    
    $
    97,820Delinquencies:30-59
      days
    
    
    1,121
    
    
    1,12460-89
      days
    
    
    558
    
    
    76890+
      days
    
    
    548
    
    
    878Total
      delinquencies
    
    $
    2,227
    
    $
    2,770Delinquencies
      as a percentage of finance receivables - gross balance
    
    
    2.1
    %
    
    2.8
    %










39
 **PART
I****FINANCIAL
INFORMATION**





As a
result of the nature of the customers in Coastal Credit’s portfolio, Coastal
Credit considers the establishment of an adequate allowance for loan losses to
be critical to its continued profitability. Coastal Credit has an allowance for
loan losses that is calculated independent of the aggregate acquisition
discounts and fees on finance receivables. Coastal Credit’s allowance for loan
losses is based upon the historical rate at which (1) current loans, (2)
contracts in a 30, 60 and 90+ day delinquency state and (3) loans ineligible for
its borrowing line will default. These historical rates are evaluated and
revised on a quarterly basis.




Allowance
for loan losses of finance receivables ($ in thousands):




**Quarter
      Ended June 30, 2006**
    
    **Six
      Months Ended June 30, 2006**Balance
      at beginning of period
    
    $
    5,916
    
    $
    6,031Charge-offs,
      net of recoveries
    
    
    (1,117
    )
    
    (2,303
    )Provision
      for estimated credit losses
    
    
    1,033
    
    
    2,104Balance
      at the end of the period
    
    $
    5,832
    
    $
    5,832Net
      charge offs
    
    $
    1,117
    
    $
    2,303Finance
      receivables, net of unearned finance charges
    
    $
    95,598
    
    $
    95,598Allowance
      for loan losses as a percent of finance receivables, net of unearned
      finance charges
    
    
    6.10
    %
    
    6.10
    %Annualized
      net charge offs as a percent of finance receivables, net of unearned
      finance charges
    
    
    4.67
    %
    
    4.82
    %Allowance
      for loan losses as a percent of annualized net charge offs
    
    
    130.53
    %
    
    126.62
    %









**Discussion
of Forward-Looking Statements**




The
preceding Management’s Discussion and Analysis contains forward-looking
statements within the meaning of The Private Securities Litigation Reform Act of
1995. Forward-looking statements are also made elsewhere in this report. White
River publishes other forward-looking statements from time to time. Statements
that are not historical in nature, including the words “anticipate,” “estimate,”
“should,” “expect,” “believe,” “intend,” and similar expressions, are intended
to identify forward-looking statements. We caution you to be aware of the
speculative nature of “forward-looking statements.” Although these statements
reflect White River’s good faith belief based on current expectations, estimates
and projections about (among other things) the industry and the markets in which
White River operates and the performance of its subsidiaries’ receivables
portfolios, they are not guarantees of future performance. Whether actual
results will conform to management’s expectations and predictions is subject to
a number of known and unknown risks and uncertainties, including:




§
    the
      risks and uncertainties discussed in White River’s 2005 Annual Report on
      Form 10-K;





40
 **PART
I****FINANCIAL
INFORMATION**




§
    general
      economic, market, or business conditions;  §
    changes
      in interest rates, the cost of funds, and demand for White River’s
      financial services;  §
    changes
      in White River’s competitive position;  §
    White
      River’s ability to manage growth;  §
    the
      opportunities that may be presented to and pursued by White
      River;  §
    competitive
      actions by other companies;  §
    changes
      in laws or regulations;  §
    changes
      in the policies of federal or state regulators and agencies;
      and  §
    other
      circumstances, many of which are beyond White River’s
    control.


Consequently,
all of White River’s forward-looking statements are qualified by these
cautionary statements. White River may not realize the results anticipated by
management or, even if White River substantially realizes the results management
anticipates, the results may not have the consequences to, or effects on, White
River or its business or operations that management expects. Such differences
may be material. Except as required by applicable laws, White River does not
intend to publish updates or revisions of any forward-looking statements
management makes to reflect new information, future events or
otherwise.








**ITEM
4. CONTROLS AND PROCEDURES.**




White
River carried out an evaluation, under the supervision of its Chief Executive
Officer, President and Chief Financial Officer, of the effectiveness of the
design and operation of White River’s disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15 and 15d-15 as of June 30, 2006. Based
upon that evaluation, the Chief Executive Officer, President and Chief Financial
Officer concluded that, at June 30, 2006, White River’s disclosure controls
and procedures are effective in accumulating and communicating to management
(including such officers) the information required to be included in White
River’s periodic SEC filings.







41
 **PART
II****OTHER INFORMATION**





**PART
II**







**ITEM
1. LEGAL PROCEEDINGS.**




UAC and
its subsidiaries filed an adversary proceeding within UAC’s bankruptcy case on
July 25, 2005 in the U.S. Bankruptcy Court for the Southern District of Indiana
against System & Services Technologies, Inc. (“SST”) seeking unspecified
damages for deficiencies in SST’s servicing of securitized and unsecuritized
receivables. On February 17, 2006 the U.S. Bankruptcy Court for the Southern
District of Indiana granted SST’s motion to dismiss for lack of subject matter
jurisdiction. In response to this decision, UAC and its subsidiaries re-filed
substantially the same complaint against SST on February 17, 2006 in the U.S.
District Court for the Southern District of Indiana. An answer to this complaint
was filed on March 15, 2006 by SST. The answer included counterclaims alleging
fraud in the initial sale of the servicing platform to SST and underpayment of
certain servicing fees. On April 7, 2006, UAC filed a response to the
counterclaims filed by SST. UAC believes the counterclaims are without merit and
intends to vigorously defend against them.






**ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**




The
annual meeting of the shareholders of White River Capital, Inc. was held on May
5, 2006. The following is a summary of the matters voted on at the
meeting:




(a) The
six nominees for director were elected to serve one-year terms, ending in 2007,
as follows:


Nominee
    
    Votes
      For
    
    Votes
      WithheldJohn
      M. Eggemeyer
    
    
    3,250,497
    
    
    13,060William
      E. McKnight
    
    
    3,250,505
    
    
    13,052John
      W. Rose
    
    
    3,263,505
    
    
    52Mark
      R. Ruh
    
    
    3,250,505
    
    
    13,052Donald
      A. Sherman
    
    
    3,237,131
    
    
    26,426Richard
      D. Waterfield
    
    
    3,237,089
    
    
    26,468




(b) The
adoption of the White River Capital, Inc. Directors Stock Compensation Plan was
approved by the following shareholder vote:




For
    
    
    2,550,469Against
    
    
    2,894Abstain
    
    
    466Broker
      Non-Votes
    
    
    727,227







42
 **PART
II****OTHER INFORMATION**







(c) The
adoption of the White River Capital, Inc. 2005 Stock Incentive Plan was approved
by the following shareholder vote:




For
    
    
    2,537,237Against
    
    
    16,126Abstain
    
    
    466Broker
      Non-Votes
    
    
    727,227







**ITEM
6.   EXHIBITS.**




31.1
    
    Certification
      by Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the
      Exchange Act31.2
    
    Certification
      by Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the
      Exchange Act32
    
    Section
      1350 Certifications















43





**SIGNATURES**




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.









**White
      River Capital, Inc.**(Registrant)August
      9, 2006
    By:
    /s/ Martin
      J. SzumskiMartin
      J. SzumskiChief
      Financial Officer(Signing
      on behalf of the registrant as Principal Financial
  Officer)