UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D. C. 20549




FORM 10-K




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




For the fiscal year ended December 31, 2009




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







Commission file number: 001-33257




White River Capital, Inc.


(Exact name of registrant as specified in its charter)




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







6051 El Tordo, PO Box 9876


Rancho Santa Fe, CA  92067


(Address of principal executive offices/zip code)







Registrant’s telephone number, including area code: (858) 997-6740







Securities registered pursuant to Section 12(b) of the Act:Common Stock, without par value
NYSE AmexSecurities registered pursuant to Section 12(g) of the Act:   None.







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




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    o Yes    x No




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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).    o Yes    o No




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K .    o




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




Large Accelerated Filer   o
Accelerated Filer   oNon-Accelerated Filer   o
(Do not check if a smaller reporting company)
Smaller Reporting Company   x







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




The aggregate market value of the registrant’s voting common stock held by non-affiliates, computed by reference to the price at which the common stock was last sold as of June 30, 2009 was $23.4 million.  The registrant does not have any non-voting common equity securities.




As of March 10, 2010, there were 3,982,089shares outstanding of the issuer’s Common Stock, without par value.




DOCUMENTS INCORPORATED BY REFERENCE




Certain information in the registrant’s definitive proxy statement for its 2010 Annual Meeting of Shareholders, which the registrant will file with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year, is incorporated by reference in Part III of this Form 10-K.







- INDEX -




PAGEPART IItem 1.
Business
1Item 1A.
Risk Factors
10Item 1B.
Unresolved Staff Comments
10Item 2.
Properties
10Item 3.
Legal Proceedings
11Item 4.
Reserved
11PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
12Item 6.
Selected Financial Data
18Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
28Item 8.
Financial Statements and Supplementary Data
29Report of Independent Registered Public Accounting Firm – McGladrey & Pullen LLP
29Consolidated Balance Sheets as of December 31, 2009 and 2008
30Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008
31Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009 and 2008
32Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008
33Notes to Consolidated Financial Statements
34




i




Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
52Item 9A(T).
Controls and Procedures
52Item 9B.
Other Information
52PART IIIItem 10.
Directors, Executive Officers and Corporate Governance
53Item 11.
Executive Compensation
53Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
54Item 13.
Certain Relationships and Related Transactions, and Director Independence
54Item 14.
Principal Accounting Fees and Services
54PART IVItem 15.
Exhibits
55SIGNATURES
57


ii


PART I





ITEM 1.   BUSINESS




Overview




Founded in 2004, White River Capital, Inc. (“White River”) is a financial services holding company headquartered in Rancho Santa Fe, California with two principal operating subsidiaries.




Coastal Credit LLC (“Coastal Credit”), based in Virginia Beach, Virginia, is a specialized subprime auto finance company engaged in acquiring subprime auto receivables from both franchised and independent automobile dealers which have entered into contracts with purchasers of typically used, but some new, cars and light trucks.  Coastal
Credit then services the receivables it acquires. Coastal Credit operates in 20 states through 18 offices.




Union Acceptance Company LLC (“UAC”), based in Fishers, Indiana, is a specialized auto finance company operating under a bankruptcy plan of reorganization under which it must pay net proceeds from its residual interest in its receivables portfolios and other estate assets to creditors holding notes and claims under the plan. White
River owns substantially all of such notes and claims. UAC’s bankruptcy case was closed in January 2007.




White River’s net interest margin after provision for estimated losses was $21.6 million for the year ended December 31, 2009.  Net income for this same period was $4.9 million.  At December 31, 2009, total assets were $141.0 million.




On June 27, 2008, White River and First Chicago Bancorp (“First Chicago”) signed a definitive agreement and plan of merger (the “Merger Agreement”) providing for the merger of First Chicago with and  into White River.  On June 2, 2009, White River delivered a written notification to First Chicago
terminating the Merger Agreement, effective immediately.  White River and First Chicago had been engaged in discussions regarding possible alternative transaction terms (including a change of the exchange ratio set forth in the Merger Agreement).  However, the parties were unable to agree upon mutually acceptable alternative terms.  No termination fees were incurred by either party as a result of the termination of the Merger Agreement.




On August 31, 2009, White River announced the departure of an executive officer who held the positions of President, Chief Operating Officer and Secretary.  White River has not filled, and does not intend to fill, these executive positions.







COASTAL CREDIT LLC




General




Coastal Credit is a subprime finance company engaged in acquiring sub-prime auto receivables from both franchised and independent automobile dealers which have entered into contracts with purchasers of typically used, but some new, cars and light trucks.  Coastal Credit then services the receivables it acquires. Coastal Credit commenced
operations in Virginia in 1987. It conducts business in 20 states – California, Colorado, Delaware, Florida, Georgia, Hawaii, Louisiana, Maryland, Mississippi, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Virginia and Washington – through its 18 branch locations.




1


Coastal Credit provides financing programs to customers of automobile dealers who meet Coastal Credit’s credit standards, but who may not meet the credit standards of traditional lenders, such as banks and credit unions. Unlike these traditional lenders, Coastal Credit acquires contracts from dealers for vehicle purchases made by borrowers
who typically have limited or impaired credit histories or who are purchasing older model and higher mileage automobiles. This is typically referred to as the subprime automobile finance market.




A significant number of contracts acquired by Coastal Credit are contracts made with borrowers who are in the United States military. During 2009, 47.6% of new originations were made with these borrowers. Coastal Credit believes that having in its portfolio a significant percentage of contracts for which the borrowers are United States military
personnel contributes to lower payment delinquency and higher collection personnel efficiencies. Coastal Credit requests all borrowers who are in the military to 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 increased number of civilian sector contracts.




Coastal Credit’s executive offices are located at 3852 Virginia Beach Boulevard, Virginia Beach, Virginia 23452.







Acquisition of Automobile Finance Contracts




Coastal Credit currently conducts its automobile finance programs in 20 states through a total of 18 branches, with two branches in each of Florida, Georgia,  and Virginia, and one branch in each of California, Colorado, Delaware, Louisiana, Mississippi, Nevada, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas and Utah. Each branch
acquires, processes, and services contracts in its geographic area.




Coastal Credit’s branch managers develop and maintain relationships with automobile dealers in the branches’ geographic areas. Coastal Credit enters into non-exclusive dealer agreements with these dealers for the acquisition of individual contracts. The dealer agreement provides Coastal Credit with recourse to the dealer in cases
of dealer fraud or breach of the dealer’s representations and warranties. As of December 31, 2009, Coastal Credit had non-exclusive agreements with approximately 4,300 dealers, of which approximately 600 are active. Coastal Credit considers a dealer agreement to be active if Coastal Credit has acquired a contract under the dealer agreement in the last nine months. After Coastal Credit acquires a contract from a dealer, the dealer is no longer involved in the relationship between Coastal Credit and the borrower,
other than through the existence of limited representations and warranties of the dealer.




Borrowers under the contracts typically make down payments, in the form of cash or trade-in, ranging from 5% to 20% of the sale price of the vehicle financed. The balance of the purchase price of the vehicle plus taxes, title fees and, if applicable, premiums for “add-on” products (described below), are generally financed over
a period of 36 to 54 months.




Coastal Credit acquires each contract from the automobile dealer at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The amount of the variance depends upon factors such as the creditworthiness of the borrower and the age and value of the automobile. Coastal Credit will
pay more for contracts as the credit risk of the borrower improves. Coastal Credit typically acquires contracts at purchase prices that range from 80% to 90% of the original




2


principal amount of the contract. In addition, Coastal Credit typically charges dealers a processing fee ranging from $50 to $295 per contract acquired. See “Pricing of Contracts” below.




As of December 31, 2009, Coastal Credit’s contract portfolio consisted exclusively of contracts acquired by Coastal Credit without credit recourse to the dealer. Although all the contracts in Coastal Credit’s contract portfolio were acquired without credit recourse, each dealer remains liable to Coastal Credit for liabilities
arising from any breach of 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 acquire a contract only 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. Once Coastal Credit has received and approved all required documents, Coastal Credit purchases the contract and begins servicing the contract.




Both Coastal Credit and the dealers with which it does business offer purchasers of vehicles certain other “add-on” products. These products are offered by the dealer on Coastal Credit’s behalf or by the dealer on behalf of the automobile dealership at the time of sale. The add-on products consist of the following:




·
Extended warranty protection – covers the cost of certain repairs after the vehicle’s warranty expires;


·
Gap protection – pays an amount between what the borrower owes and the primary insurance cash value of a vehicle if the vehicle is stolen or destroyed; and


·
Collateral protection insurance – pays the cost to repair or the value of the vehicle if the vehicle is stolen, damaged or destroyed.





At the borrower’s option, the cost of these products may be included in the amount financed under the contract.








Underwriting Guidelines





Coastal Credit’s typical borrower has a credit history that may fail to meet the lending standards of most banks, credit unions and captive automobile finance companies. Substantially all of Coastal Credit’s automobile contracts involve loans made to individuals with limited or impaired credit histories. Coastal Credit believes
that its borrower credit profile is similar to that of its direct competitors in the subprime automobile finance business. Coastal Credit also believes that its underwriting criteria and branch network management system coupled with close senior management supervision enhances its risk management and collection functions.




In deciding whether to acquire a particular contract, Coastal Credit considers various factors, including:




·
the applicant’s length of residence;


·
the applicant’s current and prior job status;


·
the applicant’s history in making other installment loan payments;


·
the applicant’s payment record on previous automobile loans;


·
the applicant’s current income and discretionary spending ability;


·
the applicant’s credit history;


·
the value of the automobile in relation to the purchase price;


·
the term of the contract;


·
the automobile make and mileage; and


3


·
Coastal Credit’s prior experience with contracts acquired from the dealer.





For applicants who are military personnel, Coastal Credit also considers the applicant’s rank and the time remaining on his or her enlistment contract. These factors affect not only whether Coastal Credit will acquire the contract, but also the purchase price Coastal Credit will be willing to pay the dealer to acquire the contract.





As part of the approval process, Coastal Credit receives a credit application completed by the prospective borrower. The application contains information relating to the applicant’s background, employment and credit history. Coastal Credit also obtains a credit report from an independent credit reporting service and verifies the applicant’s
employment history, income and residence. In certain cases, a Coastal Credit application processor interviews the applicant by telephone. After reviewing the information submitted in the credit application (which includes years at employer, years at residence and income), any telephone interview and the credit report, a Coastal Credit representative approves or rejects the application according to company guidelines.




The branch manager of each branch is responsible for underwriting and purchasing automobile contracts and providing servicing and collections. However, the branch network is closely managed and supervised by Coastal Credit’s senior management. Coastal Credit believes that its branch network operations enable branch managers to develop
strong relationships with its automobile dealers. Coastal Credit, through its branches, provides a high level of service to its dealers by providing consistent credit decisions and frequent management contact. Coastal Credit has established internal buying guidelines to be used by its underwriters when acquiring contracts. Although the buying guidelines vary from branch to branch, Coastal Credit’s branch managers or senior management must approve any contract that does not meet a branch’s guidelines
in advance of purchasing any such contract. Coastal Credit has 18 branch managers, each charged with managing the specific branches in a defined geographic area. In addition to a variety of administrative duties, the branch managers are responsible for monitoring their assigned branches’ compliance with Coastal Credit’s underwriting standards. On a regular basis, either a branch manager or senior management reviews every newly purchased contract.




To further ensure compliance with its underwriting guidelines, Coastal Credit performs on-site reviews of its branches. The branch reviews are performed on a schedule that varies from branch to branch, depending on the size of the branch, the length of time the branch has been open, the current tenure of the branch manager and the branch’s
current and historical profitability. Coastal Credit believes that the branch review is critical to ensuring that credit quality is not sacrificed for asset growth.







Pricing of Contracts




Coastal Credit’s management believes that a key to its consistent profitability has been its ability to effectively price the contracts it acquires to fully cover all future losses on the contracts. Pricing has two components: (1) the interest rate the borrower pays on the amount financed and (2) the purchase price paid to the dealer.
To determine the pricing for a particular contract, Coastal Credit considers the same factors it considers in determining whether to acquire the contract. As a result of its disciplined underwriting guidelines, Coastal Credit generally only purchases approximately 12 contracts for every 100 automobile loan applications reviewed. These factors are discussed above under “Underwriting Guidelines.”




To ensure its ability to continue to effectively price the contracts it acquires, Coastal Credit’s branch managers and senior management analyze various reports on a monthly and quarterly basis to identify any trends that will influence pricing. These reports help management compare the performance of contracts by branch, by dealer,
by contract age, by borrower’s income and by borrower’s credit history.




4


Geographic Concentration




Coastal Credit operates its business and acquires its contracts in various regions as follows:




Region #1 – Florida, Georgia, North Carolina, Tennessee and Virginia.


Region #2 – Delaware, Maryland, Ohio and Pennsylvania.


Region #3 – Louisiana, Mississippi, Nevada, Oklahoma and Texas.


Region #4 – California, Colorado, Hawaii, New Mexico, Utah and Washington.




Coastal Credit’s level of contract acquisitions in each state may fluctuate significantly over time depending on competitive conditions and other factors in those areas. In considering potential areas for expansion, Coastal Credit carefully reviews the regulatory and competitive environment and economic and demographic factors, including
the availability of qualified underwriters and managers and the number of dealerships in the potential expansion area. Because a significant number of Coastal Credit’s contracts have been with borrowers who are in the military, Coastal Credit also considers the proximity of military bases. To ensure successful branch expansion, Coastal Credit focuses on hiring and developing local, experienced branch-level management.







Servicing, Monitoring and Enforcement of Contracts




Coastal Credit acts as servicer for the contracts it acquires. As servicer, Coastal Credit collects payments due from borrowers, monitors collections and pursues the collection of delinquent accounts, including the liquidation of collateral securing defaulted contracts. Coastal Credit uses integrated computer systems to enhance its ability
to respond to borrower inquiries and to monitor the performance of its contract portfolio and the performance of individual borrowers under contracts. All of Coastal Credit’s personnel, including personnel at its branch offices, have instant, simultaneous access to information from a single shared database.




