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, 2008




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




Commission
file number: 001-33257




White
River Capital, Inc.


(Exact
name of registrant as specified in its charter)




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







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
            NYSE
      Alternext USSecurities
      registered pursuant to Section 12(g) of the Act:   None.







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




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




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











Indicate
by check mark 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.      x




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




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







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




The
aggregate market value of the registrant’s voting common stock held by
non-affiliates, computed by reference to the price at which the common stock was
last sold as of June 30, 2008 was $38.6 million.  The registrant does
not have any non-voting common equity securities.




As of
March 6, 2009, there were 4,060,586 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 2009 Annual
Meeting of Shareholders, which the registrant will file with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year, is incorporated by reference in Part III of this Form
10-K.







-
INDEX -









PAGEPART
      IItem
      1.
              Business
              1Item
      1A.
              Risk
      Factors
              11Item
      1B.
              Unresolved
      Staff Comments
              11Item
      2.
              Properties
              11Item
      3.
              Legal
      Proceedings
              12Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              12PART
      IIItem
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              13Item
      6.
              Selected
      Financial Data
              19Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
              19Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              29Item
      8.
              Financial
      Statements and Supplementary Data
              30Report
      of Independent Registered Public Accounting Firm – McGladrey & Pullen
      LLP
              30Audited
      Consolidated Balance Sheets as of December 31, 2008 and
    2007
              31Audited
      Consolidated Statements of Operations for the Years Ended December 31,
      2008 and 2007
              32Audited
      Consolidated Statements of Shareholders’ Equity for the Years Ended
      December 31, 2008 and 2007
              33Audited
      Consolidated Statements of Cash Flows for the Years Ended December 31,
      2008 and 2007
              34Notes
      to Audited Consolidated Financial Statements
              35





i





Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              53Item
      9A(T).
              Controls
      and Procedures
              53Item
      9B.
              Other
      Information
              53PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              54Item
      11.
              Executive
      Compensation
              54Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management  and
      Related Stockholder Matters
              55Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              55Item
      14.
              Principal
      Accountant Fees and Services
              55PART
      IVItem
      15.
              Exhibits
      and Financial Statement Schedules
              56SIGNATURES
              58












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 21 states through 18 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 its remaining assets as contractually required under the
Plan.




White
River’s net interest income after provision for estimated losses was $27.2
million for the year ended December 31, 2008.  Net loss for this same
period was $14.4 million.  At December 31, 2008, total assets were
$138.8 million.




On June
27, 2008, White River and First Chicago Bancorp (“First Chicago”) signed a
definitive agreement and plan of merger pursuant to which First Chicago will
merge into White River.  Terms of the agreement call for shareholders
of First Chicago to receive one share of White River common stock for each two
shares of First Chicago common stock.  Subject to consummation of the
merger and effective registration of the shares of common stock to be issued to
First Chicago’s shareholders in the merger with the U.S. Securities and Exchange
Commission (“SEC”), and approval for listing of such shares with the NYSE
Alternext US (“NYSE Alternext”) the common stock issued to First Chicago
shareholders will be listed on the NYSE Alternext.  White River does
not anticipate that the merger will be consummated on the terms reflected in the
merger agreement as initially executed and is engaging in discussions with First
Chicago regarding possible alternative transaction terms (including a change of
the exchange ratio).




1


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 21 states – Alaska, Arizona, California, Colorado, Delaware,
Florida, Georgia, Hawaii, Louisiana, Maryland, Mississippi, Nevada, New Mexico,
North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and
Washington – through its 18 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.




A
significant number of contracts acquired by Coastal Credit are contracts made
with borrowers who are in the United States military. During 2008, 34.6% of new
originations were made with these borrowers. Coastal Credit believes that having
in its portfolio a significant percentage of contracts for which the borrowers
are United States military personnel contributes to lower payment delinquency
and higher collection personnel efficiencies. Coastal Credit requests all
borrowers who are in the military to use the military allotment system to make
payments on their contracts. Under this allotment system, the borrower
authorizes the military to make a payroll deduction for the amount of the
borrower’s monthly contract payment and to direct this deduction payment to
Coastal Credit on behalf of the borrower. Delinquency of payments on contracts
paid by allotment historically has been less than delinquency of payments on
contracts not paid by allotment. As a result, the collection effort associated
with the military contracts requires substantially less time, allowing Coastal
Credit’s collection staff to focus on an increased number of civilian sector
contracts.




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




Acquisition
of Automobile Finance Contracts




Coastal
Credit currently conducts its automobile finance programs in 21 states through a
total of 18 branches, with two branches in each of Florida, Georgia,
Mississippi, Nevada, and Virginia, and one branch in each of California,
Colorado, Delaware, Louisiana, 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, 2008, Coastal Credit had non-exclusive
agreements with approximately 1,500 dealers, of which approximately 600 are
active. Coastal Credit considers a dealer agreement to be active if Coastal
Credit has acquired a contract under the dealer agreement in the last nine
months. After Coastal Credit acquires a contract from a dealer, the dealer is no
longer involved in the relationship between Coastal Credit and the borrower,
other than through the existence of limited representations and warranties of
the dealer.




2


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, 2008, Coastal Credit’s contract portfolio consisted exclusively of
contracts acquired by Coastal Credit without credit recourse to the dealer.
Although all the contracts in Coastal Credit’s contract portfolio were acquired
without credit recourse, each dealer remains liable to Coastal Credit for
liabilities arising from any breach of certain representations and warranties
made by the dealer with respect to compliance with applicable federal and state
laws and valid title to the vehicle.




Coastal
Credit’s policy is to acquire a contract only after the dealer has provided
Coastal Credit with the requisite proof that Coastal Credit will have a first
priority lien on the financed vehicle, that the borrower has obtained the
required collision insurance naming Coastal Credit as loss payee and that the
contract has been fully and accurately completed and validly executed. Once
Coastal Credit has received and approved all required documents, Coastal Credit
purchases the contract and begins servicing the contract.




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




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


·
            Gap
      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.







3




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.




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




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




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




4


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, Tennessee and Virginia.


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


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


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




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




Servicing,
Monitoring and Enforcement of Contracts




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




To
protect its collateral in financed vehicles, Coastal Credit requires all
borrowers to obtain and maintain collision insurance covering damage to the
vehicle and naming Coastal Credit as the loss payee. The insurance 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).




5


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.




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.




6


In
addition, the branch managers and Coastal Credit’s senior management review each
account that is 60 days past due to determine whether the contract should be
charged off. Coastal Credit requires mandatory charge off of all contracts when
60 days have passed since the most recent payment and/or the contract is 180
days delinquent per the contract terms. All charged off loans are transferred to
a Profit and Loss (P&L) Department. The P&L Department attempts to
collect the contract until the borrower has paid the contract or all legal
remedies have been exhausted. Historically, Coastal Credit has recovered
approximately 25% of deficiencies from such borrowers. Proceeds from the
disposition of the vehicles are not included in calculating the foregoing
percentage range.




Marketing
and Advertising




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




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.




7


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, Colorado, Delaware, Florida, Georgia,
Louisiana, Mississippi, Nevada, Ohio, Oklahoma, Pennsylvania, Texas and
Virginia.




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




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




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




State
                                              
                                              LicenseArizona
                                              
                                              Sales
      Finance Company LicenseDelaware
                                              
                                              Motor
      Vehicle Sales Finance LicenseFlorida
                                              
                                              Sales
      Finance Company LicenseLouisiana
                                              
                                              Sales
      Finance Company LicenseMaryland
                                              
                                              Sales
      Finance LicenseMississippi
                                              
                                              Motor
      Vehicle Sales Finance LicenseOklahoma
                                              
                                              Supervised
      Lender LicensePennsylvania
                                              
                                              Sales
      Finance Company LicenseTexas
                                              
                                              Motor
      Vehicle Sales Finance License





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




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




8


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




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




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




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




·
            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, 2008,
Coastal Credit employed approximately 130 persons.






UNION
ACCEPTANCE COMPANY LLC




Historical
Business of UAC




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




9


In
December 2007, UAC redeemed all of its outstanding
securitizations.  Until that date, UAC, through its wholly owned
special purpose subsidiary, UAC Securitization Corporation (“UACSC”), continued
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 became available from securitizations after
obligations required to be satisfied by these securitizations and non-recourse
financings were paid. The retained interest is discussed in more detail under
the heading “The Retained Interest–Cash Flows from Securitizations”
below.




The
UAC Bankruptcy Case




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




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




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, 2008
                                        
                                        
                                        December
      31, 2007Carrying
      Value
                                        
                                        
                                        Contractual
      Remaining Debt Not Owned by White River
                                        
                                        
                                        Total
      Contractual Remaining Debt
                                        
                                        
                                        Carrying
      Value
                                        
                                        
                                        Contractual
      Remaining Debt Not Owned by White River
                                        
                                        
                                        Total
      Contractual Remaining DebtRestructured
      debt:Class
      2A general unsecured claims
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        54
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        454Restructured
      subordinated notes
                                        
                                        
                                        128
                                        
                                        
                                        
                                        1,618
                                        
                                        
                                        
                                        14,888
                                        
                                        
                                        
                                        1,324
                                        
                                        
                                        
                                        4,106
                                        
                                        
                                        
                                        25,156Senior
      accrual notes
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        4,106
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        4,106Subordinated
      accrual notes
                                        
                                        
                                        —
                                        
                                        
                                        
                                        431
                                        
                                        
                                        
                                        3,964
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        431
                                        
                                        
                                        
                                        3,964Total
      creditor notes payable
                                        
                                        $
                                        128
                                        
                                        
                                        $
                                        2,049
                                        
                                        
                                        $
                                        23,012
                                        
                                        
                                        $
                                        1,324
                                        
                                        
                                        $
                                        4,537
                                        
                                        
                                        $
                                        33,680
 
   10
  The
Retained Interest - Cash Flows from Securitizations
  In
connection with the transfer of servicing of its securitized receivables in the
bankruptcy, UAC and its subsidiaries entered into agreements with Systems and
Services Technologies, Inc. (“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. In addition, a Master Trust Account was created pursuant to a Master
Trust Account Agreement. The Master Trust Account served effectively to
cross-collateralize the securitization trusts and non-recourse financings of UAC
receivables. The residual cash flows from the securitizations were paid through
the Master Trust Account.
  On
December 10, 2007, UAC prepaid in full the collateralized financing debt of the
securitized finance receivables using cash collateral of the individual
securitizations and cash in the Master Trust Account.  Upon completion
of the prepayment of this debt, the securitization agreements and the Master
Trust Account Agreement were terminated and the receivable collateral is now
owned outright by UAC and continues to be serviced by SST.
  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 two
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;
 ·
              managing
      deficiency account collections requiring legal action;
  and
 ·
              holding
      portfolios of automobile receivables that it had initially acquired prior
      to the Bankruptcy Case.
  UAC
finance receivables were $1.1 million at December 31, 2008.
   ITEM
1A.  RISK FACTORS
  Not
applicable.
   ITEM
1B.  UNRESOLVED STAFF COMMENTS
  Not
applicable.
   ITEM
2.  PROPERTIES
  White
River and its subsidiaries lease our headquarters and branch office facilities.
White River’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 June 30, 2009.
  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.
   11
  Coastal
Credit’s 18 branch offices located in California, Colorado, 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.
   ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  No
matters were submitted to a vote of security holders during the fourth quarter
2008.
   12
  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 NYSE
Alternext, formerly known as 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 6, 2009, there were 4,060,586
shares of common stock outstanding and approximately 130 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 550 beneficial owners as of such
date.
  The
following table sets forth the range of the high, low and closing sale prices
for White River’s common stock as reported on the NYSE Alternext beginning
January 19, 2007 and on the Pink Sheets prior to that date:
  High
                                          
                                          
                                          Low
                                          
                                          
                                          CloseFiscal
      year ended December 31, 2007First
      Quarter
                                          
                                          $
                                          25.00
                                          
                                          
                                          $
                                          17.00
                                          
                                          
                                          $
                                          23.40Second
      Quarter
                                          
                                          
                                          24.80
                                          
                                          
                                          
                                          23.20
                                          
                                          
                                          
                                          24.25Third
      Quarter
                                          
                                          
                                          24.40
                                          
                                          
                                          
                                          20.75
                                          
                                          
                                          
                                          21.25Fourth
      Quarter
                                          
                                          
                                          21.50
                                          
                                          
                                          
                                          18.00
                                          
                                          
                                          
                                          18.30Fiscal
      year ended December 31, 2008First
      Quarter
                                          
                                          $
                                          19.43
                                          
                                          
                                          $
                                          15.26
                                          
                                          
                                          $
                                          16.20Second
      Quarter
                                          
                                          
                                          17.00
                                          
                                          
                                          
