**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, 2006**




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 ofincorporation
                or organization)
            (I.R.S.
                Employer Identification No.)







**1445
      Brookville Way, Suite I**


**Indianapolis,
      Indiana 46239**


(Address
      of principal executive offices/zip code)






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







Securities
                registered pursuant to Section 12(b) of the Act:**Common
                Stock,****without
                par value**
            **American
                Stock Exchange**Securities
                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.
              oYesxNoIndicate
                  by check mark if the registrant is not required to file reports
                  pursuant
                  to Section 13 or Section 15(d) of the Act.
              oYesxNoIndicate
                  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.
              xYesoNo








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
              oIndicate
                  by check mark whether the registrant is a large accelerated filer,
                  an
                  accelerated filer, or a non-accelerated filer. See definition of
                  “accelerated filer and large accelerated filer” in Rule 12b-2 of the
                  Exchange Act. (Check one):Large
                  accelerated filer       Accelerated
                  fileroNon-accelerated
                  filerxIndicate
                  by check mark whether the registrant is a shell company (as defined
                  in
                  Rule 12b-2 of the Exchange Act) .
              oYesxNo


As
      of
      March 16, 2007, there were 3,839,487 shares 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 2007 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 -**




**PAGE****PART
                  I****Item
                  1.**
              **Business**
              **1****Item
                  1A.**
              **Risk
                  Factors**
              **14****Item
                  2.**
              **Properties**
              **23****Item
                  3.**
              **Legal
                  Proceedings**
              **23****PART
                  II****Item
                  5.**
              **Market
                  for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities**
              **24****Item
                  6.**
              **Selected
                  Financial Data**
              **30****Item
                  7.**
              **Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operation**
              **32****Item
                  7A.**
              **Quantitative
                  and Qualitative Discloses About Market Risk**
              **50****Item
                  8.**
              **Financial
                  Statements and Supplementary Data**
              **52****Audited
                  Consolidated Balance Sheets as of December 31, 2006 and
                  2005**
              **53****Audited
                  Consolidated Statements of Operations for the Years Ended December
                  31,
                  2006, 2005 and 2004**
              **54****Audited
                  Consolidated Statements of Shareholders’ Equity (Deficit) for the Years
                  Ended December 31, 2006, 2005 and 2004**
              **55****Audited
                  Consolidated Statements of Cash Flows for the Years Ended December
                  31,
                  2006, 2005 and 2004**
              **56****Notes
                  to Audited Consolidated Financial Statements**
              **57****Item
                  9A.**
              **Controls
                  and Procedures**
              **83**








i








**PART
                  III****Item
                  10.**
              **Directors,
                  Executive Officers and Corporate Governance**
              **84****Item
                  11.**
              **Executive
                  Compensation**
              **84****Item
                  12.**
              **Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters**
              **85****Item
                  13.**
              **Certain
                  Relationships and Related Transactions, and Director
                  Independence**
              **85****Item
                  14.**
              **Principal
                  Accounting Fees and Services**
              **85****PART
                  IV****Item
                  15.**
              **Exhibits
                  and Financial Statement Schedules**
              **86****SIGNATURES**
              **90**





ii





**PART
      I**







**ITEM
      1. BUSINESS**




**Overview**




Founded
      in 2004, White River Capital, Inc. (“White River”) is a financial services
      holding company headquartered in Indianapolis, Indiana 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 22 states through 16 offices.




Union
      Acceptance Company LLC (“UAC”), based in Indianapolis, Indiana, is a specialized
      auto finance company which holds and oversees its portfolio of non-prime auto
      receivables. 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. UAC remains contractually obligated to distribute its remaining assets
      in
      compliance with its Second Amended and Restated Plan of Reorganization (the
      “Plan” or the “Plan of Reorganization”) approved in connection with the
      bankruptcy case. Under the Plan, UAC 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 all of UAC’s general
      unsecured claims, 89.1% of UAC’s restructured subordinated notes (“Subordinated
      Notes”) and 94.7% of UAC's accrual notes (“Accrual Notes”) issued under the
      Plan. UAC was designated the Creditor Representative to oversee the distribution
      of is remaining assets as contractually obligated under the Plan.




White
      River’s net interest margin after provision for estimated losses was $10.7
      million for the year ended December 31, 2006. Net income for this same period
      was $43.4 million which includes an income tax benefit of $39.0 million. At
      December 31, 2006, total assets were $225.4 million.






***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 22
      states - Alaska, Arizona, California, Colorado, Delaware, Florida, Georgia,
      Hawaii, Kansas, Louisiana, Maryland, Mississippi, Nevada, North Carolina, Ohio,
      Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and
      Washington - through its 16 branch locations.




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.







1





A
      significant number of contracts acquired by Coastal Credit are contracts made
      with borrowers who are in the United States military. During 2006, 32.2% 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 22 states through
      a
      total of 16 branches, with two branches in each of Florida, Georgia,
      Mississippi, and Virginia, and one branch in each of California, Delaware,
      Louisiana, Nevada, Ohio, Oklahoma, Pennsylvania and Texas. 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, 2006, Coastal Credit had non-exclusive
      agreements with approximately 1,500 dealers, of which approximately 650 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 32 to 48 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 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, 2006, 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.







2





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
                insurance - 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


·
            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.







3





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 16 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.




**Geographic
      Concentration**




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




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


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


Region
      #3
      - Louisiana, Kansas, Mississippi, Nevada, Oklahoma and Texas.


Region
      #4
      - Alaska, Arizona, California, Colorado, Hawaii and Washington.







4





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 must have
      a
      deductible typically 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.




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.







5





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 lapse
      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 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: California, 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.
 7
 
 ·
                *State
                    licensing requirements*.
                    Coastal Credit maintains the following
                    licenses:




**State**
            
            **License**Arizona
            
            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







8





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.




·
            *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,
      2006,
      Coastal Credit employed a total of approximately 125 persons. None of Coastal
      Credit’s employees is subject to a collective bargaining agreement, and Coastal
      Credit considers its relations with its employees generally to be
      satisfactory.




***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 would acquire
      retail installment sales contracts originated by a network of over 5,500
      automobile dealerships affiliated with major domestic and foreign manufacturers,
      nationally recognized rental car outlets and used car superstores. 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.




Generally,
      after acquiring receivables, UAC would temporarily hold the receivables in
      short-term “warehouse” financing arrangements through its subsidiaries.
      Periodically, UAC would pool the receivables and sell interests in the pooled
      portfolio as asset-backed securities through securitization transactions. A
      “securitization” is the process through which receivables are pooled and sold to
      an entity (in UAC’s case, a trust) that issues asset-backed securities to
      investors. “Asset-backed securities” is a general reference to securities that
      are backed by financial assets such as automobile receivables. UAC would remain
      the servicer for the receivables it securitized. A “servicer” in respect of a
      portfolio of consumer finance receivables is generally responsible for
      monitoring and reporting collections of payments on the receivables, remitting
      those payments to appropriate entities and pursuing the collection of delinquent
      receivables, including liquidation of collateral securing defaulted
      receivables.




UAC,
      through its wholly owned special purpose subsidiary, UAC Securitization
      Corporation (“UACSC”), continues to hold the rights to the retained interest in
      the securitizations that it had sponsored prior to the UAC bankruptcy petition
      date and subsequent non-recourse financings of previously securitized
      receivables. The “retained interest” refers to the net cash flows that become
      available from securitizations after obligations required to be satisfied by
      these securitizations and non-recourse financings are paid. The retained
      interest is discussed in more detail under the heading “The Retained
      Interest-Cash Flows from Securitizations” below.







9





**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”). Shortly after the
      commencement of the Bankruptcy Case, UAC discontinued acquisition of new
      automobile receivables, but continued to act as servicer with respect to its
      securitized portfolios of receivables and receivables owned directly by UAC
      or
      indirectly by its subsidiaries.




In
      April
      2003, with approval by the bankruptcy court, UAC sold substantially all of
      the
      assets related to its receivable servicing business to Systems & Services
      Technologies Inc. (“SST”), a subsidiary of J.P. Morgan Chase & Co. SST was
      appointed as servicer with respect to the securitized receivables and the
      receivables held directly by UAC or its subsidiaries. SST continues to serve
      in
      that capacity.




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 is
      remaining assets as contractually obligated under the Plan.




Generally,
      UAC is obligated to continue to collect cash as it became available from
      prescribed assets of the bankruptcy estate (see “The Retained Interest-Cash
      Flows from Securitizations” below) 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. The Plan of Reorganization refers to
      these
      creditors as holders of “Allowed Claims.” The Plan of Reorganization provides
      that payments to holders of Allowed Claims be made only from prescribed assets,
      mostly from cash flows deriving from the retained interest in prior
      securitizations.




When
      the
      Plan was confirmed, UAC expected that the net estate proceeds that would be
      available (mostly from cash flows deriving from the retained interest in prior
      securitizations) to make distributions on Allowed Claims over time would be
      sufficient to pay all Allowed Claims in full, and that cash flows that would
      benefit UAC’s shareholders would be generated from the retained interest in
      excess of the amount necessary to pay Allowed Claims. The Plan of Reorganization
      provided that the equity interests in UAC were unimpaired and provided that
      payments would be made to holders of Allowed Claims only from prescribed assets.
      The principal reason for these provisions limiting the recourse of holders
      of
      Allowed Claims under the Plan to these specific assets was to afford the holders
      of UAC’s equity interests the opportunity, through new investment, to continue
      business operations that would be protected from recourse by holders of Allowed
      Claims against UAC.




After
      the
      Plan was confirmed, the cash flows from the retained interest did not
      materialize as projected. Loss rates on the securitized portfolio increased
      substantially following the transition of servicing to SST. The impact of SST’s
      transitioning of servicing as well as overall performance of the portfolio
      amid
      challenging economic times and other factors substantially reduced the cash
      flows expected from the securitizations. The sources of funds available to
      make
      distributions to the holders of Allowed Claims were sufficient to pay the
      holders of the Senior Notes issued under the Plan, but such funds are not
      expected to be sufficient to pay the remaining amounts due holders of Class
      2A
      (general unsecured) claims, holders of the Subordinated Notes and the holders
      of
      the Accrual Notes issued under the Plan of Reorganization. However, UAC’s
      parent, White River, has purchased the substantial majority of UAC’s outstanding
      notes and claims. Amounts available for distribution to such notes and claims
      owned by White River will be paid by UAC to White River, in accordance with
      the
      Plan of Reorganization, as further described below.







10





**The
      Retained Interest - Cash Flows from Securitizations**




Pursuant
      to the Plan, UAC is obligated to continue to collect cash as it becomes
      available from prescribed assets; mostly from cash flows deriving from the
      retained interest in prior securitizations. UAC, through its wholly owned
      special purpose subsidiary, UACSC, continues to hold the rights to the retained
      interest in the securitizations that it had sponsored prior to the Bankruptcy
      Case petition date and the non-recourse financings effectuated since
      confirmation of the Plan of Reorganization. The “retained interest” refers to
      the net cash flows that become available from these securitizations and
      non-recourse financings after obligations required to be satisfied by the
      securitization trusts or under the financings are paid. Generally, each
      securitization or financing represents a pool of receivables that serves as
      collateral for issued notes, the outstanding balance of which is equal to the
      balance of receivables in the related pool. The interest payments on the
      receivables are greater than interest payments owed on the notes, and each
      transaction is structured such that the cash flows from interest payments are
      expected to be sufficient to absorb losses from defaults, pay interest and
      principal due on the notes, and pay servicing and administrative expenses,
      with
      any cash flows remaining after those obligations are satisfied payable to UACSC
      as the holder of the equity interest or retained interest in the trust or as
      the
      owner of the financed receivables (subject to the arrangements described
      below).




In
      connection with the transfer of servicing to SST, UAC and its subsidiaries
      entered into agreements with SST, MBIA Insurance Corporation (the surety
      provider which has issued policies that ensure timely payments on the notes
      issued by the securitization trusts) (“MBIA”) and other interested parties.
      Under these agreements, SST was appointed as servicer of the UAC receivables
      portfolio and standards for SST’s performance and provisions for SST’s
      compensation were established. In addition, a Master Trust Account was created
      pursuant to a Master Trust Account Agreement. The Master Trust Account serves
      effectively to cross-collateralize the securitization trusts and non-recourse
      financings of UAC receivables. The residual cash flows from the securitizations
      are to be paid through the Master Trust Account. Amounts held in the Master
      Trust Account are available to pay certain fees and expenses of the servicer,
      the securitization trustees, MBIA, the master trustee, and to make
      distributions to meet cash distribution obligations to security holders
      of the securitizations, to the extent cash otherwise available to that
      securitization is insufficient for such purpose. Cash deposited to the Master
      Trust Account, to the extent not used for the foregoing purposes, accumulates
      and, to the extent it exceeds prescribed levels, becomes available for
      distribution to UACSC (for the benefit of holders of Allowed Claims under the
      Plan).




The
      Master Trust Account Agreement established an initial amount of approximately
      $12.5 million in the aggregate to be distributed from time to time from the
      Master Trust Account under prescribed conditions. That amount had been released
      by October 10, 2005. After that point, the Master Trust Account continued to
      accumulate cash until the total cash collateral of the securitizations and
      the
      Master Trust Account was equal to 8% of the outstanding securitization
      obligations. Once that occurred, UACSC received distributions equal to 50.0%
      of
      surplus funds each month until total cash collateral equaled 12% of the
      outstanding securitization obligations. After that point, UACSC received
      distributions each month equal to 100% of surplus funds, provided that a
      declining minimum dollar amount of cash is retained in the securitization
      collateral accounts and the Master Trust Account until the securitizations
      are
      liquidated.




These
      distribution thresholds are subject to adjustment if the securitization
      portfolio does not perform within the parameters stipulated by the Master Trust
      Account Agreement. The agreement sets forth net loss ratio triggers and
      cumulative net loss triggers for future periods that were determined by
      increasing UAC’s estimated future portfolio losses by a specified margin. If
      these triggers are breached (until the portfolio is restored to compliance)
      no
      distributions will be made to UACSC until total cash collateral exceeds
      increased minimum dollar levels. As of December 31, 2006 and 2005, the
      rolling 12 month net losses were below the Level 1 and Level 2 triggers. While
      the cumulative net losses were below the Level 2 trigger as of December 31,
      2005, they did exceed the Level 1 trigger. The cumulative net losses were below
      the Level 1 and Level 2 triggers as of December 31, 2006.







11





**The
      Creditor Buyout**




On
      February 15, 2005, UAC, White River, and the Plan Committee representing the
      UAC
      creditors under the Plan of Reorganization entered into a memorandum of
      understanding providing for the proposed buyout of the remaining outstanding
      UAC
      Senior Notes, Subordinated Notes and Accrual Notes payable. This agreement
      stipulated that White River, as the proposed parent of UAC, would offer to
      pay
      100% of the principal value of the Senior Notes and 13% of the face value of
      the
      Subordinated Notes for the tender of these notes and their accompanying Accrual
      Notes to White River. Additional amounts were to be paid by White River to
      the
      former Subordinated Note holders in the future if either of two events occurred,
      namely (i) the passing of federal legislation prior to February 1, 2007 which
      would allow UAC to carry back federal income tax net operating loss
      carryforwards to recover income taxes previously paid in 2000 and (ii) recovery
      by UAC on a particular unresolved pending claim against SST. During September
      2006 the pending claim against SST was resolved. White River distributed
      additional funds to former Subordinated Note and claim holders who sold their
      claims to White River during 2005 in accordance with this agreement.




This
      buyout offer was accepted by 100% of the Senior Note holders and holders of
      89.1% of the Subordinated Notes in February 2005. During June 2005, the Senior
      Notes of UAC were purchased by White River and simultaneously paid in full
      and
      White River completed the buyout of 89.1% of the Subordinated Notes of UAC
      using
      bridge funding provided by the Funds. During September 2005, White River
      concluded its offer to purchase claims from the general unsecured creditors
      of
      UAC. White River acquired approximately 57.3% of the general unsecured claims
      of
      UAC as a result of this offer.




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, 2006**
            
            **December
                31, 2005****Contractual**
            
            
            
            
            
            **Contractual****Remaining**
            
            **Total**
            
            
            
            **Remaining**
            
            **Total****Debt
                Not**
            
            **Contractual**
            
            
            
            **Debt
                Not**
            
            **Contractual****Carrying**
            
            **Owned
                by**
            
            **Remaining**
            
            **Carrying**
            
            **Owned
                by**
            
            **Remaining****Value**
            
            **White
                River**
            
            **Debt**
            
            **Value**
            
            **White
                River**
            
            **Debt**Restructured
                debt:Class
                2A general unsecured claims
            
            $
            -
            
            $
            -
            
            $
            956
            
            $
            164
            
            $
            405
            
            $
            1,330Restructured
                senior notes
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Restructured
                subordinated notes
            
            
            1,391
            
            
            4,394
            
            
            40,427
            
            
            1,296
            
            
            5,041
            
            
            46,383Senior
                accrual notes
            
            
            -
            
            
            -
            
            
            4,106
            
            
            -
            
            
            -
            
            
            4,106Subordinated
                accrual notes
            
            
            1
            
            
            431
            
            
            3,964
            
            
            1
            
            
            431
            
            
            3,964Total
                creditor notes payable
            
            $
            1,392
            
            $
            4,825
            
            $
            49,453
            
            $
            1,461
            
            $
            5,877
            
            $
            55,783







During
      February 2005, when White River agreed to purchase the UAC Senior, Subordinated
      and Accrual Notes, White River and UAC projected that future cash flows that
      would inure from UAC estate assets in respect of such notes over time would
      be
      somewhat less than the cash price White River agreed to pay, and that the price
      offered for the Subordinated Notes and related Accrual Notes reflected a
      reasonable premium. Over the course of 2005, however, cash flows from the
      remaining UAC securitizations were consistently more favorable than what had
      been projected in early 2005. White River now projects that the distributions
      that will be available over time from UAC in respect of the UAC Subordinated
      Notes that White River purchased will materially exceed the price White River
      paid for such notes. See Part II, Item 7, “Management’s Discussion and Analysis
      of Financial Condition and Results of Operations.”







12




**UAC
      Continuing Operations**




UAC
      continues to oversee the receipt and distribution of the cash flows from its
      remaining assets and to carry out the Plan. UAC currently has a staff of four
      employees, while UAC’s President, Mark R. Ruh, 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;


·
            collecting
                automobile dealer premium rebates contractually
                due;


·
            providing
                administrative services to support the securitization paying agent
                with
                cash management and accounting functions for all outstanding
                securitizations;


·
            supporting
                deficiency account collections by third party collection agencies;


·
            managing
                deficiency account collections requiring legal action;
                and


·
            holding
                (directly or indirectly through its securitization subsidiary) portfolios
                of automobile receivables that it had initially acquired prior to
                the
                Bankruptcy Case.




UAC’s
      consolidated receivable portfolios were as set forth below (in
      thousands)




**December
                31,****2006**
            
            **2005****UAC
                and Subsidiary Receivables Held for Investment**UAC
                Owned (1)
            
            $
            188
            
            $
            336UACSC
                Owned (2)
            
            
            298
            
            
            -486
            
            
            336**Securitized
                Finance Receivables**(3)2003-A
            
            
            -
            
            
            4,1672004-A1
            
            
            414
            
            
            3,7952004-A2
            
            
            637
            
            
            4,7122004-B
            
            
            855
            
            
            5,3562004-C
            
            
            3,424
            
            
            16,8372005-A
            
            
            4,913
            
            
            19,0422005-B
            
            
            7,227
            
            
            25,4052005-C
            
            
            11,330
            
            
            35,71728,800
            
            
            115,031**Off-Balance
                Sheet Securitizations**2001-B
                (4)
            
            
            4,719
            
            
            12,7432001-C
            
            
            14,070
            
            
            35,0092002-A
            
            
            14,530
            
            
            34,54833,319
            
            
            82,300Total
                Portfolios
            
            $
            62,605
            
            $
            197,667


(1)
            Receivables
                that are owned directly by UAC and are not
                leveraged.


(2)
            On
                March 8, 2006 the 2003-A note was paid in full. The receivable portfolio
                is still owned by UACSC but is now recorded as held for investment.


(3)
            On-balance
                sheet portfolios held by UACSC as collateral for non-recourse asset-backed
                notes.


(4)
            The
                2001-B transaction represents a separate issuance of notes, or a
                separate
                tranche, under the UACSC 1999 Master Owner
                Trust.




13





UAC
      has
“fully administered” its Chapter 11 plan of reorganization and the U.S.
      Bankruptcy Court for the Southern District of Indiana issued a final decree
      and
      closed UAC’s Chapter 11 Bankruptcy Case on January 5, 2007. UAC is no longer
      subject to the supervision of the bankruptcy court. However, UAC, as the
      Creditor Representative and as a subsidiary of White River, will continue to
      comply with the Plan and collect and distribute to the holders of Allowed Claims
      all funds to which they are properly entitled under the Plan. White River owns
      all of UAC’s general unsecured claims, 89.1% of UAC’s subordinated notes and
      94.7% of UAC's accrual notes. White River will continue to be entitled to
      receive the large majority of subsequent distributions under the Plan as a
      holder of such notes and claims. However, the formation of White River as UAC’s
      parent company allows UAC to carry its business forward with a clear segregation
      of the assets and liabilities of UAC from the assets and liabilities of White
      River, while allowing White River to operate UAC and new businesses, such as
      Coastal Credit.




**ITEM** **1A.
      RISK FACTORS**




Investors
      should consider carefully the following factors that could cause our operating
      results and financial condition to be materially adversely affected. New risks
      may emerge at any time, and we cannot predict those risks or estimate the extent
      to which they may affect our businesses or financial performance.




***Coastal
      Credit Business***




***Our
      shareholders are substantially dependent on the operations of Coastal
      Credit.***




White
      River is a holding company with no independent operations. Our profitability
      and
      ability to pay dividends to our shareholders are dependent on the operations
      of
      our subsidiaries, UAC and Coastal Credit. UAC’s activities consist of
      administering the receipt and distribution of the cash flows from its remaining
      assets while carrying out its Plan of Reorganization. We have purchased
      substantially all claims of creditors under UAC’s Plan of Reorganization. While
      related future cash flows from UAC may benefit White River, UAC does not
      presently expect to be profitable in the future. Thus, if Coastal Credit does
      not generate profits and make distributions to us, the value of our common
      stock
      will be diminished.