To protect its collateral in financed vehicles, Coastal Credit requires all borrowers to obtain and maintain collision insurance covering damage to the vehicle and naming Coastal Credit as the loss payee. The insurance typically must have a deductible of not more than $500. Failure to maintain insurance constitutes a default under the contract,
and Coastal Credit may, at its discretion, repossess the vehicle. Coastal Credit does not “force-place” insurance (that is, purchase insurance on behalf of borrowers whose policies have lapsed and add the cost and applicable finance charges to the balance of the contract).




Coastal Credit uses a number of methods to monitor compliance by borrowers with their obligations under contracts and to pursue collections of delinquent accounts. In addition to Coastal Credit’s collections staff, branch managers and senior management receive a daily delinquency report. The delinquency report is an aging report that
provides basic information regarding each account and indicates accounts that are past due. The report includes information that enables the senior management, branch managers and collection staff to identify and access delinquent accounts. The report includes such information as the borrower’s name, account number, outstanding balance, date of last payment, next due date, past due days by recency and contractually, and the delinquency status by aging category.




In most cases, a collection representative begins the process of contacting the borrower by telephone or mail on the first day that the account is past due. The collection representative also mails future reminders and late notices. If the collection representative is able to make contact with the borrower and the borrower is able to provide
Coastal Credit with an acceptable explanation for the delinquency, to display the willingness and the ability to make payment, and to commit to a plan to return the account to current status, the information is entered in Coastal Credit’s database and is used to generate a “promises report.” Coastal Credit’s collection staff uses the promises report for further account monitoring. Generally, the same collection representative will pursue the account until it is brought current or charged
off.




5


If the collection representative is not able to make contact with the borrower or if the borrower is unable to make payment arrangements acceptable to Coastal Credit, the collection representative will refer the account to the collection manager or the branch manager to determine whether to repossess the financed vehicle. Coastal Credit’s
branch managers and senior management review all repossession determinations and have the authority to override such determinations.




Coastal Credit prepares a repossession report that provides information regarding repossessed vehicles and aids Coastal Credit in disposing of repossessed vehicles. In addition to information regarding the borrower, this report provides information regarding the date of repossession, the date the vehicle was sold, the number of days it was
held in inventory prior to sale, the year, make and model of the vehicle, the vehicle’s mileage, the payoff amount on the contract, the value of the vehicle indicated in standard industry publications, the suggested sale price, the location of the vehicle, the original dealer, the condition of the vehicle, and notes and other information. This data provides Coastal Credit with relevant information that may affect future credit decisions.




Once a branch manager or senior management has approved a repossession request, a repossession firm repossesses the vehicle and delivers it to a secure location specified by Coastal Credit. Coastal Credit maintains relationships with several licensed repossession firms that repossess vehicles for fees that typically range from $225 to $375
for each vehicle repossessed. 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 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 elapse from the time Coastal Credit takes possession of a vehicle and the time it is sold at auction.




When a repossessed vehicle has been sold and/or a contract has been charged off, if Coastal Credit determines that there is a reasonable likelihood of recovering part or all of any deficiency against the borrower under the contract, Coastal Credit will pursue all legal remedies available to it. States have different collection laws, but legal
remedies may include lawsuits, judgment liens and wage garnishments.




In addition, the branch managers and Coastal Credit’s senior management review each account that is 60 days past due to determine whether the contract should be charged off. Coastal Credit requires mandatory charge off of all contracts when 60 days have passed since the most recent payment and/or the contract is 180 days delinquent
per the contract terms. 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. Historically, Coastal Credit has recovered approximately 25% of deficiencies from such borrowers. Proceeds from the disposition of the vehicles are not included in calculating the foregoing percentage range.







Marketing and Advertising




Coastal Credit’s marketing efforts are directed toward automobile dealers. Coastal Credit attempts to meet dealers’ needs by offering highly-responsive, cost-competitive, locally-based and service-oriented financing programs. Coastal Credit relies on its marketing and branch managers to solicit agreements for the acquisition of
contracts with automobile dealers located within each branch’s geographic area. The branch manager provides dealers with information regarding Coastal Credit and the general terms upon which Coastal Credit is willing to acquire contracts.




6


Competition




The subprime automobile finance industry is highly fragmented and highly competitive. There are numerous financial service companies that provide subprime credit in the markets served by Coastal Credit, including credit unions, other consumer finance companies and captive finance companies owned by automobile manufacturers and retailers.
Many of these companies have significantly greater resources and market presence than Coastal Credit. Coastal Credit does not believe that increased competition for the acquisition of contracts will cause a material reduction in the interest rate payable by the purchaser of the automobile. However, increased competition for the acquisition of contracts will enable automobile dealers to shop for the best price. Coastal Credit’s management believes that its effective pricing has been a key factor in its consistent,
historical profitability, and, therefore, Coastal Credit will forego acquisition of a contract if it believes that meeting the competitor’s pricing would compromise its underwriting guidelines.




Coastal Credit’s target market consists of persons who are generally unable to obtain traditional used car financing because of their credit history or the vehicle’s mileage or age. Coastal Credit has been able to expand its automobile finance business in the subprime credit market by offering to acquire contracts on terms that
are competitive with those of other companies that acquire automobile receivables in that market segment. As a result of the daily contact that many of Coastal Credit’s employees have with automobile dealers located throughout the market areas Coastal Credit serves, Coastal Credit is generally aware of the terms upon which its competitors are offering to acquire contracts. Coastal Credit’s policy is to modify its terms, if necessary, to remain competitive. However, Coastal Credit will not sacrifice
credit quality, its purchasing criteria or prudent business practices to meet the terms offered by its competitors.




Coastal Credit’s ability to compete effectively with other companies offering similar financing arrangements depends upon its maintaining current and developing new business relationships with auto dealers in each branch’s geographic area.







Regulation




Coastal Credit’s financing and collection operations are subject to regulation, supervision and licensing under various federal, state and local statutes and ordinances. Additionally, the procedures that Coastal Credit must follow in connection with the repossession of vehicles securing contracts are regulated by each of the states
in which Coastal Credit does business. In addition to applicable federal law, the laws of the following states where Coastal Credit currently has branches govern Coastal Credit’s operations: Alaska, California, Colorado, Delaware, Florida, Georgia, Louisiana, Mississippi, Nevada, Ohio, Oklahoma, Pennsylvania, Texas and Virginia.




Compliance with existing laws and regulations has not had a material adverse effect on Coastal Credit’s operations to date. Coastal Credit’s management believes that Coastal Credit maintains all requisite licenses and permits and is in compliance with all applicable local, state and federal laws and regulations. Coastal Credit
periodically reviews its branch office practices in an effort to ensure such compliance. The following constitute certain of the federal, state and local statutes and ordinances with which Coastal Credit must comply:




·
State consumer regulatory agency requirements. Pursuant to the regulations of various states, the appropriate state regulatory agency may periodically conduct on-site audits of Coastal Credit’s branches in Florida, Delaware, Louisiana, Mississippi and Oklahoma. These regulations govern, among other matters, licensure requirements, requirements for maintenance
of proper records, payment of required fees, maximum interest rates that may be charged on loans to finance used vehicles and proper disclosure to customers regarding financing terms.


·
State licensing requirements. Coastal Credit maintains the following licenses:


7





State

LicenseArizona

Sales Finance Company LicenseDelaware

Motor Vehicle Sales Finance LicenseFlorida

Sales Finance Company LicenseLouisiana

Sales Finance Company LicenseMaryland

Sales Finance LicenseMississippi

Motor Vehicle Sales Finance LicenseOklahoma

Supervised Lender LicensePennsylvania

Sales Finance Company LicenseTexas

Motor Vehicle Sales Finance License





·
Fair Debt Collection Act. The Fair Debt Collection Act and applicable state law counterparts prohibit Coastal Credit from contacting customers during certain times and at certain places, from using certain threatening practices and from making false implications when attempting to collect a debt.


·
Truth in Lending Act. The Truth in Lending Act requires Coastal Credit and the dealers with whom Coastal Credit does business to make certain disclosures to customers, including the terms of repayment, the total finance charge and the annual percentage rate charged on each contract.


·
Equal Credit Opportunity Act. The Equal Credit Opportunity Act prohibits Coastal Credit from discriminating against loan applicants on the basis of race, color, sex, age or marital status. Pursuant to Regulation B promulgated under the Equal Credit Opportunity Act, Coastal Credit is required to make certain disclosures regarding consumer rights and advise consumers
whose credit applications are not approved of the reasons for the rejection.


·
Fair Credit Reporting Act. The Fair Credit Reporting Act requires Coastal Credit to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency.


·
Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act requires Coastal Credit to maintain privacy with respect to certain consumer data in its possession and to periodically communicate with consumers on privacy matters.


·
Servicemembers' Civil Relief Act. Formerly called the Soldiers’ and Sailors’ Civil Relief Act, the Servicemembers’ Civil Relief Act provides certain protections to borrowers who, subsequent to entering into a contract, have joined or enlisted, or been called to active duty with, the military. Coastal Credit is prohibited from repossessing the
vehicles of such borrowers and from terminating the contracts with such borrowers for breach. In addition, Coastal Credit is required to reduce the interest rate charged on each loan to such borrowers to 6% if the borrower’s military duty affects the borrower’s ability to pay his or her contract.


8


·
Electronic Funds Transfer Act. The Electronic Funds Transfer Act prohibits Coastal Credit from requiring its customers to repay a loan or other credit by electronic funds transfer, except in limited situations, which do not apply to Coastal Credit. Coastal Credit is also required to provide certain documentation to its customers when an electronic funds transfer
is initiated and to provide certain notifications to its customers with regard to preauthorized payments.


·
Bankruptcy. Federal bankruptcy and related state laws may interfere with or affect Coastal Credit’s ability to recover collateral or enforce a deficiency judgment.








Employees




Coastal Credit’s executive management and various support functions are centralized at its corporate headquarters in Virginia Beach, Virginia. As of December 31, 2009, Coastal Credit employed approximately 119 persons.







UNION ACCEPTANCE COMPANY LLC




Historical Business of UAC




UAC is a specialized finance company that, prior to the Bankruptcy Case, as defined below, was engaged in the business of acquiring and servicing automobile retail installment sales contracts and installment loan agreements. UAC’s receivables acquisition strategy focused on acquiring receivables from automobile purchasers who exhibited
a favorable credit profile purchasing late model used and, to a lesser extent, new automobiles.







The UAC Bankruptcy Case




In October 2002, UAC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Indiana (the “Bankruptcy Case”). In August 2003, the Bankruptcy Court confirmed UAC’s Second Amended and Restated Plan of Reorganization. On January
5, 2007, the U.S. Bankruptcy Court for the Southern District of Indiana issued a final decree and closed UAC’s Chapter 11 Bankruptcy Case.   Although the Bankruptcy Case is closed, UAC remains contractually obligated to distribute its remaining assets in compliance with the Plan.  UAC was designated the Creditor Representative to oversee the distribution of its remaining assets as contractually required under the Plan.




Generally, UAC is obligated to continue to collect cash as it became available from prescribed assets of the bankruptcy estate and to distribute such cash to the creditors of the bankruptcy estate who made claims in the Bankruptcy Case and whose claims were allowed by the bankruptcy court. White River purchased substantially all of the allowed
claims from UAC’s bankruptcy creditors in 2005 and now holds all unsecured claims, 89.1% of Subordinated Notes and 94.7% of the Accrual Notes.  Accordingly, the large majority of distributions from the bankruptcy estate assets inure to White River.




9


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




December 31, 2009


December 31, 2008Carrying Value


Contractual Remaining Debt Not Owned by White River


Total Contractual Remaining Debt


Carrying Value


Contractual Remaining Debt Not Owned by White River


Total Contractual Remaining DebtRestructured debt:Class 2A general unsecured claims

$
—


$
—


$
10


$
—


$
—


$
54Restructured subordinated notes


7



1,541



14,176



128



1,618



14,888Senior accrual notes


—



—



4,106



—



—



4,106Subordinated accrual notes


—



431



3,964



—



431



3,964Total creditor notes payable

$
7


$
1,972


$
22,256


$
128


$
2,049


$
23,012








UAC Continuing Operations




UAC continues to oversee the receipt and distribution of the cash flows from its remaining assets and to carry out the Second Amended and Restated Plan of Reorganization approved in connection with the bankruptcy case. UAC currently has a staff of one employee, while UAC’s President, John M. Eggemeyer, is employed by Castle Creek Capital
LLC (“Castle Creek”), and its Chief Financial Officer, Martin J. Szumski, is employed by White River. UAC’s current principal activities are the following:




·
overseeing collection and distribution of cash flows from receivable portfolios and other assets in accordance with the Plan of Reorganization;


·
managing deficiency account collections requiring legal action; and


·
holding portfolios of automobile receivables that it had initially acquired prior to the Bankruptcy Case.





UAC finance receivables were approximately $61,000 at December 31, 2009.








ITEM 1A.   RISK FACTORS




Not applicable.







ITEM 1B.   UNRESOLVED STAFF COMMENTS




Not applicable.







ITEM 2.   PROPERTIES




White River and its subsidiaries lease our headquarters and branch office facilities. White River has an expense sharing agreement that includes office space for its corporate headquarters, located at 6051 El Tordo, Rancho Santa Fe, California. This space is adequate for the functions provided at the headquarters.




10


Coastal Credit leases its corporate headquarters and branch office facilities. Its headquarters, located at 3852 Virginia Beach Boulevard, in Virginia Beach, Virginia, consist of approximately 9,340 square feet of office space. The current lease relating to this space expires in September 2012.




Coastal Credit’s 18 branch offices located in Alaska, California, Colorado, Delaware, Florida, Georgia, Louisiana, Mississippi, Nevada, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah and Virginia range in size from approximately 885 square feet to 6,700 square feet, with a typical size of 1,600 to 2,000 square feet. These offices
are located in office parks, shopping centers or strip malls and are occupied pursuant to leases with an initial term of from one to five years. Coastal Credit believes that these facilities and additional or alternate space available to it are adequate to meet its needs for the foreseeable future.




UAC and its subsidiary lease its corporate headquarters. Its headquarters, located at 11650 Lantern Road, in Fishers, Indiana, is approximately 180 square feet of office space.  The current lease for this space expires in June 2010.