                                          12.48
                                          
                                          
                                          
                                          15.30Third
      Quarter
                                          
                                          
                                          16.40
                                          
                                          
                                          
                                          13.27
                                          
                                          
                                          
                                          13.75Fourth
      Quarter
                                          
                                          
                                          14.50
                                          
                                          
                                          
                                          3.98
                                          
                                          
                                          
                                          6.50
 
  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 operating agreement 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.
   13
  Summary
of Transfer Restrictions and Related Provisions
  General
  The
following is a summary of the material transfer restrictions set forth in
Article 10 of White River’s articles of incorporation. The following summary is
not complete. The transfer restrictions apply to transfers of White River’s
common stock and any other instrument that would be treated as “stock,” as
determined under applicable Treasury Regulations. The transfer restrictions will
apply until the earlier of:
  ·
              the
      repeal by the Internal Revenue Service of the NOL carryforward limitations
      in the Code if White River’s board of directors determines the transfer
      restrictions are no longer necessary for the preservation of the tax
      benefits; and
  ·
              the
      beginning of a taxable year of White River to which White River’s board
      determines that no tax benefits may be carried
  forward.
  However,
White River’s board of directors will have the power to extend the expiration
date of the transfer restrictions if it determines in writing that such action
is reasonably necessary or desirable to preserve the tax benefits or to
accelerate the expiration date if it determines in writing that the continuation
of the transfer restrictions is no longer reasonably necessary for the
preservation of the tax benefits. This power is vested in White River’s board of
directors to ensure that White River retains the power to make, in light of all
relevant circumstances, including positions that might be taken by tax
authorities and contested by White River, the complex determination whether the
tax benefits have been fully used or are otherwise available.
  Prohibited
Transfers
  The
transfer restrictions generally prohibit any conveyance, from one person to
another, by any means, of legal or beneficial ownership, directly or indirectly,
of any class of White River stock including indirect transfers of White River
stock, accomplished by transferring interests in other entities that own White
River stock, to the extent that the transfer, if effective:
  ·
              would
      create a new “public group” of White River. For example, the transfer of
      stock by an existing 5-percent shareholder to the public would be deemed
      to result in the creation of a separate, segregated “public group” that
      would be a new 5-percent
shareholder;
  ·
              would
      give rise to a “prohibited ownership percentage,” which is defined by
      reference to complex federal tax laws and regulations, but generally means
      any direct or indirect ownership that would cause any person, including a
      “public group” as defined in the NOL carryforward limitations, to be
      considered a 5-percent shareholder of White River. By way of example, if
      shareholder A owns 4% of White River’s outstanding shares of common stock,
      and shareholder B attempted to sell 2% of White River’s outstanding shares
      to shareholder A, the transfer restrictions would prohibit the sale of
      approximately 1.1% of the shares out of the 2% attempted to be sold;
      or
  ·
              would
      increase the ownership percentage of any person, including a public group
      that is already a 5-percent shareholder of White River. Therefore, no
      shareholder will be permitted to sell any shares to 5-percent holders or
      their affiliates without board
approval.
   14
  White
River will be entitled to require, as a condition to the registration of any
transfer of stock, that the proposed transferee furnish to White River all
information reasonably requested by it with respect to all the direct and
indirect legal or beneficial ownership interest in, or options to acquire, stock
of the proposed transferee and its affiliates. White River’s Articles and Code
of By-laws provide for specific shareholder ownership disclosure procedures as
an additional measure available to White River to protect against prohibited
transfers.
  Exemptive
Power of White River’s Board
  White
River’s board of directors has the power to approve any otherwise prohibited
transfer, conditionally or unconditionally, if it determines, in its discretion,
that a specific proposed transaction will not jeopardize White River’s full use
of the tax benefits. In addition, White River’s board of directors has the power
to waive any of the transfer restrictions in any instance where it determines
that a waiver would be in the best interests of White River despite the effect
of the waiver on the tax benefits.
  Consequences
of Purported Prohibited Transfer
  Unless
approved by White River’s board of directors, any attempted transfer in excess
of the shares of White River stock that could be transferred without restriction
will be void and will not be effective to transfer ownership of such excess
shares. Further, the purported acquiror of the excess shares will not be
entitled to any rights as a shareholder of White River with respect to the
excess shares.
  In the
case of an attempted transfer that creates a new 5-percent shareholder,
increases the ownership of an existing 5-percent shareholder, or causes a person
or public group to become a new 5-percent shareholder, White River will have the
right to demand that the new 5-percent shareholder or existing 5-percent
shareholder, as the case may be, transfer any certificate or other evidence of
purported ownership of the prohibited shares within the party’s possession or
control, along with any dividends or other distributions received on the
prohibited shares from White River, to an agent designated by White River who
will be required to sell the prohibited shares in an arm’s-length transaction,
in the public market, if possible, but in any event consistent with applicable
law. The agent will be required to pay the sale proceeds in excess of the sum of
the agent’s expenses plus the purchase price paid by the purported acquiror for
the prohibited shares (or the fair market value of the prohibited shares if they
were the subject of a gift or inheritance in favor of the purported acquiror),
as well as all prohibited distributions, to a tax-exempt charitable organization
designated by White River. If the purported acquiror has sold the prohibited
shares to an unrelated party in an arm’s-length transaction, the purported
acquiror will be deemed to have done so for the agent, who will have the right
to allow the purported acquiror to retain a portion of the resale proceeds not
exceeding the amount that the agent would have been required to remit to the
purported acquiror out of the proceeds of a resale by the agent. Any purported
transfer of the prohibited shares by the purported acquiror, other than a
transfer that is described in the preceding sentences of this paragraph and that
does not itself violate the transfer restrictions, will not be effective to
transfer any ownership of the prohibited shares.
  In
addition to the powers of White River’s board of directors described above, if
the board determines that a purported prohibited transfer or other action in
violation of the transfer restrictions has occurred or is proposed, it may take
such action as it deems advisable to prevent or refuse to give effect to such
purported transfer or other action, including refusing to give effect to the
purported transfer or other action on White River’s books or instituting
injunctive proceedings.
  If any
person knowingly violates the transfer restrictions or knowingly causes any
entity under such person’s control to do so, such person and, if applicable, the
controlled entity will be jointly and severally liable to White River in such
amount as will put White River in the same financial position, on an after-tax
basis, as it would have been had such violation not occurred.
   15
  With
respect to any conveyance of White River common stock that does not involve a
transfer of “securities” of White River within the meaning of the Indiana
Business Corporation Law, but that would create a new 5-percent shareholder,
increase the ownership of an existing 5-percent shareholder or create a new
public group, the following procedure will apply. The person or group will not
be required to dispose of any interest that is not a security of White River,
but will be deemed to have disposed of, and will be required to dispose of,
sufficient shares, simultaneously with the transfer, to cause the person or
group not to be in violation of the transfer restrictions. The shares will be
disposed of through the agent under the provisions summarized above, with the
maximum amount payable to the prohibited party from the proceeds of sale by the
agent being the fair market value of the prohibited shares at the time of the
prohibited transfer.
  Other
Powers of White River’s Board
  White
River’s board of directors has the power:
  ·
              to
      accelerate or extend the expiration date of the transfer restrictions,
      modify the definitions of any terms set forth in White River’s articles of
      incorporation with respect to the transfer restrictions or conform certain
      provisions to make them consistent with any future changes in federal tax
      law, in the event of a change in law or regulation or if it otherwise
      believes such action is in the best interests of White River, provided
      White River’s board of directors determines in writing that such action is
      reasonably necessary or desirable to preserve the tax benefits or that
      continuation of the transfer restrictions is no longer reasonably
      necessary for the preservation of the tax
  benefits;
  ·
              to
      adopt by-laws, regulations and procedures, not inconsistent with the
      transfer restrictions, for purposes of determining whether any acquisition
      of White River common stock would jeopardize the ability of White River to
      preserve and use the tax benefits and for the orderly application,
      administration and implementation of the transfer restrictions;
      and
  ·
              to
      administer, interpret and make calculations under the transfer
      restrictions, which power it may delegate in whole or in part to a
      committee of White River’s board of directors, and which actions shall be
      final and binding on all parties if made in good
  faith.
  Disclosure
Procedures
  The
following is a summary of the shareholder disclosure and ownership procedures
adopted by White River’s board of directors and set forth in Article III,
Section 14 of White River’s Code of By-laws, in accordance with authority and
direction granted in Section 6.08 of White River’s Articles of Incorporation.
The following is a summary and does not completely restate the provisions of
Article III, Section 14 of the Code of By-laws. You should read Article III,
Section 14 of the Code of By-laws in its entirety.
  The
shareholder disclosure and ownership procedures have the following
purposes:
  ·
              to
      preserve important characteristics of White River for federal income tax
      purposes and, in particular, the
NOLs;
  ·
              to
      protect White River and its shareholders against undisclosed efforts to
      assume or influence control of White River, its operations and policies;
      and
  ·
              to
      facilitate communication among White River and its
      shareholders.
   16
  The
disclosure and ownership procedures apply to all holders and beneficial owners
of White River’s outstanding shares of common stock. “Beneficial owner”
generally refers to a person to whom the economic value of the shares of common
stock ultimately inures and who has the power directly or indirectly to dispose
of the shares of common stock.
  From the
date shares of common stock were first issued by White River until December 31,
2015, every beneficial owner of more than 4.5% of the outstanding shares of
common stock within thirty (30) days after the end of each fiscal quarter, shall
give written notice to White River stating the name and address of such owner,
the number of shares beneficially owned and a description of the manner in which
such shares are held. In addition, each such beneficial owner must provide
additional ownership information reasonably requested by White River in order to
determine the effect, if any, of such beneficial ownership on White River’s
federal income tax characteristics (including ownership changes that have
occurred or may occur for purposes of Section 382 of the Code), or on control of
White River’s outstanding shares, or to ensure compliance with the Code of
By-laws.
  The
disclosure procedures also require each person who is a beneficial owner of
shares and, to the extent permitted by law, each person (including the
shareholder of record) holding shares for a beneficial owner or as nominee to
provide or confirm to White River such information relating to a beneficial
owner’s present and past beneficial ownership of shares or changes in that
ownership to the extent the information is in the person’s possession or can be
acquired without unreasonable expense. White River may request this information,
in good faith, in order to determine the effect, if any, on White River’s
federal income tax characteristics (including ownership changes that have
occurred or may occur for purposes of Section 382 of the Code) or on control of
White River’s outstanding shares, or to determine compliance with requirements
of any taxing authority or governmental authority, or to determine compliance
with White River’s Articles of Incorporation or Code of By-laws.
  The
procedures do not require information to be reported that a beneficial owner has
previously reported to White River or that has been previously reported on the
beneficial owner’s behalf. If there has been no change in information previously
reported, a person does not need to report it again unless White River requests
confirmation. The procedures also will not require the disclosure of the names
of the beneficial owners of a private trust created in good faith and not for
the purpose of circumventing the White River Articles of Incorporation or Code
of By-laws.
  Disclosure
Compliance
  To ensure
compliance with the disclosure procedures, the following sanctions are available
to White River:
  Distributions Withheld. White
River shall withhold payment of any dividend or distribution otherwise payable
in respect of shares (or property or securities into which such shares may be
converted or for which they may be exchanged in a merger or share exchange
transaction) if the beneficial owner of the shares has failed, or White River
reasonably believes it has failed, to comply with these disclosure procedures.
Such distributions or property shall be payable only at such time as the subject
beneficial owner has complied with the disclosure procedures. However, if the
distribution is to be made with respect to subscription rights or similar
time-sensitive rights that required action or exercise by the beneficial owner
before a time that has passed or elapsed, such rights shall be deemed expired
and the beneficial owner shall be deemed to have elected to forfeit such
rights.
   17
  Vote Disregarded. White River
shall disregard the affirmative vote on any action by shareholders on any
matter, whether at a meeting or by written consent, purported to be cast in
respect of shares if the holder or beneficial owner of the shares has failed, or
White River reasonably believes it has failed, to comply with these disclosure
procedures, unless such vote is cast in a manner consistent with a
recommendation of the board of directors in respect of such matter. These shares
will still be counted, however, in determining the presence of a quorum if the
shares are represented in person or by proxy at a meeting of
shareholders.
  Remedial Transfer. If a
beneficial owner fails to comply with the disclosure procedures, and White River
delivers a compliance demand notice to the nominee or holder of record of the
shares, then at or before the close of business on the date ten (10) business
days following delivery of the notice, the nominee or holder of record shall
effect the disposition of beneficial ownership by the non-compliant beneficial
owner of the shares and deliver a “Disposition Certificate” to White River. The
Disposition Certificate certifies to White River that the interest of the
non-compliant beneficial owner has been effectively transferred and that
everything required to be disclosed has been disclosed. If the disposition of
shares is not effected or a Disposition Certificate is not timely delivered,
then White River may require the nominee or record holder of such shares to whom
the compliance demand notice was delivered to effect a remedial transfer whereby
the affected shares would be sold by an independent agent.
  Additional Remedies. The
board of directors of White River is also authorized to take any other action it
deems necessary or advisable to protect White River and the interests of its
shareholders, including actions to protect and preserve White River’s status
under Section 382 of the Code. This action may include a decision to exclude any
shareholder the board reasonably believes has failed to comply with the
disclosure procedures from any offering of White River securities that is
otherwise made available to shareholders.
  Anti-Takeover
Effect of Transfer Restrictions and Disclosure Procedures
  The
transfer restrictions:
  ·
              may
      have the effect of impeding the attempt of a person or entity to acquire a
      significant or controlling interest in White
  River;
  ·
              may
      render it more difficult to effect a merger or similar transaction even if
      such transaction is favored by a majority of the independent shareholders
      of White River; and
  ·
              may
      serve to entrench management.
  In
addition to the transfer restrictions and disclosure procedures, White River
will be subject to certain other provisions of White River’s articles of
incorporation, to which we are currently subject, that may have the effect of
discouraging a takeover or similar transaction, including the authority, vested
in White River’s board of directors, to issue up to three million shares of
preferred stock and to fix the preferences and rights thereof.
  The
purpose of the transfer restrictions and disclosure procedures is to help
preserve the tax benefits rather than to have an anti-takeover effect, which is
an incidental result.
   18
  Purchase
of Equity Securities by White River and Affiliated Purchasers
 