**Our****profitability and future growth depend on Coastal Credit’s continued access to
      bank and subordinated debt financing.**




The
      profitability and growth of Coastal Credit’s business depends on its ability to
      access bank debt at competitive rates. Coastal Credit currently depends on
      a
      $100 million line of credit facility with a financial institution to finance
      its
      acquisition of contracts. The line of credit is secured by substantially all
      of
      the contracts held by Coastal Credit. Effective January 1, 2007, the line of
      credit was extended through 2011. At December 31, 2006, Coastal Credit had
      $49.5
      million outstanding under the line of credit and $20.5 million available for
      additional borrowing based upon the level of eligible collateral. Coastal Credit
      also relies on subordinated debt as a principal part of its capital structure
      to
      provide long-term capital. As of December 31, 2006, the amount of outstanding
      subordinated debt was $7.7 million. The debentures are subject to a
      Subordination and Intercreditor Agreement with Coastal Credit’s principal
      lender. The debentures have maturity dates in 2008. Coastal Credit will continue
      to depend on the availability of its line of credit, replacement subordinated
      financing, together with cash from operations, to finance its future operations.
      The availability of the credit facility depends, in part, on factors outside
      of
      Coastal Credit’s control, including regulatory capital treatment for unfunded
      bank lines of credit and the availability of bank loans in general. Therefore,
      this credit facility may not continue to be available beyond the current
      maturity date on reasonable terms or at all. If Coastal Credit were unable
      to
      renew or replace the credit facility or find alternative financing at reasonable
      rates, Coastal Credit could be unable to grow by acquiring contracts or could
      be
      forced to liquidate.







14





***The
      terms of Coastal Credit’s indebtedness impose significant restrictions on
      it.***




Coastal
      Credit’s existing outstanding indebtedness restricts its ability to, among other
      things:




·
            encumber
                collateral;


·
            allow
                change of ownership or control;


·
            sell
                or transfer assets;


·
            incur
                debt from additional sources;


·
            pay
                dividends;


·
            make
                certain investments or
                acquisitions;


·
            repurchase
                or redeem capital stock;


·
            engage
                in mergers or consolidations; and


·
            engage
                in certain transactions with subsidiaries and
                affiliates.




In
      addition, Coastal Credit’s line of credit facility requires it to comply with
      certain financial ratios and covenants. Coastal Credit’s ability to continue to
      meet these financial ratios could be affected by events beyond its control.
      Failure to meet any of these covenants, financial ratios or financial tests
      could result in an event of default under Coastal Credit’s credit facility. If
      an event of default occurs under its line of credit facility, the lender may
      take one or more of the following actions:




·
            increase
                Coastal Credit’s borrowing costs;


·
            restrict
                Coastal Credit’s ability to obtain additional borrowings under the
                facility;


·
            accelerate
                repayment of all amounts outstanding under the facility;
                or


·
            enforce
                its interests against collateral pledged under the
                facility.




If
      Coastal Credit’s lender accelerates its debt payments, Coastal Credit’s assets
      may not be sufficient to fully repay the debt.




***Coastal
      Credit will require a significant amount of cash to service its indebtedness
      and
      meet its other liquidity needs.***




Coastal
      Credit’s ability to make payments on or to refinance its indebtedness and to
      fund its operations and planned capital expenditures depends on its future
      operating performance. Coastal Credit’s primary cash requirements
      include:




·
            the
                funding of contract acquisitions;


·
            interest
                payments under its line of credit facility and other
                indebtedness;


·
            capital
                expenditures for technology and
                facilities;


·
            ongoing
                operating expenses; and


·
            planned
                expansions by opening additional branch
                offices.




In
      addition, because Coastal Credit expects to continue to require substantial
      amounts of cash for the foreseeable future, Coastal Credit may seek additional
      debt financing. The type, timing and terms of the financing Coastal Credit
      selects will be dependent upon its cash needs, the availability of other
      financing sources and the prevailing conditions in the financial markets. These
      sources may not be available to Coastal Credit at any given time or the terms
      on
      which these sources may be available may not be favorable. Coastal Credit’s
      inability to obtain such additional financing could adversely impact its ability
      to grow.







15





***Coastal
      Credit’s substantial indebtedness could adversely affect its financial
      condition.***




Coastal
      Credit currently has a substantial amount of outstanding indebtedness. In
      connection with our acquisition of Coastal Credit, Coastal Credit agreed to
      guarantee our secured note payable on a subordinated basis. Coastal Credit’s
      ability to make payments on, or to refinance, its indebtedness will depend
      on
      its future operating performance, including its ability to access additional
      debt or equity financing, which, to a certain extent, is subject to economic,
      financial, competitive and other factors beyond Coastal Credit’s control.




Coastal
      Credit’s high level of indebtedness could have important consequences for its
      business. For example, Coastal Credit:




·
            may
                be unable to satisfy its obligations under its outstanding
                indebtedness;


·
            may
                find it more difficult to fund future needs for working capital,
                capital
                expenditures, or acquisitions;


·
            may
                need to dedicate a substantial portion of its cash resources to the
                payments on its outstanding indebtedness, thereby reducing the funds
                available for operations and future business opportunities;
                and


·
            may
                be more vulnerable to adverse general economic and industry
                conditions.




Coastal
      Credit may incur substantial additional debt in the future. If new debt is
      added
      to Coastal Credit’s current levels, the risks described above could intensify.




***Coastal
      Credit may experience higher than normal delinquency and charge-off rates in
      its
      loan portfolios, which could reduce its
      profitability.***




Coastal
      Credit’s profitability depends, to a material extent, on the performance of
      contracts that it acquires. Historically, Coastal Credit has experienced higher
      delinquency and charge-off rates than traditional financial institutions because
      a large portion of its loans are to subprime borrowers, who may be unable to
      obtain financing from traditional sources due to their credit history. Although
      Coastal Credit attempts to mitigate these high credit risks with its
      underwriting standards, pricing and collection procedures, these standards
      and
      procedures may not offer adequate protection against the risk of default. In
      the
      event of a default, the collateral value of the financed vehicle usually does
      not cover the outstanding loan balance and costs of recovery. Higher than
      anticipated delinquencies and defaults on Coastal Credit’s contracts would
      reduce its profitability.




***Coastal
      Credit depends upon its relationships with its
      dealers.***




Coastal
      Credit’s business depends in large part upon its ability to establish and
      maintain relationships with automobile dealers who originate the contracts
      Coastal Credit acquires. Although Coastal Credit believes it has been successful
      in developing and maintaining such relationships, such relationships are not
      exclusive, and many of them are not longstanding. Coastal Credit may not be
      successful in maintaining such relationships or increasing the number of dealers
      with whom it does business. Coastal Credit’s existing dealer base may not
      continue to generate or refer to Coastal Credit a volume of contracts comparable
      to the volume of such contracts historically generated or referred by such
      dealers.







16





***Coastal
      Credit’s success depends upon its ability to implement its business
      strategy.***




Coastal
      Credit’s financial position depends on its management’s ability to execute its
      business strategy. Key factors involved in the execution of its business
      strategy include the use of effective pricing, achievement of the desired
      contract acquisition volume, risk management techniques and collection methods,
      continued investment in technology to support operating efficiency and continued
      access to significant funding and liquidity sources. Coastal Credit’s failure or
      inability to execute any element of its business strategy could materially
      adversely affect Coastal Credit’s financial condition.




***Coastal
      Credit’s business is highly dependent upon general economic conditions.***




During
      periods of economic slowdown or recession, delinquencies, defaults,
      repossessions and losses generally increase. These periods also may be
      accompanied by decreased consumer demand for automobiles and declining values
      of
      automobiles securing outstanding loans, which weakens collateral coverage on
      Coastal Credit’s loans and increases the amount of a loss Coastal Credit would
      experience in the event of default. Significant increases in the inventory
      of
      used automobiles during periods of economic recession may also depress the
      prices at which repossessed automobiles are sold or delay the timing of these
      sales. Because Coastal Credit focuses on subprime borrowers, the actual rates
      of
      delinquencies, defaults, repossessions and losses on these loans are higher
      than
      those experienced in the general automobile finance industry and could be more
      significantly affected by a general economic downturn. In addition, during
      an
      economic slowdown or recession, Coastal Credit’s servicing and collection costs
      may increase without a corresponding increase in its income. While Coastal
      Credit seeks to manage the higher risk inherent in loans made to subprime
      borrowers through its underwriting criteria, pricing and collection methods,
      these criteria or methods may not afford adequate protection against these
      risks. Any sustained period of increased delinquencies, defaults, repossessions
      or losses or increased servicing and collection costs could adversely affect
      Coastal Credit’s financial condition.




***Decreased
      auction proceeds resulting from the depressed prices at which used automobiles
      may be sold during periods of economic slowdown or recession will reduce Coastal
      Credit’s profitability.***




If
      Coastal Credit repossesses a vehicle securing a contract, Coastal Credit
      typically has it transported to an automobile auction for sale. Auction proceeds
      from the sale of repossessed vehicles and other recoveries are usually not
      sufficient to cover the outstanding balance of the contract, and the resulting
      deficiency is charged off. In addition, there is, on average, approximately
      a
      45-day lapse between the time Coastal Credit repossesses a vehicle and the
      time
      it is sold at public auction. Furthermore, depressed wholesale prices for used
      automobiles may result from significant liquidations of rental or fleet
      inventories, and from increased volume of trade-ins due to promotional financing
      programs offered by new vehicle manufacturers. During periods of economic
      slowdown or recession, decreased auction proceeds resulting from the depressed
      prices at which used automobiles may be sold will result in Coastal Credit
      experiencing higher credit losses.




***An
      increase in market interest rates may reduce Coastal Credit’s profitability.***




Coastal
      Credit’s long-term profitability may be directly affected by the level of and
      fluctuations in interest rates. Sustained, significant increases in interest
      rates may adversely affect Coastal Credit’s liquidity and profitability by
      reducing the interest rate spread between the rate of interest Coastal Credit
      receives on its contracts and interest rates that Coastal Credit pays under
      its
      outstanding line of credit facility. As interest rates increase, the gross
      interest rate spread on new originations will generally decline since the rates
      charged on the contracts acquired from dealers generally are limited by
      statutory maximums and competitive market conditions restricting Coastal
      Credit’s opportunity to pass on increased interest costs.







17





***Coastal
      Credit’s growth depends upon its ability to retain and attract a sufficient
      number of qualified employees.***




To
      a
      large extent, Coastal Credit’s growth strategy depends on the opening of new
      offices that will focus primarily on acquiring contracts in markets Coastal
      Credit has not previously served. Future expansion of Coastal Credit’s office
      network depends upon its ability to attract and retain qualified and experienced
      office managers and the ability of such managers to develop relationships with
      dealers that serve those markets. Coastal Credit generally does not open new
      offices until it has located and hired a qualified and experienced individual
      to
      manage the office. Typically, this individual would be familiar with local
      market conditions and have existing relationships with dealers in the area
      to be
      served. Although Coastal Credit believes that it can attract and retain
      qualified and experienced personnel as Coastal Credit proceeds with planned
      expansion into new markets, Coastal Credit may not be successful in doing so.
      Competition to hire personnel possessing the skills and experience required
      by
      Coastal Credit could contribute to an increase in its employee turnover rate.
      High turnover or an inability to attract and retain qualified personnel could
      have an adverse effect on Coastal Credit’s origination, delinquency, default and
      net loss rates and, ultimately, its financial condition.




***The
      loss of one of Coastal Credit’s key executives could have a material adverse
      effect on its business.***




Coastal
      Credit’s growth and development to date have been largely dependent upon the
      services of William E. McKnight, who established Coastal Credit and serves
      as
      its President. Coastal Credit does not maintain a key-man life insurance policy
      on Mr. McKnight. Although Coastal Credit believes that it has sufficient
      additional experienced management personnel to accommodate the loss of any
      key
      executive, the loss of services of Mr. McKnight could have a material adverse
      effect on Coastal Credit.




***Coastal
      Credit is subject to risks associated with
      litigation.***




As
      a
      consumer finance company, Coastal Credit is subject to various consumer claims
      and litigation seeking damages and statutory penalties, based upon, among other
      things:




·
            usury
                laws;


·
            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 Coastal Credit could take the form of class action complaints
      by consumers. As the assignee of contracts originated by dealers, Coastal Credit
      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 actions can be substantial. The relief which may be requested by the
      plaintiffs varies but may include requests for compensatory, statutory and
      punitive damages. Coastal Credit may experience material financial losses in
      the
      future as a result of litigation and other legal proceedings.







18





***Coastal
      Credit is subject to many laws and governmental regulations, and any material
      violations of or changes in these laws or regulations could have a material
      adverse effect on Coastal Credit’s financial condition and business
      operations.***




Coastal
      Credit’s financing 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. The various federal, state and
      local statutes, regulations and ordinances applicable to Coastal Credit’s
      business govern, among other things:




·
            licensing
                requirements;


·
            requirements
                for maintenance of proper records;


·
            payment
                of required fees to certain states;


·
            maximum
                interest rates that may be charged on loans to finance new and used
                vehicles;


·
            interest
                rates on loans to customers serving in the
                military;


·
            debt
                collection practices;


·
            proper
                disclosure to customers regarding financing
                terms;


·
            privacy
                regarding certain customer data;
                and


·
            collection
                of debts from loan customers who have filed
                bankruptcy.




Coastal
      Credit believes that it maintains all material licenses and permits required
      for
      its current operations and is in compliance with all applicable local, state
      and
      federal regulations. Coastal Credit’s failure, or failure by dealers who
      originate the contracts Coastal Credit acquires, to maintain all requisite
      licenses and permits, and to comply with other regulatory requirements, could
      result in consumers having rights of rescission and other remedies that could
      have a material adverse effect on Coastal Credit’s financial condition.
      Furthermore, any changes in applicable laws, rules and regulations may make
      Coastal Credit’s compliance therewith more difficult or expensive or otherwise
      adversely affect its financial condition.




***Coastal
      Credit’s ability to pay cash distributions is restricted by its line of credit.***




While
      Coastal Credit is not restricted by its charter from making distributions,
      its
      line of credit restricts the payment of cash distributions without written
      approval from its lender. 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 us that would enable us to pay cash dividends to our
      shareholders.







19





***Coastal
      Credit operates in a competitive market.***




The
      subprime consumer-finance industry is highly competitive. There are numerous
      financial services companies that provide consumer credit in the markets served
      by Coastal Credit, including banks, credit unions, other consumer finance
      companies and captive finance companies owned by automobile manufacturers and
      retailers. Many of these competitors have substantially greater financial
      resources than Coastal Credit. In addition, Coastal Credit’s competitors often
      provide financing on terms more favorable to automobile purchasers or dealers
      than Coastal Credit offers. Many of these competitors also have long-standing
      relationships with automobile dealerships and may offer dealerships or their
      customers other forms of financing, including dealer floor-plan financing and
      leasing, which Coastal Credit does not provide. Providers of subprime consumer
      financing have traditionally competed primarily on the basis of:




·
            interest
                rates charged;


·
            the
                quality of credit accepted;


·
            the
                flexibility of loan terms offered;
                and


·
            the
                quality of service provided.




Coastal
      Credit’s ability to compete effectively with other companies offering a similar
      financing arrangement depends on maintaining close relationships with dealers
      of
      new and used vehicles. Coastal Credit may not be able to compete successfully
      in
      this market or against these competitors.




Coastal
      Credit has focused on a segment of the market composed of consumers who
      typically do not meet the more stringent credit requirements of traditional
      consumer financing sources and whose needs, as a result, have not been addressed
      consistently by such financing sources. If, however, other providers of consumer
      financing were to assert a significantly greater effort to penetrate Coastal
      Credit’s targeted market segment, Coastal Credit may have to reduce its interest
      rates and fees in order to maintain its market share. Any reduction in Coastal
      Credit’s interest rates or fees could have an adverse impact on its
      profitability.




***Coastal
      Credit may experience problems with its integrated computer systems or be unable
      to keep pace with developments in technology.***




Coastal
      Credit uses various technologies in its business, including telecommunication,
      data processing and integrated computer systems. Technology changes rapidly.
      Coastal Credit’s ability to compete successfully with other financing companies
      may depend on its ability to exploit technological changes. Coastal Credit
      may
      not be able to exploit technological changes, and any investment it makes may
      not make Coastal Credit more profitable.




Coastal
      Credit uses integrated computer systems to respond to customer inquiries and
      to
      monitor the performance of its contract portfolios and the performance of
      individual customers under its contracts. Problems with the operation of Coastal
      Credit’s systems could adversely impact its ability to monitor its portfolios or
      collect amounts due under its contracts and direct loans, which could have
      a
      material adverse effect on its financial condition.







20





***UAC’s
      Business***




***Our
      recovery of projected cash flows from UAC is dependent on the performance of
      UAC
      receivable portfolios.***




UAC's
      beneficial interest in Master Trust reflected on our consolidated balance sheet
      reflects the discounted value of projected cash flows that UAC expects to
      receive from its outstanding securitizations and non-recourse financings of
      its
      portfolios of auto finance receivables. White River, as owner of the substantial
      majority of UAC's notes and claims outstanding under the Plan of Reorganization,
      will become entitled to distribution of the substantial majority of these
      cash flows as they are realized by UAC. However, the realization of
      such projected cash flows is dependent upon the performance
      of the underlying auto receivable portfolios and the effective servicing of
      such receivables. In particular, if gross defaults, recoveries on defaulted
      receivables or prepayments on such receivables are less favorable than the
      rates projected by management, UAC's realization of such cash flows will
      be reduced or delayed relative to such projections. Such reduction may
      be material. Factors summarized above in relation to Coastal Credit's
      operations regarding the risk of default on auto finance contracts,
      susceptibility to adverse changes in economic conditions and the adverse
      effects declines in used car values may have upon receivable recoveries may
      also materially and adversely impact the performance of UAC's auto finance
      receivable portfolios.




***Transfer
      Restrictions***




***There
      are restrictions on transfer of shares of our common stock that may delay or
      prevent takeover bids by third parties and may delay or frustrate any attempt
      by
      shareholders to replace or remove the current
      management.***




All
      shares of our common stock are subject to certain transfer restrictions. The
      transfer restrictions on our common stock are complex and directed toward
      preserving the value of UAC’s tax net operating loss carryforwards for the
      benefit of shareholders. The transfer restrictions will require any person
      attempting to acquire a significant interest in White River to negotiate with
      our board of directors. The transfer restrictions also may make it more
      difficult to effect a merger or similar transaction perceived by shareholders
      to
      be favorable to us by requiring any person seeking to enter into such a
      transaction with us to negotiate with our board of directors. Finally, the
      transfer restrictions may make it more difficult for shareholders to replace
      current management because no single shareholder may cast votes for more than
      5%
      of our outstanding shares of common stock, unless that shareholder held more
      than 5% of our common stock before our share exchange with UAC or the
      acquisition of the shares is otherwise approved by the board of
      directors.




***If
      the transfer restrictions are not effective in preventing an ownership change
      from occurring, our ability to use the NOLs will be severely
      limited.***




Although
      the transfer restrictions are authorized under Indiana law, we are not aware
      of
      any published court decisions enforcing similar transfer restrictions. Thus,
      a
      transfer could occur that would violate the transfer restrictions and we might
      not be able to enforce the transfer restrictions. Even if a court did enforce
      the transfer restrictions in the case of such a transfer, the Internal Revenue
      Service might not agree that the transfer restrictions provide a sufficient
      remedy with respect to any ownership change resulting from the prohibited
      transfer. In either of these cases, despite the implementation of the transfer
      restrictions, an ownership change could occur that would severely limit our
      ability to use the tax benefits associated with the NOLs.







21





***Beneficial
      Use of the NOLs***




***The
      benefits of the NOLs are not certain and could be reduced or lost if challenged
      by the Internal Revenue Service.***




Based
      on
      a current maximum federal corporate income tax rate of 35%, UAC’s NOLs could
      provide significant future tax savings benefits to our consolidated group.
      However, the ability to use these tax benefits in future years will depend
      upon
      a number of factors, including the amount of our otherwise consolidated taxable
      income and favorable interpretations and treatment from the Internal Revenue
      Service consistent with our interpretation of complex tax regulations. The
      Internal Revenue Service could challenge our calculation of the amount of NOLs
      or our determinations as to when or whether a prior change in ownership occurred
      for purposes of these tax regulations. Other provisions of the Internal Revenue
      Code may limit our ability to carry forward the NOLs to offset taxable income
      in
      future years. If the Internal Revenue Service were successful with respect
      to
      any such challenge, the potential tax benefit of the NOLs to us could be
      substantially reduced or lost.




**Concentration
      of****Ownership**




***Because
      ownership of our common stock is concentrated, certain shareholders can exert
      significant influence over shareholders’ decisions.***




As
      of
      March 16, 2007, John M. Eggemeyer, III, our Chairman of the Board and Chief
      Executive Officer, by virtue of his relationship with Castle Creek and the
      Funds
      managed by Castle Creek, owned or controlled 18.9% of our outstanding shares
      of
      common stock. Mr. Eggemeyer has significant influence on the outcome of
      shareholder votes, including votes concerning, among other things, the election
      of directors; the adoption or amendment of provisions in our Articles of
      Incorporation; and the approval of other significant corporate transactions,
      including mergers and reorganizations. This level of concentrated ownership
      by a
      single entity may have the effect of delaying or preventing a change in the
      management or voting control of White River.











22







**ITEM
      2. PROPERTIES**




White
      River and its subsidiaries lease our headquarters and branch office facilities.
      White River’s corporate headquarters, located at 1445 Brookville Way, Suite I,
      in Indianapolis, Indiana, consists of approximately 1,800 square feet of office
      space. UAC and its subsidiaries share this space with White River. The current
      lease relating to this space expires August 31, 2007.




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 2009.




Coastal
      Credit’s 16 branch offices located in California, Delaware, Florida, Georgia,
      Louisiana, Mississippi, Nevada, Ohio, Oklahoma, Pennsylvania, Texas 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.






**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.




On
      February 1, 2005, American Bankers Insurance Company of Florida, American
      Bankers Life Assurance Company (successor to Voyager Life Insurance Company
      and
      Voyager Life & Health Insurance Company), and Voyager Property &
Casualty Insurance Company instituted arbitration proceedings against Coastal
      Credit in Fort Worth, Texas asserting breach of contract claims in connection
      with deficit clauses under contingent compensation schedules to an alleged
      Agency Agreement between the claimants and Coastal Credit. The claimants seek
      damages in the amount of $757,792, plus pre-judgment interest, in connection
      with the termination of the Agency Agreement by claimants on July 15, 2003.
      The
      matter is now pending before the American Arbitration Association pursuant
      to an
      arbitration clause in the Agency Agreement. Coastal Credit believes the claims
      are without merit and intends to vigorously defend against these
      claims.







23





**PART
      II**







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




**Market
      Information and Holders**




On
      January 19, 2007, White River’s common stock began trading on the American Stock
      Exchange under the symbol RVR. Prior to that date, White River’s common stock
      traded “over-the-counter” on the Pink Sheets under the symbol WRVC. As of March
      5, 2007, there were 3,834,475 shares of common stock outstanding and
      approximately 116 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 661 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 Pink Sheets. The share prices
      prior to the August 9, 2005 share exchange with UAC, are based on UAC’s trading
      prices, which have been adjusted to reflect the share exchange.