ITEM 3.   LEGAL PROCEEDINGS




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 assignees of finance contracts originated by dealers, White River and its subsidiaries may also be named as co-defendants 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 they have taken prudent steps to address and mitigate the litigation risks associated with their business activities.







ITEM 4.   RESERVED


11


PART II


ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES




Market Information and Holders




White River’s common stock trades on the NYSE Amex under the symbol RVR.  As of March 10, 2010, there were 3,982,089 shares of common stock outstanding and approximately 80 shareholders of record (assuming all remaining unexchanged certificates for shares of UAC common stock are exchanged for certificates representing White
River shares). White River’s common stock was held by approximately 525 beneficial owners as of such date.




The following table sets forth the range of the high, low and closing sale prices for White River’s common stock as reported on the NYSE Amex, and the quarterly cash dividends per share declared, in each case for the periods indicated:




High


Low


Close


DividendsFiscal year ended December 31, 2008First Quarter

$
19.43


$
15.26


$
16.20


$
—Second Quarter


17.00



12.48



15.30



—Third Quarter


16.40



13.27



12.55



—Fourth Quarter


14.50



3.98



6.50



—Fiscal year ended December 31, 2009First Quarter

$
7.75


$
5.20


$
6.00


$
—Second Quarter


9.59



6.00



9.30



—Third Quarter


13.63



9.00



10.50



—Fourth Quarter


16.06



10.05



11.24



0.25







Dividends




On November 11, 2009, the Board of Directors declared a quarterly cash dividend of 25 cents per share on its common stock to shareholders of record on November 20, 2009.  This quarterly dividend of $1.0 million was paid on December 4, 2009.




On February 22, 2010, White River announced that its Board of Directors declared a quarterly cash dividend of 25 cents per share on its common stock to shareholders of record on March 3, 2010. This quarterly dividend was paid on March 12, 2010.




White River intends to continue paying quarterly dividends at a rate of 25 cents per share.  However, the continuance of such dividend payments will depend on a number of factors, including White River’s capital levels, financial condition, and results of operations.  Our Board of Directors continually reviews and
evaluates White River’s cash dividend policy and retains the discretion to declare and pay dividends, subject to applicable legal requirements.




While Coastal Credit is not restricted by its operating agreement from making distributions, its line of credit restricts the payment of cash distributions to 50% of Coastal Credit’s pre-tax income for the prior 12 months unless written approval from its lender is received to exceed such restriction. Coastal Credit’s ability to
receive the necessary approval is largely dependent upon its portfolio performance, and Coastal Credit may not be able to obtain the necessary approvals in the future for distributions to White River that would enable White River to pay cash dividends to its shareholders.




12


Summary of Transfer Restrictions and Related Provisions





General




The following is a summary of the material transfer restrictions set forth in Article 10 of White River’s articles of incorporation. The following summary is not complete. The transfer restrictions apply to transfers of White River’s common stock and any other instrument that would be treated as “stock,” as determined
under applicable Treasury Regulations. The transfer restrictions will apply until the earlier of:




·
the repeal by the Internal Revenue Service of the NOL carryforward limitations in the Code if White River’s board of directors determines the transfer restrictions are no longer necessary for the preservation of the tax benefits; and


·
the beginning of a taxable year of White River to which White River’s board determines that no tax benefits may be carried forward.





However, White River’s board of directors will have the power to extend the expiration date of the transfer restrictions if it determines in writing that such action is reasonably necessary or desirable to preserve the tax benefits or to accelerate the expiration date if it determines in writing that the continuation of the transfer
restrictions is no longer reasonably necessary for the preservation of the tax benefits. This power is vested in White River’s board of directors to ensure that White River retains the power to make, in light of all relevant circumstances, including positions that might be taken by tax authorities and contested by White River, the complex determination whether the tax benefits have been fully used or are otherwise available.







Prohibited Transfers




The transfer restrictions generally prohibit any conveyance, from one person to another, by any means, of legal or beneficial ownership, directly or indirectly, of any class of White River stock including indirect transfers of White River stock, accomplished by transferring interests in other entities that own White River stock, to the extent
that the transfer, if effective:




·
would create a new “public group” of White River. For example, the transfer of stock by an existing 5-percent shareholder to the public would be deemed to result in the creation of a separate, segregated “public group” that would be a new 5-percent shareholder;


·
would give rise to a “prohibited ownership percentage,” which is defined by reference to complex federal tax laws and regulations, but generally means any direct or indirect ownership that would cause any person, including a “public group” as defined in the NOL carryforward limitations, to be considered a 5-percent shareholder of White River. By way of example, if shareholder A owns 4% of White
River’s outstanding shares of common stock, and shareholder B attempted to sell 2% of White River’s outstanding shares to shareholder A, the transfer restrictions would prohibit the sale of approximately 1.1% of the shares out of the 2% attempted to be sold; or


·
would increase the ownership percentage of any person, including a public group that is already a 5-percent shareholder of White River. Therefore, no shareholder will be permitted to sell any shares to 5-percent holders or their affiliates without board approval.


13


White River will be entitled to require, as a condition to the registration of any transfer of stock, that the proposed transferee furnish to White River all information reasonably requested by it with respect to all the direct and indirect legal or beneficial ownership interest in, or options to acquire, stock of the proposed transferee
and its affiliates. White River’s Articles and Code of By-laws provide for specific shareholder ownership disclosure procedures as an additional measure available to White River to protect against prohibited transfers.







Exemptive Power of White River’s Board




White River’s board of directors has the power to approve any otherwise prohibited transfer, conditionally or unconditionally, if it determines, in its discretion, that a specific proposed transaction will not jeopardize White River’s full use of the tax benefits. In addition, White River’s board of directors has the power
to waive any of the transfer restrictions in any instance where it determines that a waiver would be in the best interests of White River despite the effect of the waiver on the tax benefits.







Consequences of Purported Prohibited Transfer




Unless approved by White River’s board of directors, any attempted transfer in excess of the shares of White River stock that could be transferred without restriction will be void and will not be effective to transfer ownership of such excess shares. Further, the purported acquiror of the excess shares will not be entitled to any rights
as a shareholder of White River with respect to the excess shares.




In the case of an attempted transfer that creates a new 5-percent shareholder, increases the ownership of an existing 5-percent shareholder, or causes a person or public group to become a new 5-percent shareholder, White River will have the right to demand that the new 5-percent shareholder or existing 5-percent shareholder, as the case may
be, transfer any certificate or other evidence of purported ownership of the prohibited shares within the party’s possession or control, along with any dividends or other distributions received on the prohibited shares from White River, to an agent designated by White River who will be required to sell the prohibited shares in an arm’s-length transaction, in the public market, if possible, but in any event consistent with applicable law. The agent will be required to pay the sale proceeds in excess
of the sum of the agent’s expenses plus the purchase price paid by the purported acquiror for the prohibited shares (or the fair market value of the prohibited shares if they were the subject of a gift or inheritance in favor of the purported acquiror), as well as all prohibited distributions, to a tax-exempt charitable organization designated by White River. If the purported acquiror has sold the prohibited shares to an unrelated party in an arm’s-length transaction, the purported acquiror will be
deemed to have done so for the agent, who will have the right to allow the purported acquiror to retain a portion of the resale proceeds not exceeding the amount that the agent would have been required to remit to the purported acquiror out of the proceeds of a resale by the agent. Any purported transfer of the prohibited shares by the purported acquiror, other than a transfer that is described in the preceding sentences of this paragraph and that does not itself violate the transfer restrictions, will not be
effective to transfer any ownership of the prohibited shares.




In addition to the powers of White River’s board of directors described above, if the board determines that a purported prohibited transfer or other action in violation of the transfer restrictions has occurred or is proposed, it may take such action as it deems advisable to prevent or refuse to give effect to such purported transfer
or other action, including refusing to give effect to the purported transfer or other action on White River’s books or instituting injunctive proceedings.




If any person knowingly violates the transfer restrictions or knowingly causes any entity under such person’s control to do so, such person and, if applicable, the controlled entity will be jointly and severally liable to White River in such amount as will put White River in the same financial position, on an after-tax basis, as it
would have been had such violation not occurred.




14


With respect to any conveyance of White River common stock that does not involve a transfer of “securities” of White River within the meaning of the Indiana Business Corporation Law, but that would create a new 5-percent shareholder, increase the ownership of an existing 5-percent shareholder or create a new public group, the
following procedure will apply. The person or group will not be required to dispose of any interest that is not a security of White River, but will be deemed to have disposed of, and will be required to dispose of, sufficient shares, simultaneously with the transfer, to cause the person or group not to be in violation of the transfer restrictions. The shares will be disposed of through the agent under the provisions summarized above, with the maximum amount payable to the prohibited party from the proceeds of
sale by the agent being the fair market value of the prohibited shares at the time of the prohibited transfer.







Other Powers of White River’s Board




White River’s board of directors has the power:




·
to accelerate or extend the expiration date of the transfer restrictions, modify the definitions of any terms set forth in White River’s articles of incorporation with respect to the transfer restrictions or conform certain provisions to make them consistent with any future changes in federal tax law, in the event of a change in law or regulation or if it otherwise believes such action is in the best interests
of White River, provided White River’s board of directors determines in writing that such action is reasonably necessary or desirable to preserve the tax benefits or that continuation of the transfer restrictions is no longer reasonably necessary for the preservation of the tax benefits;


·
to adopt by-laws, regulations and procedures, not inconsistent with the transfer restrictions, for purposes of determining whether any acquisition of White River common stock would jeopardize the ability of White River to preserve and use the tax benefits and for the orderly application, administration and implementation of the transfer restrictions; and


·
to administer, interpret and make calculations under the transfer restrictions, which power it may delegate in whole or in part to a committee of White River’s board of directors, and which actions shall be final and binding on all parties if made in good faith.








Disclosure Procedures




The following is a summary of the shareholder disclosure and ownership procedures adopted by White River’s board of directors and set forth in Article III, Section 14 of White River’s Code of By-laws, in accordance with authority and direction granted in Section 6.08 of White River’s Articles of Incorporation. The following
is a summary and does not completely restate the provisions of Article III, Section 14 of the Code of By-laws. You should read Article III, Section 14 of the Code of By-laws in its entirety.




The shareholder disclosure and ownership procedures have the following purposes:




·
to preserve important characteristics of White River for federal income tax purposes and, in particular, the NOLs;


·
to protect White River and its shareholders against undisclosed efforts to assume or influence control of White River, its operations and policies; and


·
to facilitate communication among White River and its shareholders.


15


The disclosure and ownership procedures apply to all holders and beneficial owners of White River’s outstanding shares of common stock. “Beneficial owner” generally refers to a person to whom the economic value of the shares of common stock ultimately inures and who has the power directly or indirectly to dispose of the
shares of common stock.




From the date shares of common stock were first issued by White River until December 31, 2015, every beneficial owner of more than 4.5% of the outstanding shares of common stock within thirty (30) days after the end of each fiscal quarter, shall give written notice to White River stating the name and address of such owner, the number of shares
beneficially owned and a description of the manner in which such shares are held. In addition, each such beneficial owner must provide additional ownership information reasonably requested by White River in order to determine the effect, if any, of such beneficial ownership on White River’s federal income tax characteristics (including ownership changes that have occurred or may occur for purposes of Section 382 of the Code), or on control of White River’s outstanding shares, or to ensure compliance
with the Code of By-laws.




The disclosure procedures also require each person who is a beneficial owner of shares and, to the extent permitted by law, each person (including the shareholder of record) holding shares for a beneficial owner or as nominee to provide or confirm to White River such information relating to a beneficial owner’s present and past beneficial
ownership of shares or changes in that ownership to the extent the information is in the person’s possession or can be acquired without unreasonable expense. White River may request this information, in good faith, in order to determine the effect, if any, on White River’s federal income tax characteristics (including ownership changes that have occurred or may occur for purposes of Section 382 of the Code) or on control of White River’s outstanding shares, or to determine compliance with requirements
of any taxing authority or governmental authority, or to determine compliance with White River’s Articles of Incorporation or Code of By-laws.




The procedures do not require information to be reported that a beneficial owner has previously reported to White River or that has been previously reported on the beneficial owner’s behalf. If there has been no change in information previously reported, a person does not need to report it again unless White River requests confirmation.
The procedures also will not require the disclosure of the names of the beneficial owners of a private trust created in good faith and not for the purpose of circumventing the White River Articles of Incorporation or Code of By-laws.







Disclosure Compliance




To ensure compliance with the disclosure procedures, the following sanctions are available to White River:




Distributions Withheld. White River shall withhold payment of any dividend or distribution otherwise payable in respect of shares (or property or securities into which such shares may be converted or for which they may be exchanged in a merger or share exchange transaction) if the beneficial
owner of the shares has failed, or White River reasonably believes it has failed, to comply with these disclosure procedures. Such distributions or property shall be payable only at such time as the subject beneficial owner has complied with the disclosure procedures. However, if the distribution is to be made with respect to subscription rights or similar time-sensitive rights that required action or exercise by the beneficial owner before a time that has passed or elapsed, such rights shall be deemed expired
and the beneficial owner shall be deemed to have elected to forfeit such rights.




16


Vote Disregarded. White River shall disregard the affirmative vote on any action by shareholders on any matter, whether at a meeting or by written consent, purported to be cast in respect of shares if the holder or beneficial owner of the shares has failed, or White River reasonably
believes it has failed, to comply with these disclosure procedures, unless such vote is cast in a manner consistent with a recommendation of the board of directors in respect of such matter. These shares will still be counted, however, in determining the presence of a quorum if the shares are represented in person or by proxy at a meeting of shareholders.




Remedial Transfer. If a beneficial owner fails to comply with the disclosure procedures, and White River delivers a compliance demand notice to the nominee or holder of record of the shares, then at or before the close of business on the date ten (10) business days following delivery
of the notice, the nominee or holder of record shall effect the disposition of beneficial ownership by the non-compliant beneficial owner of the shares and deliver a “Disposition Certificate” to White River. The Disposition Certificate certifies to White River that the interest of the non-compliant beneficial owner has been effectively transferred and that everything required to be disclosed has been disclosed. If the disposition of shares is not effected or a Disposition Certificate is not timely
delivered, then White River may require the nominee or record holder of such shares to whom the compliance demand notice was delivered to effect a remedial transfer whereby the affected shares would be sold by an independent agent.