 On
October 27, 2008, White River announced that its board of directors had
authorized a stock repurchase program for up to 150,000, or approximately 3.9%,
of White River’s issued and outstanding shares of common stock. Repurchases
under the program are not authorized to begin until the third business day
following the filing, with the SEC, of the Form S-4 registration statement
relating to White River’s previously announced merger transaction with First
Chicago Bancorp. During the fourth quarter of 2008, White River made no
repurchases of its common stock under the stock repurchase program.
   ITEM
6.  SELECTED FINANCIAL DATA
  Not
applicable
   ITEM
7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  General
  This
section is intended to provide an understanding of the financial performance of
White River through a discussion of the factors affecting White River’s
financial condition at December 31, 2008 and 2007, and White River’s
consolidated results of operations for the years ended December 31, 2008 and
2007. This section should be read in conjunction with White River’s consolidated
financial statements and notes to the consolidated financial statements that
appear elsewhere in this document. In addition to the historical information
contained herein, the following discussion contains forward-looking statements
that involve risks and uncertainties. See “Discussion of Forward-Looking
Statements.”
  Critical
Accounting Policies
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
significant estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. White River believes that the following represents
the material critical accounting policies used in the preparation of its
consolidated financial statements. Actual results could differ significantly
from estimates.
  New
Accounting Pronouncements
  In
September 2006, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 157, Fair Value
Measurements (“SFAS No. 157”), which provides guidance on
how to measure assets and liabilities using fair value methods. SFAS No. 157
applied whenever another United States Generally Accepted Accounting Principle
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 requires additional disclosures in both annual and quarterly
reports. There was no cumulative effect on the consolidated financial statements
as a result of the early adoption of SFAS No. 157 on January 1, 2007 (See Note
6).
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value 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. We early adopted SFAS No. 159 on January 1, 2007
and applied SFAS No. 159 solely to creditor notes payable. See Note 6 for
further details.
   19
  Allowance
for Loan Losses – Finance Receivables
  Provisions
for loan losses are charged to operations in amounts sufficient to maintain the
allowance for loan losses at a level considered adequate to cover probable
credit losses inherent in finance receivables.
  The
allowance for loan losses is established systematically by management based on
the determination of the amount of probable credit losses inherent in the
finance receivables as of the reporting date. Coastal Credit reviews charge off
experience factors, delinquency reports, historical collection rates and other
information in order to make the necessary judgments as to credit losses
inherent in the portfolio as of the reporting date. Assumptions regarding
probable credit losses are reviewed quarterly and may be impacted by actual
performance of finance receivables and changes in any of the factors discussed
above. Should the credit loss assumptions increase, there could be an increase
in the amount of allowance for loan losses required, which could decrease the
net carrying value of finance receivables and increase the provision for loan
losses recorded on the consolidated statements of operations. Coastal Credit
believes that the existing allowance for loan losses is sufficient to absorb
probable finance receivable losses.
  Goodwill
  Goodwill
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 of the reporting
unit.
  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
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 11). White River adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, (“FIN No. 48”) on January 1, 2007. The implementation of FIN No.
48 did not impact White River’s consolidated financial statements. As of January
1, 2008, there were no unrecognized tax benefits.
  Results
of Operations
  The
Year Ended December 31, 2008 Compared to the Year Ended December 31,
2007
  Net loss
was $14.4 million, or $3.71 per diluted share, for the year ended December 31,
2008, compared to net income of $11.8 million, or $2.99 per diluted share, for
the year ended December 31, 2007. The decrease in income from the prior year is
primarily due to the following:
  ·
              a
      $34.5 million impairment of goodwill during
  2008;
   20
  ·
              a
      decrease in accretion income from beneficial interest in Master Trust
      during 2008; and
  ·
              a
      $7.6 million provision for estimated credit losses during
      2008.
   Discussion
of Results
  The
following table presents consolidating financial information for White River for
the periods indicated:
  For The Year EndedDecember 31, 2008
                                            
                                            UAC
                                            
                                            
                                            Coastal Credit
                                            
                                            
                                            Corporate and Other
                                            
                                            
                                            ConsolidatedTotal
      interest income
                                            
                                            $
                                            8,170
                                            
                                            
                                            $
                                            29,366
                                            
                                            
                                            $
                                            19
                                            
                                            
                                            $
                                            37,555Interest
      expense
                                            
                                            
                                            (221
                                            )
                                            
                                            
                                            (2,499
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (2,720
                                            )Net
      interest margin
                                            
                                            
                                            7,949
                                            
                                            
                                            
                                            26,867
                                            
                                            
                                            
                                            19
                                            
                                            
                                            
                                            34,835Recovery
      (provision) for estimated credit losses
                                            
                                            
                                            953
                                            
                                            
                                            
                                            (8,556
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (7,603
                                            )Net
      interest margin after recovery (provision) for estimated credit
      losses
                                            
                                            
                                            8,902
                                            
                                            
                                            
                                            18,311
                                            
                                            
                                            
                                            19
                                            
                                            
                                            
                                            27,232Total
      other revenues (expenses)
                                            
                                            
                                            (12,784
                                            )
                                            
                                            
                                            (11,103
                                            )
                                            
                                            
                                            8,517
                                            
                                            
                                            
                                            (15,370
                                            )Goodwill
      impairment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (34,536
                                            )
                                            
                                            
                                            (34,536
                                            )Income
      (loss) before income taxes
                                            
                                            $
                                            (3,882
                                            )
                                            
                                            $
                                            7,208
                                            
                                            
                                            $
                                            (26,000
                                            )
                                            
                                            $
                                            (22,674
                                            )
 
 For The Year EndedDecember 31, 2007
                                      
                                      UAC
                                      
                                      
                                      Coastal Credit
                                      
                                      
                                      Corporate and Other
                                      
                                      
                                      ConsolidatedTotal
      interest income
                                      
                                      $
                                      17,548
                                      
                                      
                                      $
                                      30,242
                                      
                                      
                                      $
                                      77
                                      
                                      
                                      $
                                      47,867Interest
      expense
                                      
                                      
                                      (1,036
                                      )
                                      
                                      
                                      (4,088
                                      )
                                      
                                      
                                      (990
                                      )
                                      
                                      
                                      (6,114
                                      )Net
      interest margin
                                      
                                      
                                      16,512
                                      
                                      
                                      
                                      26,154
                                      
                                      
                                      
                                      (913
                                      )
                                      
                                      
                                      41,753Recovery
      (provision) for estimated credit losses
                                      
                                      
                                      2,086
                                      
                                      
                                      
                                      (8,329
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (6,243
                                      )Net
      interest margin (deficit) after recovery (provision) for estimated credit
      losses
                                      
                                      
                                      18,598
                                      
                                      
                                      
                                      17,825
                                      
                                      
                                      
                                      (913
                                      )
                                      
                                      
                                      35,510Total
      other revenues (expenses)
                                      
                                      
                                      (19,457
                                      )
                                      
                                      
                                      (11,117
                                      )
                                      
                                      
                                      13,641
                                      
                                      
                                      
                                      (16,933
                                      )Income
      (loss) before income taxes
                                      
                                      $
                                      (859
                                      )
                                      
                                      $
                                      6,708
                                      
                                      
                                      $
                                      12,728
                                      
                                      
                                      $
                                      18,577
 
  The
Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007 -
Consolidated
  Interest
on receivables decreased 4.3% to $30.9 million compared to $32.3 million for the
years ended December 31, 2008 and 2007, respectively. Coastal Credit interest on
receivables decreased $0.8 million. While the Coastal Credit average finance
receivable balance increased to $87.9 million during the year ended December 31,
2008 as compared to $86.4 million during the year ended December 31, 2007,
finance receivables had been declining from May 2007 to January 2008. This
receivable balance decline has resulted in the decline of interest on
receivables. Since February 2008, finance receivables have steadily increased.
This increase is expected to result in an increase in interest on receivables in
future periods. Interest on receivables from UAC declined $0.5 million due to a
decline in the average receivable balance to $6.3 million during the year ended
December 31, 2008 from $13.9 million during the year ended December 31, 2007 as
a result of the liquidation of finance receivables.
   21
  Accretion
and other interest decreased 57.1% to $6.7 million compared to $15.6 million for
the years ended December 31, 2008 and 2007, respectively. This decrease is a
result of a decrease in accretion from accumulated other comprehensive income.
The balance of accumulated other comprehensive income to be accreted into income
in 2009 is approximately $327,000. The individual components of accretion and
other interest income are shown in the following table (in
thousands):
  Years
      Ended December 31,2008
                                
                                
                                2007UAC
      discount accretion from accumulated other comprehensive
    income
                                
                                $
                                6,656
                                
                                
                                $
                                15,079Interest
      on cash balances
                                
                                
                                41
                                
                                
                                