**High**
            
            **Low**
            
            **Close****Fiscal
                year ended December 31, 2005**First
                Quarter
            
            $
            20.00
            
            $
            14.00
            
            $
            15.00Second
                Quarter
            
            
            16.00
            
            
            12.00
            
            
            15.00Third
                Quarter
            
            
            20.00
            
            
            9.00
            
            
            10.80Fourth
                Quarter
            
            
            16.00
            
            
            10.50
            
            
            15.00**Fiscal
                year ended December 31, 2006**First
                Quarter
            
            $
            17.05
            
            $
            14.50
            
            $
            17.05Second
                Quarter
            
            
            17.05
            
            
            14.00
            
            
            16.00Third
                Quarter
            
            
            17.50
            
            
            16.00
            
            
            17.50Fourth
                Quarter
            
            
            18.00
            
            
            17.00
            
            
            17.00







**Dividends**




White
      River has never paid cash dividends on its common stock. White River presently
      intends to retain future earnings, if any, for use in the operation and
      expansion of the business and does not anticipate paying any cash dividends
      in
      the foreseeable future.




While
      Coastal Credit is not restricted by its charter from making distributions,
      its
      line of credit restricts the payment of cash distributions without written
      approval from its lender. 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.







24





**Performance
      Graph**




The
      following Total Return to Shareholders graph compares the performance of White
      River with that of the Nasdaq Composite Index and the SNL Auto Finance
      Index.  The SNL Auto Finance Index includes AmeriCredit Corp. (NYSE:ACF),
      Consumer Portfolio Services Inc. (Nasdaq:CPSS), Credit Acceptance Corp.
      (Nasdaq:CACC), First Investors Financial Services Group (OTC BB:FIFS), Nicholas
      Financial Inc. (Nasdaq:NICK), and White River Capital, Inc. (AMEX:RVR), which
      are all of the publicly traded specialty lenders covered by SNL Financial with
      a
      primary focus in the auto finance industry.




**Total
      Return to Shareholders***











*$100
      invested on August 31, 2005 in stock or index, including reinvestment of
      dividends. White River's fiscal year ends December 31.




**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.







25





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.




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.







26





***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.




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.







27





***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.




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.







28





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.




*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.







29





*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.






**ITEM** **6.
      SELECTED FINANCIAL DATA**




The
      following table summarizes selected financial information for White River and
      its subsidiaries on a consolidated basis. For purposes of the consolidated
      financial statements and in accordance with SFAS No. 141, *Business
      Combinations* (“SFAS
      No. 141”), the form of the share exchange points to UAC as the predecessor to
      White River. Therefore, the consolidated financial statements include results
      of
      UAC and White River as though they always coexisted. For additional information
      refer to the audited consolidated financial statements and notes thereto in
      Item
      8., Financial Statements and Supplementary Data.







30




**For
                The Years Ended December 31,****For
                The Twelve Months Ended December 31,**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Total
                interest income
            
            $
            53,945
            
            $
            37,333
            
            $
            14,013
            
            $
            15,716
            
            $
            54,704Interest
                expense
            
            
            (11,820
            )
            
            (15,204
            )
            
            (13,108
            )
            
            (15,171
            )
            
            (20,555
            )Net
                interest margin
            
            
            42,125
            
            
            22,129
            
            
            905
            
            
            545
            
            
            34,149Recovery
                (provision) for estimated credit losses
            
            
            (36
            )
            
            1,465
            
            
            (11,025
            )
            
            (874
            )
            
            (6,725
            )Net
                interest margin (deficiency) after provision for estimated credit
                losses
            
            
            42,089
            
            
            23,594
            
            
            (10,120
            )
            
            (329
            )
            
            27,424Total
                other revenues, net
            
            
            (8,346
            )
            
            1,767
            
            
            7,419
            
            
            66,999
            
            
            33,206Total
                other expenses (a)
            
            
            16,418
            
            
            8,851
            
            
            4,561
            
            
            60,996
            
            
            250,810Net
                income (loss) (b)
            
            $
            56,318
            
            $
            16,510
            
            $
            (7,262
            )
            $
            5,674
            
            $
            (183,433
            )Basic
                earnings per share
            
            $
            14.77
            
            $
            11.08
            
            $
            (23.41
            )
            $
            18.29
            
            $
            (591.97
            )Diluted
                earnings per share
            
            $
            14.51
            
            $
            11.02
            
            $
            (23.41
            )
            $
            18.29
            
            $
            (591.97
            )Diluted
                weighted average shares
            
            
            3,882,017
            
            
            1,498,549
            
            
            310,191
            
            
            310,191
            
            
            309,869





**December
                31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Securitized
                finance receivables, net
            
            $
            27,447
            
            $
            109,506
            
            $
            115,165
            
            $
            93,089
            
            $
            -Finance
                receivables, net
            
            
            78,693
            
            
            70,784
            
            
            -
            
            
            -
            
            
            -Receivables
                held for sale, net (a)
            
            
            454
            
            
            269
            
            
            499
            
            
            805
            
            
            303,423Retained
                interest / Beneficial interest in Master Trust
            
            
            23,601
            
            
            13,968
            
            
            3,677
            
            
            4,619
            
            
            37,243Total
                assets
            
            
            225,424
            
            
            266,994
            
            
            150,930
            
            
            130,093
            
            
            426,630Collateralized
                financings
            
            
            32,368
            
            
            122,293
            
            
            132,257
            
            
            102,234
            
            
            -Line
                of credit
            
            
            49,500
            
            
            51,500
            
            
            -
            
            
            -
            
            
            -Secured
                note payable
            
            
            13,125
            
            
            15,000
            
            
            -
            
            
            -
            
            
            -Subordinated
                debentures
            
            
            7,700
            
            
            7,700
            
            
            -
            
            
            -
            
            
            -Note
                payable - Coastal Credit purchase holdback
            
            
            -
            
            
            3,840
            
            
            -
            
            
            -
            
            
            -Creditor
                notes payable
            
            
            1,392
            
            
            1,461
            
            
            11,445
            
            
            17,087
            
            
            -Notes
                payable (a)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            294,780Term
                debt (a)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            100,330Total
                liabilities
            
            
            117,506
            
            
            213,633
            
            
            159,232
            
            
            133,076
            
            
            437,320Shareholder's
                equity (deficit)
            
            
            107,918
            
            
            53,361
            
            
            (8,302
            )
            
            (2,983
            )
            
            (10,690
            )





(a)
            As
                discussed in Item 1. Business, UAC filed for bankruptcy protection
                on
                October 31, 2002. From November 2002 through August 2003, UAC took
                several
                steps with the approval of the bankruptcy court: i. UAC sold a majority
                of
                the receivables held for sale and used the proceeds to pay in full
                the
                notes payable, secured by such receivables, ii. UAC discontinued
                originating loans and sold its servicing platform thus reducing operating
                expenses, and iii. the UAC bankruptcy plan of reorganization was
                approved
                and the UAC liabilities were converted to creditor notes payable.


(b)
            The
                2006 net income of $56.3 million includes income tax benefit of $39.0
                million. This income tax benefit is a result of the removal of a
                majority
                of the deferred tax asset valuation
                allowance.










31




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




**General**




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




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




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




**C** **ritical
      Accounting Policies**




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




***Net
      Assets of Collateralized Financings***




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




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







32





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




The
      Master Trust Agreement established that all excess cash from securitizations
      is
      to be deposited in the Master Trust Account. Once prescribed cash reserve levels
      are met, cash will be released to UAC from the Master Trust Account. This future
      cash flow is reported as beneficial interest in Master Trust. In determining
      the
      fair value of the beneficial interest in Master Trust, estimates must be made
      for the future prepayments, rates of gross credit losses and credit loss
      severity, and delinquencies as they impact the amount and timing of the
      estimated cash flows from the Master Trust. The average of the interest rates
      on
      the receivables exceeds the interest rates on the securities issued in the
      securitization. This excess cash is held by the Master Trust Account and
      released based on reserve requirements of the Master Trust. These estimated
      cash
      flows from the Master Trust are then discounted to reflect the present
      value.




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




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




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




***Income
      Taxes***




Deferred
      tax assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax basis. Deferred tax
      assets and liabilities are measured using enacted tax rates expected to apply
      to
      taxable income in the years in which those temporary differences are expected
      to
      be recovered or settled. The effect on deferred tax assets and liabilities
      of a
      change in tax rates is recognized in income in the period that includes the
      enactment date.




The
      ultimate realization of the deferred tax asset depends on White River’s ability
      to generate sufficient taxable income in the future and their ability to not
      allow an ownership change to occur for tax purposes. The valuation allowance
      has
      been derived pursuant to the provisions of Statement of Financial Accounting
      Standards ("SFAS") No. 109, Accounting for Income Taxes, and reduces the total
      deferred tax asset to an amount that will “more likely than not” be realized
      (see Note 14).




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







33





During
      2006 White River continued to evaluate its future taxable income based on the
      successful integration of Coastal Credit and various other events that occurred
      during 2006. As a result of this evaluation, White River determined that it
      is
“more likely than not” that the federal deferred tax assets will be realized
      resulting in the reversal of the corresponding valuation allowance. The reversal
      of the valuation allowance for the federal and state net operating loss
      carryforward contributed to the income tax benefit of $39.0 million for the
      twelve months ended December 31, 2006.




White
      River reviews the valuation allowance based on the estimated taxable income
      and
      will make adjustments as required. These future adjustments will be recorded
      as
      a component of income tax expense (benefit).




**Results
      of Operations**




***Executive
      Summary***




As
      a
      result of the share exchange, management’s discussion and analysis of results of
      operations include results of UAC and White River as though they always
      coexisted. With the acquisition of Coastal Credit on August 31, 2005, results
      of
      operations include results of Coastal Credit for the four months ended December
      31, 2005 and year ended December 31, 2006.




*The
      Year Ended December 31, 2006 Compared to the Year Ended December 31,
      2005*




Net
      income was $56.3 million, or $14.51 per diluted share, for the year ended
      December 31, 2006, compared to $16.5 million, or $11.02 per diluted share,
      for
      the year ended December 31, 2005. The improvement from the prior year is
      primarily due to the following:




·
            an
                income tax benefit of $39.0 million for 2006 primarily as a result
                of the
                removal of the majority of the deferred tax asset valuation allowance;




·
            an
                increase in accretion income from beneficial interest in Master Trust;




·
            12
                months activity of Coastal Credit for 2006 as compared to four months
                activity in 2005.




*The
      Year* *Ended December 31, 2005 Compared to the Year Ended December 31,
      2004*




Net
      income was $16.5 million, or $11.02 per diluted share, for the year ended
      December 31, 2005, compared to net loss of $(7.3) million, or $(23.41) per
      diluted share, for the year ended December 31, 2004. The improvement from the
      prior year is primarily due to the following:




·
            an
                increase in accretion income from beneficial interest in Master Trust,




·
            elimination
                of a substantial portion of the accretion and interest expense from
                creditor notes payable resulting from the purchase by White River
                of
                general unsecured claims and Subordinated Notes of UAC,




·
            the
                acquisition of Coastal Credit on August 31, 2005 contributed $2.4
                million,




·
            a
                one time gain of $11.4 million from extinguishment of debt related
                to the
                purchase by White River of general unsecured claims and Subordinated
                Notes
                of UAC.







34





***Discussion
      of Results***




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


**For
                  The Year Ended December 31, 2006**
              
              **UAC**
              
              **Coastal
                  Credit**
              
              **Corporateand
                  Other**
              
              **Consolidated**Interest
                  on receivables
              
              $
              8,435
              
              $
              29,065
              
              $
              -
              
              $
              37,500Accretion
                  and other interest
              
              
              16,383
              
              
              -
              
              
              62
              
              
              16,445Total
                  interest income
              
              
              24,818
              
              
              29,065
              
              
              62
              
              
              53,945Interest
                  expense
              
              
              (4,805
              )
              
              (5,308
              )
              
              (1,707
              )
              
              (11,820
              )Net
                  interest margin
              
              
              20,013
              
              
              23,757
              
              
              (1,645
              )
              
              42,125Recovery
                  (provision) for estimated credit losses
              
              
              4,624
              
              
              (4,660
              )
              
              -
              
              
              (36
              )Net
                  interest margin (deficit) after recovery (provision) for estimated
                  credit
                  losses
              
              
              24,637
              
              
              19,097
              
              
              (1,645
              )
              
              42,089OTHER
                  REVENUES:Charge
                  to master trust—net
              
              
              (14,853
              )
              
              -
              
              
              -
              
              
              (14,853
              )Gain
                  (loss) from extinguishment of debt
              
              
              (13,542
              )
              
              -
              
              
              12,018
              
              
              (1,524
              )Gain
                  from deficiency sale and litigation settlement
              
              
              7,924
              
              
              -
              
              
              -
              
              
              7,924Other
                  income
              
              
              494
              
              
              (387
              )
              
              -
              
              
              107Total
                  other revenues (charges), net
              
              
              (19,977
              )
              
              (387
              )
              
              12,018
              
              
              (8,346
              )OTHER
                  EXPENSES:Salaries
                  and benefits
              
              
              309
              
              
              7,516
              
              
              670
              
              
              8,495Operating
                  expenses
              
              
              890
              
              
              3,383
              
              
              1,643
              
              
              5,916Third
                  party servicing expense
              
              
              1,824
              
              
              -
              
              
              -
              
              
              1,824Bankruptcy
                  costs
              
              
              183
              
              
              -
              
              
              -
              
              
              183Total
                  other expenses
              
              
              3,206
              
              
              10,899
              
              
              2,313
              
              
              16,418Income
                  before income taxes
              
              
              1,454
              
              
              7,811
              
              
              8,060
              
              
              17,325Income
                  tax benefit
              
              
              -
              
              
              -
              
              
              38,993
              
              
              38,993Net
                  income
              
              $
              1,454
              
              $
              7,811
              
              $
              47,053
              
              $
              56,318
   **For
                  The Year Ended December 31, 2005**
              
              
              **UAC**
              
              
              **Coastal
                  Credit**
              
              
              **Corporateand
                  Other**
              
              
              **Consolidated**Interest
                  on receivables
              
              $
              19,993
              
              $
              8,810
              
              $
              -
              
              $
              28,803Accretion
                  and other interest
              
              
              8,512
              
              
              -
              
              
              18
              
              
              8,530Total
                  interest income
              
              
              28,505
              
              
              8,810
              
              
              18
              
              
              37,333Interest
                  expense
              
              
              (12,939
              )
              
              (1,545
              )
              
              (720
              )
              
              (15,204
              )Net
                  interest margin
              
              
              15,566
              
              
              7,265
              
              
              (702
              )
              
              22,129Provision
                  for estimated credit losses
              
              
              3,078
              
              
              (1,613
              )
              
              -
              
              
              1,465Net
                  interest margin (deficit) after provision for estimated credit
                  losses
              
              
              18,644
              
              
              5,652
              
              
              (702
              )
              
              23,594OTHER
                  REVENUES:Charge
                  to master trust—net
              
              
              (10,253
              )
              
              -
              
              
              -
              
              
              (10,253
              )Gain
                  from extinguishment of debt
              
              
              11,352
              
              
              -
              
              
              -
              
              
              11,352Gain
                  from deficiency sale and litigation settlement
              
              
              -
              
              
              -
              
              
              -
              
              
              -Other
                  income
              
              
              740
              
              
              (85
              )
              
              13
              
              
              668Total
                  other revenues (charges), net
              
              
              1,839
              
              
              (85
              )
              
              13
              
              
              1,767OTHER
                  EXPENSES:Salaries
                  and benefits
              
              
              353
              
              
              2,056
              
              
              53
              
              
              2,462Operating
                  expenses
              
              
              917
              
              
              1,147
              
              
              706
              
              
              2,770Third
                  party servicing expense
              
              
              3,323
              
              
              -
              
              
              -
              
              
              3,323Bankruptcy
                  costs
              
              
              296
              
              
              -
              
              
              -
              
              
              296Total
                  other expenses
              
              
              4,889
              
              
              3,203
              
              
              759
              
              
              8,851Income
                  (loss) before income taxes
              
              
              15,594
              
              
              2,364
              
              
              (1,448
              )
              
              16,510Income
                  tax benefit
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income (loss)
              
              $
              15,594
              
              $
              2,364
              
              $
              (1,448
              )
              $
              16,510




35




**For
                  The Year Ended December 31, 2004**
              
              **UAC**
              
              **Coastal
                  Credit**
              
              **Corporateand
                  Other**
              
              **Consolidated**Interest
                  on receivables
              
              $
              12,985
              
              $
              -
              
              $
              -
              
              $
              12,985Accretion
                  and other interest
              
              
              1,028
              
              
              -
              
              
              -
              
              
              1,028Total
                  interest income
              
              
              14,013
              
              
              -
              
              
              -
              
              
              14,013Interest
                  expense
              
              
              (13,108
              )
              
              -
              
              
              -
              
              
              (13,108
              )Net
                  interest margin
              
              
              905
              
              
              -
              
              
              -
              
              
              905Provision
                  for estimated credit losses
              
              
              (11,025
              )
              
              -
              
              
              -
              
              
              (11,025
              )Net
                  interest deficit after provision for estimated credit
                  losses
              
              
              (10,120
              )
              
              -
              
              
              -
              
              
              (10,120
              )OTHER
                  REVENUES:Credit
                  to master trust—net
              
              
              4,485
              
              
              -
              
              
              -
              
              
              4,485Gain
                  from extinguishment of debt
              
              
              -
              
              
              -
              
              
              -
              
              
              -Gain
                  from deficiency sale and litigation settlement
              
              
              -
              
              
              -
              
              
              -
              
              
              -Other
                  income
              
              
              2,934
              
              
              -
              
              
              -
              
              
              2,934Total
                  other revenues, net
              
              
              7,419
              
              
              -
              
              
              -
              
              
              7,419OTHER
                  EXPENSES:Salaries
                  and benefits
              
              
              434
              
              
              -
              
              
              -
              
              
              434Operating
                  expenses
              
              
              1,126
              
              
              -
              
              
              -
              
              
              1,126Third
                  party servicing expense
              
              
              2,344
              
              
              -
              
              
              -
              
              
              2,344Bankruptcy
                  costs
              
              
              657
              
              
              -
              
              
              -
              
              
              657Total
                  other expenses
              
              
              4,561
              
              
              -
              
              
              -
              
              
              4,561Loss
                  before income taxes
              
              
              (7,262
              )
              
              -
              
              
              -
              
              
              (7,262
              )Income
                  tax benefit
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              $
              (7,262
              )
              $
              -
              
              $
              -
              
              $
              (7,262
              )







***The
      Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005 -
      Consolidated***




Interest
      on receivables increased 30.2% to $37.5 million compared to $28.8 million for
      the years ended December 31, 2006 and 2005, respectively. Coastal Credit
      contributed $20.3 million to the increase as a result of a complete year of
      activity during 2006 compared to four months of activity during 2005 with the
      acquisition of Coastal Credit on August 31, 2005. Interest on receivables from
      UAC declined $11.6 million due to a smaller average securitized finance
      receivable balance of $64.7 million during the year ended December 31, 2006
      as
      compared to $143.5 million during the year ended December 31, 2005 from the
      liquidation of securitization receivables.




Accretion
      and other interest increased 92.8% to $16.4 million compared to $8.5 million
      for
      the years ended December 31, 2006 and 2005, respectively. This increase is
      a
      result from an increase in accretion from accumulated other comprehensive income
      of the beneficial interest in Master Trust. This accumulated other comprehensive
      income is accreted over time based on the timing of projected cash receipts
      from
      the Master Trust. As projected cash receipts increase so does the interest
      income from the accretion of accumulated other comprehensive income. The
      individual components of accretion and other interest income are shown in the
      following table (in thousands):




**Years
                Ended December 31,****2006**
            
            **2005**UAC
                discount accretion for beneficial interest in Master Trust
            
            $
            15,538
            
            $
            7,696Interest
                on restricted cash balances
            
            
            907
            
            
            834UAC
                accretion and other interest income
            
            $
            16,445
            
            $
            8,530










36





Interest
      expense decreased 22.3% to $11.8 million compared to $15.2 million for the
      years
      ended December 31, 2006 and 2005, respectively. Coastal Credit interest expense
      was $5.3 million for the year ended December 31, 2006 as compared to $1.5
      million for the four months ended December 31, 2005 since its acquisition on
      August 31, 2005. UAC interest expense decreased by $8.1 million due to the
      decrease in interest expense and accretion expense from the UAC creditor notes
      payable that were acquired by White River and, to a greater extent, the decrease
      in the average collateralized financings of $70.0 million during the year ended
      December 31, 2006 compared to $152.8 million during the same period ended
      December 31, 2005. Interest expense of Corporate and Other was $1.7 million
      and
      $0.7 million for the years ended December 31, 2006 and 2005, respectively.
      This
      increase is primarily a result of interest from the secured note payable that
      was outstanding for only four months during 2005 compared to the entire year
      of
      2006.




Recovery
      (provision) for estimated credit losses was a provision of $(36,000) compared
      to
      a recovery of $1.5 million for the years ended December 31, 2006 and 2005,
      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 $(4.7) million for the year ended December 31,
      2006
      as compared to $(1.6) million for the four months ended December 31, 2005.
      UAC
      recorded recovery for estimated credit losses of $4.6 million compared to $3.1
      million for the years ended December 31, 2006 and 2005, respectively. This
      change in recovery for estimated credit losses is due to stronger than projected
      cash flows from recoveries on defaulted receivables during 2006. In addition,
      as
      the receivable balances continues to liquidate a smaller reserve is required
      and
      thus less provision expense is recognized.




The
      charge to Master Trust, net was a $14.9 million charge for the year ended
      December 31, 2006 compared to a $10.3 million credit for the year ended December
      31, 2005. Charge to Master Trust is expense related to future transfers of
      funds
      to the Master Trust from securitized finance receivables of UAC. The $4.6
      million increase in charge to Master Trust is related to sale of deficiency
      receivables, the sale of receivables that filed for Chapter 13 bankrupt
      protection, and the funds received from the settlement with SST which were
      allocated by securitization pool and recorded as other income.




Gain
      (loss) from extinguishment of debt was a loss of $(1.5) million for the year
      ended December 31, 2006 compared to a gain of $11.4 million for the year ended
      December 31, 2005. The loss during 2006 is related to the SST settlement
      distribution White River paid to UAC creditors who sold their general unsecured
      claims and Subordinated Notes during 2005. The gain during 2005 is related
      to
      the purchase by White River of a portion of UAC’s general unsecured claims and
      Subordinated Notes.