Additional Remedies. The board of directors of White River is also authorized to take any other action it deems necessary or advisable to protect White River and the interests of its shareholders, including actions to protect and preserve White River’s status under Section 382
of the Code. This action may include a decision to exclude any shareholder the board reasonably believes has failed to comply with the disclosure procedures from any offering of White River securities that is otherwise made available to shareholders.







Anti-Takeover Effect of Transfer Restrictions and Disclosure Procedures




The transfer restrictions:




·
may have the effect of impeding the attempt of a person or entity to acquire a significant or controlling interest in White River;


·
may render it more difficult to effect a merger or similar transaction even if such transaction is favored by a majority of the independent shareholders of White River; and


·
may serve to entrench management.


In addition to the transfer restrictions and disclosure procedures, White River will be subject to certain other provisions of White River’s articles of incorporation, to which we are currently subject, that may have the effect of discouraging a takeover or similar transaction, including the authority, vested in White River’s
board of directors, to issue up to three million shares of preferred stock and to fix the preferences and rights thereof.




The purpose of the transfer restrictions and disclosure procedures is to help preserve the tax benefits rather than to have an anti-takeover effect, which is an incidental result.




17


Purchase of Equity Securities by White River and Affiliated Purchasers





On October 27, 2008, White River announced that its board of directors had authorized a stock repurchase program for up to 150,000, or approximately 3.9%, of White River’s issued and outstanding shares of common stock. Repurchases under the program were not authorized to begin until the third business day following the filing, with
the SEC, of the Form S-4 registration statement relating to White River’s previously announced merger transaction with First Chicago Bancorp. On June 2, 2009, White River delivered a written notification to First Chicago terminating the Merger Agreement, effective immediately. White River made no repurchases of its common stock under this stock repurchase program.




On November 11, 2009, the Board of Directors reauthorized White River’s previously announced share repurchase program. White River is now authorized to repurchase up to 500,000 shares of its outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions.  As
of December 31, 2009, White River has repurchased 67,000 shares of its outstanding common stock under the program for $0.7 million.  Information on the shares repurchased under the program during the fourth quarter of 2009 is as follows:




Period

Total Number of Shares Purchased


Average Price Paid per Share


Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs


Maximum Number of Shares that May Yet be Purchased Under the ProgramOctober 1, 2009 - October 31, 2009


—


$
—



—



—November 1, 2009 - November 30, 2009


1,800


$
11.82



1,800



498,200December 1, 2009 - December 31, 2009


65,200


$
11.07



65,200



433,00067,000


$
11.09



67,000








ITEM 6.   SELECTED FINANCIAL DATA




Not applicable







ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




General




This section is intended to provide an understanding of the financial performance of White River through a discussion of the factors affecting White River’s financial condition at December 31, 2009 and 2008, and White River’s consolidated results of operations for the years ended December 31, 2009 and 2008. This section should
be read in conjunction with White River’s consolidated financial statements and notes to the consolidated financial statements that appear elsewhere in this document. In addition to the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. See “Discussion of Forward-Looking Statements.”




18


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.







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 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.







Goodwill




Goodwill was not amortized; rather, White River annually tested goodwill for impairment. The amount of goodwill impairment was measured as the excess of the carrying value of goodwill over its implicit fair value, based on the fair value of the reporting unit. Goodwill was written off during the year ended December 31, 2008.







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 avoid an ownership change for tax purposes. The valuation allowance has been derived pursuant to the provisions of ASC Topic No. 740, Income
Taxes, and reduces the total deferred tax asset to an amount that will “more likely than not” be realized (see Note 11 to the consolidated financial statements). As of December 31, 2009, there was no liability recorded for unrecognized tax benefits.




19


New Accounting Pronouncements




In May 2009, the FASB issued ASC Topic No. 855, Subsequent Events (“ASC 855”). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.
Specifically, ASC 855 provides clarity around the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosure that an entity should make about events or transactions that occurred after the balance sheet
date. ASC 855 is effective for interim and annual financial reporting periods ending after June 15, 2009 and shall be applied prospectively. This guidance was subsequently amended on February 24, 2010 to no longer require disclosure of the date through which an entity has evaluated subsequent events. The effect of adoption was not material.




In June 2009, the FASB issued ASC Topic No. 810, Consolidation (“ASC 810”). ASC 810 requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a variable interest entity (“VIE”).  In
addition, ASC 810 requires ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE, which was previously only required upon the occurrence of specified events, and requires additional disclosures concerning an enterprise’s continuing involvement with variable interest entities.  ASC 810 is effective for annual periods beginning after November 15, 2009, which is January 1, 2010 for White River, and interim periods within that annual reporting period. White River is currently
evaluating the effect, if any, of adopting ASC 810 on its consolidated financial statements.




In June 2009, the FASB issued ASC Topic No. 105, Generally Accepted Accounting Positions(ASC 105) (the “Codification”).  The Codification is now the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities.  Rules
and interpretive releases of the United States Securities and Exchange Commissions (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.  The Codification is effective for financial statements
issued for interim and annual periods ending after September 15, 2009.  The adoption of the Codification did not result in a change in White River’s current practices and had no impact on its consolidated financial statements as of December 31, 2009.







Results of Operations




The Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008




Net income was $4.9 million, or $1.20 per diluted share, for the year ended December 31, 2009, compared to net loss of $14.4 million, or $3.71 per diluted share, for the year ended December 31, 2008. The increase in net income from the prior year is primarily due to a $34.5 million impairment of goodwill recognized during 2008 with no such
charge during 2009. This increase in net income was partially offset by the following:




·
a decrease in accretion income from accumulated other comprehensive income during 2009; and


·
an increase in provision for estimated credit losses during 2009 of $0.7 million.


20


Discussion of Results




The following table presents consolidating financial information for White River for the periods indicated:




For The Year Ended December 31, 2009

UAC


Coastal Credit


Corporate and Other


ConsolidatedTotal interest income

$
414


$
30,904


$
34


$
31,352Interest expense


(174
)


(1,332
)


—



(1,506
)Net interest margin


240



29,572



34



29,846Recovery (provision) for estimated credit losses


279



(8,571
)


—



(8,292
)Net interest margin after recovery (provision) for estimated credit losses


519



21,001



34



21,554Total other expenses


(1,372
)


(11,332
)


(1,300
)


(14,004
)Income (loss) before income taxes

$
(853
)

$
9,669


$
(1,266
)

$
7,550For The Year Ended December 31, 2008

UAC


Coastal Credit


Corporate and Other


ConsolidatedTotal interest income

$
8,170


$
29,366


$
19


$
37,555Interest expense


(221
)


(2,499
)


—



(2,720
)Net interest margin


7,949



26,867



19



34,835Recovery (provision) for estimated credit losses


953



(8,556
)


—



(7,603
)Net interest margin after recovery (provision) for estimated credit losses


8,902



18,311



19



27,232Total other revenues (expenses)


(12,784
)


(11,103
)


8,517



(15,370
)Goodwill impairment


—



—



(34,536
)


(34,536
)Income (loss) before income taxes

$
(3,882
)

$
7,208


$
(26,000
)

$
(22,674
)







The Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008 - Consolidated




Interest on receivables was $31.0 million compared to $30.9 million for the years ended December 31, 2009 and 2008, respectively. Coastal Credit interest on receivables increased $1.5 million. This increase is a result of an increase in the Coastal Credit average finance receivable balance to $95.5 million during the year ended December 31,
2009 as compared to $87.9 million during the year ended December 31, 2008. Interest on receivables from UAC declined $1.4 million due to a decline in the average receivable balance to $0.4 million during the year ended December 31, 2009 from $5.2 million during the year ended December 31, 2008 as a result of the liquidation of finance receivables. UAC interest income will continue to decline in future periods as the finance receivable portfolio continues to liquidate.




21


Accretion and other interest decreased 94.6% to $0.4 million compared to $6.7 million for the years ended December 31, 2009 and 2008, respectively. This decrease is a result of a decrease in accretion from accumulated other comprehensive income. The balance of accumulated other comprehensive income of approximately $5,000 will be fully accreted
into income in 2010. The individual components of accretion and other interest income are shown in the following table (in thousands):




Years Ended December 31,2009


2008UAC discount accretion from accumulated other comprehensive income

$
326


$
6,656Interest on cash balances


35



41Accretion and other interest income

$
361


$
6,697







Interest expense decreased 44.6% to $1.5 million compared to $2.7 million for the years ended December 31, 2009 and 2008, respectively. Coastal Credit interest expense was $1.3 million for the year ended December 31, 2009 as compared to $2.5 million for the year ended December 31, 2008 as a result of the decrease in interest rates during
2009 and the decrease in average line of credit to $41.1 million from $43.0 million for the years ended December 31, 2009 and 2008, respectively. UAC interest expense was relatively unchanged at $0.2 million.




Provision for estimated credit losses was $8.3 million compared to $7.6 million for the years ended December 31, 2009 and 2008, respectively. 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. For Coastal Credit, the provision for estimated credit losses was $8.6 million for the years ended December 31, 2009 and 2008. UAC recorded recovery for estimated credit losses of $0.3 million compared to $1.0 million for the years ended December 31, 2009 and 2008, respectively. This change in recovery for estimated credit losses is a result of declining defaulted receivables during 2009 and 2008.




Salaries and benefits decreased to $8.0 million for the year ended December 31, 2009 compared to $8.5 million for the year ended December 31, 2008. This decrease was primarily a result of performance based awards paid during the second quarter of 2008 of approximately $0.3 million but not in 2009 as well as a decrease in stock based compensation
as a result of awards fully vesting during 2009.




Other operating expenses decreased to $6.0 million for the year ended December 31, 2009 compared to $6.4 million for the year ended December 31, 2008. Coastal Credit operating expenses remained relatively unchanged between these periods. Corporate and Other operating expenses decreased $0.3 million between these periods. This decrease was
primarily a result of non-employee performance based awards paid during 2008 but not in 2009.  This decrease was partially offset by the severance payment related to the departure of an executive officer of White River on August 31, 2009 and the expense of approximately $342,000 of equity related costs associated with the previously disclosed merger transaction with First Chicago Bancorp (which was terminated on June 2, 2009). The equity related costs had been recognized as prepaid expenses prior to
being expensed.




White River conducted its annual test for impairment of goodwill as of August 31, 2008. The annual impairment test of goodwill resulted in the full impairment of goodwill totaling $34.5 million. The methodology for determining the fair value of the reporting unit was a combination of quoted market prices, prices of comparable businesses,
discounted estimated cash flows and other valuation techniques. The significant downturn in the equity markets during the third quarter 2008 exacerbated the decreased valuations calculated using these methodologies.




22


Third party servicing expenses decreased 88.3% to approximately $31,000 for the year ended December 31, 2009 compared to approximately $264,000 for the year ended December 31, 2008. UAC is the only segment that incurred this expense. This decrease is the result of the ongoing liquidation of the UAC receivable portfolio during 2009. UAC pays
a monthly servicing fee per active receivable. As the number of receivables decreased as the result of the liquidation of receivables, the third party servicing expenses decreased.




Income tax expense was $2.7 million for the year ended December 31, 2009 compared to an income tax benefit of $8.2 million for the year ended December 31, 2008. The expense is based on the estimated effective tax rates for 2009 and 2008, respectively. The benefit for the year ended December 31, 2008 was primarily a result of the $12.6 million
tax effect from the impairment of goodwill.







Financial Condition as of December 31, 2009 and 2008




Finance Receivables, Net




Finance receivables, net increased to $88.6 million at December 31, 2009 as compared to $84.2 million at December 31, 2008. UAC finance receivables, net decreased to approximately $61,000 at December 31, 2009 as compared to $1.1 million at December 31, 2008. Coastal Credit finance receivables, net increased to $88.6 million compared to $83.1
million for the periods ended December 31, 2009 and 2008, respectively.




A significant number of contracts acquired by Coastal Credit are contracts made with borrowers who are in the United States military. As of December 31, 2009, 40.7% of the Coastal Credit receivables were with borrowers who are in the United States military as compared to 32.8% as of December 31, 2008. Coastal Credit believes that having in
the portfolio a significant percentage of contracts for which the borrowers are United States military personnel 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 non-military contracts.







Accrued Interest Payable




Accrued interest payable was $0.1 million at December 31, 2009, compared to $0.2 million at December 31, 2008. The change in accrued interest payable is the result of the decline in the interest rate on the line of credit.







Creditor Notes Payable




Creditor notes payable was approximately $7,000 at December 31, 2009, compared to $0.1 million at December 31, 2008. The decrease was the result of fair market valuation adjustments to UAC’s third party creditor notes payable during 2009 as well as distributions paid.




23


Liquidity and Capital Resources for the Years Ended December 31, 2009 and 2008




Net cash provided by operating activities was $15.5 million for the year ended December 31, 2009 compared to $12.2 million for the year ended December 31, 2008. The change in net cash flows provided by operating activities is primarily a result of the reduction of interest expense from Coastal Credit related to the decrease in interest rates
and the reduction in the average line of credit between the period and a reduction of total other expenses of $1.3 million.




Net cash used in investing activities was $12.8 million for the year ended December 31, 2009 compared to $0.5 million for the year ended December 31, 2008. This change was primarily the result of the continued reduction in the principal collection and recoveries on the UAC finance receivable portfolio and the increase in purchases of finance
receivables by Coastal Credit during 2009 compared to 2008.




Net cash used in financing activities was $2.3 million for the year ended December 31, 2009 compared to $9.2 million for the year ended December 31, 2008. Net cash flows used in financing activities for the year ended December 31, 2009 primarily resulted from the $0.7 million repurchase of White River common stock and $1.0 million quarterly
dividend that was paid on December 4, 2009.  Net cash flows used in financing activities for the year ended December 31, 2008 primarily resulted from the $9.5 million net repayment of the line of credit.




At December 31, 2009, White River and its subsidiaries had cash and cash equivalents of $6.8 million compared to $6.4 million at December 31, 2008.