                                530Accretion
      and other interest income
                                
                                $
                                6,697
                                
                                
                                $
                                15,609
 
  Interest
expense decreased 55.5% to $2.7 million compared to $6.1 million for the years
ended December 31, 2008 and 2007, respectively. Coastal Credit interest expense
was $2.5 million for the year ended December 31, 2008 as compared to $4.1
million for the year ended December 31, 2007 as a result of the decrease in
average line of credit and subordinated debentures to $43.0 million from $49.5
million for the years ended December 31, 2008 and 2007, respectively. UAC
interest expense decreased by $0.8 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 prepayment of
collateralized financings eliminating the related interest expense during the
year ended December 31, 2008 as compared to an average balance of $14.7 million
during the same period ended December 31, 2007. Interest expense of Corporate
and Other was $1.0 million for the year ended December 31, 2007. No such expense
was incurred by the holding company during the year ended December 31, 2008.
This decrease is primarily a result of the prepayment of the secured note
payable on October 15, 2007.
  Provision
for estimated credit losses was $7.6 million compared to $6.2 million for the
years ended December 31, 2008 and 2007, respectively. Provision for estimated
credit losses is charged to income to bring Coastal Credit’s allowance for
estimated credit losses to a level which management considers adequate to absorb
probable credit losses inherent in the portfolio of finance receivables. For
Coastal Credit, the provision for estimated credit losses was $8.6 million for
the year ended December 31, 2008 as compared to $8.3 million for the year ended
December 31, 2007. 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. UAC recorded recovery for estimated credit
losses of $1.0 million compared to $2.1 million for the years ended December 31,
2008 and 2007, respectively. This change in recovery for estimated credit losses
is a result of declining defaulted receivables during 2008.
  The $2.1
million charge to Master Trust, net, for the year ended December 31, 2007, is
expense related to future transfers of funds to the Master Trust from
securitized finance receivables of UAC. With the “clean-up” call of all
securitizations on December 10, 2007 and termination of the Master Trust
Agreement, there was no charge to Master Trust, net for the year ended December
2008 and there will be no future charge to Master Trust, net
activity.
  Gain from
deficiency sale and litigation settlement was $162,000 for the year ended
December 31, 2008 compared to $22,000 for the year ended December 31, 2007. This
gain is the result of the sale of deficiency receivables during 2008 and
2007.
   22
  Other
expense was $0.1 million compared to $0.3 million for the years ended December
31, 2008 and 2007, respectively. Other expense is primarily expenses related to
collections of previously charged-off balances.
  Salaries
and benefits increased to $8.5 million for the year ended December 31, 2008
compared to $8.3 million for the year ended December 31, 2007. This increase was
primarily a result of performance based awards paid during the second quarter of
2008 of approximately $0.3 million.
  Operating
expenses increased to $6.4 million for the year ended December 31, 2008 compared
to $5.6 million for the year ended December 31, 2007. Coastal Credit and UAC
operating expenses remained relatively unchanged between these periods.
Corporate and Other operating expenses increased $1.0 million between these
periods. This increase was primarily a result of non-employee performance based
awards paid during the second quarter in addition to transaction related
expenses resulting from the pending merger with First Chicago.
  White
River conducted its annual test for impairment of goodwill as of August 31,
2008. The annual impairment test of goodwill resulted in the full impairment of
goodwill totaling $34.5 million. The methodology for determining the fair value
was a combination of quoted market prices, prices of comparable businesses,
discounted estimated cash flows and other valuation techniques. The significant
downturn in the equity markets during the third quarter 2008 exacerbated the
decreased valuations calculated using these methodologies.
  Third
party servicing expenses decreased 51.6% to $0.3 million for the year ended
December 31, 2008 compared to $0.5 million for the year ended December 31, 2007.
UAC is the only segment that incurred this expense. This decrease is the result
of the ongoing liquidation of the UAC receivable portfolio during 2008. 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 $6,000 for the year ended December 31,
2007. UAC is the only segment that incurred these costs which were for the
purpose of assisting the reorganized company in complying with its bankruptcy
plan. Future bankruptcy costs were eliminated with the closure of the bankruptcy
case on January 5, 2007.
  Income
tax benefit was $8.2 million for the year ended December 31, 2008 compared to an
income tax expense of $6.8 million for the year ended December 31, 2007. The
expense is based on the estimated effective tax rates for 2008 and 2007,
respectively. The benefit for the year ended December 31, 2008 was primarily a
result of the $12.6 million tax effect from the impairment of deductible
goodwill.
  Financial
Condition as of December 31, 2008 and 2007
  Finance
Receivables, Net
  Finance
receivables, net decreased to $84.2 million at December 31, 2008 as compared to
$90.7 million at December 31, 2007. UAC finance receivables, net decreased to
$1.1 million at December 31, 2008 as compared to $11.5 million at December 31,
2007. Coastal Credit finance receivables, net increased to $83.1 million
compared to $79.2 million for the periods ended December 31, 2008 and 2007,
respectively.
   23
  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, 2008,
32.8% of the Coastal Credit receivables were with borrowers who are in the
United States military as compared to 31.2% as of December 31, 2007. 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.
  As of
December 31, 2008, 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.
  Accrued
Interest Payable
  Accrued
interest payable was $0.2 million at December 31, 2008, compared to $0.4 million
at December 31, 2007. The decrease was primarily the result of the decrease of
the line of credit liability.
  Creditor
Notes Payable
  Creditor
notes payable was $0.1 million at December 31, 2008, compared to $1.3 million at
December 31, 2007. The decrease was the result of continued repayment of
principal in accordance with the UAC bankruptcy plan. Beginning January 1, 2007,
creditor notes payable was recorded at fair market value in accordance with
White River’s early adoption of SFAS No. 157 and SFAS No. 159.
  Liquidity
and Capital Resources for the Years Ended December 31, 2008 and
2007
  Net cash
provided by operating activities was $12.2 million for the year ended December
31, 2008 compared to $4.2 million for the year ended December 31, 2007. The
change in net cash flows provided by operating activities is primarily a result
of the reduction of interest expense from Coastal Credit related to the
reduction in the average line of credit between the periods and the elimination
of the charge to Master Trust.
  Net cash
used in investing activities was $0.5 million for the year ended December 31,
2008 compared to net cash provided by investing activities of $47.0 million for
the year ended December 31, 2007. This change was primarily the result of a
reduction in the principal collection and recoveries on the UAC finance
receivable portfolio and the increase in purchases of finance receivables by
Coastal Credit.
   24
  Net cash
used in financing activities was $9.2 million for the year ended December 31,
2008 compared to $54.4 million for the year ended December 31, 2007. Net cash
flows used in financing activities for the year ended December 31, 2008
primarily resulted from the $9.5 million net repayment of the line of credit.
Net cash used in financing activities for the year ended December 31, 2007
primarily resulted from the $32.4 million principal payments of collateralized
financing, $13.1 million  principal payments on the secured note
payable and the principal payments of subordinated debentures of $7.7
million.
  At
December 31, 2008, White River and its subsidiaries had cash and cash
equivalents of $6.4 million compared to $3.8 million at December 31,
2007.
  Coastal
Credit has a revolving credit facility from a lending institution with a maximum
borrowing limit of $100 million. The maturity date on the line of credit is
December 31, 2011 and the interest rate is the London Interbank Offered Rate
(“LIBOR”) plus 2.60%.  As of December 31, 2008, Coastal Credit had
$40.5 million of indebtedness outstanding under this facility as compared to
$50.0 million as of December 31, 2007. There was $33.7 million and $20.8 million
available in excess of the amount utilized at December 31, 2008 and 2007,
respectively. The credit facility is secured by substantially all of the assets
of Coastal Credit. In addition, White River has provided an unconditional
corporate guaranty. Coastal Credit must maintain specified financial ratios
within guidelines established by the lender. Interest is paid monthly at a
variable rate, based on meeting certain financial criteria. The average rate
during the month of December, 2008 and 2007 was LIBOR plus 2.60% which equated
to 4.50% and 7.84%, 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.)
  UAC’s
sources of liquidity are limited and consist of cash on hand, escrowed cash for
operations, funds from consolidated operations and cash collections from the
liquidating finance receivables. White River, as owner of the substantial
majority of UAC's notes and claims outstanding under the Plan of Reorganization,
is entitled to distribution of the substantial majority of these cash flows
as they are realized by UAC. However, the realization of such
projected cash flows is dependent upon the performance of the
underlying auto receivable portfolios and the effective servicing of such
receivables. In particular, if gross defaults, recoveries on defaulted
receivables or prepayments on such receivables are less favorable than the
rates projected by management, UAC's realization of such cash flows will
be reduced or delayed relative to such projections. Such reduction may
be material.
  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 cash
dividends in the foreseeable future.
  Asset
Quality
  Set forth
below is certain information concerning the credit loss experiences on the fixed
rate retail automobile receivables of White River. There can be no assurance
that future net credit loss experience on the receivables will be comparable to
that set forth below. See “Discussion of Forward-Looking
Statements.”
  
   25
  Finance
Receivables – Coastal Credit
  Delinquency
experience of finance receivables at Coastal Credit, including unearned interest
($in thousands):
  December
      31,2008
                              
                              
                              2007$
                              
                              
                              
                              %
                              
                              
                              $
                              
                              
                              
                              %Finance
      receivables - gross balance
                              
                              $
                              104,599
                              
                              
                              
                              
                              
                              
                              $
                              101,948Delinquencies:30-59
      days
                              
                              $
                              1,452
                              
                              
                              
                              1.4%
                              
                              
                              $
                              1,564
                              
                              
                              
                              1.5%60-89
      days
                              
                              
                              1,269
                              
                              
                              
                              1.2%
                              
                              
                              
                              1,002
                              
                              
                              
                              1.0%90+
      days
                              
                              
                              1,943
                              
                              
                              
                              1.9%
                              
                              
                              
                              1,626
                              
                              
                              
                              1.6%Total
      delinquencies
                              
                              $
                              4,664
                              
                              
                              
                              4.5%
                              
                              
                              $
                              4,192
                              
                              
                              
                              4.1%
 
  As a
result of the nature of the customers in Coastal Credit’s portfolio, Coastal
Credit considers the establishment of an adequate allowance for loan losses to
be critical to its financial results. Coastal Credit has an allowance for loan
losses that is calculated independent of the aggregate acquisition discounts and
fees on finance receivables. Coastal Credit’s allowance for loan losses is based
upon the historical rate at which (1) current loans, (2) contracts in a 30, 60
and 90+ day delinquency state and (3) loans ineligible for its borrowing line,
have defaulted. These historical rates are evaluated and revised on a quarterly
basis for current conditions. See “Discussion of Forward-Looking
Statements.”
   26
  Allowance
for loan losses of finance receivables ($in thousands):
  Years
      Ended December 31,2008
                                            
                                            
                                            2007Balance
      at beginning of period
                                            
                                            $
                                            6,810
                                            
                                            
                                            $
                                            5,694Charge-offs,
      net of recoveries
                                            
                                            
                                            (7,806
                                            )
                                            
                                            
                                            (7,213
                                            )Provision
      for estimated credit losses
                                            
                                            
                                            8,556
                                            
                                            
                                            
                                            8,329Balance
      at the end of the period
                                            
                                            $
                                            7,560
                                            
                                            
                                            $
                                            6,810Net
      charge-offs
                                            
                                            $
                                            7,806
                                            
                                            
                                            $
                                            7,213Finance
      receivables, net of unearned finance charges
                                            
                                            $
                                            101,523
                                            
                                            
                                            $
                                            96,784Allowance
      for loan losses as a percent of finance receivables, net of unearned
      finance charges
                                            
                                            
                                            7.45
                                            %
                                            
                                            
                                            7.04
                                            %Net
      charge-offs as a percent of finance receivables, net of unearned finance
      charges
                                            
                                            
                                            7.69
                                            %
                                            
                                            
                                            7.45
                                            %Allowance
      for loan losses as a percent of net charge-offs
                                            
                                            
                                            96.88
                                            %
                                            
                                            
                                            94.50
                                            %
 
  Finance
Receivables – UAC
  Delinquency
experience of finance receivables at UAC ($in thousands):
  December
      31,2008
                                              
                                              2007$
                                              
                                              
                                              
                                              %
                                              
                                              $
                                              
                                              
                                              
                                              %Finance
      receivables principal balance
                                              
                                              $
                                              1,103
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              12,572Delinquencies:30-59
      days
                                              
                                              $
                                              195
                                              
                                              
                                              
                                              17.7
                                              %
                                              
                                              $
                                              1,179
                                              
                                              
                                              
                                              9.4
                                              %60-89
      days
                                              
                                              
                                              76
                                              
                                              
                                              
                                              6.9
                                              %
                                              
                                              
                                              467
                                              
                                              
                                              
                                              3.7
                                              %90+
      days
                                              
                                              
                                              22
                                              
                                              
                                              
                                              2.0
                                              %
                                              
                                              
                                              149
                                              
                                              
                                              
                                              1.2
                                              %Total
      delinquencies
                                              
                                              $
                                              293
                                              
                                              
                                              
                                              26.6
                                              %
                                              
                                              $
                                              1,795
                                              
                                              
                                              
                                              14.3
                                              %
 
   27
  Allowance
for loan losses of finance receivables ($ in thousands):
  Years
      Ended December 31,2008
                                    
                                    
                                    2007Balance
      at the beginning of period
                                    
                                    $
                                    222
                                    
                                    
                                    $
                                    1,617Charge-offs
                                    
                                    
                                    (707
                                    )
                                    
                                    
                                    (2,671
                                    )Recoveries
                                    
                                    
                                    1,445
                                    
                                    
                                    
                                    3,362Recovery
      for estimated credit losses
                                    
                                    
                                    (953
                                    )
                                    
                                    
                                    (2,086
                                    )Balance
      at the end of the period
                                    
                                    $
                                    7
                                    
                                    
                                    $
                                    222Net
      charge-offs (recoveries)
                                    
                                    $
                                    (738
                                    )
                                    
                                    $
                                    (691
                                    )Finance
      receivables
                                    
                                    $
                                    1,103
                                    
                                    
                                    $
                                    12,572Allowance
      for loan losses as a percent of finance receivables
                                    