Gain
        from
        deficiency sale and litigation settlement was $7.9 million for the year ended
        December 31, 2006. This gain is the result of the UAC sale of deficiency
        receivables, the sale of receivables that filed Chapter 13 bankruptcy
        protection, and the funds received from the settlement with SST.
  Other
        income was $0.1 million compared to $0.7 million for the years ended December
        31, 2006 and 2005, respectively. Other income is primarily the result of
        refunds
        of dealer rebates from charged-off and prepaid finance contracts and amounts
        collected on previously charged-off balances net of expenses.


Salaries
      and benefits increased to $8.5 million for the year ended December 31, 2006
      compared to $2.5 million for the year ended December 31, 2005. Coastal Credit
      contributed $5.5 million to this increase primarily since Coastal Credit was
      acquired on August 31, 2005 resulting in only four months of activity being
      recorded during 2005. There was no significant change in salaries and benefits
      for UAC during these periods. Corporate and Other contributed $0.6 million
      to
      the increase in salaries and benefits.







37





Operating
      expenses increased to $5.9 million for the year ended December 31, 2006 compared
      to $2.8 million for the year ended December 31, 2005. Coastal Credit contributed
      $2.2 million to this increase primarily since Coastal Credit was acquired on
      August 31, 2005 resulting in only four months of activity being recorded during
      2005. UAC operating expenses remained relatively unchanged between these
      periods. Corporate and Other contributed $0.9 million to the increase in
      operating expense between these periods. These Corporate and Other expenses
      were
      primarily professional fees.




Third
      party servicing expenses decreased 45.1% to $1.8 million for the year ended
      December 31, 2006 compared to $3.3 million for the year ended December 31,
      2005.
      UAC is the only segment that incurs this expense. This decrease is the result
      of
      the ongoing liquidation of the UAC receivable portfolio during 2006. 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.




Bankruptcy
      costs are professional fees and expenses associated with the bankruptcy
      proceedings of UAC. These costs were $0.2 million and $0.3 million for the
      years
      ended December 31, 2006 and 2005, respectively. UAC is the only segment that
      incurs these costs which were for the purpose of assisting the reorganized
      company in complying with its bankruptcy plan. Future bankruptcy costs will
      be
      eliminated with the closure of the bankruptcy case on January 5,
      2007.




Income
      tax benefit was $39.0 million for the year ended December 31, 2006. Prior to
      2006, any income tax provision (benefit) in the year was offset by an increase
      (decrease) in the valuation allowance against deferred tax assets. As of
      December 31, 2006, White River had federal net operating loss carryforwards
      for
      income tax purposes of $102.1 million. Net operating losses may be carried
      forward up to 20 years for federal income tax purposes. White River’s earliest
      net operating losses available for carryforward were generated in the tax year
      ended June 30, 2003, and will expire if not used prior to the tax year ending
      December 31, 2022. With the acquisition of Coastal Credit on August 31, 2005,
      White River has a historically profitable subsidiary that will enable White
      River to recognize a portion of the net operating loss (“NOL”)
      carryforwards.




During
      2006 White River continued to evaluate its future taxable income based on the
      successful integration of Coastal Credit and various other items that occurred
      during 2006. This evaluation determined that it is “more likely than not” that
      the federal deferred tax assets will be realized resulting in the reversal
      of
      the corresponding valuation allowance. The reversal of the valuation allowance
      for the federal and state net operating loss carryforward contributed to the
      income tax benefit of $39.0 million for the year ended December 31, 2006.




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







38




***The
      Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004 -
      Consolidated***





Interest
      on receivables increased 121.8% to $28.8 million compared to $13.0 million
      for
      the years ended December 31, 2005 and 2004, respectively. UAC contributed $7.0
      million to the increase due to a larger average securitized finance receivable
      balance of $143.5 million during the year ended December 31, 2005 as compared
      to
      $96.9 million during the year ended December 31, 2004 from the repurchase of
      securitization receivables that occurred after December 31, 2004. Since the
      acquisition of Coastal Credit on August 31, 2005, Coastal Credit contributed
      $8.8 million to the increase.




Accretion
      and other interest increased 729.8% to $8.5 million compared to $1.0 million
      for
      the years ended December 31, 2005 and 2004, respectively. UAC contributed $7.5
      million to this increase from an increase in accretion income of the beneficial
      interest in Master Trust. The fair value of beneficial interest in Master Trust
      increased between the periods primarily as a result of reductions in estimated
      securitized finance receivable net losses. As an increase in the fair value
      of
      beneficial interest in Master Trust is recorded, an adjustment is recorded
      to
      increase accumulated other comprehensive income in the shareholders’ equity
      section of the consolidated balance sheet. The accumulated other comprehensive
      income is accreted over time as interest income resulting in an increase in
      accretion income. The individual components of accretion and other interest
      income are shown in the following table (in thousands):




**2005**
            
            **2004**UAC
                discount accretion for beneficial interest in Master Trust
            
            $
            7,696
            
            $
            757Interest
                on restricted cash balances
            
            
            834
            
            
            271UAC
                accretion and other interest income
            
            $
            8,530
            
            $
            1,028







Interest
      expense increased 16.0% to $15.2 million compared to $13.1 million for the
      years
      ended December 31, 2005 and 2004, respectively. UAC interest expense decreased
      by $0.2 million due to the decrease in interest expense and accretion expense
      from the UAC creditor notes payable purchased by White River which was partially
      offset by the increase in the average collateralized financings of $152.8
      million during the year ended December 31, 2005 compared to $106.5 million
      during the same period ended December 31, 2004. The UAC interest expense
      decrease offset the interest expense from Coastal Credit and Corporate and
      Other. Since the acquisition of Coastal Credit on August 31, 2005, Coastal
      Credit interest expense was $1.5 million. Interest expense of Corporate and
      Other was $0.7 million which is primarily related to the secured note
      payable.




Recovery
      (provision) for estimated credit losses was a recovery of $1.5 million compared
      to a provision of $(11.0) million for the years ended December 31, 2005 and
      2004, respectively. UAC contributed $14.1 million to the recovery from estimated
      credit losses due to the improved performance of the securitized finance
      receivable portfolio during 2005 and the reduction of the allowance for credit
      losses from reduced securitized receivable balances at December 31, 2005 and
      the
      change in the assumptions used to estimate the allowance. This recovery was
      partially offset by $1.6 million provision at Coastal Credit for the four months
      ended December 31, 2005.




The
      credit (charge) to Master Trust, net was a $(10.3) million charge for the year
      ended December 31, 2005 compared to a $4.5 million credit for the year ended
      December 31, 2004. Charge to Master Trust is expense related to future transfers
      of funds to the Master Trust from securitized finance receivables of UAC. As
      additional securitized finance receivables were purchased and the projected
      losses of UAC’s securitized finance receivables decreased during 2005, interest
      income increased, and thus the amounts related to future transfers of funds
      to
      the Master Trust increased, resulting in an increase in the charge to Master
      Trust. UAC is the only segment that reports this activity.







39





Gain
      from
      extinguishment of debt was $11.4 million for the year ended December 31, 2005.
      This gain is related to the purchase by White River of a portion of UAC’s
      general unsecured claims and Subordinated Notes during 2005. No such activity
      occurred during 2004.




Other
      income was $0.7 million compared to $2.9 million for the years ended December
      31, 2005 and 2004, respectively. UAC contributed $2.2 million to this decrease
      from a decline in refunds of dealer rebates from charged-off and prepaid finance
      contracts and amounts collected on previously charged-off balances net of
      expenses.




Salaries
      and benefits increased to $2.5 million for the year ended December 31, 2005
      compared to $0.4 million for the year ended December 31, 2004. There was no
      significant change in salaries and benefits for UAC during these periods. Since
      the acquisition of Coastal Credit on August 31, 2005, Coastal Credit contributed
      $2.1 million to the increase. Corporate and Other contributed $0.1 million
      to
      the increase in salaries and benefits.




Operating
      expenses increased to $2.8 million for the year ended December 31, 2005 compared
      to $1.1 million for the year ended December 31, 2004. UAC operating expenses
      decreased $0.2 million between these periods. Since the acquisition of Coastal
      Credit on August 31, 2005, Coastal Credit contributed $1.1 million to the
      increase in operating expense. Corporate and Other contributed $0.7 million
      to
      the increase in operating expense between these periods. These Corporate and
      Other expenses were primarily professional fees.




Third
      party servicing expenses increased 41.8% to $3.3 million for the year ended
      December 31, 2005 compared to $2.3 million for the year ended December 31,
      2004.
      UAC is the only segment that incurs this expense. This increase is the result
      of
      additional receivables repurchased by UAC from off-balance sheet securitizations
      during 2004 and 2005. UAC pays a monthly servicing fee per active receivable.
      As
      the number of receivables increased from each repurchase of receivables from
      off-balance sheet securitizations, the third party servicing expense
      increased.




Bankruptcy
      costs are professional fees and expenses associated with the bankruptcy
      proceedings of UAC. These costs were $0.3 million and $0.7 million for the
      years
      ended December 31, 2005 and 2004, respectively. UAC is the only segment that
      incurs these costs which were for the purpose of assisting the reorganized
      company in complying with its bankruptcy plan.




Any
      income tax provision (benefit) in the year was offset by an increase (decrease)
      in the valuation allowance against deferred tax assets.




As
      of
      December 31, 2005, White River had net operating loss carryforwards for income
      tax purposes of $112.8 million.







40





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




***Securitized
      Finance Receivables, Net***




Securitized
      finance receivables, net balance is 74.9% less at December 31, 2006, $27.4
      million, compared to December 31, 2005, $109.5 million. This decrease is
      attributable to the normal runoff of the portfolio and the collateralized
      financing for securitization 2003-A which was paid in full during the first
      quarter of 2006. At that time, the 2003-A receivables were released from
      collateral arrangements and, accordingly, are recorded in subsequent periods
      as
      receivables held for investment, net. The principal balances of the securitized
      finance receivables, net and the off-balance sheet securitization portfolios
      are
      summarized in the following table (in thousands):




**December
                31,****2006**
            
            **2005****Securitized
                Finance Receivables**(1)2003-A
            
            $
            -
            
            $
            4,1672004-A1
            
            
            414
            
            
            3,7952004-A2
            
            
            637
            
            
            4,7122004-B
            
            
            855
            
            
            5,3562004-C
            
            
            3,424
            
            
            16,8372005-A
            
            
            4,913
            
            
            19,0422005-B
            
            
            7,227
            
            
            25,4052005-C
            
            
            11,330
            
            
            35,71728,800
            
            
            115,031**Off-Balance
                Sheet Securitizations**2001-B
            
            
            4,719
            
            
            12,7432001-C
            
            
            14,070
            
            
            35,0092002-A
            
            
            14,530
            
            
            34,54833,319
            
            
            82,300Total
                Portfolios
            
            $
            62,119
            
            $
            197,331




(1)
                On-balance sheet portfolios held by UAC Securitization Corporation
                as
                collateral for non-recourse asset-backed
                notes.







***Finance
      Receivables, Net***




Finance
      receivables, net increased to $78.7 million at December 31, 2006 as compared
      to
      $70.8 million at December 31, 2005. Finance receivables, net generally have
      original terms ranging from 32 to 48 months and are secured by the related
      vehicles.







41





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, 2006
      32.6% of the Coastal Credit Receivables were with borrowers who are in the
      United State military as compared to 38.1% as of December 31, 2005. 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
      an increasing number of non-military contracts. Throughout 2006, the percentage
      of contracts made with borrowers who are in the United States military has
      declined due to the deployment of troops abroad. Until these deployments are
      reduced, it is likely that Coastal Credit will continue to see a decline in
      contracts with military personnel.




As
      of
      December 31, 2006, Coastal Credit’s finance receivables consisted exclusively of
      contracts acquired by Coastal Credit without credit recourse to the dealer.
      Although all the contracts in Coastal Credit’s portfolio were acquired without
      credit recourse, each dealer remains liable to Coastal Credit for liabilities
      arising from certain representations and warranties made by the dealer with
      respect to compliance with applicable federal and state laws and valid title
      to
      the vehicle.




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




***Beneficial
      Interest in Master Trust***




Beneficial
      interest in Master Trust increased to $23.6 million at December 31, 2006
      compared to $14.0 million at December 31, 2005. UAC used a 15% discount rate
      to
      value the beneficial interest in Master Trust as of December 31, 2006 and 2005.
      Over time, the time value effects of the discount rate to the beneficial
      interest in Master Trust are diminished and results in an increase in this
      balance. The increase in beneficial interest in Master Trust is also the result
      of the accretion of this discount during 2006 and to a lesser extent the better
      than projected results of net losses during the year. See Note 6 of Item 8,
      Financial Statements and Supplementary Data.




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




***Collateralized
      Financings***




Collateralized
      financings were $32.4 million at December 31, 2006, compared to $122.3 million
      at December 31, 2005. The decrease was the result of principal payments to
      note
      holders that correspond to the principal reduction of securitized finance
      receivable, net.







42





***Accrued
      Interest Payable***




Accrued
      interest payable was $1.2 million at December 31, 2006, compared to $2.1 million
      at December 31, 2005. The decrease was the result of (i) the extinguishment
      of
      debt, for accounting purposes, in accordance with SFAS No. 140, Accounting
      for
      Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
      when White River purchased a portion of UAC’s general unsecured claims during
      2006 and (ii) the continued repayment of interest and reduced level of debt
      of
      White River and its subsidiaries.




***Creditor
      Notes Payable***




Creditor
      notes payable was $1.4 million at December 31, 2006, compared to $1.5 million
      at
      December 31, 2005. The decrease was the result of (i) the extinguishment of
      debt, for accounting purposes, in accordance with SFAS No. 140 when White River
      purchased a portion of UAC’s general unsecured claims and (ii) continued
      repayment of principal in accordance with the bankruptcy plan partially offset
      by the accretion, and thus of the valuation discount.




***Contractual
      Obligations***




The
      following table represents the estimated future contractual obligations of
      White
      River and its subsidiaries (in thousands). The long term debt obligations
      represent the estimated principal and interest obligations related to
      collateralized financing, line of credit, secured note payable, subordinated
      debentures and creditor notes payable. The future obligations for the line
      of
      credit assumes the line of credit balance at December 31, 2006 remains constant
      through the remaining term of the agreement and monthly interest and fees are
      calculated using this balance for purposes of creating the following table.
      Amounts due to Master Trust are excluded from the following table since funds
      from the Master Trust are returned to UAC.




**Total**
            
            **Less
                than 1 Year**
            
            **1-3
                Years**
            
            **3-5
                Years**
            
            **More
                than 5 Years****Contractual
                Obligations****Long-term
                debt obligations**Coastal Credit (1)
            
            $
            71,196
            
            $
            5,076
            
            $
            66,120
            
            $
            -
            
            $
            -UAC
            
            
            35,179
            
            
            30,785
            
            
            4,394
            
            
            -
            
            
            -White River
            
            
            15,771
            
            
            5,010
            
            
            8,810
            
            
            1,951
            
            
            -Total long-term debt obligations
            
            
            122,146
            
            
            40,871
            
            
            79,324
            
            
            1,951
            
            
            -**Operating
                lease obligations**
            
            
            1,254
            
            
            533
            
            
            700
            
            
            21
            
            
            -**Total**
            
            $
            123,400
            
            $
            41,404
            
            $
            80,024
            
            $
            1,972
            
            $
            -





(1)
            Effective
                January 1, 2007, the line of credit obligation was extended two years
                from
                December 31, 2009 to December 31, 2011.





43





**Liquidity
      and Capital Resources for the Years Ended December 31, 2006 and
      2005**




Net
      cash
      provided by operating activities was $6.0 million for the year ended December
      31, 2006 compared to net cash used by operating activities of $(0.3) million
      for
      the year ended December 31, 2005. The change in net cash provided by (used
      in)
      operating activities was primarily from net income activity during the periods.




Net
      cash
      provided by investing activities was $88.2 million for the year ended December
      31, 2006 compared to net cash used in investing activities of $(28.5) million
      for the year ended December 31, 2005. Included in the net cash used in investing
      activities for the year ended December 31, 2005 was $41.8 million related to
      the
      acquisition of Coastal Credit, including direct acquisition costs, the purchase
      and subsequent collection of securitized finance receivables and finance
      receivables and $149.3 million related to the purchase of securitized finance
      receivables, neither of which occurred during 2006.




Net
      cash
      used in financing activities was $(94.2) million for the year ended December
      31,
      2006 compared to net cash provided by financing activities of $31.9 million
      for
      the year ended December 31, 2005. Net cash used in financing activities for
      the
      year ended December 31, 2006 primarily resulted from net principal payment
      on
      UAC collateralized financings of $89.9 million, the net decrease in the line
      of
      credit of $2.0 million, and principal payments on secured notes payable of
      $1.9
      million. Net cash flows provided by financing activities for the year ended
      December 31, 2005 primarily resulted from the completion of the $35.0 million
      subscription offering of White River, the issuance of a $15.0 million secured
      note payable and net collateralized financing activities during the period.




At
      December 31, 2006, White River and its subsidiaries had cash and cash
      equivalents of $7.0 million compared to $6.9 million at December 31, 2005.
      White
      River and its subsidiaries have ongoing cash flow requirements to support their
      operations.




Coastal
      Credit has a revolving credit facility from a lending institution with a maximum
      borrowing limit of $100 million. This facility increased from $80 million during
      July 2006. The maturity date is December 31, 2009. As of December 31, 2006,
      Coastal Credit had $49.5 million of indebtedness outstanding under this facility
      as compared to $51.5 million as of December 31, 2005. There was $20.6 million
      and $12.5 million available in excess of the amount utilized at December 31,
      2006 and 2005, 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
      rate was the London Interbank Offered Rate (“LIBOR”) plus 2.85% (8.20% and 7.14%
      at December 31, 2006 and 2005, 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 in addition to permitted payments on subordinated debt (including
      White River debt guaranteed by Coastal Credit.) Effective January 1, 2007 the
      line of credit was extended to December 31, 2011. In addition the interest
      rate
      was reduced to LIBOR plus 2.60%.




Coastal
      Credit has $7.7 million in subordinated debentures outstanding at December
      31,
      2006 and 2005. Interest on the notes is payable quarterly at a fixed rate of
      interest of 12% per annum. At December 31, 2006 and 2005, approximately 43%
      of
      the holders of subordinated debentures were related parties. All of the
      subordinated debt matures during 2008 and is subordinated to the line of credit
      and White River’s secured note payable.







44





UAC’s
      sources of liquidity are limited and consist of cash on hand, escrowed cash
      for
      operations, funds from consolidated operations and distributions from the Master
      Trust. UAC's beneficial interest in Master Trust reflected on the balance
      sheet reflects the discounted value of projected cash flows that UAC expects
      to
      receive from its outstanding securitizations and non-recourse financings of
      its
      portfolios of auto finance receivables. White River, as owner of 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. Such reduction may
      be material. Within the first two quarters of 2007, it is anticipated that
      the
      cash releases from the Master Trust will be in excess of $15 million as a result
      of the reduction of the cash collateral required minimum balances.




White
      River had outstanding $13.1 million and $15.0 million in a secured note at
      December 31, 2006 and 2005, respectively. Interest on the note is payable
      quarterly in arrears at a fixed rate of 10.75% per annum. The secured note
      payable is secured by White River’s ownership interest in Coastal Credit and is
      guaranteed by Coastal Credit, but subordinate to the revolving credit facility
      of Coastal Credit. Principal is payable in quarterly installments of $937,500
      which began July 1, 2006. Prepayment of the note is allowed beginning September
      1, 2007. There is a 2% prepayment penalty if prepayment occurs between September
      1, 2007 and August 30, 2008. This prepayment is 1% if prepayment occurs between
      September 1, 2008 and August 30, 2009. There is no penalty if the prepayment
      occurs after August 30, 2009.




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




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







45





**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.”




***Securitized
      Finance Receivables***




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




**Current
                Transaction**
            
            **Initial
                Transaction**
            
            **Original
                Amount of Initial Transaction**
            
            **Remaining
                Balance at December 31, 2006**
            
            **Remaining
                Balance as a Percentage of Original Amount**
            
            **Net
                Loss Incurred to Original Amount at December 31,
                2006**On
                Balance Sheet Securitized Finance Receivables:2004-A1
            
            
            1999-C
            
            $
            364,792
            
            $
            414
            
            
            0.11
            %
            
            
            9.33
            %2004-A2
            
            
            1999-D
            
            
            302,693
            
            
            637
            
            
            0.21
            %
            
            
            10.83
            %2004-B
            
            
            2000-A
            
            
            282,721
            
            
            855
            
            
            0.30
            %
            
            
            8.91
            %2004-C
            
            
            2000-B
            
            
            534,294
            
            
            3,424
            
            
            0.64
            %
            
            
            11.44
            %2005-A
            
            
            2000-C
            
            
            499,999
            
            
            4,913
            
            
            0.98
            %
            
            
            9.48
            %2005-B
            
            
            2000-D
            
            
            510,000
            
            
            7,227
            
            
            1.42
            %
            
            
            10.07
            %2005-C
            
            
            2001-A
            
            
            573,000
            
            
            11,330
            
            
            1.98
            %
            
            
            9.20
            %3,067,499
            
            
            28,800Off
                Balance Sheet Securitized Finance Receivables:2001-B
            
            
            
            
            
            150,002
            
            
            4,719
            
            
            3.15
            %
            
            
            7.33
            %2001-C
            
            
            
            
            
            330,000
            
            
            14,070
            
            
            4.26
            %
            
            
            6.84
            %2002-A
            
            
            
            
            
            300,000
            
            
            14,530
            
            
            4.84
            %
            
            
            4.95
            %780,002
            
            
            33,319Total
            
            
            
            
            $
            3,847,501
            
            $
            62,119
            
            
            1.61
            %
            
            
            8.61
            %







Securitized
      finance receivables displayed seasonal trends with decreases in delinquency
      and
      net losses during the period January to May 2006. Increases in delinquency
      and
      net losses occurred during the period June to December 2006. Management believes
      the increase in net losses is generally from seasonal trends. While a portion
      of
      the increase in the percentage of delinquencies are also from seasonal trends,
      the effect of the total receivable principal decline is contributing to the
      increase in the percentage delinquencies. See “Discussion of Forward-Looking
      Statements.”







46





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




**December
                31, 2006**
            
            **December
                31, 2005****Securitized
                finance receivables principal balance**
            
            $
            28,800
            
            $
            115,031Delinquencies:30-59
                days
            
            
            2,812
            
            
            7,70360-89
                days
            
            
            748
            
            
            2,39090+
                days
            
            
            419
            
            
            1,271Total
                delinquencies
            
            $
            3,979
            
            $
            11,364Delinquencies
                as a percentage of securitized finance receivables
            
            
            13.8
            %
            
            9.9
            %**Off-balance
                sheet finance receivables principal balance**
            
            $
            33,319
            
            $
            82,300Delinquencies:30-59
                days
            
            
            1,929
            
            
            2,73760-89
                days
            
            
            544
            
            
            85990+
                days
            
            
            220
            
            
            553Total
                delinquencies
            
            $
            2,693
            
            $
            4,149Delinquencies
                as a percentage of securitized finance receivables
            
            
            8.1
            %
            
            5.0
            %







Provisions
      are made for estimated net credit losses of securitized finance receivables
      in
      conjunction with each repurchase of an off-balance sheet securitization. The
      cumulative credit loss assumptions used for the pools of receivables repurchased
      ranged from 8.91% to 11.44% as of December 31, 2006 (this range excludes the
      2003-A securitization receivables), compared to a range of 7.34% to 11.87%
      as of
      December 31, 2005. See “Discussion of Forward-Looking Statements.”