Coastal Credit has a revolving credit facility from a lending institution with a maximum borrowing limit at December 31, 2009 of $100 million. The maturity date on the line of credit is December 31, 2011 and the interest rate is the London Interbank Offered Rate (“LIBOR”) plus 2.60%.  As of December 31, 2009, Coastal
Credit had $40.0 million of indebtedness outstanding under this facility as compared to $40.5 million as of December 31, 2008. Total availability under the line of credit at December 31, 2009 was $79.9 million based upon the level of eligible collateral, with $39.9 million and $33.7 million available in excess of the amount utilized at December 31, 2009 and 2008, respectively. 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. Interest is paid monthly at a variable rate, based on meeting certain financial criteria. The average rate during the month of December, 2009 and 2008 was LIBOR plus 2.60% which equated to 2.84% and 4.50%, respectively. 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.




UAC’s sources of liquidity are limited and consist of cash on hand, funds from consolidated operations and cash collections from the liquidating finance receivables. White River, as owner of the substantial majority of UAC's notes and claims outstanding under the Plan of Reorganization, is 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.




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).




24


On November 11, 2009, the Board of Directors reauthorized White River’s previously announced share repurchase program. White River is now authorized to repurchase up to 500,000 shares of its outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions.  As
of December 31, 2009, White River has repurchased 67,000 shares of its outstanding common stock under the program for $0.7 million.
  On November 11, 2009, the Board of Directors declared a quarterly cash dividend of 25 cents per share on its common stock to shareholders of record on November 20, 2009.  This quarterly dividend totaling $1.0 million was paid on December 4, 2009.
  On February 22, 2010, White River announced that its Board of Directors declared a quarterly cash dividend of 25 cents per share on its common stock to shareholders of record on March 3, 2010. This quarterly dividend was paid on March 12, 2010.
  Asset Quality
  Set forth below is certain information concerning the credit loss experiences on the fixed rate retail automobile receivables of White River. There can be no assurance that future net credit loss experience on the receivables will be comparable to that set forth below. See “Discussion of Forward-Looking Statements.”
  Finance Receivables – Coastal Credit
  Delinquency experience of finance receivables at Coastal Credit, including unearned interest ($ in thousands):


December 31,2009

2008$



%

$



%Finance receivables - gross balance

$
110,847






$
104,599Delinquencies:30-59 days

$
1,301



1.2
%

$
1,452



1.4
%60-89 days


1,107



1.0
%


1,269



1.2
%90+ days


1,706



1.5
%


1,943



1.9
%Total delinquencies

$
4,114



3.7
%

$
4,664



4.5
%




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 financial results. 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, have defaulted. These historical rates are evaluated and revised on a quarterly basis for current conditions. See “Discussion of Forward-Looking Statements.”


25


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


Years Ended December 31,2009


2008Balance at beginning of period

$
7,560


$
6,810Charge-offs, net of recoveries


(8,046
)


(7,806
)Provision for estimated credit losses


8,571



8,556Balance at the end of the period

$
8,085


$
7,560Finance receivables, net of unearned finance charges

$
108,676


$
101,523Allowance for loan losses as a percent of finance receivables, net of unearned finance charges


7.44
%


7.45
%Net charge-offs as a percent of finance receivables, net of unearned finance charges


7.40
%


7.69
%Allowance for loan losses as a percent of net charge-offs


100.48
%


96.85
%







Finance Receivables – UAC




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


December 31,2009

2008$



%

$



%Finance receivables principal balance

$
61






$
1,103Delinquencies:30-59 days

$
15



24.6
%

$
195



17.7
%60-89 days


9



14.8
%


76



6.9
%90+ days


3



4.9
%


22



2.0
%Total delinquencies

$
27



44.3
%

$
293



26.6
%
 26





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




Years Ended December 31,2009



208Balance at the beginning of period

$
7


$
222Charge-offs


(135
)


(707
)Recoveries


407



1,445Recovery for estimated credit losses


(279
)


(953
)Balance at the end of the period

$
—


$
7Net recoveries

$
(272
)

$
(738
)Finance receivables

$
61


$
1,103Allowance for loan losses as a percent of finance receivables


0.00
%


0.63
%









Recent Market Developments




Since January 2008, operations of many auto finance companies have been affected by the significant contraction of the personal credit markets and the near elimination of the securitization markets. In addition, there have been auto finance companies which have seen their lines of credit reduced or terminated as a result of the credit crisis.
Some companies have been forced to severely curtail loan purchases and originations or shut down operations as a result of a lack of funding. We believe White River is well positioned to continue operations and grow the company responsibly based on the following factors:




·
Coastal Credit is not dependent on the securitization market for financing.




·
At December 31, 2009, there was $39.9 million available, in excess of the amount utilized, from the line of credit, which does not expire until December 2011.




·
White River is very well capitalized with an equity to asset ratio of 70.3% as of December 31, 2009.




While there is never any guarantee White River will not be faced with similar financing scenarios as others have seen, we believe White River is well positioned in this difficult economic environment, and we expect to be able to fund normal business operations and meet our general liquidity needs for the next 12 months through access to the
line of credit, cash flows from operations, and our other funding sources.




27


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 those containing words such as “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, 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 this Annual Report on Form 10-K;


·
general economic, market, or business conditions;


·
changes in economic variables, such as the availability of business and consumer credit, conditions in the housing market, energy costs, the number and size of personal bankruptcy filings, the rate of unemployment and the levels of consumer confidence and consumer debt;


·
changes in interest rates, the cost of funds, and demand for White River’s financial services;


·
the level and volatility of equity prices, commodity prices, currency values, investments, and other market fluctuations and other market indices;


·
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, including the impact of current, pending and future legislation and regulations, including the impact of recently enacted federal economic and financial markets recovery legislation and potential comprehensive financial system regulatory reform legislation;


·
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 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not applicable.


28


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Board of Directors and Shareholders of


White River Capital, Inc.





We have audited the accompanying consolidated balance sheets of White River Capital, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.




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




In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of White River Capital, Inc. and subsidiaries as of December 31, 2009 and 2008 and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted
accounting principles.




We were not engaged to examine management’s assessment of the effectiveness of White River Capital, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2009, included in the accompanying Management’s Report on Internal Control Over Financial Reporting and, accordingly, we do not express an
opinion thereon.







/s/ McGladrey & Pullen LLP





Raleigh, North Carolina


March 12, 2010


29




WHITE RIVER CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(Dollars in thousands)








ASSETS

December 31, 2009


December 31, 2008Cash and cash equivalents

$
6,797


$
6,403Finance receivables-net


88,612



84,187Deferred tax assets-net


44,711



46,946Other assets


836



1,292TOTAL

$
140,956


$
138,828LIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES:Line of credit

$
40,000


$
40,500Accrued interest


107



165Creditor notes payable


7



128Other payables and accrued expenses


1,726



1,949Total liabilities


41,840



42,742SHAREHOLDERS’ 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; 3,997,506 and 4,022,853 issued and outstanding at December 31, 2009 and 2008, respectively


181,845



182,462Accumulated other comprehensive income, net of taxes


3



210Accumulated deficit


(82,732
)


(86,586
)Total shareholders’ equity


99,116



96,086TOTAL

$
140,956


$
138,828







See notes to consolidated financial statements.


30




WHITE RIVER CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


(Dollars in thousands, except per share amounts)





Years Ended December 31,2009


2008INTEREST:Interest on receivables

$
30,991


$
30,858Accretion and other interest


361



6,697Total interest income


31,352



37,555Interest expense


(1,506
)


(2,720
)Net interest margin


29,846



34,835Provision for estimated credit losses


(8,292
)


(7,603
)Net interest margin after provision for estimated credit losses


21,554



27,232OTHER REVENUES (EXPENSES):Salaries and benefits


(8,025
)


(8,543
)Third party servicing expense


(31
)


(264
)Other operating expenses


(5,996
)


(6,424
)Change in fair market valuation of creditor notes payable


139



(11
)Gain from deficiency account sale


171



162Other expense


(262
)


(290
)Total other revenues (expenses)


(14,004
)


(15,370
)Goodwill Impairment


—



(34,536
)INCOME (LOSS) BEFORE INCOME TAXES


7,550



(22,674
)INCOME TAX BENEFIT (EXPENSE)


(2,680
)


8,239NET INCOME (LOSS)

$
4,870


$
(14,435
)NET INCOME (LOSS) PER COMMON SHARE (BASIC)

$
1.20


$
(3.71
)NET INCOME (LOSS) PER COMMON SHARE (DILUTED)

$
1.20


$
(3.71
)BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING


4,056,088



3,887,093DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING


4,057,972



3,887,093







See notes to consolidated financial statements.


31




WHITE RIVER CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


YEARS ENDED DECEMBER 31, 2009 AND 2008


(Dollars in thousands)





Number of Common Shares Outstanding


Common Stock


Warrants


Accumulated Other Comprehensive Income (Loss)


Accumulated Deficit


Total Shareholders’ EquityBALANCE-Janury 1, 2008


3,843,087


$
179,976


$
534


$
4,437


$
(72,150
)

$
112,797Comprehensive loss:Net income


















(14,435
)


(14,435
)Net unrealized loss on beneficial interest in Master Trust














(6,656
)






(6,656
)Tax effect of OCI














2,429







2,429Total comprehensive loss






















(18,662
)Exercise of warrants


150,000



1,999



(534
)










1,465Stock-based compensation expense


29,766



487















487BALANCE-December 31, 2008


4,022,853



182,462



—



210



(86,586
)


96,086Comprehensive income:Net income


















4,870



4,870Net unrealized loss on beneficial interest in Master Trust














(326
)






(326
)Tax effect of OCI














119







119Total comprehensive income






















4,663Common stock cash dividends


















(1,016
)


(1,016
)Common stock repurchased


(67,000
)


(746
)














(746
)Stock-based compensation expense


41,653



129















129BALANCE-December 31, 2009


3,997,506


$
181,845


$
—


$
3


$
(82,732
)

$
99,116





See notes to consolidated financial statements.


32




WHITE RIVER CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in thousands)





Years Ended December 31,2009


2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
4,870


$
(14,435
)Adjustments to reconcile net income to net cash provided by (used in) operating activities:Accretion of other comprehensive income


(326
)


(6,656
)Accretion of securitization discount


(44
)


(910
)Provision for estimated credit losses


8,292



7,603Goodwill impairment


-



34,536Amortization and depreciation


438



434Amortization of discount and interest accrued on creditor notes payable


94



(91
)Loss from disposition of equipment


5



-Deferred income taxes


2,354



(8,486
)Change in fair value of creditor notes payable


(139
)


11Stock based compensation expense


129



487Changes in assets and liabilities:Accrued interest receivable and other assets


104



58Other payables and accrued expenses


(279
)


(327
)Net cash provided by operating activities


15,498



12,224CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of finance receivables


(58,496
)


(56,855
)Collections on finance receivables


44,500



44,406Principal collections and recoveries on receivables held for investment


1,314



12,208Capital expenditures


(84
)


(213
)Net cash used in investing activities


(12,766
)


(454
)CASH FLOWS FROM FINANCING ACTIVITIES:Common stock repurchased


(746
)


-Common stock cash dividend


(1,016
)


-Proceeds from the exercise of warrants, net of costs


-



1,465Principal payments on creditor notes payable


(76
)


(1,117
)Net repayment on line of credit


(500
)


(9,500
)Net cash used in financing activities


(2,338
)


(9,152
)INCREASE IN CASH AND CASH EQUIVALENTS


394



2,618CASH AND CASH EQUIVALENTS-Beginning of year


6,403



3,785CASH AND CASH EQUIVALENTS-End of year

$
6,797


$
6,403SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Interest paid

$
1,468


$
2,996Income tax paid

$
298


$
160







See notes to consolidated financial statements.


33


WHITE RIVER CAPITAL, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


YEARS ENDED DECEMBER 31, 2009 AND 2008




1.   GENERAL DISCUSSION




White River Capital, Inc. (“White River” or the “Company”) is a holding company for specialized indirect auto finance businesses, with two principal operating subsidiaries, Coastal Credit LLC (“Coastal Credit”) and Union Acceptance Company LLC (“UAC”). Coastal Credit based in Virginia Beach,
Virginia, is a specialized subprime auto finance company engaged in acquiring subprime auto receivables from both franchised and independent automobile dealers which have entered into contracts with purchasers of typically used, but some new, cars and light trucks.  Coastal Credit then services the receivables it acquires. Coastal Credit operates in 20 states through 18 offices. UAC, based in Fishers, Indiana, holds and oversees its portfolio of approximately $61,000 in non-prime auto receivables, as
of December 31, 2009. UAC operates under a confirmed Second Amended and Restated Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Plan”) under which it must pay net proceeds from its residual interest in its receivables portfolios and other bankruptcy estate assets to creditors holding notes and claims under the Plan. During 2005 and 2006, White River purchased and now owns directly approximately 90% of such notes and claims. On January 5, 2007, the U.S. Bankruptcy Court for
the Southern District of Indiana issued a final decree and closed UAC’s Chapter 11 bankruptcy case.




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 principal amounts (in thousands) are as follows at:


December 31, 2009


December 31, 2008Carrying Value


Contractual Remaining Debt Not Owned by White River


Total Contractual Remaining Debt


Carrying Value


Contractual Remaining Debt Not Owned by White River


Total Contractual Remaining DebtRestructured debt:Class 2A general unsecured claims

$
—


$
—


$
10


$
—


$
—


$
54Restructured subordinated notes


7



1,541



14,176



128



1,618



14,888Senior accrual notes


—



—



4,106



—



—



4,106Subordinated accrual notes


—



431



3,964



—



431



3,964Total creditor notes payable

$
7


$
1,972


$
22,256


$
128


$
2,049


$
23,012




On June 27, 2008, White River and First Chicago Bancorp (“First Chicago”) signed a definitive agreement and plan of merger (the “Merger Agreement”) providing for the merger of First Chicago with and  into White River.  On June 2, 2009, White River delivered a written notification to First Chicago
terminating the Merger Agreement, effective immediately.  White River and First Chicago had been engaged in discussions regarding possible alternative transaction terms (including a change of the exchange ratio set forth in the Merger Agreement).  However, the parties were unable to agree upon mutually acceptable alternative terms.  No termination fees were incurred by either party as a result of the termination of the Merger Agreement.