                                    
                                    0.63
                                    %
                                    
                                    
                                    1.77
                                    %
 
  Recent
Market Developments
  Since
January 2008, operations of many auto finance companies have been affected by
the significant contraction of the personal credit markets and the near
elimination of the securitization markets. In addition, there have been auto
finance companies which have seen their lines of credit reduced or terminated as
a result of the credit crisis. Some companies have been forced to severely
curtail loan purchases and originations or shut down operations as a result of a
lack of funding. We believe White River is well positioned to continue
operations and grow the company responsibly based on the following
factors:
  ·
              Coastal
      Credit is not dependent on the securitization market for
      financing.
  ·
              At
      December 31, 2008, there was $33.7 million available, in excess of the
      amount utilized, from the line of credit, which does not expire until
      December 2011.
  ·
              White
      River is very well capitalized with an equity to asset ratio of 69.2% as
      of December 31, 2008.
  While
there is never any guarantee White River will not be faced with similar
financing scenarios as others have seen, we believe White River is well
positioned in this difficult economic environment, and we expect to be able to
fund normal business operations and meet our general liquidity needs for the
next 12 months through access to the line of credit, cash flows from operation,
and our other funding sources.
   28
  Discussion
of Forward-Looking Statements
  The
preceding Management’s Discussion and Analysis contains forward-looking
statements within the meaning of The Private Securities Litigation Reform Act of
1995. Forward-looking statements are also made elsewhere in this report. White
River publishes other forward-looking statements from time to time. Statements
that are not historical in nature, including those containing words such as
“anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar
expressions, are intended to identify forward-looking statements. We caution you
to be aware of the speculative nature of “forward-looking statements.” Although
these statements reflect White River’s good faith belief based on current
expectations, estimates and projections about (among other things) the industry
and the markets in which White River operates, they are not guarantees of future
performance. Whether actual results will conform to management’s expectations
and predictions is subject to a number of known and unknown risks and
uncertainties, including:
  ·
              the
      risks and uncertainties discussed in this Annual Report on Form
      10-K;
 ·
              general
      economic, market, or business
conditions;
 ·
              changes
      in economic variables, such as the availability of business and consumer
      credit, conditions in the housing market, energy costs, the number and
      size of personal bankruptcy filings, the rate of unemployment and the
      levels of consumer confidence and consumer
debt;
 ·
              changes
      in interest rates, the cost of funds, and demand for White River’s
      financial services;
 ·
              the
      level and volatility of equity prices, commodity prices, currency values,
      investments, and other market fluctuations and other market
      indices;
 ·
              changes
      in White River’s competitive
position;
 ·
              White
      River’s ability to manage growth;
 ·
              the
      opportunities that may be presented to and pursued by White
      River;
 ·
              competitive
      actions by other companies;
 ·
              changes
      in laws or regulations, including the impact of current, pending and
      future legislation and regulations, including the impact of recently
      enacted federal economic and financial markets recovery
      legislation;
 ·
              changes
      in the policies of federal or state regulators and agencies;
      and
 ·
              other
      circumstances, many of which are beyond White River’s
    control.
  Consequently,
all of White River’s forward-looking statements are qualified by these
cautionary statements. White River may not realize the results anticipated by
management or, even if White River substantially realizes the results management
anticipates, the results may not have the consequences to, or effects on, White
River or its business or operations that management expects. Such differences
may be material. Except as required by applicable laws, White River does not
intend to publish updates or revisions of any forward-looking statements
management makes to reflect new information, future events or
otherwise.
   ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  Not
applicable.
   29
   ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Shareholders of
 White
River Capital, Inc.
 
 We have
audited the accompanying consolidated balance sheets of White River Capital,
Inc. and subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of operations, shareholders’ equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of White River Capital, Inc.
and subsidiaries as of December 31, 2008 and 2007 and the results of their
operations and their cash flows for the years then ended in conformity with U.S.
generally accepted accounting principles.
  As
described in Note 1 to the consolidated financial statements, the Company
elected to adopt statements of Financial Accounting Standards 159 and 157 solely
related to its creditor notes payable in 2007.
  We were
not engaged to examine management’s assessment of the effectiveness of White
River Capital, Inc. and subsidiaries’ internal control over financial reporting
as of December 31, 2008, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting and, accordingly, we do not express an
opinion thereon.
  
 /s/
McGladrey & Pullen LLP
 
 Raleigh,
North Carolina
 March 12,
2009
  30
  WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 (Dollars
in thousands)
 
 ASSETS
                    
                    December
      31, 2008
                    
                    
                    December
      31, 2007Cash
      and cash equivalents
                    
                    $
                    6,403
                    
                    
                    $
                    3,785Finance
      receivables—net
                    
                    
                    84,187
                    
                    
                    
                    90,725Goodwill
                    
                    
                    -
                    
                    
                    
                    34,536Deferred
      tax assets—net
                    
                    
                    46,946
                    
                    
                    
                    36,031Other
      assets
                    
                    
                    1,292
                    
                    
                    
                    1,488TOTAL
                    
                    $
                    138,828
                    
                    
                    $
                    166,565LIABILITIES
      AND SHAREHOLDERS’ EQUITYLIABILITIES:Line
      of credit
                    
                    $
                    40,500
                    
                    
                    $
                    50,000Accrued
      interest
                    
                    
                    165
                    
                    
                    
                    351Creditor
      notes payable
                    
                    
                    128
                    
                    
                    
                    1,324Other
      payables and accrued expenses
                    
                    
                    1,949
                    
                    
                    
                    2,093Total
      liabilities
                    
                    
                    42,742
                    
                    
                    
                    53,768SHAREHOLDERS’
      EQUITY:Preferred
      Stock, without par value, authorized 3,000,000 shares; none issued and
      outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      Stock, without par value, authorized 20,000,000 shares; 4,022,853 and
      3,843,087issued and outstanding at December 31, 2008 and December 31,
      2007, respectively
                    
                    
                    182,462
                    
                    
                    
                    179,976Warrants,
      none outstanding at December 31, 2008 and 150,000 outstanding at December
      31, 2007
                    
                    
                    -
                    
                    
                    
                    534Accumulated
      other comprehensive income, net of taxes
                    
                    
                    210
                    
                    
                    
                    4,437Accumulated
      deficit
                    
                    
                    (86,586
                    )
                    
                    
                    (72,150
                    )Total
      shareholders’ equity
                    
                    
                    96,086
                    
                    
                    
                    112,797TOTAL
                    
                    $
                    138,828
                    
                    
                    $
                    166,565
 
  See notes
to consolidated financial statements.
  31
  WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Dollars
in thousands, except per share amounts)
  Years
      Ended December 31,2008
                                
                                
                                2007INTEREST:Interest
      on receivables
                                
                                $
                                30,858
                                
                                
                                $
                                32,258Accretion
      and other interest
                                
                                
                                6,697
                                
                                
                                
                                15,609Total
      interest income
                                
                                
                                37,555
                                
                                
                                
                                47,867Interest
      expense
                                
                                
                                (2,720
                                )
                                
                                
                                (6,114
                                )Net
      interest margin
                                
                                
                                34,835
                                
                                
                                
                                41,753Provision
      for estimated credit losses
                                
                                
                                (7,603
                                )
                                
                                
                                (6,243
                                )Net
      interest margin after provision for estimated credit
losses
                                
                                
                                27,232
                                
                                
                                
                                35,510OTHER
      REVENUES (EXPENSES):Salaries
      and benefits
                                
                                
                                (8,543
                                )
                                
                                
                                (8,261
                                )Third
      party servicing expense
                                
                                
                                (264
                                )
                                
                                
                                (545
                                )Other
      operating expenses
                                
                                
                                (6,424
                                )
                                
                                
                                (5,601
                                )Bankruptcy
      costs
                                
                                
                                -
                                
                                
                                
                                (6
                                )Charge
      to Master Trust—net
                                
                                
                                -
                                
                                
                                
                                (2,093
                                )Change
      in fair market valuation of creditor notes payable
                                
                                
                                (11
                                )
                                
                                
                                (395
                                )Gain
      from deficiency account sale
                                
                                
                                162
                                
                                
                                
                                22Other
      expense
                                
                                
                                (290
                                )
                                
                                
                                (54
                                )Total
      other revenues (expenses)
                                
                                
                                (15,370
                                )
                                
                                
                                (16,933
                                )Goodwill
      Impairment
                                
                                
                                (34,536
                                )
                                
                                
                                -INCOME
      (LOSS) BEFORE INCOME TAXES
                                
                                
                                (22,674
                                )
                                
                                
                                18,577INCOME
      TAX BENEFIT (EXPENSE)
                                
                                
                                8,239
                                
                                
                                
                                (6,779
                                )NET
      INCOME (LOSS)
                                
                                $
                                (14,435
                                )
                                
                                $
                                11,798NET
      INCOME (LOSS) PER COMMON SHARE (BASIC)
                                
                                $
                                (3.71
                                )
                                
                                $
                                3.07NET
      INCOME (LOSS) PER COMMON SHARE (DILUTED)
                                
                                $
                                (3.71
                                )
                                
                                $
                                2.99BASIC
      WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
                                
                                
                                3,887,093
                                
                                
                                
                                3,840,663DILUTED
      WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
                                
                                
                                3,887,093
                                
                                
                                
                                3,947,642
 
  See notes
to consolidated financial statements.
  32
  WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 (Dollars
in thousands)
 
 Number
      of Common Shares Outstanding
                                            
                                            
                                            Common
      Stock
                                            
                                            
                                            Warrants
                                            
                                            
                                            Accumulated
      Other Comprehensive Income (Loss)
                                            
                                            
                                            Accumulated
      Deficit
                                            
                                            
                                            Total
      Shareholders' EquityBALANCE—January
      1, 2007
                                            
                                            
                                            3,813,155
                                            
                                            
                                            $
                                            179,594
                                            
                                            
                                            $
                                            534
                                            
                                            
                                            $
                                            11,107
                                            
                                            
                                            $
                                            (83,317
                                            )
                                            
                                            $
                                            107,918Comprehensive
      loss:Net
      income
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            11,798
                                            
                                            
                                            
                                            11,798Amortization
      of net unrealized gain on beneficial interest in Master
    Trust
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (10,504
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            (10,504
                                            )Tax
      effect of accumulated other comprehensive income
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            3,834
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            3,834Total
      comprehensive income
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            5,128Adoption
      of SFAS No. 159
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (631
                                            )
                                            
                                            
                                            (631
                                            )Stock-based
      compensation expense
                                            
                                            
                                            29,932
                                            
                                            
                                            
                                            382
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            382BALANCE—December
      31, 2007
                                            
                                            
                                            3,843,087
                                            
                                            
                                            
                                            179,976
                                            
                                            
                                            
                                            534
                                            
                                            
                                            
                                            4,437
                                            
                                            
                                            
                                            (72,150
                                            )
                                            
                                            
                                            112,797Comprehensive
      loss:Net
      income
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (14,435
                                            )
                                            
                                            
                                            (14,435
                                            )Amortization
      of net unrealized gain on beneficial interest in Master
    Trust
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (6,656
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            (6,656
                                            )Tax
      effect of accumulated other comprehensive income
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,429
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,429Total
      comprehensive loss
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (18,662
                                            )Exercise
      of warrants
                                            
                                            
                                            150,000
                                            
                                            
                                            
                                            1,999
                                            
                                            
                                            
                                            (534
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,465Stock-based
      compensation expense
                                            
                                            
                                            29,766
                                            
                                            
                                            
                                            487
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            487BALANCE—December
      31, 2008
                                            
                                            
                                            4,022,853
                                            
                                            
                                            $
                                            182,462
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            210
                                            
                                            
                                            $
                                            (86,586
                                            )
                                            
                                            $
                                            96,086
  See notes
to consolidated financial statements.
 33
 WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Dollars
in thousands)
 
 Years
      Ended December 31,2008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                
                $
                (14,435
                )
                
                $
                11,798Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Accretion
      of other comprehensive income
                
                
                (6,656
                )
                
                
                (15,079
                )Accretion
      of securitization discount
                
                
                (910
                )
                
                
                (222
                )Provision
      for estimated credit losses
                
                
                7,603
                
                
                
                6,243Goodwill
      impairment
                
                
                34,536
                
                
                
                -Amortization
      and depreciation
                
                
                434
                
                
                
                477Amortization
      of discount and interest accrued on creditor notes payable
                
                
                (91
                )
                
                
                249Gain
      from disposition of equipment
                
                
                -
                
                
                
                (14
                )Deferred
      income taxes
                
                
                (8,486
                )
                
                
                6,547Change
      in fair value of creditor notes payable
                
                
                11
                
                
                
                395Stock
      based compensation expense
                
                
                487
                
                
                
                382Changes
      in assets and liabilities:Accrued
      interest receivable and other assets
                
                
                58
                
                
                