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







47





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




**Years
                Ended December 31,****2006**
            
            **2005**Balance
                at the beginning of period
            
            $
            6,503
            
            $
            11,722Allowance
                at purchase
            
            
            -
            
            
            5,163Charge-offs
            
            
            (9,189
            )
            
            (21,637
            )Recoveries
            
            
            8,927
            
            
            14,333Provision
                (recovery) for estimated credit losses
            
            
            (4,624
            )
            
            (3,078
            )Balance
                at the end of the period
            
            $
            1,617
            
            $
            6,503Net
                charge offs (recoveries)
            
            $
            262
            
            $
            7,304Securitized
                finance receivables
            
            $
            28,800
            
            $
            115,031Allowance
                for loan losses as a percent of securitized finance
                receivables
            
            
            5.61
            %
            
            5.65
            %Net
                charge offs (recoveries) as a percent of securitized finance
                receivables
            
            
            0.91
            %
            
            6.35
            %Allowance
                for loan losses as a percent of net charge offs
            
            
            617.18
            %
            
            89.03
            %







***Finance
      Receivables***




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




**December
                31,****2006**
            
            **2005**Finance
                receivables - gross balance
            
            $
            104,399
            
            $
            97,820Delinquencies:30-59
                days
            
            
            1,261
            
            
            1,12460-89
                days
            
            
            898
            
            
            76890+
                days
            
            
            1,208
            
            
            878Total
                delinquencies
            
            $
            3,367
            
            $
            2,770Delinquencies
                as a percentage of finance receivables - gross balance
            
            
            3.2
            %
            
            2.8
            %










48





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




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




**Year
                Ended December 31, 2006**
            
            **Four
                Months Ended December 31, 2005**Balance
                at beginning of period
            
            $
            6,031
            
            $
            5,200Charge-offs,
                net of recoveries (1)
            
            
            (4,997
            )
            
            (782
            )Provision
                for estimated credit losses
            
            
            4,660
            
            
            1,613Balance
                at the end of the period
            
            $
            5,694
            
            $
            6,031Net
                charge offs
            
            $
            4,997
            
            $
            782Finance
                receivables, net of unearned finance charges
            
            $
            95,825
            
            $
            87,952Allowance
                for loan losses as a percent of finance receivables, net of unearned
                finance charges
            
            
            5.94
            %
            
            6.86
            %Net
                charge offs as a percent of finance receivables, net of unearned
                finance
                charges (annualized for the four months ended December 31,
                2005)
            
            
            5.21
            %
            
            2.67
            %Allowance
                for loan losses as a percent of net charge offs (annualized for the
                four
                months ended December 31, 2005)
            
            
            113.95
            %
            
            257.08
            %





(1)
            Charge-offs
                do not include $0.9 million of loans subject to SOP 03-3 that were
                charged
                off and attributable to the non-accretable discount during the four
                months
                ended December 31, 2005.





49





**Discussion
      of Forward-Looking Statements**




The
      preceding Management’s Discussion and Analysis contains forward-looking
      statements within the meaning of The Private Securities Litigation Reform Act
      of
      1995. Forward-looking statements are also made elsewhere in this report. White
      River publishes other forward-looking statements from time to time. Statements
      that are not historical in nature, including the words “anticipate,” “estimate,”
“should,” “expect,” “believe,” “intend,” and similar expressions, are intended
      to identify forward-looking statements. We caution you to be aware of the
      speculative nature of “forward-looking statements.” Although these statements
      reflect White River’s good faith belief based on current expectations, estimates
      and projections about (among other things) the industry and the markets in
      which
      White River operates, 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 interest rates, the cost of funds, and demand for White River’s
                financial services;


·
            changes
                in White River’s competitive position;


·
            White
                River’s ability to manage growth;


·
            the
                opportunities that may be presented to and pursued by White River;


·
            competitive
                actions by other companies;


·
            changes
                in laws or regulations;


·
            changes
                in the policies of federal or state regulators and agencies; and


·
            other
                circumstances, many of which are beyond White River’s control.




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






**ITEM** **7A.
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




Fluctuations
      in market interest rates impact Coastal Credit’s line of credit facility.
      Coastal Credit’s gross interest rate spread, which is the difference between
      interest earned on its finance receivables and interest paid, is affected by
      changes in interest rates.




**Line
      of Credit** ****




Finance
      receivables purchased by the Coastal Credit and pledged to secure borrowings
      under its line of credit bear fixed interest rates. Amounts borrowed under
      Coastal Credit’s line of credit facility bear interest at variable rates that
      are subject to frequent adjustments to reflect prevailing market interest rates.







50





The
      line
      of credit bears interest at the London Interbank Offered Rate (“LIBOR”) plus
      2.85%, which was 8.20% and 7.14% per annum at December 31, 2006 and
      2005, respectively, and has a maturity date of December 31, 2009. On January
      2,
      2007 the line of credit maturity date was extended to December 31, 2011 and
      the
      interest rate was reduced to LIBOR plus 2.60%. Interest rate changes generally
      do not affect the fair market value of such debt, but do impact future earnings
      and cash flows, assuming other factors are held constant. The line of credit
      had
      $49.5 million and $51.5 million outstanding at December 31, 2006 and 2005,
      respectively. Holding other variables constant, a one percentage point change
      in
      interest rates would be expected to have an impact on pre-tax earnings and
      cash
      flows for the next year of approximately $0.5 million.







51







**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.


Indianapolis,
      Indiana





We
      have
      audited the accompanying consolidated balance sheets of White River Capital,
      Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the
      related consolidated statements of operations, shareholders’ equity, and cash
      flows for each of the three years in the period ended December 31, 2006. 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. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audits included consideration of internal control
      over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, 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, such consolidated financial statements present fairly, in all material
      respects, the financial position of White River Capital, Inc. and subsidiaries
      as of December 31, 2006 and 2005, and the results of their operations and their
      cash flows for each of the three years in the period ended December 31, 2006,
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.







/s/
      Deloitte & Touche LLP





New
      York,
      New York


March
      15,
      2007





52


**WHITE
        RIVER CAPITAL, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(Dollars
        in thousands)**


**ASSETS**
              
              **December
                  31, 2006**
              
              **December
                  31, 2005**Cash
                  and cash equivalents
              
              $
              6,958
              
              $
              6,878Restricted
                  cash
              
              
              13,618
              
              
              22,739Securitized
                  finance receivables—net
              
              
              27,447
              
              
              109,506Finance
                  receivables—net
              
              
              78,693
              
              
              70,784Beneficial
                  interest in Master Trust
              
              
              23,601
              
              
              13,968Goodwill
              
              
              34,698
              
              
              35,097Deferred
                  tax assets—net
              
              
              38,189
              
              
              4,707Other
                  assets
              
              
              2,220
              
              
              3,315TOTAL
              
              $
              225,424
              
              $
              266,994**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**LIABILITIES:Collateralized
                  financing
              
              $
              32,368
              
              $
              122,293Line
                  of credit
              
              
              49,500
              
              
              51,500Secured
                  note payable
              
              
              13,125
              
              
              15,000Subordinated
                  debentures
              
              
              7,700
              
              
              7,700Note
                  payable - Coastal Credit purchase holdback
              
              
              -
              
              
              3,840Accrued
                  interest
              
              
              1,169
              
              
              2,131Amounts
                  due to Master Trust
              
              
              8,400
              
              
              7,417Creditor
                  notes payable
              
              
              1,392
              
              
              1,461Other
                  payables and accrued expenses
              
              
              3,852
              
              
              2,291Total
                  liabilities
              
              
              117,506
              
              
              213,633SHAREHOLDERS’
                  EQUITY:Preferred
                  Stock, without par value, authorized3,000,000
                  shares; none issued and outstanding
              
              
              -
              
              
              -Common
                  Stock, without par value, authorized20,000,000
                  shares; 3,813,155 and 3,810,155issued
                  and outstanding at December 31, 2006 and2005,
                  respectively
              
              
              179,594
              
              
              179,157Warrants,
                  150,000 outstanding at December 31, 2006 and 2005
              
              
              534
              
              
              534Accumulated
                  other comprehensive income, net of taxes
              
              
              11,107
              
              
              13,305Accumulated
                  deficit
              
              
              (83,317
              )
              
              (139,635
              )Total
                  shareholders’ equity
              
              
              107,918
              
              
              53,361TOTAL
              
              $
              225,424
              
              $
              266,994See
                  notes to consolidated financial statements.





53




**WHITE
                    RIVER CAPITAL, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF OPERATIONS****(Dollars
                    in thousands, except per share amounts)****Year
                    Ended December 31,****2006**
                
                **2005**
                
                **2004**INTEREST:Interest
                    on receivables
                
                $
                37,500
                
                $
                28,803
                
                $
                12,985Accretion
                    and other interest
                
                
                16,445
                
                
                8,530
                
                
                1,028Total
                    interest income
                
                
                53,945
                
                
                37,333
                
                
                14,013Interest
                    expense
                
                
                (11,820
                )
                
                (15,204
                )
                
                (13,108
                )Net
                    interest margin
                
                
                42,125
                
                
                22,129
                
                
                905Recovery
                    (provision) for estimated credit losses
                
                
                (36
                )
                
                1,465
                
                
                (11,025
                )Net
                    interest margin (deficiency) after recovery (provision) for estimated
                    credit losses
                
                
                42,089
                
                
                23,594
                
                
                (10,120
                )OTHER
                    REVENUES:Charge
                    to Master Trust—net
                
                
                (14,853
                )
                
                (10,253
                )
                
                4,485Gain
                    (loss) from extinguishment of debt
                
                
                (1,524
                )
                
                11,352
                
                
                -Gain
                    from deficiency sale and litigation settlement
                
                
                7,924
                
                
                -
                
                
                -Other
                    income
                
                
                107
                
                
                668
                
                
                2,934Total
                    other revenues (charges), net
                
                
                (8,346
                )
                
                1,767
                
                
                7,419OTHER
                    EXPENSES:Salaries
                    and benefits
                
                
                8,495
                
                
                2,462
                
                
                434Third
                    party servicing expense
                
                
                1,824
                
                
                3,323
                
                
                2,344Other
                    operating expenses
                
                
                5,916
                
                
                2,770
                
                
                1,126Bankruptcy
                    costs
                
                
                183
                
                
                296
                
                
                657Total
                    other expenses
                
                
                16,418
                
                
                8,851
                
                
                4,561INCOME
                    (LOSS) BEFORE INCOME TAXES
                
                
                17,325
                
                
                16,510
                
                
                (7,262
                )INCOME
                    TAX BENEFIT
                
                
                38,993
                
                
                -
                
                
                -NET
                    INCOME (LOSS)
                
                $
                56,318
                
                $
                16,510
                
                $
                (7,262
                )NET
                    INCOME (LOSS) PER COMMON SHARE (BASIC)
                
                $
                14.77
                
                $
                11.08
                
                $
                (23.41
                )NET
                    INCOME (LOSS) PER COMMON SHARE (DILUTED)
                
                $
                14.51
                
                $
                11.02
                
                $
                (23.41
                )BASIC
                    WEIGHTED AVERAGE NUMBEROF
                    COMMON SHARES OUTSTANDING
                
                
                3,813,073
                
                
                1,489,607
                
                
                310,191DILUTED
                    WEIGHTED AVERAGE NUMBEROF
                    COMMON SHARES OUTSTANDING
                
                
                3,882,017
                
                
                1,498,549
                
                
                310,191See
                    notes to consolidated financial statements.







54




**WHITE
                  RIVER CAPITAL, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND 2004****(Dollars
                  in thousands)****Number
                  of**
              
              
              
              
              
              **Accumulated**
              
              
              
              **Total****Common**
              
              
              
              
              
              **Other**
              
              
              
              **Shareholders’****Shares**
              
              **Common**
              
              
              
              **Comprehensive**
              
              **Accumulated**
              
              **Equity****Outstanding**
              
              **Stock**
              
              **Warrants**
              
              **Income
                  (Loss)**
              
              **Deficit**
              
              **(Deficit)**BALANCE—January
                  1, 2004
              
              
              310,191
              
              $
              145,900
              
              $
              -
              
              $
              -
              
              $
              (148,883
              )
              $
              (2,983
              )Comprehensive
                  loss:Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (7,262
              )
              
              (7,262
              )Net
                  unrealized gain on beneficial interest in Master Trust
              
              
              
              
              
              
              
              
              
              
              
              1,943
              
              
              
              
              
              1,943Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (5,319
              )BALANCE—December
                  31, 2004
              
              
              310,191
              
              
              145,900
              
              
              -
              
              
              1,943
              
              
              (156,145
              )
              
              (8,302
              )Comprehensive
                  loss:Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              16,510
              
              
              16,510Net
                  unrealized gain on beneficial interest in Master Trust
              
              
              
              
              
              
              
              
              
              
              
              11,362
              
              
              
              
              
              11,362Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              27,872UAC
                  fractional shares adjustment as a result of share exchange
              
              
              (36
              )Issuance
                  of warrants
              
              
              
              
              
              
              
              
              534
              
              
              
              
              
              
              
              
              534Issuance
                  of common stock, net of costs of $1,743
              
              
              3,500,000
              
              
              33,257
              
              
              
              
              
              
              
              
              
              
              
              33,257BALANCE—December
                  31, 2005
              
              
              3,810,155
              
              
              179,157
              
              
              534
              
              
              13,305
              
              
              (139,635
              )
              
              53,361Comprehensive
                  loss:Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              56,318
              
              
              56,318Net
                  unrealized gain on beneficial interest in Master Trust
              
              
              
              
              
              
              
              
              
              
              
              4,186
              
              
              
              
              
              4,186Tax
                  effect of OCI
              
              
              
              
              
              
              
              
              
              
              
              (6,384
              )
              
              
              
              
              (6,384
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              54,120Stock-based
                  compensation expense
              
              
              3,000
              
              
              437
              
              
              
              
              
              
              
              
              
              
              
              437BALANCE—December
                  31, 2006
              
              
              3,813,155
              
              $
              179,594
              
              $
              534
              
              $
              11,107
              
              $
              (83,317
              )
              $
              107,918See
                  notes to consolidated financial statements.




55




**WHITE
                    RIVER CAPITAL, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS****(Dollars
                    in thousands)****Year
                    Ended December 31,****2006**
                
                **2005**
                
                **2004**CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    income (loss)
                
                $
                56,318
                
                $
                16,510
                
                $
                (7,262
                )Adjustments
                    to reconcile net income to net cash provided by (used in) operating
                    activities:Accretion
                    of beneficial interest in Master Trust
                
                
                (15,538
                )
                
                (7,696
                )
                
                (756
                )Provision
                    (recovery) for estimated credit losses
                
                
                36
                
                
                (1,465
                )
                
                11,025Amortization
                    and depreciation
                
                
                462
                
                
                181
                
                
                28Amortization
                    of discount and interest accrued on creditor notes payable
                
                
                664
                
                
                5,171
                
                
                8,642Loss
                    (gain) from extinguishment of debt
                
                
                1,524
                
                
                (11,352
                )
                
                -Deferred
                    income taxes
                
                
                (39,866
                )
                
                -
                
                
                -Stock
                    based compensation expense
                
                
                437
                
                
                -
                
                
                -Changes
                    in assets and liabilities:Accrued
                    interest receivable and other assets
                
                
                2,306
                
                
                3,170
                
                
                2,725Amounts
                    due to Master Trust
                
                
                983
                
                
                777
                
                
                (2,032
                )Payment
                    of creditor notes payable accrued interest
                
                
                (993
                )
                
                (6,390
                )
                
                (849
                )Other
                    payables and accrued expenses
                
                
                (291
                )
                
                752
                
                
                (1,706
                )Net
                    cash provided by (used in) operating activities
                
                
                6,042
                
                
                (342
                )
                
                9,815CASH
                    FLOWS FROM INVESTING ACTIVITIES:Acquisition
                    of Coastal Credit, LLC, net of cash acquired
                
                
                (3,840
                )
                
                (41,804
                )
                
                -Purchase
                    of securitized finance receivables
                
                
                -
                
                
                (149,333
                )
                
                (138,935
                )Principal
                    collections and recoveries on securitized finance
                    receivables
                
                
                82,815
                
                
                156,746
                
                
                104,974Purchase
                    of finance receivables
                
                
                (61,317
                )
                
                (18,204
                )
                
                -Collections
                    on finance receivables
                
                
                48,748
                
                
                14,562
                
                
                -Principal
                    collections and recoveries on receivables held for
                    investment
                
                
                3,055
                
                
                -
                
                
                -Collections
                    on beneficial interest in Master Trust
                
                
                9,872
                
                
                8,767
                
                
                3,641Proceeds
                    from sale of equipment
                
                
                -
                
                
                42
                
                
                -Change
                    in restricted cash
                
                
                9,121
                
                
                791
                
                
                (5,866
                )Capital
                    expenditures
                
                
                (228
                )
                
                (32
                )
                
                (11
                )Net
                    cash provided by (used in) investing activities
                
                
                88,226
                
                
                (28,465
                )
                
                (36,197
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Proceeds
                    from issuance of common stock, net of costs
                
                
                -
                
                
                33,524
                
                
                -Proceeds
                    from collateralized financings
                
                
                -
                
                
                153,359
                
                
                136,671Principal
                    payments on collateralized financings
                
                
                (89,925
                )
                
                (163,323
                )
                
                (106,648
                )Proceeds
                    from secured note payable
                
                
                -
                
                
                15,000
                
                
                -Principal
                    payments on secured note payable
                
                
                (1,875
                )
                
                -
                
                
                -Principal
                    payments on creditor notes payable
                
                
                (388
                )
                
                (3,460
                )
                
                (8,557
                )Net
                    decrease in line of credit
                
                
                (2,000
                )
                
                (2,000
                )
                
                -Payment
                    of debt issuance costs related to secured note payable
                
                
                -
                
                
                (210
                )
                
                -Proceeds
                    from notes payable to Castle Creek
                
                
                -
                
                
                2,375
                
                
                -Principal
                    payments on notes payable to Castle Creek
                
                
                -
                
                
                (2,375
                )
                
                -Principal
                    payments on subordinated debentures
                
                
                -
                
                
                (950
                )
                
                -Net
                    cash provided by (used in) financing activities
                
                
                (94,188
                )
                
                31,940
                
                
                21,466INCREASE
                    (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                
                80
                
                
                3,133
                
                
                (4,916
                )CASH
                    AND CASH EQUIVALENTS—Beginning of year
                
                
                6,878
                
                
                3,745
                
                
                8,661CASH
                    AND CASH EQUIVALENTS—End of year
                
                $
                6,958
                
                $
                6,878
                
                $
                3,745SUPPLEMENTAL
                    DISCLOSURES OF CASH FLOW INFORMATION:Income
                    tax refunds
                
                $
                2
                
                $
                73
                
                $
                83Interest
                    paid
                
                $
                10,681
                
                $
                12,651
                
                $
                4,906Non
                    cash items:Issuance
                    of warrants
                
                $
                -
                
                $
                534
                
                $
                -Transfer
                    of securitized finance receivables—net to other assets after the
                    collateralized financing for securitization 2003-A was paid in
                    full
                
                $
                2,771
                
                $
                -
                
                $
                -Receivable
                    recognition in other assets of beneficial interest in Master
                    Trust
                    distribution
                
                $
                268
                
                $
                -
                
                $
                -See
                    notes to consolidated financial statements.




56





WHITE
      RIVER CAPITAL, INC. ANDSUBSIDIARIES


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED DECEMBER 31, 2006, 2005 AND 2004**




**1.**  **GENERAL
      DISCUSSION**




White
      River Capital, Inc. (“White River”) 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
      22
      states through 16 offices. UAC, based in Indianapolis, Indiana, holds and
      oversees its portfolio of approximately $62.6 million in non-prime auto
      receivables, as of December 31, 2006. Its portfolio is held approximately 53.2%
      in off-balance sheet securitizations, 46.0% through subsidiary non-recourse
      financings and 0.8% directly or by subsidiaries not subject to financing. UAC
      operates under a confirmed Second Amended and Restated Plan of Reorganization
      under Chapter 11 of the U.S. Bankruptcy Code (the “Plan”) under which net
      proceeds from its beneficial interest in Master Trust and other bankruptcy
      estate assets must be paid to creditors holding notes and claims under the
      plan.
      During 2005 and 2006, White River purchased and 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.




**2005
      Recapitalization Transactions**




White
      River was formed in December 2004. During 2005, White River became the holding
      company of UAC, purchased the majority of outstanding notes and claims under
      UAC’s plan of reorganization and purchased Coastal Credit in a series of
      transactions that included:




·
            the
                buyout of substantially all of the UAC restructured senior notes
                (“Senior
                Notes”), restructured subordinated notes (“Subordinated Notes”), and their
                accompanying accrual notes (“Accrual Notes”) that were issued by UAC under
                the Plan;


·
            a
                share exchange for White River common shares by UAC common
                shareholders;


·
            a
                $35 million subscription rights equity offering by White River to
                UAC
                shareholders and standby investors;


·
            a
                $15 million note issuance by White River;
                and


·
            the
                acquisition of Coastal Credit for $50.8 million, including
                expenses.





57





On
      February 15, 2005, UAC, White River, and the Plan Committee representing the
      UAC
      creditors under the Plan of Reorganization entered into a memorandum of
      understanding providing for the proposed buyout of the remaining outstanding
      UAC
      Senior Notes, Subordinated Notes and Accrual Notes payable. This agreement
      stipulated that White River, as the proposed parent of UAC, would offer to
      pay
      100% of the principal value of the Senior Notes and 13% of the face value of
      the
      Subordinated Notes for the tender of these notes and their accompanying Accrual
      Notes to White River. Additional amounts were required to be paid by White
      River
      to the former Subordinated Note holders in the future if certain prescribed
      events occurred including but not limited to recovery by UAC on a particular
      unresolved pending claim. (The pending claim was resolved during September
      2006
      and additional amounts were paid to holders that had sold their notes to White
      River during 2005.) This purchase offer was accepted by 100% of the Senior
      Note
      holders and holders of 89.1% of the Subordinated Notes in February 2005. During
      June 2005, the Senior Notes of UAC were purchased by White River and
      simultaneously paid in full and White River completed the buyout of 89.1% of
      the
      Subordinated Notes of UAC using bridge funding provided by Castle Creek Capital
      Partners Fund IIa, LP and Castle Creek Capital Partners Fund IIb, LP
      (collectively the “Funds”). During September 2005, White River concluded its
      offer to purchase claims from the general unsecured creditors of UAC. White
      River acquired approximately 57.3% of the general unsecured claims of UAC as
      a
      result of this offer.