34


UAC History




UAC had historically operated as a specialized finance company, engaged in (1) acquiring receivables in the form of retail installment sales contracts and installment loan agreements for the purchase of automobiles primarily from automobile dealerships and used car superstores (the “Receivables Acquisitions”) and (2) the
servicing of such receivables by collecting payments due, remitting those payments to appropriate entities and collecting delinquent and defaulted accounts (“Servicing”).




On October 31, 2002, UAC filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Indiana, Indianapolis Division (the “Court”). This proceeding did not include UAC’s wholly owned subsidiaries. On November 7,
2002, UAC announced it would discontinue receivable acquisitions because it was not able to establish timely arrangements for further acquisition funding. UAC continued to manage its business as a debtor-in-possession as it prepared for reorganization under bankruptcy law.







Acquisition of Coastal Credit, LLC




White River acquired 100% of the interests in Coastal Credit on August 31, 2005.  Coastal Credit is a specialized subprime 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 the contract portfolio. Coastal Credit commenced operations in Virginia in 1987 and was restructured as a limited liability company under the laws of the Commonwealth of Virginia in 1997. It conducts business in 20 states – California, Colorado, Delaware, Florida, Georgia, Hawaii, Louisiana, Maryland, Mississippi, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Virginia and Washington –
through its 18 branch locations.






2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




The consolidated financial statements include the accounts of White River and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America and with the general practices of those in the consumer finance industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant
change in the near term relate to the valuation of deferred tax assets and the allowance for credit losses.




New Accounting Pronouncements- In May 2009, the FASB issued ASC Topic No. 855, Subsequent Events (“ASC 855”). ASC 855 establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, ASC 855 provides clarity around the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and
the disclosure that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim and annual financial reporting periods ending after June 15, 2009 and has been applied prospectively. This guidance was subsequently amended on February 24, 2010 to no longer require disclosure of the date through which an entity has evaluated subsequent events. The effect of adoption was not material.




35


In June 2009, the FASB issued ASC Topic No. 810, Consolidation (“ASC 810”). ASC 810 requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a variable interest entity (“VIE”).  In
addition, ASC 810 requires ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE, which was previously only required upon the occurrence of specified events, and requires additional disclosures concerning an enterprise’s continuing involvement with variable interest entities.  ASC 810 is effective for annual periods beginning after November 15, 2009, which is January 1, 2010 for White River, and interim periods within that annual reporting period. White River is currently
evaluating the effect, if any, of adopting ASC 810 on its consolidated financial statements.




In June 2009, the FASB issued ASC Topic No. 105, Generally Accepted Accounting Positions(ASC 105) (the “Codification”).  The Codification is now the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities.  Rules
and interpretive releases of the United States Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.  The Codification is effective for financial statements
issued for interim and annual periods ending after September 15, 2009.  The adoption of the Codification did not result in a change in White River’s current practices and had no impact on its consolidated financial statements as of December 31, 2009.




Cash and Cash Equivalents-White River considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.




Finance Receivables-net-Finance receivables are recorded at cost, net of unearned finance charges, discounts and an allowance for credit losses. 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. There is no off-balance sheet credit exposure related to these receivables.




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 credit losses inherent in finance receivables.




The allowance for loan losses is established systematically by management based on the determination of the amount of credit losses inherent in the finance receivables as of the reporting date. The Company reviews charge off experience factors, delinquency reports, historical collection rates and other information in order to make the necessary
judgments as to 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. The Company believes that the existing allowance for loan losses is sufficient to absorb probable finance receivable losses.




Charge off Policy - Finance Receivables-Coastal Credit’s 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.




36


Income Recognition – Finance Receivables–Interest on receivables 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 have previously been charged off is applied directly to the allowance for credit losses in the consolidated balance sheets. Discounts and fees, which consist primarily of non—refundable dealer acquisition discounts, are amortized over the term of the related finance receivables using the interest method and are removed
from the consolidated balance sheets when the related finance receivables are charged off or paid in full.




Goodwill –Goodwill was not amortized; rather, White River annually tested goodwill for impairment. The amount of goodwill impairment was measured as the excess of the carrying value of goodwill over its implicit fair value, based on the fair value of the reporting
unit. Goodwill was written off during the year ended December 31, 2008.




Property, Equipment, and Leasehold Improvements-net-Property, equipment, and leasehold improvements are recorded at cost and included in other assets. Depreciation is determined primarily on straight-line methods over the estimated useful lives of the respective assets,
ranging from 3 to 10 years.




Creditor Notes Payable-Creditor notes payable represents the liability to creditors upon UAC’s emergence from bankruptcy in 2003. UAC recorded the liabilities at fair value at the confirmation date. As a result, the restructured principal amount of the debt
exceeded the recorded fair value of the debt by $51.6 million. This difference or discount was recorded as gain on fair valuation of creditor liabilities and was to be amortized over the expected life of the liabilities. Although there was no stated maturity for the creditor notes payable, the discount was being accreted, using the effective interest method, over the period ending on the date on which the last contractual payment on the receivables in the underlying portfolios was expected. The following
table contains the contractual interest rates for the individual classes of creditor notes payable:




Contractual Interest RateRestructured debt:Class 2A general unsecured claims


8.00
%Restructured senior notes


8.00
%Restructured subordinated notes


10.00
%Senior accrual notes


4.75
%Subordinated accrual notes


4.75
%







Other Income-Other income represents refunds of dealer rebates, monies collected on previously charged—off receivables, and other miscellaneous income.




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 avoid an ownership change for tax purposes. The valuation allowance has been derived pursuant to the provisions of ASC Topic No. 740, Income
Taxes, and reduces the total deferred tax asset to an amount that will “more likely than not” be realized (see Note 11).




37


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 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.




Stock-Based Compensation-Stock-based compensation cost is based upon the grant-date fair value of share-based awards. White River recognizes compensation expense for awards with only service conditions on a straight-line basis over the requisite service period for
the entire award.




Concentration of Credit Risk-The Company maintains demand deposits with financial institutions, the balances of which from time to time exceed the federally insured amount.




The Company’s portfolio of finance receivables is with consumers living in various states across the United States as outlined above. Consequently, such consumers’ ability to honor their installment contracts may be affected by economic conditions in these areas. The Company has access to any collateral supporting these receivables
through repossession. The Company’s finance receivables are collateralized by automobiles.






3.
FINANCE RECEIVABLES – NET




Coastal Credit




Finance receivables purchased by Coastal Credit generally have original terms ranging from 36 to 54 months and are secured by the related vehicles.




Coastal Credit Finance receivables – net outstanding were as follows (in thousands):




December 31,2009


2008Finance receivables, gross

$
110,847


$
104,599Unearned interest


(2,171
)


(3,076
)Finance receivables, net of unearned finance charge income


108,676



101,523Accretable unearned acquisition discounts and fees


(12,039
)


(10,836
)Finance receivables, net of unearned finance charge income and discounts and fees


96,637



90,687Allowance for loan losses


(8,085
)


(7,560
)Finance receivables - net

$
88,552


$
83,127







38


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




Years Ended December 31,2009


2008Balance at beginning of period

$
7,560


$
6,810Charge-offs, net of recoveries


(8,046
)


(7,806
)Provision for estimated credit losses


8,571



8,556Balance at the end of the period

$
8,085


$
7,560







UAC




UAC Finance receivables – net outstanding were as follows (in thousands):




December 31,2009


2008Principal balance of finance receivables

$
61


$
1,103Unearned discount


(1
)


(45
)Accrued interest receivable


—



9Allowance for credit losses


—



(7
)Finance receivables—net

$
60


$
1,060







Activity in the UAC allowance for credit losses is as follows (in thousands):




Years Ended December 31,2009


2008Balance at the beginning of period

$
7


$
222Charge-offs


(135
)


(707
)Recoveries


407



1,445Provision (recovery) for estimated credit losses


(279
)


(953
)Balance at the end of the period

$
—


$
7







39


4.
OTHER ASSETS




Other assets are as follows (in thousands):


December 31,2009


2008Prepaid expenses

$
389


$
691Property, equipment and leasehold improvements, net


441



599Other


6



2Total other assets

$
836


$
1,292







5.
GOODWILL




Goodwill was related to the acquisition of Coastal Credit during 2005. Goodwill was not amortized; rather, White River annually tested the goodwill for impairment.




White River conducted its annual test for impairment of goodwill as of August 31, 2008. The annual impairment test of goodwill resulted in the full impairment of goodwill totaling $34.5 million. The methodology for determining the fair value of the reporting unit was a combination of quoted market prices, prices of comparable businesses,
discounted estimated cash flows and other valuation techniques. These fair value measurements were made utilizing Level 3 inputs. Level 3 inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are thus determined using model-based techniques that include discounted cash flow models and similar techniques. The significant downturn in the equity markets during the third quarter 2008
exacerbated the decreased valuations calculated using these methodologies.




The changes in the carrying amount of the Coastal Credit goodwill are as follows (in thousands):




Years Ended December 31,2009


2008Beginning Balance

$
—


$
34,536Impairment losses


—



(34,536
)Ending Balance

$
—


$
—







6.
CREDITOR NOTES PAYABLE




Creditor notes payable consists of debt owed to the one remaining third party creditor from the UAC bankruptcy. During September 2003, UAC recorded the bankruptcy debt at fair value. This fair value adjustment resulted in a gain. Since that time, accretion interest expense has been recognized based on the original fair value calculation and
the creditor notes payable increased based on this calculation. Since September 2003, no adjustments have been made to this accretion schedule for the increase or decrease in performance of the receivables of UAC. The only adjustments that have been made are for the creditor notes that were purchased by White River and were subsequently extinguished. Creditor notes payable is recorded at fair value which represents the present value of the amount that UAC anticipates paying to the creditors from the residual
assets of the finance receivables. UAC’s finance receivables are in essence the only asset UAC has remaining to pay the creditor notes payable.




40


The following table presents the creditor notes payable (in thousands) recognized at fair value on a recurring basis using significant unobservable inputs (Level 3):




Years Ended December 31,2009


2008Beginning balance

$
128


$
1,324Total (income) losses included in earnings (recorded as "other revenues (expenses)")


(139
)


11Purchases, issuances and settlements


18



(1,207
)Transfers in and/or out of Level 3


—



—Ending balance

$
7


$
128







The contractual interest related to the creditor notes payable will continue to be accrued as interest expense and the interest payable will be included in the fair value calculation along with the creditor notes payable on a quarterly basis.  The unpaid principal balance of creditor notes payable was greater than its fair value
by $2.0 million and $1.9 million as of December 31, 2009 and 2008, respectively.  The ultimate amount paid on creditor notes payable could differ depending on the actual cash flows from UAC’s finance receivables.






7.
LINE OF CREDIT




The line of credit is utilized by Coastal Credit to finance the purchase of finance receivables. $40.0 million and $40.5 million of the line of credit was utilized at December 31, 2009 and 2008, respectively. This line of credit was $100 million at December 31, 2009 and 2008. The maturity date on the line of credit is December 31, 2011 and
the interest rate is the London Interbank Offered Rate (“LIBOR”) plus 2.60%. The availability of the line of credit allows Coastal Credit to borrow up to 84% of the aggregate balance of outstanding eligible receivables net of unearned interest, commissions and discounts. Eligible receivables exclude the following: (i) receivables for which a payment is 90 or more days past due on a contractual basis; (ii) receivables which have been deferred more than two times during the same calendar year, or more
than six times over the contract term; (iii) receivables subject to repossession or bankruptcy proceedings or the account debtor with respect to which is a debtor under the Bankruptcy Code; (iv) receivables from officers, employees or shareholders of the borrower or any affiliate; (v) interest only accounts; (vi) receivables missing titles after 120 days from their origination date; and (vii) receivables which, in the lender’s reasonable discretion, do not constitute acceptable collateral. Total available
under the line of credit was $79.9 million and $74.2 million based upon the level of eligible collateral with $39.9 million and $33.7 million available in excess of the amount utilized at December 31, 2009 and 2008, respectively.




The credit facility is secured by substantially all 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 was in compliance with these ratios at December 31, 2009 and 2008. Interest is paid
monthly at a variable rate, based on meeting certain financial criteria. The average rate during the month of December, 2009 and 2008 was LIBOR plus 2.60% which equated to 2.84% and 4.50%, respectively. 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. The consolidated balance sheet includes approximately $41.6 million and $40.0 million of net assets of Coastal Credit at December 31, 2009 and 2008, respectively, which subject to limitations under the credit facility, would generally be available to fund operation and investments of Coastal Credit, but would not be available to White River and UAC for general corporate purposes.




41


8.
SELECT OBLIGATIONS SCHEDULE




The following table represents select obligations (in thousands):




Total


Less than 1 Year


1-3 Years


3-5 Years


More than 5 YearsContractual ObligationsLong-term debt obligationsCoastal Credit

$
42,510


$
1,255


$
41,255


$
—


$
—UAC


8



8



—



—



—Total long-term debt obligations


42,517



1,263



41,255



—



—Operating lease obligations


1,001



472



528



—



—Total

$
43,518


$
1,735


$
41,783


$
—


$
—







The following table represents obligations due for the years ended December 31 (in thousands):




Year

Total2010

1,7352011

41,5962012

187







9.
ACCRETION AND OTHER INTEREST




The individual components of accretion and other interest income are shown in the following table (in thousands):




Years Ended December 31,2009


2008UAC discount accretion from accumulated other comprehensive income

$
326


$
6,656Interest on cash balances


35



41Accretion and other interest income

$
361


$
6,697







10.
RELATED PARTY TRANSACTIONS




UAC’s administration of the Plan is supervised by Castle Creek Capital LLC (“Castle Creek”).  John M. Eggemeyer, III, White River’s Chairman of the Board and Chief Executive Officer, is a controlling principal of Castle Creek.  For these Plan administration services, UAC compensates Castle Creek
at a rate of $14,583 per month. Castle Creek was paid $175,000 during 2009 and 2008. While the bankruptcy case was closed on January 5, 2007, UAC must continue to operate in accordance with the Plan.