                318Amounts
      due to Master Trust
                
                
                -
                
                
                
                (4,071
                )Payment
      of creditor notes payable accrued interest
                
                
                -
                
                
                
                (137
                )Other
      payables and accrued expenses
                
                
                (327
                )
                
                
                (2,680
                )Net
      cash provided by operating activities
                
                
                12,224
                
                
                
                4,206CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of securitized finance receivables
                
                
                -
                
                
                
                (2,288
                )Principal
      collections and recoveries on securitized finance
    receivables
                
                
                -
                
                
                
                24,009Purchase
      of finance receivables
                
                
                (56,855
                )
                
                
                (53,548
                )Collections
      on finance receivables
                
                
                44,406
                
                
                
                44,679Principal
      collections and recoveries on receivables held for
    investment
                
                
                12,208
                
                
                
                3,301Collections
      on beneficial interest in Master Trust
                
                
                -
                
                
                
                17,407Change
      in restricted cash
                
                
                -
                
                
                
                13,618Proceeds
      from sale of equipment
                
                
                -
                
                
                
                14Capital
      expenditures
                
                
                (213
                )
                
                
                (217
                )Net
      cash provided by (used in) investing activities
                
                
                (454
                )
                
                
                46,975CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the exercise of warrants, net of costs
                
                
                1,465
                
                
                
                -Principal
      payments on collateralized financings
                
                
                -
                
                
                
                (32,368
                )Principal
      payments on secured note payable
                
                
                -
                
                
                
                (13,125
                )Principal
      payments on creditor notes payable
                
                
                (1,117
                )
                
                
                (1,661
                )Net
      borrowing (repayment) on line of credit
                
                
                (9,500
                )
                
                
                500Principal
      payments of subordinated debentures
                
                
                -
                
                
                
                (7,700
                )Net
      cash used in financing activities
                
                
                (9,152
                )
                
                
                (54,354
                )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                
                2,618
                
                
                
                (3,173
                )CASH
      AND CASH EQUIVALENTS—Beginning of year
                
                
                3,785
                
                
                
                6,958CASH
      AND CASH EQUIVALENTS—End of period
                
                $
                6,403
                
                
                $
                3,785SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Income
      tax refunds
                
                $
                -
                
                
                $
                1Interest
      paid
                
                $
                2,996
                
                
                $
                6,421Non
      cash items:Initial
      fair value adjustment for creditor notes payable
                
                $
                -
                
                
                $
                994
 
  See notes
to consolidated financial statements.
  34
  WHITE RIVER CAPITAL, INC. AND
SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
  1.  GENERAL
DISCUSSION
  White
River Capital, Inc. (“White River” or the “Company”) is a holding company for
specialized indirect auto finance businesses, with two principal operating
subsidiaries, Coastal Credit LLC (“Coastal Credit”) and Union Acceptance Company
LLC (“UAC”). Coastal Credit based in Virginia Beach, Virginia, is a specialized
subprime auto finance company engaged in acquiring subprime auto receivables
from both franchised and independent automobile dealers which have entered into
contracts with purchasers of typically used, but some new, cars and light
trucks.  Coastal Credit then services the receivables it acquires.
Coastal Credit operates in 21 states through 18 offices. UAC, based in
Indianapolis, Indiana, holds and oversees its portfolio of approximately $1.1
million in non-prime auto receivables, as of December 31, 2008. 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 now owns directly approximately 90% of such
notes and claims. On January 5, 2007, the U.S. Bankruptcy Court for the Southern
District of Indiana issued a final decree and closed UAC’s Chapter 11 bankruptcy
case.
  In
connection with UAC’s Plan of Reorganization and distributions and as a result
of White River’s purchase of the majority of UAC’s general unsecured claims and
subordinated notes, UAC’s creditor notes payable principal amounts (in
thousands) are as follows at:
  December
      31, 2008
                      
                      
                      December
      31, 2007Carrying
      Value
                      
                      
                      Contractual
      Remaining Debt Not Owned by White River
                      
                      
                      Total
      Contractual Remaining Debt
                      
                      
                      Carrying
      Value
                      
                      
                      Contractual
      Remaining Debt Not Owned by White River
                      
                      
                      Total
      Contractual Remaining DebtRestructured
      debt:Class
      2A general unsecured claims
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      54
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      454Restructured
      subordinated notes
                      
                      
                      128
                      
                      
                      
                      1,618
                      
                      
                      
                      14,888
                      
                      
                      
                      1,324
                      
                      
                      
                      4,106
                      
                      
                      
                      25,156Senior
      accrual notes
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4,106
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4,106Subordinated
      accrual notes
                      
                      
                      -
                      
                      
                      
                      431
                      
                      
                      
                      3,964
                      
                      
                      
                      -
                      
                      
                      
                      431
                      
                      
                      
                      3,964Total
      creditor notes payable
                      
                      $
                      128
                      
                      
                      $
                      2,049
                      
                      
                      $
                      23,012
                      
                      
                      $
                      1,324
                      
                      
                      $
                      4,537
                      
                      
                      $
                      33,680
 
  On June
27, 2008, White River and First Chicago Bancorp (“First Chicago”) signed a
definitive agreement and plan of merger pursuant to which First Chicago will
merge into White River.  Terms of the agreement call for shareholders
of First Chicago to receive one share of White River common stock for each two
shares of First Chicago common stock.  Subject to consummation of the
merger and effective registration of the shares of common stock to be issued to
First Chicago’s shareholders in the merger with the U.S. Securities and Exchange
Commission (“SEC”), and approval for listing of such shares with the NYSE
Alternext US (“NYSE Alternext”) the common stock issued to First Chicago
shareholders will be listed on the NYSE Alternext. White River does not
anticipate that the merger will be consummated on the terms reflected in the
merger agreement as initially executed and is engaging in discussions with First
Chicago regarding possible alternative transaction terms (including a change of
the exchange ratio).
   35
  UAC
History
  UAC had
historically operated as a specialized finance company, engaged in
(1) acquiring receivables in the form of retail installment sales contracts
and installment loan agreements for the purchase of automobiles primarily from
automobile dealerships and used car superstores (the “Receivables Acquisitions”)
and (2) the servicing of such receivables by collecting payments due,
remitting those payments to appropriate entities and collecting delinquent and
defaulted accounts (“Servicing”).
  On
October 31, 2002, UAC filed a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Indiana, Indianapolis Division
(the “Court”). This proceeding did not include UAC’s wholly owned subsidiaries.
On November 7, 2002, UAC announced it would discontinue receivable
acquisitions because it was not able to establish timely arrangements for
further acquisition funding. UAC continued to manage its business as a
debtor-in-possession as it prepared for reorganization under bankruptcy
law.
  UAC
Securitization Corporation (“UACSC”) had finance receivables that were
collateral for seven asset backed securitizations.  Four of the
securitizations were reported on the balance sheet of UACSC and three
securitizations were held by Special Purpose Entities (“SPE”) off-balance
sheet.  The trust agreements and indentures for each securitization
had cleanup call provisions that allowed UACSC to repurchase the assets once the
note balances were below certain levels.
  In
accordance with paragraph 14 of SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, UACSC
accounted for its beneficial in Master Trust residual interest as an
available-for-sale security under SFAS 115, Accounting for Certain Investments
in Debt and Equity Securities.  Associated unrealized gains and
losses attributable to changes in fair value, net of income taxes, were recorded
as accumulated other comprehensive income (“AOCI”), net of taxes.
  UACSC
executed the cleanup call of all its remaining securitizations on December 10,
2007 effective as of December 1, 2007 and the SPEs were dissolved.  As
discussed in SFAS 140, paragraph 88, and in EITF 02-9, Accounting for Changes That Result
in a Transferor Regaining Control of Financial Assets Sold, when all the
assets of a SPE are reclaimed, the retained interest and underlying assets are
recombined.
  AOCI will
continue to be reported as a separate component of shareholders’ equity and
amortized using the interest method into the income
statement.  Therefore, the accounting for AOCI is relatively unchanged
from the prior accounting of AOCI.
  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.
  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 21 states
– Alaska, Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii,
Louisiana, Maryland, Mississippi, Nevada, New Mexico, North Carolina, Ohio,
Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and Washington – through its
18 branch locations.
   36
  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 goodwill, the valuation of
deferred tax assets, and the allowance for credit losses.
  New Accounting
Pronouncements—In September 2006, the FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 157, Fair Value Measurements
(“SFAS No. 157”), which
provides guidance on how to measure assets and liabilities using fair value
methods. SFAS No. 157 applies whenever another United States Generally Accepted
Accounting Principle 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 requires additional disclosures in both annual
and quarterly reports. There was no cumulative effect on the consolidated
financial statements as a result of the early adoption of SFAS No. 157 on
January 1, 2007 (See Note 6).
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value 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. We early adopted SFAS No. 159 on January 1, 2007
and applied SFAS No. 159 solely to creditor notes payable. See Note 6 for
further details.
  Cash and Cash
Equivalents—White River considers all investments with maturity of three
months or less when purchased to be cash equivalents.
  Finance
Receivables—net—Finance receivables are recorded at cost, net of unearned
finance charges, discounts and an allowance for credit losses. Coastal Credit
purchases finance contracts from auto dealers without recourse, and accordingly,
the dealer usually has no liability to Coastal Credit if the consumer defaults
on the contract. There is no off-balance sheet credit exposure related to these
receivables.
  Allowance for
Loan Losses – Finance Receivables—Provisions for loan losses are charged
to operations in amounts sufficient to maintain the allowance for loan losses at
a level considered adequate to cover credit losses inherent in finance
receivables.
  The
allowance for loan losses is established systematically by management based on
the determination of the amount of credit losses inherent in the finance
receivables as of the reporting date. The Company reviews charge off experience
factors, delinquency reports, historical collection rates and other information
in order to make the necessary judgments as to credit losses inherent in the
portfolio as of the reporting date. Assumptions regarding probable credit losses
are reviewed quarterly and may be impacted by actual performance of finance
receivables and changes in any of the factors discussed above. Should the credit
loss assumptions increase, there could be an increase in the amount of allowance
for loan losses required, which could decrease the net carrying value of finance
receivables and increase the provision for loan losses recorded on the
consolidated statements of operations. The Company believes that the existing
allowance for loan losses is sufficient to absorb probable finance receivable
losses.
   37
  Charge off Policy
– Finance Receivables—Coastal Credit’s policy is to charge off finance
receivables against the allowance for loan losses in the month in which the
installment contract becomes 60 days delinquent under recency terms and 180 days
delinquent under contractual terms, if the vehicle has not been repossessed. If
the vehicle has been repossessed, the receivable is charged off in the month the
repossessed automobile is disposed of at public auction unless cash collections
on the receivable are foreseeable in the near future. Receivables that are
deemed uncollectible prior to the maximum charge off period are charged off
immediately.
  Income
Recognition – Finance Receivables–Interest on receivables is recognized
for financial reporting purposes using the interest method. Initial fees earned
on add-on products such as collateral protection insurance, credit life
insurance, road service plans and warranty products are recorded in income using
the interest method. Late charges and deferment charges on contracts are
recorded in income as collected. Cash received from loans that have previously
been charged off is applied directly to the allowance for credit losses in the
consolidated balance sheets. Discounts and fees, which consist primarily of
non-refundable dealer acquisition discounts, are amortized over the term of the
related finance receivables using the interest method and are removed from the
consolidated balance sheets when the related finance receivables are charged off
or paid in full.
  Goodwill –
Goodwill 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 of the
reporting unit.
  Property,
Equipment, and Leasehold Improvements—net—Property, equipment, and
leasehold improvements are recorded at cost and included in other assets.
Depreciation is determined primarily on straight-line methods over the estimated
useful lives of the respective assets, ranging from 3 to
10 years.
  Creditor Notes
Payable—Creditor notes payable represents the liability to creditors upon
UAC’s emergence from bankruptcy in 2003. 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 was to be amortized over the
expected life of the liabilities. Although there was no stated maturity for the
creditor notes payable, the discount was being accreted, using the effective
interest method, over the period ending on the date on which the last
contractual payment on the receivables 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 RateRestructured
      debt:Class
      2A general unsecured claims
                  
                  
                  8.00
                  %Restructured
      subordinated notes
                  
                  
                  10.00
                  %Senior
      accrual notes
                  
                  
                  4.75
                  %Subordinated
      accrual notes
                  
                  
                  4.75
                  %
 
  With the
adoption of SFAS No. 159, creditor notes payable is recorded at fair value which
represents the present value of the amount that UAC anticipates paying to the
creditors from the residual assets of UAC.
  Other
Income—Other income represents refunds of dealer rebates, monies
collected on previously charged-off balances in the securitization trusts, and
other miscellaneous income.
   38
  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 11).
  Segment
Information— White River is the holding company for Coastal Credit and
UAC which are specialized auto finance companies. These subsidiaries are
distinct legal entities and managed separately. Corporate and Other is the
holding company and includes debt and interest expense related to the
acquisition of Coastal Credit, professional fees related to holding activities
of White River and the elimination of all inter-segment amounts, which generally
relate to the holding activities of White River.
  Stock-Based
Compensation—Stock-based compensation cost is based upon the grant-date
fair value of share-based awards. White River recognized compensation expense
for awards with only service conditions on a straight-line basis over the
requisite service period for the entire award.
  Concentration of
Credit Risk—The
Company maintains demand deposits with financial institutions, the balances of
which from time to time exceed the federally insured amount.
  The
Company’s portfolio of finance receivables is with consumers living in various
states across the United States as outlined above. Consequently, such consumers’
ability to honor their installment contracts may be affected by economic
conditions in theses areas. The Company has access to any collateral supporting
these receivables through repossession. The Company’s finance receivables are
collateralized by automobiles.
  