In
      accordance with Statement of Financial Accounting Standards ("SFAS") No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* ,
      UAC’s
      carrying value for the portion of the creditor notes payable owned by White
      River was netted against the amount paid by White River for the creditor notes
      resulting in a net gain from extinguishment of debt of $11.4 million.




On
      March
      8, 2005, the board of directors of White River reviewed and authorized the
      following transactions and UAC’s board of directors approved the following
      actions subject to shareholder approval:




1.
            the
                share exchange agreement between UAC and White
                River;


2.
            the
                acquisition of Coastal Credit;


3.
            the
                issuance of a warrant to purchase White River common stock to the
                Funds,
                which advanced funds in connection with the described transactions
                and the
                general partner of which, Castle Creek Capital LLC (“Castle Creek”),
                assisted in developing, structuring and implementing the transactions;
                and


4.
            the
                $15 million note placement
                agreement.





The
      share
      exchange agreement was executed on March 9, 2005 by UAC and White River. A
      purchase agreement (to effect the acquisition of Coastal Credit), the note
      purchase agreement and the warrant issuance agreement were also executed on
      March 9, 2005 by White River.




On
      August
      9, 2005, the share exchange became effective upon the filing of Articles of
      Share Exchange with the State of Indiana. The outstanding shares of common
      stock
      of UAC were exchanged for shares of common stock of White River, at an exchange
      rate of one share of White River common stock for 100 shares of UAC common
      stock
      (the “Share Exchange”). White River exchanged 310,155 shares of its common stock
      for the outstanding shares of UAC. White River became the parent holding company
      of UAC.




For
      purposes of the consolidated financial statements and in accordance with SFAS
      No. 141, Business Combinations (“SFAS No. 141”), the form of the Share Exchange
      points to UAC as the predecessor to White River. Therefore, the consolidated
      financial statements include results of UAC and White River as though they
      always coexisted.







58





On
      August
      31, 2005, White River completed a $35 million subscription offering. In this
      offering, White River issued 3,500,000 shares of common stock at the
      subscription price of $10.00 per share. The net proceeds of this subscription
      offering and the debt issuance of $15 million were used to acquire Coastal
      Credit, to repay a secured bridge note payable to the Funds, to pay transaction
      costs, and for ongoing operations.




On
      August
      31, 2005, warrants were issued by White River to the Funds to purchase 150,000
      shares of White River common stock at an exercise price of $10 per share. The
      term of the warrant is three years and 90 days and is exercisable beginning
      September 1, 2008.




Also
      on
      August 31, 2005, White River completed the acquisition of 100% of the ownership
      interests in Coastal Credit for an aggregate purchase price of $50.8 million,
      including direct costs of acquisition. $45.0 million was paid to the sellers
      at
      closing and $3.8 million, net of a $1.2 million receivable from the previous
      owners, was held back until March 31, 2006 and payable with interest at the
      rate
      of 10% per annum.




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


**December
                  31, 2006**
              
              **December
                  31, 2005****Contractual**
              
              
              
              
              
              **Contractual****Remaining**
              
              **Total**
              
              
              
              **Remaining**
              
              **Total****Debt
                  Not**
              
              **Contractual**
              
              
              
              **Debt
                  Not**
              
              **Contractual****Carrying**
              
              **Owned
                  by**
              
              **Remaining**
              
              **Carrying**
              
              **Owned
                  by**
              
              **Remaining****Value**
              
              **White
                  River**
              
              **Debt**
              
              **Value**
              
              **White
                  River**
              
              **Debt**Restructured
                  debt:Class
                  2A general unsecured claims
              
              $
              -
              
              $
              -
              
              $
              956
              
              $
              164
              
              $
              405
              
              $
              1,330Restructured
                  senior notes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Restructured
                  subordinated notes
              
              
              1,391
              
              
              4,394
              
              
              40,427
              
              
              1,296
              
              
              5,041
              
              
              46,383Senior
                  accrual notes
              
              
              -
              
              
              -
              
              
              4,106
              
              
              -
              
              
              -
              
              
              4,106Subordinated
                  accrual notes
              
              
              1
              
              
              431
              
              
              3,964
              
              
              1
              
              
              431
              
              
              3,964Total
                  creditor notes payable
              
              $
              1,392
              
              $
              4,825
              
              $
              49,453
              
              $
              1,461
              
              $
              5,877
              
              $
              55,783







**UAC
      History**




UAC
      had
      historically been engaged primarily in the business of acquiring, securitizing
      and servicing retail automobile installment sales contracts originated by
      dealerships.




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.







59





In
      connection with the sale of the servicing platform and related assets to Systems
      & Services Technologies, Inc. (“SST”), UAC and its subsidiaries entered
      into various amendments to the trust and servicing agreements, indentures and
      various other agreements related to UAC’s outstanding securitizations. In
      addition, UAC entered into an agreement with the surety provider to establish
      a
      Master Trust Account and to effectively cross collateralize the outstanding
      securitizations (“Master Trust Agreement”). These agreements generally provided
      for the following:




·
            UAC
                resigned, and SST was appointed, as servicer, and standards for SST’s
                performance and provisions for SST’s compensation were
                established.




·
            UAC
                was released from performance trigger obligations related to the
                securitizations, including the release of claims against UAC by the
                securitization trusts and MBIA, Inc.
                (“MBIA”).




·
            A
                Master Trust Account was created pursuant to the Master Trust Agreement.
                The Master Trust Account serves effectively to cross-collateralize
                the
                securitization trusts, as more specifically described below (“Master Trust
                Account”). The residual cash flows from the securitizations are paid
                through the Master Trust Account.




·
            Funds
                in excess of the cash collateral requirements of specific securitizations
                are remitted to the Master Trust
                Account.




·
            Funds
                in a particular securitization’s spread account in excess of the amount
                required for the immediately following distribution date may be drawn
                by
                the master trust to the Master Trust Account to make distributions
                to
                other securitization trusts or otherwise as provided in the Master
                Trust
                Agreement.




·
            Amounts
                held in the Master Trust Account are available to pay certain fees
                and
                expenses of the servicer, the securitization trustees, MBIA, and
                the
                master trustee, and to make distributions to securitization trusts to
                meet cash distribution obligations of those trusts to security holders
                of a securitization trust, to the extent cash otherwise available to
                that trust is insufficient for such
                purpose.




·
            Cash
                deposited to the Master Trust Account, to the extent not used for
                the
                foregoing purposes, will accumulate and, to the extent it exceeds
                prescribed levels, will be available for distribution to
                UAC.




With
      the
      establishment of the Master Trust Agreement in 2003, all excess cash from
      securitizations is required to be deposited in the Master Trust Account. Once
      prescribed cash reserve levels are met, cash will be released to UAC from the
      Master Trust Account. This future cash flow is reported as beneficial interest
      in Master Trust. Based upon this agreement, UAC’s retained interest was
      exchanged for the beneficial interest in Master Trust for financial reporting
      purposes.




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.




**Acquisition
      of Coastal Credit, LLC**




On
      August
      31, 2005, White River completed the acquisition of 100% of the interests in
      Coastal Credit with an aggregate purchase price of $50.8 million, including
      direct costs of acquisition. $45.0 million was paid to the sellers at closing
      and $3.8 million, net of a $1.2 million receivable from the previous owners,
      was
      held back until March 31, 2006 and paid with interest at the rate of 10% per
      annum. The results of Coastal Credit’s operations for the four months ended
      December 31, 2005 are included in the consolidated statement of operations
      for
      2005.







60





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 22 states
      - Alaska, Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii,
      Kansas, Louisiana, Maryland, Mississippi, Nevada, North Carolina, Ohio,
      Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and
      Washington - through its 16 branch locations.




In
      accordance with SFAS No. 141, the acquisition was accounted for using the
      purchase method. The purchase method requires the cost of the acquired company,
      Coastal Credit, be allocated to the assets acquired and liabilities assumed.
      In
      accordance SFAS No. 141, the excess of the cost of an acquired entity over
      the
      amounts assigned to assets acquired and liabilities assumed shall be recognized
      as goodwill.




The
      following table is the final allocation of the purchase price of Coastal
      Credit:


Cash
                  and cash equivalent
              
              $
              3,733Finance
                  receivables, net
              
              
              68,756Property
                  and equipment
              
              
              626Other
                  assets
              
              
              1,450Deferred
                  tax assets
              
              
              4,651Goodwill
              
              
              35,153Line
                  of credit
              
              
              (53,500
              )Subordinated
                  debentures
              
              
              (8,650
              )Accrued
                  interest
              
              
              (380
              )Other
                  payables and accrued expenses
              
              
              (1,035
              )Total
                  purchase price
              
              $
              50,804







With
      the
      acquisition of Coastal Credit on August 31, 2005, the excess of purchase price
      over fair value of net assets acquired and liabilities assumed, goodwill, was
      recorded. In accordance with SFAS No. 142, *Goodwill
      and Other Intangible Assets* (“SFAS
      No. 142”), White River will annually test the goodwill for impairment or more
      frequently if events or changes in circumstances indicate that the asset might
      be impaired. If the carrying value exceeds the fair value, impairment to
      goodwill will be recognized. The goodwill for this acquisition has been
      allocated to Coastal Credit for segment reporting. The goodwill is deductible
      for tax purposes.




The
      following is supplemental pro forma information that discloses the consolidated
      results of operations for the years ended December 31, 2005 and 2004 as though
      the acquisition of Coastal Credit by White River had been completed as of the
      beginning of the periods reported on. Assumed in this pro forma information
      is
      that the secured note payable was issued on January 1 of each respective year
      and the notes payable - Coastal Credit purchase holdback were issued on January
      1 and paid March 31 of each respective year. In addition, it is assumed that
      the
      subscription offering was completed on January 1 of each respective year for
      the
      calculation of the weighted average share information. During the January 1,
      2005 to August 31, 2005 time period, there were nonrecurring expenses for
      employee bonuses of $1.0 million and transaction expenses incurred by Coastal
      Credit related to the acquisition of Coastal Credit by White River of $0.4
      million which are included in the pro forma information:







61




**(Dollars
                  in thousands, except per share amounts)****Years
                  Ended December 31,****2005**
              
              **2004**Total
                  interest income
              
              $
              53,861
              
              $
              37,211Interest
                  expense
              
              
              (19,052
              )
              
              (17,722
              )Net
                  interest margin
              
              
              34,809
              
              
              19,489Provision
                  for estimated credit losses
              
              
              (2,446
              )
              
              (15,942
              )Net
                  interest margin after provision for estimated credit
                  losses
              
              
              32,363
              
              
              3,547Total
                  other revenues, net
              
              
              1,552
              
              
              7,345Total
                  other expenses
              
              
              16,469
              
              
              13,211Income
                  (Loss) Before Income Taxes
              
              
              17,446
              
              
              (2,319
              )Income
                  Taxes
              
              
              -
              
              
              -Net
                  Income (Loss)
              
              $
              17,446
              
              $
              (2,319
              )Net
                  Income (Loss) Per Common Share (Basic)
              
              $
              4.58
              
              $
              (0.61
              )Net
                  Income (Loss) Per Common Share (Diluted)
              
              $
              4.58
              
              $
              (0.61
              )Basic
                  Weighted Average Number Of Common Shares Outstanding
              
              
              3,810,155
              
              
              3,810,155Diluted
                  Weighted Average Number Of Common Shares Outstanding
              
              
              3,812,808
              
              
              3,810,155







**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 the beneficial interest
      in
      Master Trust, the valuation of deferred tax assets, and the allowance for credit
      losses.




***Cash
      and Cash Equivalents*** —White
      River considers all investments with maturity of three months or less when
      purchased to be cash equivalents.




***Restricted
      Cash*** —Restricted
      cash consists of funds held in reserve accounts in compliance with the terms
      of
      the collateralized financing agreements.




***Net
      Assets of Collateralized Financings*** -UAC
      Securitization Corporation has purchased receivables from off-balance sheet
      securitizations that were eligible for clean-up calls. These receivables were
      re-securitized through non-recourse asset backed note issuances. The associated
      future cash flows from these receivables are subject to the same Master Trust
      Account provisions as the securitizations called.







62





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




***Securitized
      Finance Receivables—net***—UAC has repurchased receivables from
      outstanding securitizations and uses these receivables as collateral for new
      securitization debt that is recorded on White River’s consolidated balance sheet
      as collateralized financings. The receivables are carried at their principal
      amount plus interest receivable, less an allowance for credit
      losses.




***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 probable
      credit losses inherent in finance receivables.




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




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




***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.







63





***Beneficial
      Interest in Master Trust—*** UAC
      records beneficial interest in Master Trust as an “available for sale” security
      at fair value. Any associated unrealized gains and losses attributable to
      changes in fair value, net of income taxes, are recorded as a separate component
      of shareholders’ equity (deficit) (“accumulated other comprehensive income”),
      net of taxes. Accumulated other comprehensive income is accreted to income
      based
      on projected cash releases from the Master Trust Account.




***Goodwill*** —White
      River has adopted the provisions of SFAS No. 142 for the accounting of goodwill
      related to the acquisition of Coastal Credit during 2005. As a result, goodwill
      is not amortized; rather, White River annually tests the goodwill for impairment
      or more frequently if events or changes in circumstances indicate that the
      asset
      might be impaired. The amount of goodwill impairment, if any, is measured as
      the
      excess of the carrying value over the fair value. Goodwill will be adjusted
      for
      adjustments related to excess tax deductibility of goodwill.




***Receivables
      Held for Investment—net*** —Certain
      receivables are held for investment and are included in other assets. The
      receivables are carried at amortized cost plus interest less an allowance for
      credit losses. Interest on these receivables is accrued and credited to interest
      income based upon the daily principal amount outstanding.




***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.




***Collateralized
      Financing*** —Collateralized
      financings are non-recourse debt obligations that were used to purchase finance
      receivables from previous securitization trusts. This debt is secured by the
      securitized finance receivables that were purchased by UAC in addition to cash
      collateral “Spread Accounts” that are recorded as restricted cash and the Master
      Trust Account. Principal payments are required to correspond to the principal
      reduction of the finance receivables on a monthly basis.




***Amounts
      Due to Master Trust*** —Amounts
      due to Master Trust represents excess cash from finance receivables and
      restricted cash that are to be deposited in the Master Trust Account in
      accordance with the Master Trust Agreement that was established during April
      2003.




***Creditor
      Notes Payable*** —Creditor
      notes payable represents the liability to creditors upon UAC’s emergence from
      bankruptcy in 2003. In accordance with SOP 90-7, 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 will be amortized over the
      expected life of the liabilities. Although there is no stated maturity for
      the
      creditor notes payable, the discount is being accreted, using the effective
      interest method, over the period ending on the date on which the last
      contractual payment on the receivables underlying the beneficial interest in
      Master Trust was expected. The following table contains the contractual interest
      rates for the individual classes of creditor notes payable:


**Contractual
                  Interest Rate**Restructured
                  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%










64


In
          December 2004, SFAS No. 123 (revised 2004), *Share-Based
          Payment* (“SFAS
          No. 123R”), was issued, which eliminates the intrinsic value method under APB 25
          as an alternative method of accounting for stock-based awards. SFAS No.
          123R
          also revises the fair-value-based method of accounting for share-based
          payment
          liabilities, forfeitures, and modifications of stock-based awards and clarifies
          SFAS No. 123’s guidance in several areas, including measuring fair value,
          classifying an award as equity or as a liability, and attributing compensation
          cost to reporting periods. In addition, SFAS No. 123R amends SFAS No. 95,
          Statement of Cash Flows, to require that excess tax benefits be reported
          as a
          financing cash inflow rather than as a reduction of taxes paid, which is
          included within operating cash flows. White River adopted the modified
          prospective application of SFAS No. 123R as of January 1, 2006. The adoption
          of
          SFAS No. 123R had no impact on White River as there were no share based
          payment
          awards outstanding at December 31, 2005. 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.


***Other
      Income*** —Other
      income represents refunds of dealer rebates, monies collected on previously
      charged-off balances in the securitization trusts, and other miscellaneous
      income.




***Common
      Stock*** —
White
      River’s Registration Statement on Forms S-1/S-4 (Reg. No. 333-123909) was
      declared effective on July 18, 2005. Pursuant to the registration statement,
      White River registered (1) 3,500,000 shares of its common stock (aggregate
      offering price $35,000,000) which was offered in a subscription offering to
      the
      shareholders of Union Acceptance Corporation and to certain standby purchasers,
      and (2) 310,191 shares of its common stock which was offered in a Share Exchange
      for the outstanding shares of common stock of Union Acceptance Corporation.
      The
      Share Exchange was approved and consummated August 9, 2005 and 310,155 shares
      were ultimately issued in the exchange due to cash issued in lieu of fractional
      shares. The Subscription Offering closed on August 31, 2005.




***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 not
      allow
      an ownership change to occur for tax purposes. The valuation allowance has
      been
      determined pursuant to the provisions of SFAS No. 109, *Accounting
      for Income Taxes* (“SFAS
      No. 109”), including White River’s estimation of future taxable income, and
      reduces the total deferred tax asset to an amount that will more likely than
      not
      be realized (see Note 15).




***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*** —UAC
      had
      two stock-based compensation plans, which are discussed in Note 16. UAC applied
      Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock
      Issued to Employees and related Interpretations, in accounting for the plans.
      If
      compensation cost had been determined based on the fair value at the grant
      date
      for awards under those plans consistent with the method of SFAS No. 123,
      Accounting for Stock-Based Compensation, the effect on the net income (loss)
      and
      income (loss) per share for the years ended December 31, 2005 and 2004
      would have been immaterial.







65


In
        December 2004, SFAS No. 123 (revised 2004), *Share-Based Payment* (“SFAS
        No. 123R”), was issued, which eliminates the intrinsic value method under APB 25
        as an alternative method of accounting for stock-based awards. SFAS No. 123R
        also revises the fair-value-based method of accounting for share-based payment
        liabilities, forfeitures, and modifications of stock-based awards and clarifies
        SFAS No. 123’s guidance in several areas, including measuring fair value,
        classifying an award as equity or as a liability, and attributing compensation
        cost to reporting periods. In addition, SFAS No. 123R amends SFAS No. 95,
        Statement of Cash Flows, to require that excess tax benefits be reported
        as a
        financing cash inflow rather than as a reduction of taxes paid, which is
        included within operating cash flows. White River adopted the modified
        prospective application of SFAS No. 123R as of January 1, 2006. The adoption
        of
        SFAS No. 123R had no impact on White River as there were no share based payment
        awards outstanding at December 31, 2005. 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.




***New
      Accounting Pronouncements*** —
During
      July 2006, FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”). FIN 48 establishes standards for measurement and recognition in financial
      statements of positions taken by an entity in its income tax returns. In
      addition, FIN 48 requires new disclosures about positions taken by an entity
      in
      its tax returns that are not recognized in its financial statements, information
      about potential significant changes in estimates related to tax positions and
      descriptions of open tax years by major jurisdiction. The provisions of FIN
      48
      will become effective for fiscal years beginning after December 15, 2006, with
      the cumulative effect of the change in accounting principle recorded as an
      adjustment to retained earnings. White River is evaluating the impact of the
      adoption of FIN 48, but does not expect FIN 48 to have a material impact on
      its
      consolidated financial statements.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      No. 157”) *,* which
      provides guidance on how to measure assets and liabilities that use fair value.
      SFAS No. 157 will apply whenever another United States generally accepted
      accounting principles standard requires (or permits) assets or liabilities
      to be
      measured at fair value but does not expand the use of fair value to any new
      circumstances. This standard also will require additional disclosures in both
      annual and quarterly reports. SFAS No. 157 will be effective for financial
      statements issued for fiscal years beginning after November 15, 2007. White
      River is evaluating the impact of the adoption of SFAS No. 157 on its
      consolidated financial statements.




In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Valuation Option for Financial Assets and Financial
      Liabilities* (“SFAS
      No. 159”). SFAS No. 159 permits all entities to choose, at specified election
      dates, to measure eligible assets and liabilities at fair value. SFAS No. 159
      will be effective for financial statements issued for fiscal years beginning
      after November 15, 2007. White River is evaluating the impact of the adoption
      of
      SFAS 159 and has not determined what elections it may make.




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




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




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







66





The
      collateralized financing for 2003-A was paid in full during the first quarter
      of
      2006. At that time, the remaining receivables were released from the related
      collateral arrangements and inure directly to UACSC. These receivables are
      recorded as receivables held for investment, net in other assets. The amount
      due
      to Master Trust with respect to 2003-A, as of December 31, 2005, was limited
      to
      the actual amounts paid to the Master Trust prior to the collateral financing
      being paid in full.




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


**December
                  31,****2006**
              
              **2005**Securitized
                  finance receivables—net
              
              $
              27.4
              
              $
              109.5Restricted
                  cash
              
              
              13.3
              
              
              22.7Receivable
                  from servicer included in other assets
              
              
              0.3
              
              
              1.1Collateralized
                  financings
              
              
              (32.4
              )
              
              (122.3
              )Series
                  2003-A excess collateral (1)
              
              
              -
              
              
              (2.7
              )Accrued
                  interest payable
              
              
              (0.1
              )
              
              (0.5
              )Other
                  payables and accrued expenses
              
              
              (0.1
              )
              
              (0.4
              )Amounts
                  due to Master Trust
              
              $
              8.4
              
              $
              7.4(1)
                  On March 8, 2006 the 2003-A note was paid in full and no longer
                  contributes to amounts due to Master
                  Trust.





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




Securitized
      finance receivables-net are recorded at the outstanding principal balance of
      the
      receivables plus accrued interest receivable, net of an allowance for credit
      losses. The collateralized financing for securitization 2003-A was paid in
      full
      during the first quarter of 2006. The remaining receivables were released from
      the related collateral arrangements and inure directly to UACSC. These
      receivables are recorded as receivables held for investment, net. The following
      table represents components of securitized finance receivables—net (in
      thousands) as of:


**December
                  31,****2006**
              
              **2005**Principal
                  balance of securitized finance receivables
              
              $
              28,800
              
              $
              115,031Accrued
                  interest receivable
              
              
              264
              
              
              978Allowance
                  for credit losses
              
              
              (1,617
              )
              
              (6,503
              )Securitized
                  finance receivables—net
              
              $
              27,447
              
              $
              109,506







67





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


**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**Balance
                  at the beginning of period
              
              $
              6,503
              
              $
              11,722
              
              $
              5,006Allowance
                  at purchase
              
              
              -
              
              
              5,163
              
              
              3,604Charge-offs
              
              
              (9,189
              )
              
              (21,637
              )
              
              (17,453
              )Recoveries
              
              
              8,927
              
              
              14,333
              
              
              9,540Provision
                  (recovery) for estimated credit losses
              
              
              (4,624
              )
              
              (3,078
              )
              
              11,025Balance
                  at the end of the period
              
              $
              1,617
              
              $
              6,503
              
              $
              11,722







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




UACSC
      issued notes to complete $153.4 million, $136.7 million and $120.3 million
      of non-recourse collateralized financings consisting of asset backed note
      issuances during 2005, 2004 and 2003, respectively to purchase securitized
      finance receivables.