On August 31, 2005, warrants were issued by White River to the investment funds controlled by Castle Creek to purchase 150,000 shares of White River common stock at an exercise price of $10 per share. The term of each warrant was three years and 90 days and became exercisable three years after issuance. The warrants were recorded at fair
value as of August 31, 2005. These warrants were exercised on November 21, 2008.




42


Coastal Credit leases its corporate offices in Virginia Beach, Virginia and one of its branch offices in Jacksonville (Orange Park), Florida, from the McKnight Family Partnerships, L.P., an entity controlled by Mr. McKnight, the President of Coastal Credit and a director of White River. The Virginia Beach lease has a three-year term, and
provides for rent payments of $14,356 per month. The Virginia Beach lease will expire in September 2012. The Orange Park lease has a three-year term, and provides for rent payments of $10,141 per month. The Orange Park lease will expire in April 2010.  Coastal Credit intends to renew this lease for an additional three-year term and expects the monthly rent payments to remain unchanged.




Coastal Credit and Mr. McKnight are parties to a letter agreement with respect to use of an aircraft owned by McKnight L.L.C., an entity controlled by Mr. McKnight. The aircraft is a Beechcraft King AirTM B200 twin engine turbo prop. The agreement provides that Coastal Credit will pay McKnight L.L.C. $14,000 per month to defray expenses
associated with ownership of the aircraft in consideration for Mr. McKnight’s willingness to make the aircraft available for business use by key employees of Coastal Credit. Coastal Credit is required to pay additional amounts in any month in which its aircraft usage exceeds prescribed amounts. Six months prior written notice is required to withhold availability of the monthly payment or the plane. During 2009 and 2008, approximately $170,000 was paid for this purpose each year.




On November 8, 2005, White River entered into an expense sharing agreement with Castle Creek and Castle Creek Advisors LLC (collectively, “Castle Creek Entities”). The Castle Creek Entities provide various facilities, equipment and services to White River for a fee that represents an allocation of actual Castle Creek Entities
expenses proportionate to facilities, equipment and services provided to White River. This agreement was effective from September 1, 2005 and shall continue until terminated by either party upon 30 days’ prior written notice. During 2009 and 2008, approximately $22,800 was paid each year for this purpose.






11.
INCOME TAXES




UAC incurred net operating losses for federal income tax purposes for the years ended June 30, 2003, 2004 and 2005. White River will carry forward these tax losses to future periods. Net operating loss carryforwards for federal income tax purposes were $91.6 million and $97.0 million as of December 31, 2009 and 2008, respectively. These tax
losses will expire during 2022 through 2024.




White River had no liability recorded for unrecognized tax benefits at December 31, 2009 or 2008.




White River recognizes interest and penalties, if any, on tax assessments or tax refunds in the financial statements as a component of income tax expense.




White River and its subsidiaries are subject to taxation by the United States and by various state jurisdictions.  With some exceptions, White River’s consolidated tax returns for its 2005 tax year and forward remain open to examination by tax authorities.  Also, net operating losses carried forward from prior years
remain open to examination by tax authorities.




The composition of income tax expense (benefit) is as follows for the years ended December 31 (in thousands):




2009


2008Current tax expense

$
425


$
153Deferred tax expense (benefit)


2,243



(8,328
)Valuation allowance increase (reversal)


12



(64
)Net income tax expense (benefit)

$
2,680


$
(8,239
)







43


The effective income tax rate differs from the statutory federal corporate tax rate as follows for the years ended December 31:




2009

2008Statutory rate


35.0
%


35.0
%State income taxes


1.5



1.5Valuation allowance and other


(1.0
)


(0.2
)Effective rate


35.5
%


36.3
%







The composition of deferred income taxes is as follows as of December 31 (in thousands):




2009


2008Deferred tax assets:Net operating loss carryforward

$
34,283


$
36,058AMT credit carryforward


1,138



1,020Basis difference in goodwill


8,358



9,076Allowance for estimated credit losses


2,926



2,737Other


139



222Total deferred tax assets


46,844



49,113Valuation allowance


(1,047
)


(1,035
)45,797



48,078Deferred tax liabilities:Basis difference in creditor notes payable


769



652Straight line vs. actuarial discount earned


155



360Other


162



120Total deferred tax liabilities


1,086



1,132Net deferred tax assets

$
44,711


$
46,946







12.
STOCK—BASED COMPENSATION




On October 26, 2005, the board of directors of White River adopted the White River Capital, Inc. Directors Stock Compensation Plan. The plan provides for the payment of a portion of regular fees to certain members of the board of directors in the form of shares of White River common stock. The cost that has been charged against income for
this plan was approximately $133,000 and $140,000 during the years ended December 31, 2009 and 2008, respectively. The total income tax benefit recognized in the income statement for this share-based compensation arrangement was approximately $49,000 and $51,000 for the years ended December 31, 2009 and 2008, respectively. White River issued 22,253 and 7,686 shares during 2009 and 2008, respectively, representing the prior year’s compensation under this plan. All shares vest immediately upon issuance. The
terms of the plan includes the reservation of 50,000 shares of White River common stock for issuance under the plan. As of December 31, 2009, approximately 38,000 shares had been issued under this plan resulting in approximately 12,000 shares available to be issued.




44


On May 18, 2009, White River entered into an employment agreement with William McKnight, President and Chief Executive Officer of Coastal Credit.  This employment agreement includes a long-term incentive award as did Mr. McKnight’s prior employment agreement.  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, 2010, 2011 and 2012.  This award is accounted for as a liability award. The value of payment is 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 $368,000 and $250,000 for the years ended December 31, 2009 and 2008, respectively, and is included in salaries and benefits
expense in the accompanying consolidated statements of operations. The total income tax benefit recognized in the income statement for this share-based compensation arrangement was approximately $134,300 and $91,300 for the years ended December 31, 2009 and 2008, respectively.




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. The total number of options and stock awards that may be awarded under the plan may not exceed 250,000. As of December 31, 2009, White River awarded restricted stock awards totaling 104,600 shares and 78,800 of these shares have vested and have been issued and 21,400 shares have been forfeited.  The total fair value of the vested stock awards at the time of vesting was approximately $167,000 and $468,000 for the years ended December 31, 2009 and 2008, respectively.  Forfeited
shares are available for the purposes of the plan. White River has not issued stock options as of December 31, 2009. The following is a summary of the status of White River’s non-vested restricted stock awards and changes during the years ended December 31, 2009 and 2008:




2009


2008Restricted Stock Awards

Shares


Weighted Average Grant Date Fair Value


Shares


Weighted Average Grant Date Fair ValueBeginning nonvested awards


21,400


$
14.99



54,300


$
14.91Granted


6,500



6.90



—



—Vested


(23,000
)


14.58



(26,000
)


14.56Forfeited


(500
)


23.10



(6,900
)


15.40Ending nonvested awards


4,400


$
7.96



21,400


$
14.99







The value of restricted awards is determined based on the trading value of White River shares on the grant date. An estimated forfeiture rate of 7% was used. Compensation expense related to these awards approximated $44,900 and $379,600 for years ended December 31, 2009 and 2008, respectively, and is included in salaries and benefits expense
in the accompanying consolidated statements of operations. The total income tax benefit recognized in the income statement for this share-based compensation arrangement was approximately $16,400 and $138,500 for the years ended December 31, 2009 and 2008, respectively. There was $774,000 and $41,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted as of December 31, 2009 and 2008, respectively. That cost is expected to be recognized over a weighted-average
period of 2.0 years and 1.3 years as of December 31, 2009 and 2008, respectively.


45


13.
BUSINESS SEGMENT INFORMATION




Set forth in the table below is certain financial information with respect to White River’s operating segments as discussed in Note 1. All taxes are recorded at Corporate and Other. UAC and Coastal Credit are limited liability companies and are consolidated with White River for tax purposes.




For The Year Ended December 31, 2009

UAC


Coastal Credit


Corporate and Other


ConsolidatedTotal interest income

$
414


$
30,904


$
34


$
31,352Interest expense


(174
)


(1,332
)


—



(1,506
)Net interest margin


240



29,572



34



29,846Recovery (provision) for estimated credit losses


279



(8,571
)


—



(8,292
)Net interest margin after recovery (provision) for estimated credit losses


519



21,001



34



21,554Total other revenues (expenses) (1)


(1,372
)


(11,332
)


(1,300
)


(14,004
)Income (loss) before income taxes


(853
)


9,669



(1,266
)


7,550Income tax expense


—



—



(2,680
)


(2,680
)Net income (loss)

$
(853
)

$
9,669


$
(3,946
)

$
4,870







For The Year Ended December 31, 2008

UAC


Coastal Credit


Corporate and Other


ConsolidatedTotal interest income

$
8,170


$
29,366


$
19


$
37,555Interest expense


(221
)


(2,499
)


-



(2,720
)Net interest margin


7,949



26,867



19



34,835Recovery (provision) for estimated credit losses


953



(8,556
)


-



(7,603
)Net interest margin after recovery (provision) for estimated credit losses


8,902



18,311



19



27,232Total other revenues (expenses) (2)


(12,784
)


(11,103
)


8,517



(15,370
)Goodwill impairment


—



-



(34,536
)


(34,536
)Income (loss) before income taxes


(3,882
)


7,208



(26,000
)


(22,674
)Income tax benefit


—



-



8,239



8,239Net income (loss)

$
(3,882
)

$
7,208


$
(17,761
)

$
(14,435
)





(1)
Depreciation and amortization is included in total other revenues (expenses) and was approximately $5,000, $231,000 and $202,000 for UAC, Coastal Credit and Corporate and Other for the year ended December 31, 2009.


(2)
Depreciation and amortization is included in total other revenues (expenses) and was approximately $8,000, $222,000 and $204,000 for UAC, Coastal Credit and Corporate and Other for the year ended December 31, 2008.







46


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




December 31,2009


2008Corporate and other

$
47,842


$
51,795Coastal Credit


92,848



85,408UAC


266



1,625$
140,956


$
138,828







14.   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. Diluted earnings per share include the
dilutive effect of stock award plans. Basic and diluted earnings per share have been computed as follows (dollars in thousands except per share data):




Years Ended December 31,2009


2008Net income (loss) in thousands

$
4,870


$
(14,435
)Weighted average shares outstanding


4,056,088



3,887,093Incremental shares from assumed conversions:Stock award plans


1,884



—Weighted average shares and assumed incremental shares


4,057,972



3,887,093Earnings per share:Basic

$
1.20


$
(3.71
)Diluted

$
1.20


$
(3.71
)







As a result of the net loss for the year ended December 31, 2008, the common stock equivalents would be anti-dilutive in nature. No potential common shares are to be included in the computation of any diluted per-share amount when a loss from continuing operations exists. As a result, there were 7,087 incremental shares of common stock equivalents
excluded from the computation for the year ended December 31, 2008.




47


15.       QUARTERLY FINANCIAL DATA (UNAUDITED)




The following is a summary of quarterly financial results (dollars in thousands, except per share data):




First Quarter


Second Quarter


Third Quarter


Fourth QuarterFiscal Year Ended December 31, 2009Total interest income

$
7,661


$
7,824


$
7,940


$
7,927Net interest margin

$
7,280


$
7,435


$
7,565


$
7,566Other revenue (expense)

$
(3,424
)

$
(3,824
)

$
(3,500
)

$
(3,256
)Net income

$
1,274


$
1,010


$
1,259


$
1,327Basic earnings per share

$
0.31


$
0.25


$
0.31


$
0.33Diluted earnings per share

$
0.31


$
0.25


$
0.31


$
0.33Basic weighted average shares


4,046,568



4,061,386



4,062,129



4,054,122Diluted weighted average shares


4,050,060



4,062,452



4,064,591



4,055,126Fiscal Year Ended December 31, 2008Total interest income

$
11,635


$
9,432


$
8,515


$
7,973Net interest margin

$
10,803


$
8,789


$
7,900


$
7,343Other revenue (expense)

$
(3,740
)

$
(4,797
)

$
(3,418
)

$
(3,415
)Goodwill impairment

$
—


$
—


$
(34,536
)

$
—Net income (loss)

$
3,724


$
1,493


$
(20,472
)

$
820Basic earnings per share

$
0.96


$
0.39


$
(5.29
)

$
0.21Diluted earnings per share

$
0.94


$
0.38


$
(5.29
)

$
0.21Basic weighted average shares


3,863,507



3,872,133



3,872,610



3,939,701Diluted weighted average shares


3,942,503



3,928,612



3,872,610



3,954,502







16.   ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS




The carrying value of cash and cash equivalents approximates the fair value due to the nature of these accounts.




Finance receivables–net approximates fair value based on the price paid to acquire the loans. The price paid reflects competitive market interest rates and purchase discounts for the Company’s chosen credit grade in the economic environment. This market is highly liquid as the Company acquires individual loans on a daily basis
from dealers. In addition, there have been minimal changes in interest rates and purchase discounts related to these types of loans.




The interest rate for the line of credit is a variable rate based on LIBOR.  As a result, the carrying value of the line of credit approximates fair value.




Accrued interest is paid monthly.  As a result of the short term nature of this activity, the carrying value of the accrued interest approximates fair value.




48


Creditor notes payable consists of debt owed to the one remaining third party creditor from the UAC bankruptcy and is recorded at fair value which represents the present value of the amount that UAC anticipates paying to the creditors from the residual assets of the finance receivables. UAC’s finance receivables are in essence the only
asset UAC has remaining to pay the creditor notes payable.







17.   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.




White River and its subsidiaries’ obligations under operating lease agreements were $1.0 million and $0.8 million for the years ended December 31, 2009 and 2008, respectively.  The following table represents obligations due for each of the years ended December 31 indicated below under current operating lease agreements (in
thousands):




Year

Total2010

$
4722011

$
3412012

$
187







18.   DIVIDENDS AND SHARE REPURCHASE PROGRAM




On November 11, 2009, the Board of Directors reauthorized White River’s previously announced share repurchase program. White River is now authorized to repurchase up to 500,000 shares of its outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions.  As
of December 31, 2009, White River repurchased 67,000 shares of its outstanding common stock for $0.7 million.