  3.  FINANCE
RECEIVABLES – NET
  Coastal
Credit
  Finance
receivables purchased by Coastal Credit generally have original terms ranging
from 32 to 48 months and are secured by the related vehicles.
   39
 Coastal
Credit Finance receivables – net outstanding were as follows (in
thousands):
 December
      31,2008
                
                
                2007Finance
      receivables, gross
                
                $
                104,599
                
                
                $
                101,948Unearned
      interest
                
                
                (3,076
                )
                
                
                (5,164
                )Finance
      receivables, net of unearned finance charge income
                
                
                101,523
                
                
                
                96,784Accretable
      unearned acquisition discounts and fees
                
                
                (10,836
                )
                
                
                (10,740
                )Finance
      receivables, net of unearned finance charge income and discounts and
      fees
                
                
                90,687
                
                
                
                86,044Allowance
      for loan losses
                
                
                (7,560
                )
                
                
                (6,810
                )Finance
      receivables, net
                
                $
                83,127
                
                
                $
                79,234
 
  Activity
in the Coastal Credit allowance for credit losses on finance receivables is as
follows (in thousands):
  Years
      Ended December 31,2008
                
                
                2007Balance
      at beginning of period
                
                $
                6,810
                
                
                $
                5,694Charge-offs,
      net of recoveries
                
                
                (7,806
                )
                
                
                (7,213
                )Provision
      for estimated credit losses
                
                
                8,556
                
                
                
                8,329Balance
      at the end of the period
                
                $
                7,560
                
                
                $
                6,810
 
  UAC
  UAC
Finance receivables – net outstanding were as follows (in
thousands):
  December
      31,2008
                
                
                2007Principal
      balance of finance receivables
                
                $
                1,103
                
                
                $
                12,572Unearned
      discount
                
                
                (45
                )
                
                
                (955
                )Accrued
      interest receivable
                
                
                9
                
                
                
                96Allowance
      for credit losses
                
                
                (7
                )
                
                
                (222
                )Finance
      receivables—net
                
                $
                1,060
                
                
                $
                11,491
 
  40
 Activity
in the UAC allowance for credit losses is as follows (in
thousands):
 Years
      Ended December 31,2008
                
                
                2007Balance
      at the beginning of period
                
                $
                222
                
                
                $
                1,617Charge-offs
                
                
                (707
                )
                
                
                (2,671
                )Recoveries
                
                
                1,445
                
                
                
                3,362Recovery
      of estimated credit losses
                
                
                (953
                )
                
                
                (2,086
                )Balance
      at the end of the period
                
                $
                7
                
                
                $
                222
 
  4.  OTHER
ASSETS
  Other
assets are as follows (in thousands):
  December
      31,2008
                
                
                2007Receivable
      from servicer
                
                $
                -
                
                
                $
                203Prepaid
      expenses
                
                
                691
                
                
                
                573Property,
      equipment and leasehold improvements, net
                
                
                599
                
                
                
                622Other
                
                
                2
                
                
                
                90Total
      other assets
                
                $
                1,292
                
                
                $
                1,488
 
  5.  GOODWILL
  Goodwill
is related to the acquisition of Coastal Credit during 2005. 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.
  White
River conducted its annual test for impairment of goodwill as of August 31,
2008. The annual impairment test of goodwill resulted in the full impairment of
goodwill totaling $34.5 million. The methodology for determining the fair value
was a combination of quoted market prices, prices of comparable businesses,
discounted estimated cash flows and other valuation techniques. These fair value
measurements were made utilizing significant unobservable inputs (Level 3). The
significant downturn in the equity markets during the third quarter 2008
exacerbated the decreased valuations calculated using these
methodologies.
  The
changes in the carrying amount of the Coastal Credit goodwill are as follows (in
thousands):
  Years
      Ended December 31,2008
                
                
                2007Beginning
      Balance
                
                $
                34,536
                
                
                $
                34,698Impairment
      losses
                
                
                (34,536
                )
                
                
                -Adjustment
      related to excess tax deductibility of goodwill
                
                
                -
                
                
                
                (162
                )Ending
      Balance
                
                $
                -
                
                
                $
                34,536
 
   41
  6.  CREDITOR
NOTES PAYABLE
  White
River’s adoption of SFAS No. 159 applied solely to creditor notes payable.
Creditor notes payable consists of debt owed to the one remaining third party
creditor from the UAC bankruptcy. During September 2003, UAC recorded the
bankruptcy debt at fair value in accordance with Statement of Position 90-7,
Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code. This fair value
adjustment resulted in a gain. Since that time, accretion interest expense has
been recognized based on the original fair value calculation and the creditor
notes payable increased based on this calculation. Since September 2003, no
adjustments have been made to this accretion schedule for the increase or
decrease in performance of the receivables of UAC. The only adjustments that
have been made are for the creditor notes that were purchased by White River and
were subsequently extinguished in accordance with SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. Prior to
the adoption of SFAS No. 159, creditor notes payable was being accreted to its
full contractual value. Using this methodology, the creditor notes payable would
have continued to accrete to their full contractual value. With the adoption of
SFAS No. 159, creditor notes payable is recorded at fair value which represents
the present value of the amount that UAC anticipates paying to the creditors
from the residual assets of the finance receivables. UAC’s finance receivables
are in essence the only asset UAC has remaining to pay the creditor notes
payable.
  The
following table presents the initial adoption of the fair value option for
creditor notes payable (in thousands):
  Balance
      Sheet January 1, 2007 prior to Adoption
                
                
                Net
      Loss upon Adoption
                
                
                Balance
      Sheet January 1, 2007 after Adoption of Fair Value
      OptionCreditor
      notes payable (including accrued interest)
                
                $
                1,484
                
                
                $
                994
                
                
                $
                2,478Increase
      in deferred tax asset
                
                
                
                
                
                
                (363
                )Cumulative
      effect of adoption of the fair value option (charged to accumulated
      deficit)
                
                
                
                
                
                $
                631
 
  The
following table presents the creditor notes payable (in thousands) on a
recurring basis using significant unobservable inputs (Level 3) per SFAS No.
157:
  Years
      Ended December 31,2008
                
                
                2007Beginning
      balance
                
                $
                1,324
                
                
                $
                2,478Total
      losses included in earnings (recorded as "other expenses")
                
                
                11
                
                
                
                394Purchases,
      issuances and settlements
                
                
                (1,207
                )
                
                
                (1,548
                )Ending
      balance
                
                $
                128
                
                
                $
                1,324
 
  The
contractual interest related to the creditor notes payable will continue to be
accrued as interest expense and the interest payable will be included in the
fair value calculation along with the creditor notes payable on a quarterly
basis.  The unpaid principal balance of creditor notes payable was
$1.9 million and $1.8 million more than the aggregate fair value as of December
31, 2008 and 2007, respectively.  The ultimate amount paid on creditor
notes payable could differ depending on the actual cash flows from UAC’s finance
receivables.
   42
  7.  LINE
OF CREDIT
  The line
of credit is utilized by Coastal Credit to finance the purchase of finance
receivables. $40.5 million and $50.0 million of the line of credit was utilized
at December 31, 2008 and 2007, respectively. This line of credit was $100
million at December 31, 2008 and 2007. The maturity date on the line of credit
is December 31, 2011 and the interest rate is the London Interbank Offered Rate
(“LIBOR”) plus 2.60%. The availability of the line of credit allows Coastal
Credit to borrow up to 84% of the aggregate balance of outstanding eligible
receivables net of unearned interest, commissions and discounts. Eligible
receivables exclude the following: (i) receivables for which a payment is 90 or
more days past due on a contractual basis; (ii) receivables which have been
deferred more than two times during the same calendar year, or more than six
times over the contract term; (iii) receivables subject to repossession or
bankruptcy proceedings or the account debtor with respect to which is a debtor
under the Bankruptcy Code; (iv) receivables from officers, employees or
shareholders of the borrower or any affiliate; (v) interest only accounts; (vi)
receivables missing titles after 120 days from their origination date; and (vii)
receivables which, in the lender’s reasonable discretion, do not constitute
acceptable collateral. Total available under the line of credit was $74.2
million and $70.8 million based upon the level of eligible collateral with $33.7
million and $20.8 million available in excess of the amount utilized at December
31, 2008 and 2007, 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, 2008 and
2007. Interest is paid monthly at a variable rate, based on meeting certain
financial criteria. The average rate during the month of December, 2008 and 2007
was LIBOR plus 2.60% which equated to 4.50% and 7.84%, 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. The consolidated balance sheet includes approximately $40.0 million and
$26.9 million of net assets of Coastal Credit at December 31, 2008 and 2007,
respectively, which, subject to limitations under the credit facility, would
generally be available to fund the operation and investments of Coastal Credit,
but would not be available to White River and UAC for general corporate
purposes.
  
  8.  SELECT
DEBT REPAYMENT SCHEDULES
  The
following table represents select debt principal repayment schedules (in
thousands):
  Contractual
      Obligations
                
                Total
                
                
                Less
      than 1 Year
                
                
                1-3
      Years
                
                
                3-5
      Years
                
                
                More
      than 5 YearsLong-term
      debt obligationsCoastal
      Credit
                
                $
                40,500
                
                
                $
                -
                
                
                $
                40,500
                
                
                $
                -
                
                
                $
                -UAC
                
                
                128
                
                
                
                125
                
                
                
                3
                
                
                
                -
                
                
                
                -Total
      long-term debt obligations
                
                $
                40,628
                
                
                $
                125
                
                
                $
                40,503
                
                
                $
                -
                
                
                $
                -
 
  
   43
  9.  ACCRETION
AND OTHER INTEREST
  The
individual components of accretion and other interest income are shown in the
following table (in thousands):
  Years
      Ended December 31,2008
                
                
                2007UAC
      discount accretion from accumulated other comprehensive
    income
                
                $
                6,656
                
                
                $
                15,079Interest
      on cash balances
                
                
                41
                
                
                
                530Accretion
      and other interest income
                
                $
                6,697
                
                
                $
                15,609
 
  10.  RELATED
PARTY TRANSACTIONS
  UAC’s
administration of the Plan is supervised by Castle Creek Capital LLC (“Castle
Creek”), whose investment 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 2008 and 2007. While the bankruptcy case
was closed on January 5, 2007, UAC must continue to operate in accordance with
the Plan.
  On August
31, 2005, warrants were issued by White River to the Castle Creek investment
funds to purchase 150,000 shares of White River common stock at an exercise
price of $10 per share. The term of each warrant was three years and 90 days and
became exercisable three years after issuance. The warrants were recorded at
fair value as of August 31, 2005. These warrants were exercised on November 21,
2008.
  During
August, 2005, Coastal Credit effected a private placement of $7.7 million in
subordinated 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 prepaid in full the subordinated debentures during
April and May 2007. Interest expense for the subordinated debentures owned by
these related parties were approximately $0.2 million for the year ended
December 31, 2007.
  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 $13,938 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 $9,559 per month. The Orange
Park lease will expire in April 2010.
  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 2008 and 2007, approximately $170,000 was paid for
this purpose each year.
   44
  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 2008 and 2007, approximately $22,800 was paid each year
for this purpose.
  White
River paid a management fee to Mark Ruh, an employee of Castle Creek, during
2008 for services rendered of approximately $632,000. During 2007, this fee was
approximately $182,000.
  11.  INCOME
TAXES
  UAC
incurred net operating losses for federal income tax purposes for the years
ended June 30, 2003, 2004, 2005. White River will carry forward these tax losses
to future periods. Net operating loss carryforwards for federal income tax
purposes were $97.0 million and $100.1 million as of December 31, 2008 and 2007,
respectively. These tax losses will expire during 2022 through
2024.
  White
River adopted FIN 48 on January 1, 2007. The implementation of FIN 48 did not
impact White River’s financial statements. As of December 31, 2008, there were
no unrecognized tax benefits.
  White
River recognizes interest and penalties, if any, on tax assessments or tax
refunds in the financial statements as a component of income tax
expense.
  White
River and its subsidiaries are subject to taxation by the United States and by
various state jurisdictions.  With some exceptions, White River’s
consolidated tax returns for its 2004 tax year and forward remain open to
examination by tax authorities.  Also, net operating losses carried
forward from prior years remain open to examination by tax
authorities.  With some exceptions, White River is no long subject to
federal or state examinations by tax authorities for years before
2004.
  The
composition of income tax expense (benefit) is as follows for the years ended
December 31 (in thousands):
  2008
                