The
      note
      principal and interest is paid monthly with total cash received from the
      corresponding securitized finance receivables collateralizing the notes. If
      the
      cash received within the month is insufficient to pay the note principal and
      interest, funds are drawn from restricted cash accounts or the Master Trust
      Account in accordance with the Master Trust Agreement. Interest expense related
      to these collateralized financings, including the amortization of debt issuance
      costs, was $3.5 million, $7.8 million and $4.5 million for the years ended
      December 31, 2006, 2005 and 2004, respectively.




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




**Note**
            
            **Initial
                Note**
            
            **December
                31,****Notes
                Series**
            
            **Rate**
            
            **Amount**
            
            **2006**
            
            **2005**Series
                2003-A
            
            
            3.95
            %
            $
            120,327
            
            $
            -
            
            $
            2,072Series
                2004-A1
            
            
            4.15
            
            
            29,485
            
            
            425
            
            
            3,743Series
                2004-A2
            
            
            4.55
            
            
            29,298
            
            
            764
            
            
            5,317Series
                2004-B
            
            
            5.02
            
            
            25,896
            
            
            1,009
            
            
            5,972Series
                2004-C
            
            
            4.89
            
            
            51,992
            
            
            3,946
            
            
            18,636Series
                2005-A
            
            
            4.49
            
            
            47,742
            
            
            5,564
            
            
            20,730Series
                2005-B
            
            
            4.69
            
            
            50,684
            
            
            8,087
            
            
            27,445Series
                2005-C
            
            
            5.40
            
            
            54,933
            
            
            12,573
            
            
            38,378$
            410,357
            
            $
            32,368
            
            $
            122,293










68





Based
      on
      the projected receivable reductions, the repayment of collateralized financings
      is as follows (in thousands):




**Principal****Year**
            
            **Repayment**2007
            
            $
            29,1622008
            
            
            3,1252009
            
            
            81$
            32,368







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




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




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




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




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




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





o
            *Bankruptcy
                recovery*-
                consists of cash recovered from accounts charged off and in bankruptcy
                status. Bankruptcy cash flows are somewhat independent of default
                rates
                due to bankruptcy court involvement and the latitude allowed debtors
                during the bankruptcy process. UAC has observed a reasonably predictable
                cash flow stream from bankruptcy payments in each securitized pool.
                This
                cash flow stream will, however, eventually expire as the bankruptcy
                cases
                are dismissed from the various courts with either a successful or
                non-successful outcome. A previous twelve month average of bankruptcy





69


cash
                  flows is calculated for each pool. This value is then reduced on
                  a
                  straight line basis over either a 18 or 30 month
                  period.





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





The
      weighted average net credit loss assumption as a percentage of the original
      principal balance over the life of the receivables to value beneficial interest
      in Master Trust was 8.61% and 8.93% at December 31, 2006 and 2005,
      respectively.




*Prepayment
      Assumptions* —UAC
      estimates prepayments by evaluating the historical prepayment performance of
      each pool of receivables. UAC used annual prepayment rates ranging from 30.2%
      to
      46.0% at December 31, 2006 as compared to 27.8% to 42.3% at December 31,
      2005.




*Discount
      Rate Assumptions* —UAC
      determines the estimated fair value of its beneficial interest in Master Trust
      by discounting the expected cash flows released from the Master Trust Account
      (the cash out method) using a discount rate that UAC believes is commensurate
      with the risks involved. UAC used a discount rate of 15% to value the beneficial
      interest in Master Trust at December 31, 2006 and 2005 to reflect current
      market conditions and the reduction in the uncertainty of these future cash
      flows.




At
      December 31, 2006, key economic assumptions and the sensitivity of the current
      fair value of residual cash flows to immediate 10% and 20% adverse changes
      in
      assumed economics is as follows (in thousands):


**Expected
                  Remaining Gross Credit Losses**
              
              **Discount
                  Rate**
                **(annual
                  rate)**
              
              **Prepayment
                  Speed**
                **(curve)
                  (1)**Impact
                  on fair value of10%
                  adverse change
              
              $
              (338
              )
              $
              (237
              )
              $
              -20%
                  adverse change
              
              $
              (673
              )
              $
              (469
              )
              $
              -(1)
                  The sensitivity impact of the adverse changes were less then
                  $1,000.







These
      sensitivities are hypothetical and should be used with caution. As the figures
      indicate, any change in fair value based on a particular percentage variation
      in
      assumptions cannot be extrapolated because the relationship of the change in
      fair value is not linear. Also, in this table, the effect of a variation in
      a
      particular assumption on the fair value of the beneficial interest in Master
      Trust is calculated independent from any change in another assumption; in
      reality, changes in one factor may result in changes in another, which might
      magnify or counteract the sensitivities.






70




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




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




A
      significant number of contracts acquired by Coastal Credit are contracts made
      with borrowers who are in the United States military. As of December 31, 2006
      32.6% of the Coastal Credit Receivables were with borrowers who are in the
      United State military as compared to 38.1% as of December 31, 2005. 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. Throughout 2006, the
      percentage of contracts made with borrowers who are in the United States
      military has declined due to the deployment of troops abroad. Until these
      deployments are reduced, it is likely that Coastal Credit will continue to
      see a
      decline in contracts with military personnel.




White
      River used SOP 03-3, Accounting for Certain Loans or Debt Securities Acquired
      in
      a Transfer, as guidance to record the fair value of Coastal Credit’s finance
      receivables whose credit quality has deteriorated since origination at the
      date
      White River acquired Coastal Credit. The outstanding finance receivable net
      of
      unearned income for receivables identified as subject to SOP 03-3 was $0.0
      million as of December 31, 2006 as compared to $0.3 million as of December
      31,
      2005. These receivables had a fair value of $0.6 million as of the acquisition
      date. The entire discount of $0.9 million was allocated to non-accretable
      discount.




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


**December
                  31,****2006**
              
              **2005**Finance
                  receivables, gross
              
              $
              104,399
              
              $
              97,820Unearned
                  interest
              
              
              (8,574
              )
              
              (9,868
              )Finance
                  receivables, net of unearned finance charge income
              
              
              95,825
              
              
              87,952Accretable
                  unearned acquisition discounts and fees
              
              
              (11,438
              )
              
              (11,137
              )Finance
                  receivables, net of unearned finance charge income and discounts
                  and
                  fees
              
              
              84,387
              
              
              76,815Allowance
                  for loan losses
              
              
              (5,694
              )
              
              (6,031
              )Finance
                  receivables, net
              
              $
              78,693
              
              $
              70,784










71





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




**Year
                Ended December 31, 2006**
            
            **Four
                Months Ended December 31, 2005**Balance
                at beginning of period
            
            $
            6,031
            
            $
            5,200Charge-offs,
                net of recoveries (1)
            
            
            (4,997
            )
            
            (782
            )Provision
                for estimated credit losses
            
            
            4,660
            
            
            1,613Balance
                at the end of the period
            
            $
            5,694
            
            $
            6,031Net
                charge offs
            
            $
            4,997
            
            $
            782Finance
                receivables, net of unearned finance charges
            
            $
            95,825
            
            $
            87,952Allowance
                for loan losses as a percent of finance receivables, net of unearned
                finance charges
            
            
            5.94
            %
            
            6.86
            %Net
                charge offs as a percent of finance receivables, net of unearned
                finance
                charges (annualized for the four months ended December 31,
                2005)
            
            
            5.21
            %
            
            2.67
            %Allowance
                for loan losses as a percent of net charge offs (annualized for the
                four
                months ended December 31, 2005)
            
            
            113.95
            %
            
            257.08
            %




(1)
      Charge-offs do not include $0.9 million of loans subject to SOP 03-3 that were
      charged off and attributable to the non-accretable discount during the four
      months ended December 31, 2005.




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




Other
      assets are as follows (in thousands) at:




**December
                31,****2006**
            
            **2005**Receivable
                from servicer
            
            $
            296
            
            $
            1,124Prepaid
                expenses
            
            
            408
            
            
            712Property,
                equipment and leasehold improvements, net
            
            
            609
            
            
            601Receivables
                held for investment, net
            
            
            454
            
            
            269Receivable
                from Master Trust account
            
            
            268
            
            
            -Other
            
            
            185
            
            
            609Total
                other assets
            
            $
            2,220
            
            $
            3,315










72





9.GOODWILL




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




**Years
                Ended December 31,****2006**
            
            **2005**Beginning
                Balance
            
            $
            35,097
            
            $
            -Goodwill
                acquired August 31, 2005
            
            
            -
            
            
            35,153Impairment
                losses
            
            
            -
            
            
            -Adjustment
                related to excess tax deductibility of goodwill
            
            
            (399
            )
            
            (56
            )Ending
                Balance
            
            $
            34,698
            
            $
            35,097







Goodwill
      was tested for impairment as of August 31, 2006. There were no changes to the
      Coastal Credit segment goodwill for impairment.




**10.**  **LINE
      OF CREDIT**




The
      line
      of credit is utilized by Coastal Credit to finance the purchase of finance
      receivables. $49.5 million and $51.5 million of the line of credit was utilized
      at December 31, 2006 and 2005, respectively. This line of credit was $80 million
      at December 31, 2005 and increased to $100 million in July 2006. The maturity
      date on the line of credit is December 31, 2009. 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
      foreclosure, 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 $70.0 million and $64.0 million based upon the level of
      eligible collateral with $20.5 million and $12.5 million available in excess
      of
      the amount utilized at December 31, 2006 and 2005, 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, 2006 and
      2005. Interest is paid monthly at a variable rate, based on meeting certain
      financial criteria. The rate was the London Interbank Offered Rate (“LIBOR”)
      plus 2.85% which equated to 8.20% at December 31, 2006 as compared to 7.14%
      at
      December 31, 2005. There is an annual commitment fee of 1/8 of 1% on the average
      daily unused commitment. In the event of a significant pay down or an earlier
      retirement of the revolver commitment, Coastal Credit would sustain certain
      prepayment penalties. This facility limits distributions Coastal Credit may
      make
      to White River to 50% of Coastal Credit’s net income in addition to permitted
      payments on subordinated debt (including White River debt guaranteed by Coastal
      Credit.) Effective January 1, 2007, the line of credit was extended to December
      31, 2011. In addition the interest rate was reduced to LIBOR plus
      2.60%.







73




11.SECURED
      NOTE PAYABLE




A
      $15
      million secured note was issued on August 31, 2005 and bears interest at a
      fixed
      rate of 10.75%. Interest is payable in arrears quarterly beginning October
      1,
      2005. The secured note payable is collateralized by White River’s ownership
      interest in Coastal Credit and is guaranteed by Coastal Credit, but subordinate
      to the line of credit. Principal is payable in sixteen quarterly installments
      of
      $937,500 commencing July 1, 2006. Prepayment of the note is allowed beginning
      September 1, 2007. There is a 2% prepayment penalty if prepayment occurs between
      September 1, 2007 and August 31, 2008. This prepayment is 1% if prepayment
      occurs between September 1, 2008 and August 31, 2009. There is no penalty if
      the
      prepayment occurs after August 31, 2009. The outstanding principal balance
      of
      the secured note was $13.1 million and $15.0 million at December 31, 2006 and
      2005, respectively.




**12.**  **SUBORDINATED
      DEBENTURES**




Coastal
      Credit has $7.7 million of subordinated debentures outstanding at December
      31,
      2006 and 2005. Interest on the debentures is payable quarterly at a fixed rate
      of interest of 12% per annum. Approximately 43% the holders of subordinated
      debentures were related parties. All of the subordinated debt matures in 2008
      and is subordinated to the line of credit and the secured note
      payable.




**13.**  **SELECT
      DEBT REPAYMENT SCHEDULES**




The
      following table represents select debt principal repayment schedules (in
      thousands):




**Year**
            
            **Total**
            
            **Secured
                Note Payable**
            
            **Subordinated
                Debentures**
            
            **Line
                of Credit**(1)2007
            
            $
            3,750
            
            $
            3,750
            
            $
            -
            
            $
            -2008
            
            
            11,450
            
            
            3,750
            
            
            7,700
            
            
            -2009
            
            
            53,250
            
            
            3,750
            
            
            -
            
            
            49,5002010
            
            
            1,875
            
            
            1,875
            
            
            -
            
            
            -2011
            
            
            -
            
            
            -
            
            
            -
            
            
            -$
            70,325
            
            $
            13,125
            
            $
            7,700
            
            $
            49,500(1)
                Effective January 1, 2007, the line of credit obligation was extended
                two
                years from December 31, 2009 to December 31, 2011.







**14.**  **RELATED
      PARTY TRANSACTIONS**




White
      River and UAC leased their corporate offices in Indianapolis, Indiana until
      November 2005 from Shadeland Properties, L.P., an entity controlled by Mr.
      Richard D. Waterfield, a significant shareholder and a director of White River.
      During November 2005, this property was sold by Shadeland Properties, L.P.
      to an
      unrelated third party. The lease was a month-to-month lease, subject to
      termination at any time by UAC or Shadeland Properties, L.P. upon 90 days prior
      written notice. The lease provided for rent payments of $2,164 per month for
      2,361 square feet. Beginning March 1, 2006, White River and UAC relocated their
      corporate offices to a nearby location in Indianapolis, Indiana. The new
      corporate office is leased from an unrelated third party.




UAC’s
      administration of the Plan is supervised by Castle Creek, whose Funds are
      significant shareholders of White River. For these services, UAC compensates
      Castle Creek at a rate of $14,583 per month. Castle Creek was paid $175,000
      during 2006, 2005 and 2004. While the bankruptcy case was closed on January
      5,
      2007, UAC must continue to operate in accordance with the Plan.







74





On
      April
      22, 2005, White River entered into a revolving note agreement with the Funds
      for
      the purpose of funding operating expenses of White River. This agreement allowed
      White River to borrow from the Funds up to $120,000 at a rate of 10% per annum.
      The outstanding principal and interest were payable on August 16, 2005, or,
      if
      earlier, the date three business days following consummation of White River’s
      subscription offering. On August 5, 2005, White River paid, in full, the
      principal related to the $120,000 revolving note to Castle Creek and interest
      of
      $2,444.




On
      June
      22, 2005, White River entered into a secured bridge note agreement for $2.3
      million with the Funds for the purpose of funding the buyout of the UAC
      Subordinated Notes in advance of June 30, 2005. This note bore interest at
      10.75% per annum and was secured by White River’s purchase of $41,341,325 in
      face value of Subordinated Notes. The outstanding principal and interest were
      payable on September 30, 2005, or, if earlier, the date three business days
      following consummation of White River’s subscription offering. On August 31,
      2005, White River paid, in full, the principal and interest of $46,195 related
      to the secured bridge note payable to the Funds.




Investment
      funds managed by Castle Creek owned directly or indirectly 51.5% of the equity
      interest in Coastal Credit that was purchased by White River on August 31,
      2005.
      Mr. Eggemeyer's personal interest in Castle Creek represented approximately
      a 5% indirect interest in Coastal Credit. William E. McKnight held
      approximately 22% of Coastal Credit and John W. Rose indirectly held
      approximately 6%. White River paid $45 million toward the purchase of Coastal
      Credit on August 31, 2005, and aggregate principal and interest of $4.1 million,
      net of a $1.2 million receivable from the previous owners, was paid to the
      former owners of Coastal Credit on March 31, 2006.




On
      August
      31, 2005, White River reimbursed the Funds $1.4 million for transaction expenses
      incurred in connection with the acquisition of Coastal Credit which were paid
      by
      the Funds.




On
      August
      31, 2005, warrants were issued by White River to the Funds to purchase 150,000
      shares of White River common stock at an exercise price of $10 per share. The
      term of the warrant is three years and 90 days and will be exercisable three
      years after issuance. The warrants were recorded at fair value as of August
      31,
      2005. The fair value of the warrants was determined using the Black-Scholes
      option-pricing model with the following assumptions used for the warrants
      granted on August 31, 2005: expected volatility of 33.6%, risk free interest
      rate of 3.8% and expected life of three years and 90 days.




During
      August, 2005, Coastal Credit effected a private placement of $7.7 in subordinate
      debentures, due 2008, bearing interest at 12% per annum. Mr. John W. Rose
      and members of his family purchased $1.5 million, a family partnership
      of William E. McKnight purchased $1.5 million of such debentures and
      certain employees of Castle Creek purchased $0.3 million of such
      debentures.




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 $13,532 per month. The
      Virginia Beach lease will expire in September 2009. The Orange Park lease has
      a
      three-year term, and provides for rent payments of $9,280 per month. The Orange
      Park lease will expire in April 2007.




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 2006, approximately $178,000 was paid for this
      purpose.







75





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 will 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
      2006, White River paid a management fee to Castle Creek for services rendered
      during 2005. This fee was approximately $117,000.




**15.**  **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 $102.1 million and $112.8 million as of December 31, 2006
        and
        2005, respectively. These tax losses will expire during 2022 through 2024.
        A
        full valuation allowance was recorded against the net operating loss
        carryforwards and other deferred tax assets through August 31,
        2005.
  On
        August
        31, 2005, White River acquired Coastal Credit, an established, profitable
        operating business within UAC’s historical line of business. With this
        acquisition, it was considered more likely than not that a portion of the
        deferred tax assts were to be realized by White River. As part of the
        acquisition purchase accounting, the taxable income of White River was estimated
        for remainder of 2005 and the following five years. The result of these
        estimates was a reduction in the valuation allowance of $4.7 million at August
        31, 2005. This adjustment to the valuation allowance was offset by a reduction
        to goodwill as part of the purchase of Coastal Credit.
  During
        the fourth quarter 2006, White River continued to evaluate its future taxable
        income based on the successful integration of Coastal Credit and other activity
        at UAC during 2006 that increased current and expected future taxable income.
        This evaluation determined that it is more likely than not that the federal
        deferred tax assets will be realized resulting in the reversal of the
        corresponding valuation allowance. A valuation allowance of $1.6 million
        was
        retained related to state operating loss carryforwards as it is more likely
        than
        not that these carryforwards will not be realized. The reversal of the valuation
        allowance for the federal and state net operating loss carryforwards contributed
        to the income tax benefit of $39.0 million for the year ended December 31,
        2006.
        In addition, a credit of $6.4 million was recorded to income tax benefit
        in 2006
        related to recording the amount in accumulated other comprehensive income
        as of
        December 31, 2006 related to the beneficial interest in Master Trust net
        of tax.
        This contributed to the income tax benefit of $39.0 million in
        2006.




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




**2006**
            
            **2005**
            
            **2004**Current
                tax expense
            
            $
            873
            
            $
            -
            
            $
            -Deferred
                tax expense (benefit)
            
            
            6,039
            
            
            9,369
            
            
            (884
            )Valuation
                allowance increase (reversal)
            
            
            (45,905
            )
            
            (9,369
            )
            
            884Net
                income tax expense (benefit)
            
            $
            (38,993
            )
            $
            -
            
            $
            -










76





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




**2006**
            
            **2005**
            
            **2004**Statutory
                rate
            
            
            35.0
            %
            
            35.0
            %
            
            35.0
            %State
                income taxes
            
            
            1.5
            
            
            1.5
            
            
            1.5Valuation
                allowance and other
            
            
            (261.9
            )
            
            (38.3
            )
            
            (34.0
            )Bankruptcy
                costs not deductible
            
            
            0.3
            
            
            1.8
            
            
            (2.5
            )Effective
                rate
            
            
            (225.1
            )%
            
            -
            %
            
            -
            %







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




**2006**
            
            **2005**Deferred
                tax assets:Net operating loss carryforward
            
            $
            38,109
            
            $
            41,188AMT credit carryforward
            
            
            928
            
            
            620Basis difference in beneficial interest in Master Trust
            
            
            2,004
            
            
            5,361Allowance for estimated credit losses
            
            
            2,092
            
            
            614Other
            
            
            158
            
            
            -Total deferred tax assets
            
            
            43,291
            
            
            47,783Valuation allowance
            
            
            (1,635
            )
            
            (41,156
            )41,656
            
            
            6,627Deferred
                tax liabilities:Basis difference in creditor notes payable
            
            
            1,252
            
            
            1,582Basis difference in goodwill
            
            
            2,033
            
            
            265Other
            
            
            182
            
            
            73Total deferred tax liabilities
            
            
            3,467
            
            
            1,920Net
                deferred tax assets
            
            $
            38,189
            
            $
            4,707





White
        River had a current tax payable of $.4 million as of December 31,
        2006.





77





**16.**  **STOCK-BASED
      COMPENSATION**




UAC
      had
      two stock-based compensation plans. UAC applied APB Opinion No. 25 in
      accounting for the plans. During 2005 all outstanding options had either expired
      or were surrendered to UAC and cancelled.




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 terms of the
      plan includes the reservation of 50,000 shares of White river common stock
      for
      issuance under the plan.




Effective
      January 1, 2006, the restated employment agreement between Coastal Credit and
      William McKnight, President of Coastal Credit, includes a long-term incentive
      award. This award provides for the payment, in cash, of the value of 100,000
      shares of White River stock, vesting in three annual increments of 33,333.33
      shares on January 1, 2007, 2008 and 2009. In accordance with SFAS No. 123R,
      Share-Based Payment (“SFAS No. 123R”), is accounted for as a liability account
      for this award. The value of payment is to be determined based on the mean
      of
      the trading value of White River shares for 20 trading days prior to the vesting
      date. Compensation expense related to this award approximated $582,500 for
      the
      year ended December 31, 2006 and is included in salaries and benefits expense
      in
      the accompanying consolidated statements of operations. Additional compensation
      costs will be incurred based on the value of White River’s stock price through
      2008.




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




On
      June
      1, 2006, White River granted restricted stock awards totaling 84,000 shares
      to
      certain employees, vesting in three equal annual increments on January 2, 2007,
      2008 and 2009. In addition, White River granted restricted stock awards totaling
      9,000 shares that vest in three equal annual increments on March 31, 2007,
      2008
      and 2009. SFAS No. 123R is used for guidance in accounting for these awards.
      The
      value of awards is determined based on the trading value of White River shares
      on the June 1, 2006 grant date of $14.25 per share with an estimated forfeiture
      rate of 3%. Compensation expense related to these awards approximated $391,500
      for year ended December 31, 2006 and is included in salaries and benefits
      expense in the accompanying consolidated statements of operations. During 2006,
      6,600 shares with January 2 vesting dates were forfeited. As of December 31,
      2006, there was $0.8 million of total unrecognized compensation cost related
      to
      non-vested share-based compensation arrangements granted. That cost is expected
      to be recognized over a weighted-average period of 2.0 years.