On November 11, 2009, the Board of Directors declared a quarterly cash dividend of 25 cents per share on its common stock to shareholders of record on November 20, 2009.  This quarterly dividend totaling $1.0 million was paid on December 4, 2009.




On February 22, 2010, White River announced that its Board of Directors declared a quarterly cash dividend of 25 cents per share on its common stock to shareholders of record on March 3, 2010. This quarterly cash dividend was paid on March 12, 2010.







19.   SUMMARY OF STOCK TRANSFER RESTRICTIONS AND RELATED PROVISIONS




General




The following is a summary of the material transfer restrictions set forth in Article 10 of White River’s articles of incorporation. The following summary is not complete. The transfer restrictions apply to transfers of White River’s common stock and any other instrument that would be treated as “stock,” as determined
under applicable Treasury Regulations. The transfer restrictions will apply until the earlier of:




49


·
the repeal by the Internal Revenue Service of the NOL carryforward limitations in the Code if White River’s board of directors determines the transfer restrictions are no longer necessary for the preservation of the tax benefits; and


·
the beginning of a taxable year of White River to which White River’s board determines that no tax benefits may be carried forward.





However, White River’s board of directors will have the power to extend the expiration date of the transfer restrictions if it determines in writing that such action is reasonably necessary or desirable to preserve the tax benefits or to accelerate the expiration date if it determines in writing that the continuation of the transfer
restrictions is no longer reasonably necessary for the preservation of the tax benefits. This power is vested in White River’s board of directors to ensure that White River retains the power to make, in light of all relevant circumstances, including positions that might be taken by tax authorities and contested by White River, the complex determination whether the tax benefits have been fully used or are otherwise available.







Prohibited Transfers




The transfer restrictions generally prohibit any conveyance, from one person to another, by any means, of legal or beneficial ownership, directly or indirectly, of any class of White River stock including indirect transfers of White River stock, accomplished by transferring interests in other entities that own White River stock, to the extent
that the transfer, if effective:




·
would create a new “public group” of White River. For example, the transfer of stock by an existing 5-percent shareholder to the public would be deemed to result in the creation of a separate, segregated “public group” that would be a new 5-percent shareholder;


·
would give rise to a “prohibited ownership percentage,” which is defined by reference to complex federal tax laws and regulations, but generally means any direct or indirect ownership that would cause any person, including a “public group” as defined in the NOL carryforward limitations, to be considered a 5-percent shareholder of White River. By way of example, if shareholder A owns 4% of White
River’s outstanding shares of common stock, and shareholder B attempted to sell 2% of White River’s outstanding shares to shareholder A, the transfer restrictions would prohibit the sale of approximately 1.1% of the shares out of the 2% attempted to be sold; or


·
would increase the ownership percentage of any person, including a public group that is already a 5-percent shareholder of White River. Therefore, no shareholder will be permitted to sell any shares to 5-percent holders or their affiliates without board approval.





Exemptive Power of White River’s Board




White River’s board of directors has the power to approve any otherwise prohibited transfer, conditionally or unconditionally, if it determines, in its discretion, that a specific proposed transaction will not jeopardize White River’s full use of the tax benefits. In addition, White River’s board of directors has the power
to waive any of the transfer restrictions in any instance where it determines that a waiver would be in the best interests of White River despite the effect of the waiver on the tax benefits.




50


Consequences of Purported Prohibited Transfer




Unless approved by White River’s board of directors, any attempted transfer in excess of the shares of White River stock that could be transferred without restriction will be void and will not be effective to transfer ownership of such excess shares. Further, the purported acquirer of the excess shares will not be entitled to any rights
as a shareholder of White River with respect to the excess shares.







20.   SUBSEQUENT EVENTS




On February 22, 2010, White River announced that its Board of Directors declared a quarterly cash dividend of 25 cents per share on its common stock to shareholders of record on March 3, 2010. This quarterly dividend was paid on March 12, 2010.




51


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE




Not applicable.






ITEM 9A(T).  CONTROLS AND PROCEDURES




Management’s Report on Internal Control Over Financial Reporting




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 December 31, 2009. Based upon that evaluation,
the Chief Executive Officer, President and Chief Financial Officer concluded that, at December 31, 2009, 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.




Management of White River is responsible for establishing and maintaining adequate internal control over financial reporting.  White River’s internal control over financial reporting includes policies and procedures pertaining to White River’s ability to record, process, and report reliable information.  White
River’s internal control system is designed to provide reasonable assurance to White River’s management and Board of Directors regarding the preparation and fair presentation of White River’s published financial statements.




White River’s management assessed the effectiveness of internal control over financial reporting as of December 31, 2009.  In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.  Based
on this assessment, White River’s management concluded that, as of December 31, 2009, White River’s internal control over financial reporting is effective based on those criteria.




This annual report does not include an attestation report of White River’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by White River’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this annual report.




During White River’s fiscal quarter ended December 31, 2009, there were no changes in White River’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect White River’s internal control over financial reporting.







ITEM 9B.  OTHER INFORMATION




Not applicable.




52


PART III







ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




Directors and Officers




Information contained under the captions “Proposal 1: Election of Directors,” “Executive Officers,” “Executive Compensation” and “Section 16(a) Beneficial Ownership Reporting Compliance” in White River’s proxy statement for the 2010 annual meeting of shareholders (“Proxy Statement”)
is incorporated herein by reference.







Code of Ethics




White River has adopted the White River Capital, Inc. Code of Business Conduct and Ethics (“code of ethics”), a code of ethics that applies to the Chief Executive Officer, President and Chief Financial Officer.







Audit Committee and Audit Committee Financial Expert




The information with respect to White River’s audit committee and its audit committee financial expert contained under the caption “Corporate Governance and Board Committees – Audit Committee” in White River’s Proxy Statement is incorporated herein by reference.







ITEM 11.  EXECUTIVE COMPENSATION




Information contained under the captions “Executive Compensation” and “Compensation of Directors” in the Proxy Statement is incorporated herein by reference.




53


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




Security Ownership




Information contained under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference.






Securities Authorized for Issuance under Equity Compensation Plans




As of December 31, 2009, the following shares were authorized to be issued under White River’s equity compensation plans:




Equity Compensation Plan InformationPlan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuanceEquity compensation plans approved by security holders


4,400
1

$
0.00



191,249
2Equity compensation plans not approved by security holders


0



0



0Total


4,400
1

$
0.00



191,249
2




1
Includes 4,400 shares issuable pursuant to outstanding performance awards under the 2005 Stock Incentive Plan.2
Includes 179,200 shares issuable pursuant to the 2005 Stock Incentive Plan in the form of stock options, restricted stock awards, or performance stock awards, and 12,049 shares issuable pursuant to the 2005 Directors Stock Compensation Plan.






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




Information contained under the captions “Certain Relationships and Related Party Transactions” and “Corporate Governance and Board Committees – Director Independence” in the Proxy Statement is incorporated herein by reference in response to this Item 13.







ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES




Information contained under the caption “Independent Public Accountants” in the Proxy Statement is incorporated herein by reference in response to this Item 14.




54


PART IV


ITEM 15.   EXHIBITS




1.       Financial Statements




The consolidated financial statements of White River Capital, Inc. and its subsidiaries and independent auditors’ report are included in Part II (Item 8) of this Form 10-K.




2.       Financial Statement Schedules




Not applicable.




3.       Exhibits




The following documents are included or incorporated by reference in this Annual Report on Form 10K:




2.1
Agreement and Plan of Merger between White River Capital, Inc. and First Chicago Bancorp dated as of June 27, 2008 (incorporated by reference to Exhibit 2.1 of registrant’s Form 8-K filed July 2, 2008)3.1(a)
Articles of Incorporation of White River Capital, Inc. (incorporated by reference to Exhibit 3.1 of registrant’s Registration Statement on Form S-1/S-4 (Reg. No. 333-123909))3.1(b)
Articles of Amendment to White River Capital’s Articles of Incorporation, effective May 22, 2009 (incorporated by reference to Exhibit 3.1 of the registrant’s Form 8-K filed May 26, 2009)3.2
Code of By—Laws of White River Capital, Inc. (amended as of July 24, 2009) (incorporated by reference to Exhibit 3.1 of the registrant’s Form 8-K filed July 28, 2009)4.1
Form of common stock certificate of registrant (incorporated by reference to Exhibit 4.1 of registrant’s Registration Statement on Form S-1/S-4 (Reg. No. 333-123909))4.2
Article 5 – “Number of Shares,” Article 6 – “Terms of Shares,” Article 10 – “Transfer and Ownership Restrictions” and Article 11 – “Miscellaneous Provisions”  (concerning the applicability of the Indiana Control Share Acquisitions Chapter and the Indiana Business
Combinations Chapter) of registrant’s Articles of Incorporation (incorporated by reference to registrant’s Articles of Incorporation filed as Exhibit 3.1 of registrant’s Registration Statement on Form S-1/S-4 (Reg. No. 333-123909))4.3
Article III – “Shareholder Meetings,” Article VI – “Certificates for Shares” and Article VII, Section 3 – “Corporate Books and Records” of registrant’s Code of By-laws (incorporated by reference to registrant’s Code of By-Laws filed as Exhibit 3.1 of the registrant’s Form
8-K filed July 28, 2009)4.4
Second Amended and Restated Plan of Reorganization of Union Acceptance Corporation dated August 8, 2003 (incorporated by reference to Exhibit 4.6 of registrant’s Registration Statement on Form S-1/S-4 (Reg. No. 333-123909))4.5(a)
Amended Finance Agreement dated April 16, 2001, between Coastal Credit, LLC and Wells Fargo Financial Preferred Capital, Inc. (incorporated by reference to Exhibit 4.8(a) of registrant’s Registration Statement on Form S-1/S-4 (Reg. No. 333-123909))4.5(b)
First Amendment to Finance Agreement dated March 22, 2004, between Coastal Credit, LLC and Wells Fargo Financial Preferred Capital, Inc. (incorporated by reference to Exhibit 4.8(b) of registrant’s Registration Statement on Form S-1/S-4 (Reg. No. 333-123909))





55





4.5(c)
Second Amendment to Finance Agreement, dated August 24, 2005, between Coastal Credit LLC and Wells Fargo Financial Preferred Capital, Inc. (including replacement Promissory Note and White River Capital Inc. Guaranty) (incorporated by reference to Exhibit 4.1 of registrant’s Form 8-K filed September 2, 2005)4.5(d)
Third Amendment to Finance Agreement, dated January 2, 2007, between Coastal Credit LLC and Wells Fargo Financial Preferred Capital, Inc. (incorporated by reference to Exhibit 4.8(d) of the registrant’s 2006 Annual Report on Form 10—K filed on March 16, 2007)4.6
Regulation S-K, Item 601(b)(4)(iii) undertaking to furnish debt instruments to the Commission upon request (incorporated by reference to Exhibit 4.9 of registrant’s Registration Statement on Form S-1/S-4 (Reg. No. 333-123909))10.1
Memorandum of Understanding dated February 15, 2005, among registrant, Union Acceptance Corporation and the Plan Committee under Union Acceptance Corporation’s Second Amended and Restated Plan of Reorganization (incorporated by reference to Exhibit 10.2 of registrant’s Registration Statement on Form S-1/S-4 (Reg. No. 333-123909))10.2
Summary of arrangement between Union Acceptance Corporation and Castle Creek Capital, LLC (incorporated by reference to Exhibit 10.5 of registrant’s Registration Statement on Form S-1/S-4 (Reg. No. 333-123909))10.3(a)
Amended and Restated Employment Agreement dated as of April 28, 2009 between White River Capital, Inc. and Mark R. Ruh (incorporated by reference to Exhibit 99.1 of the registrant’s Form 8-K filed May 1, 2009)10.3(b)
Release, Satisfaction, and Waiver Agreement dated August 31, 2009 between White River Capital, Inc. and Mark R. Ruh (incorporated by reference to Exhibit 99.1 of the registrant’s Form 8-K filed September 4, 2009)10.4
Amended and Restated Employment Agreement dated as of April 28, 2009 between White River Capital, Inc. and Martin J. Szumski (incorporated by reference to Exhibit 99.2 of the registrant’s Form 8-K filed May 1, 2009)10.5
Employment Agreement dated May 18, 2009 (to be effective as of January 1, 2009), by and among Coastal Credit, LLC, White River Capital, Inc., and William E. McKnight (incorporated by reference to Exhibit 99.1 of the registrant’s Form 8-K filed May 22, 2009)10.6
White River Capital, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 4.4 of registrant’s Form S-8 (File No. 333-130187))10.7
Expense Sharing Agreement, dated November 8, 2005, between White River Capital, Inc. and Castle Creek Capital, LLC and Castle Creek Advisors LLC (incorporated by reference to Exhibit 10.1 of registrant’s Form 10-Q for the period ended September 30, 2005)10.8
White River Capital Inc. Directors Stock Compensation Plan (incorporated by reference to Exhibit 10.2 of registrant’s Form 10-Q for the period ended September 30, 2005)14.1
Code of Ethics (incorporated by reference to Exhibit 14.1 of registrant’s Form 10-K for the year ended December 31, 2005)21.1
Subsidiaries of White River Capital, Inc. (incorporated by reference to Exhibit 21.1 of registrant’s Form 10-K for the year ended December 31, 2005)23.1
Consent of McGladrey & Pullen LLP31.1
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 Act32.1
Section 1350 Certifications


56


SIGNATURES




Pursuant to the requirements of Section 13 or 15(d) 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)March 15, 2010
By:
/s/ Martin J. SzumskiMartin J. SzumskiChief Financial Officer(Signing on behalf of the registrant as Principal Financial Officer)








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




Signature



Date/s/ John M. Eggemeyer

Chairman and Chief Executive Officer, Director (Principal Executive Officer)

March 15, 2010John M. Eggemeyer/s/ Martin J. Szumski

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

March 15, 2010Martin J. Szumski/s/ Thomas C. Heagy

Director

March 15, 2010Thomas C. Heagy/s/ William E. McKnight

Director

March 15, 2010William E. McKnight/s/ Daniel W. Porter

Director

March 15, 2010Daniel W. Porter/s/ John W. Rose

Director

March 15, 2010John W. Rose/s/ Richard D. Waterfield

Director

March 15, 2010Richard D. Waterfield