78





**17.**  **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 corporations
      and are consolidated with White River for tax purposes. Prior to 2005 UAC was
      the only operating segment.





**For
                The Year Ended December 31, 2006**
            
            **UAC**
            
            **Coastal
                Credit**
            
            **Corporateand
                Other**
            
            **Consolidated**Total
                interest income
            
            $
            24,818
            
            $
            29,065
            
            $
            62
            
            $
            53,945Interest
                expense
            
            
            (4,805
            )
            
            (5,308
            )
            
            (1,707
            )
            
            (11,820
            )Net
                interest margin
            
            
            20,013
            
            
            23,757
            
            
            (1,645
            )
            
            42,125Recovery
                (provision) for estimated credit losses
            
            
            4,624
            
            
            (4,660
            )
            
            -
            
            
            (36
            )Net
                interest margin (deficit) after recovery (provision) for estimated
                credit
                losses
            
            
            24,637
            
            
            19,097
            
            
            (1,645
            )
            
            42,089Total
                other revenues (charges), net
            
            
            (19,977
            )
            
            (387
            )
            
            12,018
            
            
            (8,346
            )Total
                other expenses
            
            
            3,206
            
            
            10,899
            
            
            2,313
            
            
            16,418Income
                before income taxes
            
            
            1,454
            
            
            7,811
            
            
            8,060
            
            
            17,325Income
                tax benefit
            
            
            -
            
            
            -
            
            
            38,993
            
            
            38,993Net
                income
            
            $
            1,454
            
            $
            7,811
            
            $
            47,053
            
            $
            56,318




**For
                  The Year Ended December 31, 2005**
              
              **UAC**
              
              **Coastal
                  Credit**
              
              **Corporateand
                  Other**
              
              **Consolidated**Total
                  interest income
              
              $
              28,505
              
              $
              8,810
              
              $
              18
              
              $
              37,333Interest
                  expense
              
              
              (12,939
              )
              
              (1,545
              )
              
              (720
              )
              
              (15,204
              )Net
                  interest margin
              
              
              15,566
              
              
              7,265
              
              
              (702
              )
              
              22,129Provision
                  for estimated credit losses
              
              
              3,078
              
              
              (1,613
              )
              
              -
              
              
              1,465Net
                  interest margin (deficit) after provision for estimated credit
                  losses
              
              
              18,644
              
              
              5,652
              
              
              (702
              )
              
              23,594Total
                  other revenues (charges), net
              
              
              1,839
              
              
              (85
              )
              
              13
              
              
              1,767Total
                  other expenses
              
              
              4,889
              
              
              3,203
              
              
              759
              
              
              8,851Income
                  (loss) before income taxes
              
              
              15,594
              
              
              2,364
              
              
              (1,448
              )
              
              16,510Income
                  tax benefit
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income (loss)
              
              $
              15,594
              
              $
              2,364
              
              $
              (1,448
              )
              $
              16,510








79





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




**December
                31,****2006**
            
            **2005**Corporate
                and other
            
            $
            43,205
            
            $
            6,918Coastal
                Credit
            
            
            114,900
            
            
            108,165UAC
            
            
            67,319
            
            
            151,911$
            225,424
            
            $
            266,994







**18.**  **EARNINGS
      PER SHARE**




Basic
      earnings per share are calculated by dividing the reported net income for the
      period by the weighted average number of common shares outstanding. The weighted
      average number of common shares outstanding during a period is weighted for
      the
      portion of the period that the shares were outstanding. The 3,500,000 shares
      issued in the subscription offering, which was completed on August 31, 2005,
      were outstanding for 123 days during the year ended December 31, 2005. The
      relatively short period of time these shares were outstanding during 2005
      resulted in a significantly different weighted average number of shares for
      the
      year ended December 31, 2005 when compared to the actual number of shares
      outstanding. Diluted earnings per share include the dilutive effect of warrants
      that were granted on August 31, 2005 and stock award plans which were issued
      on
      June 1, 2006. All stock options outstanding during 2005 and 2004 have been
      excluded from the earning per share calculation as the effect would have been
      anti-dilutive. Basic and diluted earnings per share have been computed as
      follows (dollars in thousands except per share data):


Years
                  Ended December 31,2006
              
              2005
              
              2004Net
                  income in thousands
              
              $
              56,318
              
              $
              16,510
              
              $
              (7,262
              )Weighted
                  average shares outstanding
              
              
              3,813,073
              
              
              1,489,607
              
              
              310,191Incremental
                  shares from assumed conversions:Warrants
              
              
              57,904
              
              
              8,942
              
              
              -Stock
                  award plans
              
              
              11,040
              
              
              -
              
              
              -Weighted
                  average shares and assumed incremental shares
              
              
              3,882,017
              
              
              1,498,549
              
              
              310,191Basic
              
              $
              14.77
              
              $
              11.08
              
              $
              (23.41
              )Diluted
              
              $
              14.51
              
              $
              11.02
              
              $
              (23.41
              )




80





**19.**  **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
                Quarter****Fiscal
                Year Ended December 31, 2006**Total
                interest income
            
            $
            10,742
            
            $
            12,274
            
            $
            17,328
            
            $
            13,601Net
                interest margin
            
            $
            7,420
            
            $
            9,192
            
            $
            14,456
            
            $
            11,057Other
                revenue (charge)
            
            $
            (2,281
            )
            $
            (2,253
            )
            $
            (2,624
            )
            $
            (1,188
            )Other
                expense
            
            $
            4,397
            
            $
            4,272
            
            $
            3,925
            
            $
            3,824Net
                income (loss)
            
            $
            1,137
            
            $
            3,629
            
            $
            8,135
            
            $
            43,417Basic
                earnings per share
            
            $
            0.30
            
            $
            0.95
            
            $
            2.13
            
            $
            11.39Diluted
                earnings per share
            
            $
            0.29
            
            $
            0.94
            
            $
            2.09
            
            $
            11.11Basic
                weighted average shares
            
            
            3,812,822
            
            
            3,813,155
            
            
            3,813,155
            
            
            3,813,155Diluted
                weighted average shares
            
            
            3,864,086
            
            
            3,868,828
            
            
            3,900,930
            
            
            3,907,345**Fiscal
                Year Ended December 31, 2005**Total
                interest income
            
            $
            6,030
            
            $
            9,576
            
            $
            10,221
            
            $
            11,506Net
                interest margin
            
            $
            2,007
            
            $
            5,256
            
            $
            7,032
            
            $
            7,834Other
                revenue (charge)
            
            $
            (1,365
            )
            $
            9,800
            
            $
            (1,672
            )
            $
            (4,996
            )Other
                expense
            
            $
            1,401
            
            $
            1,173
            
            $
            2,358
            
            $
            3,919Net
                income (loss)
            
            $
            (1,208
            )
            $
            12,518
            
            $
            1,971
            
            $
            3,229Basic
                earnings per share
            
            $
            (3.89
            )
            $
            40.36
            
            $
            1.32
            
            $
            0.85Diluted
                earnings per share
            
            $
            (3.89
            )
            $
            40.36
            
            $
            1.32
            
            $
            0.84Basic
                weighted average shares
            
            
            310,191
            
            
            310,191
            
            
            1,489,503
            
            
            3,810,155Diluted
                weighted average shares
            
            
            310,191
            
            
            310,191
            
            
            1,492,669
            
            
            3,841,458







**20.**  **ESTIMATED
      FAIR VALUE OF FINANCIAL INSTRUMENTS**




The
      carrying value approximates the fair value due to the nature of the following
      accounts:




·
            Cash
                and cash equivalents


·
            Restricted
                cash




The
      fair
      value of the creditor notes payable and related accrued interest was determined
      by discounting estimated future cash payments at appropriate discount rates.
      The
      following table represents the estimated fair value for creditor notes payable
      and related accrued interest at December 31 (in thousands):




**2006**
            
            **2005****Carrying**
            
            **Fair**
            
            **Carrying**
            
            **Fair****Amount**
            
            **Value**
            
            **Amount**
            
            **Value**Creditor
                  notes payable and related accrued
                  interest
            
            
            $1,484
            
            
            $2,512
            
            
            $2,008
            
            
            $1,972










81





The
      fair
      value of securitized finance receivables-net, was estimated by discounting
      the
      future cash flows, which were reduced by estimated credit losses for the life
      of
      the receivables, using the current interest rates at which similar loans would
      be made to borrowers with similar credit ratings and for the same remaining
      maturities and was approximately $0.1 million greater than the carrying amount
      as of December 31, 2006 and 2005.




The
      fair
      value of collateralized financings was determined by discounting estimated
      future cash payments at appropriate discount rates and was $0.3 million and
      $7.1
      million less than the carrying amount at December 31, 2006 and 2005,
      respectively.




The
      fair
      value of beneficial interest in Master Trust is calculated by discounting the
      estimated cash flows released from the Master Trust Account using a discount
      rate that UAC believes is commensurate with the risks involved. An allowance
      for
      estimated credit losses is established and applied. Discount rates utilized
      are
      based upon current market conditions and prepayment assumptions are based on
      historical performance experience. See Notes 2 and 6 for a detailed
      discussion of each of the components of the fair value of beneficial interest
      in
      Master Trust.




Finance
      receivables-net and subordinated debentures approximate the fair value due
      to
      minimal change in interest rates related to these types of accounts.




**21.**  **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
        $0.6 million for the year ended December 31, 2006. The following table
        represents obligations under current operating lease agreements (in
        thousands):




**Year**
            **Total**2007
            $5332008
            4252009
            2752010
            212011
            -Thereafter
            -




82





**22.**  **SUBSEQUENT
      EVENTS**




Effective
      January 1, 2007, the line of credit was extended two years. The new maturity
      date for the line of credit is December 31, 2011. In addition, the interest
      rate
      has been reduced to LIBOR plus 2.60%.




On
      January 3, 2007, White River issued 21,320 shares of common stock to certain
      employees as part of stock awards in accordance with agreements under the 2005
      Stock Incentive Plan.




On
      January 3, 2007, UAC received net sales tax refund proceeds totaling $323,000
      from the state of California related to charged-off loans that were originated
      in California. $146,000 of the sales tax refund proceeds related to securitized
      receivables and was transferred to the Master Trust Account.




On
      January 5, 2007, UAC has “fully administered” its Chapter 11 plan of
      reorganization and the U.S. Bankruptcy Court for the Southern District of
      Indiana issued a final decree and closed UAC’s Chapter 11 bankruptcy
      case.




On
      February 16, 2007, UAC sold charged-off loans that have deficiency balances
      remaining to a third party (the “Buyer”) for $169,000, net of broker fees. Of
      the proceeds received, $120,000, net of broker fees, was collateral for the
      various securitization pools and these funds were deposited in the Master Trust
      Account. The Buyer has sixty days from the date of Purchase to notify UAC of
      non-conforming accounts.




On
      March
      7, 2007 White River issued 5,012 shares to directors in accordance with the
      Directors Stock Compensation Plan for services rendered during
      2006.






**ITEM** **9A.
      CONTROLS AND PROCEDURES**




White
      River carried out an evaluation, under the supervision of its Chief Executive
      Officer, President and Chief Financial Officer, of the effectiveness of the
      design and operation of White River’s disclosure controls and procedures
      pursuant to Exchange Act Rule 13a-15 and 15d-15 as of December 31, 2006. Based
      upon that evaluation, the Chief Executive Officer, President and Chief Financial
      Officer concluded that, at December 31, 2006, White River’s disclosure controls
      and procedures are effective in accumulating and communicating to management
      (including such officers) the information required to be included in White
      River’s periodic SEC filings.




White
      River’s management, including its Chief Executive Officer, President and Chief
      Financial Officer also have concluded that during White River’s fiscal quarter
      ended December 31, 2006, 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.












83





**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 2007 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 “Compensation Discussion and Analysis,” “Executive
      Compensation” and “Compensation of Directors” in the Proxy Statement is
      incorporated herein by reference.







84







**ITEM** **12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSS 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, 2006, the following shares were authorized to be issued under
      White
      River’s equity compensation plans :


**Equity
                      Compensation Plan Information****Plan
                      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
                      issuance**Equity
                      compensation plans approved by security holders
                  
                  
                  236,4001
                  
                  $
                  10.002
                  
                  
                  210,6003Equity
                      compensation plans not approved by security holders
                  
                  
                  0
                  
                  
                  0
                  
                  
                  0Total
                  
                  
                  236,4001
                  
                  $
                  10.002
                  
                  
                  210,6003


1  Includes
      86,400 shares issuable pursuant to outstanding performance awards under the
      2005
      Stock Incentive Plan and 150,000 shares issuable upon exercise of outstanding
      warrants.


2 Based on
      the exercise price of the outstanding warrants only and does not take into
      account the shares issuable pursuant to outstanding performance awards.


3
      Includes 163,600 shares issuable pursuant to the 2005 Stock Incentive Plan
      in
      the form of stock options, restricted stock awards, or performance stock awards,
      and 47,000 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.







85





**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 Share Exchange dated March 9, 2005 between registrant
                and
                Union Acceptance Corporation (incorporated by reference to Exhibit
                2.1 of
                registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))2.2
            Limited
                Liability Company Interests Purchase Agreement dated March 9, 2005
                among
                registrant, Coastal Credit, LLC and the members of Coastal Credit,
                LLC
                (incorporated by reference to Exhibit 2.2 of registrant’s Registration
                Statement on Form S-1/S-4 (Reg. No. 333-123909))3.1
            Articles
                of Incorporation of registrant (incorporated by reference to Exhibit
                3.1
                of registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))3.2
            Code
                of By-laws of registrant (incorporated by reference to Exhibit 3.2
                of
                registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))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 (contained in registrant’s Articles
                of Incorporation filed with this annual report as Exhibit
                3.1)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 (contained in registrant’s Code of By-laws filed with this
                annual report as Exhibit 3.2)4.4(a)
            Note
                Purchase Agreement dated March 9, 2005, between registrant and the
                note
                purchaser named therein (incorporated by reference to Exhibit 4.4(a)
                of
                registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))4.4(b)
            Form
                of Secured Note of registrant due April 1, 2010 (incorporated by
                reference
                to Exhibit 4.4(b) of registrant’s Registration Statement on Form S-1/S-4
                (Reg. No. 333-123909))4.4(c)
            Form
                of Subordinated Guaranty between Coastal Credit, LLC and the note
                purchaser (incorporated by reference to Exhibit 4.4(c) of registrant’s
                Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))4.4(d)
            Form
                of Pledge Agreement between the registrant and the note purchaser
                (incorporated by reference to Exhibit 4.4(d) of registrant’s Registration
                Statement on Form S-1/S-4 (Reg. No.
                333-123909))






86




4.5(a)
            Revolving
                Note of registrant dated April 21, 2005 (incorporated by reference
                to
                Exhibit 4.5(a) of registrant’s Registration Statement on Form S-1/S-4
                (Reg. No. 333-123909))4.5(b)
            Revolving
                Note of registrant dated April 21, 2005 (incorporated by reference
                to
                Exhibit 4.5(b) of registrant’s Registration Statement on Form S-1/S-4
                (Reg. No. 333-123909))4.6
            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))4.7(a)
            Note
                Purchase Agreement dated October 7, 2003, among UAC Securitization
                Corporation, Wachovia Capital Markets, LLC, the note purchasers named
                therein, Wachovia Bank, National Association and Variable Funding
                Capital
                Corporation (incorporated by reference to Exhibit 4.7(a) of registrant’s
                Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))4.7(b)
            Indenture
                dated October 7, 2003 among UAC Securitization Corporation, Wilmington
                Trust Company and JPMorgan Chase Bank (related to UAC Securitization
                Corporation Asset-Backed Notes) (incorporated by reference to Exhibit
                4.7(b) of registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))4.7(c)
            UAC
                Securitization Corporation Series 2003-A Asset Backed Note (incorporated
                by reference to Exhibit 4.7(c) of registrant’s Registration Statement on
                Form S-1/S-4 (Reg. No. 333-123909))4.7(d)
            UAC
                Securitization Corporation Series 2004-A, Class A-1 Asset Backed
                Note
                (incorporated by reference to Exhibit 4.7(d) of registrant’s Registration
                Statement on Form S-1/S-4 (Reg. No. 333-123909))4.7(e)
            UAC
                Securitization Corporation Series 2004-A, Class A-2 Asset Backed
                Note
                (incorporated by reference to Exhibit 4.7(e) of registrant’s Registration
                Statement on Form S-1/S-4 (Reg. No. 333-123909))4.7(f)
            UAC
                Securitization Corporation Series 2004-B Asset Backed Note (incorporated
                by reference to Exhibit 4.7(f) of registrant’s Registration Statement on
                Form S-1/S-4 (Reg. No. 333-123909))4.7(g)
            UAC
                Securitization Corporation Series 2004-C Asset Backed Note (incorporated
                by reference to Exhibit 4.7(g) of registrant’s Registration Statement on
                Form S-1/S-4 (Reg. No. 333-123909))4.7(h)
            UAC
                Securitization Corporation Series 2005-A Asset Backed Note (incorporated
                by reference to Exhibit 4.7(h) of registrant’s Registration Statement on
                Form S-1/S-4 (Reg. No. 333-123909))4.7(i)
            UAC
                Securitization Corporation Series 2005-B Asset Backed Note (incorporated
                by reference to Exhibit 4.7(i) of registrant’s Registration Statement on
                Form S-1/S-4 (Reg. No. 333-123909))4.8(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))4.8(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))4.8(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)






87




4.8(d)
            Third
                Amendment to Finance Agreement, dated January 2, 2007, between Coastal
                Credit LLC and Wells Fargo Financial Preferred Capital,
                Inc.4.9
            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))4.10(a)
            Secured
                Bridge Note of registrant, dated June 22, 2005, to Castle Creek Capital
                Partners Fund IIa (incorporated by reference to Exhibit 4.10(a) of
                registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))4.10(b)
            Secured
                Bridge Note of registrant, dated June 22, 2005, to Castle Creek Capital
                Partners Fund IIb (incorporated by reference to Exhibit 4.10(b) of
                registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))4.10(c)
            Pledge
                and Security Agreement, dated June 22, 2005, among registrant, Castle
                Creek Capital, LLC, Castle Creek Capital Partners Fund IIa and Castle
                Creek Capital Partners Fund IIb (incorporated by reference to Exhibit
                4.10(c) of registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))10.1
            Warrant
                Issuance Agreement dated March 9, 2005, between registrant, Union
                Acceptance Corporation, Castle Creek Capital, L.L.C., Castle Creek
                Capital
                Partners Fund IIa, LP and Castle Creek Capital Partners Fund IIb,
                LP, as
                amended (incorporated by reference to Exhibit 10.1 of registrant’s
                Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))10.2
            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))10.3
            Form
                of Tender Agreement for Restructured Senior Noteholders of Union
                Acceptance Corporation (incorporated by reference to Exhibit 10.3
                of
                registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))10.4
            Form
                of Tender Agreement for Restructured Subordinated Noteholders of
                Union
                Acceptance Corporation (incorporated by reference to Exhibit 10.4
                of
                registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))10.5
            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))10.6(a)
            Employment
                Agreement dated April 1, 1998, between Coastal Credit, LLC and William
                E.
                McKnight (incorporated by reference to Exhibit 10.6 of registrant’s
                Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))10.6(b)
            Restated
                Employment Agreement, as of December 28, 2005, between William E.
                McKnight
                and Coastal Credit LLC (incorporated by reference to Exhibit 10.1
                of
                registrant’s Form 8-K filed January 10, 200610.7(a)
            Master
                Trust Account Agreement dated April 17, 2003 among Union Acceptance
                Corporation, UAC Securitization Corporation, Performance Securitization
                Corporation, Official Committee of Unsecured Creditors of Union Acceptance
                Corporation, MBIA Insurance Corporation, BNY Midwest Trust Company,
                The
                Bank of New York, Systems & Services Technologies, Inc., JPMorgan
                Chase Bank and Wilmington Trust Company (incorporated by reference
                to
                Exhibit 10.7(1b) of registrant’s Registration Statement on Form S-1/S-4
                (Reg. No. 333-123909))10.7(b)
            Amendment
                No. 1 to Master Trust Account Agreement dated October 7, 2003
                (incorporated by reference to Exhibit 10.7(b) of registrant’s Registration
                Statement on Form S-1/S-4 (Reg. No.
                333-123909))






88




10.7(c)
            Amendment
                No. 2 to Master Trust Account Agreement dated May 21, 2004 (incorporated
                by reference to Exhibit 10.7(c) of registrant’s Registration Statement on
                Form S-1/S-4 (Reg. No. 333-123909))10.7(d)
            Amendment
                No. 3 to Master Trust Account Agreement dated August 1, 2004 (incorporated
                by reference to Exhibit 10.7(d) of registrant’s Registration Statement on
                Form S-1/S-4 (Reg. No. 333-123909))10.8
            Servicing
                Transfer Agreement dated April 17, 2003, among Union Acceptance
                Corporation, UAC Securitization Corporation, Performance Securitization
                Corporation, Systems & Services Technologies, Inc., MBIA Insurance
                Corporation and the Official Committee of Unsecured Creditors of
                Union
                Acceptance Corporation (incorporated by reference to Exhibit 10.8
                of
                registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
                333-123909))10.9
            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))10.10
            Letter
                Agreement between registrant and Martin J. Szumski dated April 8,
                2005
                (incorporated by reference to Exhibit 10.10 of registrant’s Registration
                Statement on Form S-1/S-4 (Reg. No. 333-123909))10.11
            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)10.12
            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 Deloitte & Touche 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







89





**SIGNATURES**




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




**White
                River Capital, Inc.**(Registrant)March
                16, 2007
            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
                  16, 2007John
                  M. Eggemeyer/s/
                Mark R. Ruh
              
              President,
                  Chief Operating Officer and Director
              
              March
                  16, 2007Mark
                  R. Ruh/s/ Martin
                J.
                Szumski
              
              Chief
                  Financial Officer (Principal Financial Officer and Principal Accounting
                  Officer)
              
              March
                  16, 2007Martin
                  J. Szumski/s/
Thomas
                C. Heagy
              
              Director
              
              March
                  16, 2007Thomas
                  C. Heagy/s/
                William E. McKnight
              
              Director
              
              March
                  16, 2007William
                  E. McKnight/s/
                Daniel W. Porter
              
              Director
              
              March
                  16, 2007Daniel
                  W. Porter/s/
                John W. Rose
              
              Director
              
              March
                  16, 2007John
                  W. Rose/s/
Richard
                D. Waterfield
              
              
              
              March
                  16, 2007Richard
                  D. Waterfield
              
              Director









90