                
                2007Current
      tax expense
                
                $
                153
                
                
                $
                232Deferred
      tax expense (benefit)
                
                
                (8,328
                )
                
                
                7,083Valuation
      allowance reversal
                
                
                (64
                )
                
                
                (536
                )Income
      tax expense (benefit)
                
                $
                (8,239
                )
                
                $
                6,779
 
  The
effective income tax rate differs from the statutory federal corporate tax rate
as follows for the years ended December 31:
   45
  2008
                
                
                2007Statutory
      rate
                
                
                35.0
                %
                
                
                35.0
                %State
      income taxes
                
                
                1.5
                
                
                
                1.5Valuation
      allowance and other
                
                
                -
                
                
                
                (0.2
                )Bankruptcy
      and other costs not deductible
                
                
                (0.2
                )
                
                
                0.2Effective
      rate
                
                
                36.3
                %
                
                
                36.5
                %
 
  The
composition of deferred income taxes is as follows as of December 31 (in
thousands):
  2008
                
                
                2007Deferred
      tax assets:Net
      operating loss carryforward
                
                $
                36,058
                
                
                $
                37,223AMT
      credit carryforward
                
                
                1,020
                
                
                
                965Basis
      difference in goodwill
                
                
                9,076
                
                
                
                -Allowance
      for estimated credit losses
                
                
                2,737
                
                
                
                2,467Restricted
      stock awards
                
                
                222
                
                
                
                357Total
      deferred tax assets
                
                
                49,113
                
                
                
                41,012Valuation
      allowance
                
                
                (1,035
                )
                
                
                (1,099
                )48,078
                
                
                
                39,913Deferred
      tax liabilities:Basis
      difference in creditor notes payable
                
                
                652
                
                
                
                623Basis
      difference in goodwill
                
                
                -
                
                
                
                2,752Straight
      line vs. actuarial discount earned
                
                
                360
                
                
                
                351Other
                
                
                120
                
                
                
                156Total
      deferred tax liabilities
                
                
                1,132
                
                
                
                3,882Net
      deferred tax assets
                
                $
                46,946
                
                
                $
                36,031
 
  12.  STOCK-BASED
COMPENSATION
  On
October 26, 2005, the board of directors of White River adopted the White River
Capital, Inc. Directors Stock Compensation Plan. The plan provides for the
payment of a portion of regular fees to certain members of the board of
directors in the form of shares of White River common stock. The cost that has
been charged against income for this plan was $140,000 during the years ended
December 31, 2008 and 2007. The total income tax benefit recognized in the
income statement for this share-based compensation arrangement was $51,100 for
the years ended December 31, 2008 and 2007. The terms of the plan includes the
reservation of 50,000 shares of White River common stock for issuance under the
plan. As of December 31, 2008, approximately 15,700 shares had been issued under
this plan resulting in approximately 34,300 shares available to be
issued.
   46
  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”), this award is accounted for as a
liability award. The value of payment is determined based on the mean of the
trading value of White River shares for 20 trading days prior to the vesting
date. Compensation expense related to this award approximated $250,000 and
$613,000 for the years ended December 31, 2008 and 2007, respectively, and is
included in salaries and benefits expense in the accompanying consolidated
statements of operations. The total income tax benefit recognized in the income
statement for this share-based compensation arrangement was approximately
$91,300 and $223,700 for the years ended December 31, 2008 and 2007,
respectively.
  On May 5,
2006, White River shareholders approved the White River Capital, Inc. 2005 Stock
Incentive Plan. The purpose of this plan is to offer certain employees,
non-employee directors, and consultants the opportunity to acquire a proprietary
interest in White River. The plan provides for the grant of options, restricted
stock awards and performance stock awards. The total number of options and stock
awards that may be awarded under the plan may not exceed 250,000. As of December
31, 2008, White River awarded restricted stock awards totaling 98,100 shares and
55,800 of these shares have vested and have been issued and 20,900 shares have
been forfeited.  Forfeited shares are available for the purposes of
the plan. White River has not issued stock options as of December 31, 2008. The
following is a summary of the status of White River’s non-vested restricted
stock awards and changes during the years then ended:
  Years
      Ended December 31,2008
                
                
                2007Restircted
      Stock Awards
                
                Shares
                
                Weighted
      Average Grant Date Fair Value
                
                
                Shares
                
                Weighted
      Average Grant Date Fair ValueBeginning
      nonvested awards
                
                
                54,300
                
                
                $
                14.91
                
                
                
                86,400
                
                
                $
                14.25Granted
                
                
                -
                
                
                
                -
                
                
                
                5,100
                
                
                
                23.10Vested
                
                
                (26,000
                )
                
                
                14.56
                
                
                
                (29,800
                )
                
                
                14.55Forfeited
                
                
                (6,900
                )
                
                
                15.40
                
                
                
                (7,400
                )
                
                
                14.25Ending
      nonvested awards
                
                
                21,400
                
                
                $
                14.99
                
                
                
                54,300
                
                
                $
                14.91
 
  The value
of restricted awards is determined based on the trading value of White River
shares on the grant date. An estimated forfeiture rate of 7% was used.
Compensation expense related to these awards approximated $379,600 and $352,600
for years ended December 31, 2008 and 2007, respectively, and is included in
salaries and benefits expense in the accompanying consolidated statements of
operations. The total income tax benefit recognized in the income statement for
this share-based compensation arrangement was approximately $138,500 and
$128,700 for the years ended December 31, 2008 and 2007, respectively. There was
$41,000 and $1.0 million of total unrecognized compensation cost related to
non-vested share-based compensation arrangements granted as of December 31, 2008
and 2007, respectively. That cost is expected to be recognized over a
weighted-average period of 1.3 years and 1.1 years as of December 31, 2008 and
2007, respectively.
  13.  BUSINESS
SEGMENT INFORMATION
  Set forth
in the table below is certain financial information with respect to White
River’s operating segments as discussed in Note 1. All taxes are recorded at
Corporate and Other. UAC and Coastal Credit are limited liability companies and
are consolidated with White River for tax purposes.
   47
  For
      The Year Ended December 31, 2008
                
                UAC
                
                
                Coastal
      Credit
                
                
                Corporate
      and Other
                
                
                ConsolidatedTotal
      interest income
                
                $
                8,170
                
                
                $
                29,366
                
                
                $
                19
                
                
                $
                37,555Interest
      expense
                
                
                (221
                )
                
                
                (2,499
                )
                
                
                -
                
                
                
                (2,720
                )Net
      interest margin
                
                
                7,949
                
                
                
                26,867
                
                
                
                19
                
                
                
                34,835Recovery
      (provision) for estimated credit losses
                
                
                953
                
                
                
                (8,556
                )
                
                
                -
                
                
                
                (7,603
                )Net
      interest margin after recovery (provision) for estimated credit
      losses
                
                
                8,902
                
                
                
                18,311
                
                
                
                19
                
                
                
                27,232Total
      other revenues (expenses) (1)
                
                
                (12,784
                )
                
                
                (11,103
                )
                
                
                8,517
                
                
                
                (15,370
                )Goodwill
      impairment
                
                
                -
                
                
                
                -
                
                
                
                (34,536
                )
                
                
                (34,536
                )Income
      (loss) before income taxes
                
                
                (3,882
                )
                
                
                7,208
                
                
                
                (26,000
                )
                
                
                (22,674
                )Income
      tax benefit
                
                
                -
                
                
                
                -
                
                
                
                8,239
                
                
                
                8,239Net
      income (loss)
                
                $
                (3,882
                )
                
                $
                7,208
                
                
                $
                (17,761
                )
                
                $
                (14,435
                )
 
 For
      The Year Ended December 31, 2007
                
                UAC
                
                
                Coastal
      Credit
                
                
                Corporate
      and Other
                
                
                ConsolidatedTotal
      interest income
                
                $
                17,548
                
                
                $
                30,242
                
                
                $
                77
                
                
                $
                47,867Interest
      expense
                
                
                (1,036
                )
                
                
                (4,088
                )
                
                
                (990
                )
                
                
                (6,114
                )Net
      interest margin
                
                
                16,512
                
                
                
                26,154
                
                
                
                (913
                )
                
                
                41,753Recovery
      (provision) for estimated credit losses
                
                
                2,086
                
                
                
                (8,329
                )
                
                
                -
                
                
                
                (6,243
                )Net
      interest margin (deficit) after recovery (provision) for estimated credit
      losses
                
                
                18,598
                
                
                
                17,825
                
                
                
                (913
                )
                
                
                35,510Total
      other revenues (expenses) (2)
                
                
                (19,457
                )
                
                
                (11,117
                )
                
                
                13,641
                
                
                
                (16,933
                )Income
      (loss) before income taxes
                
                
                (859
                )
                
                
                6,708
                
                
                
                12,728
                
                
                
                18,577Income
      tax expense
                
                
                -
                
                
                
                -
                
                
                
                (6,779
                )
                
                
                (6,779
                )Net
      income (loss)
                
                $
                (859
                )
                
                $
                6,708
                
                
                $
                5,949
                
                
                $
                11,798
 
 (1)
              Depreciation
      and amortization is included in total other revenues (expenses) and was
      approximately $8,000, $222,000 and $187,000 for UAC, Coastal Credit and
      Corporate and Other for the year ended December 31,
  2008.
 (2)
              Depreciation
      and amortization is included in total other revenues (expenses) and was
      approximately $7,000, $193,000 and $277,000 for UAC, Coastal Credit and
      Corporate and Other for the year ended December 31,
  2007.
 
  
   48
  The
following table presents assets with respect to White River’s operating segments
(in thousands) at:
  December
      31,2008
                
                
                2007Corporate
      and other
                
                $
                51,795
                
                
                $
                36,709Coastal
      Credit
                
                
                85,408
                
                
                
                116,447UAC
                
                
                1,625
                
                
                
                13,409$
                138,828
                
                
                $
                166,565
 
  14.  EARNINGS
PER SHARE
  Basic
earnings per share are calculated by dividing the reported net income for the
period by the weighted average number of common shares outstanding. The weighted
average number of common shares outstanding during a period is weighted for the
portion of the period that the shares were outstanding. Diluted earnings per
share include the dilutive effect of warrants that were granted on August 31,
2005 and stock award plans which were issued on August 1, 2007 and June 1, 2006.
Basic and diluted earnings per share have been computed as follows (dollars in
thousands except per share data):
  Years
      Ended December 31,2008
                
                
                2007Net
      income (loss) in thousands
                
                $
                (14,435
                )
                
                $
                11,798Weighted
      average shares outstanding
                
                
                3,887,093
                
                
                
                3,840,663Incremental
      shares from assumed conversions:Warrants
                
                
                -
                
                
                
                81,669Stock
      award plans
                
                
                -
                
                
                
                25,310Weighted
      average shares and assumed incremental shares
                
                
                3,887,093
                
                
                
                3,947,642Earnings
      per share:Basic
                
                $
                (3.71
                )
                
                $
                3.07Diluted
                
                $
                (3.71
                )
                
                $
                2.99
 
  As a
result of the net loss for the year ended December 31, 2008, the diluted
earnings per share would be anti-dilutive in nature. No potential common shares
are to be included in the computation of any diluted per-share amount when a
loss from continuing operations exists. As a result, there were 7,087
incremental shares of common stock equivalents excluded from the computation for
the year ended December 31, 2008.
  
 49
  QUARTERLY
FINANCIAL DATA (UNAUDITED)
  The
following is a summary of quarterly financial results (dollars in thousands,
except per share data):
  Fiscal Year EndedDecember 31, 2008
                
                First
      Quarter
                
                
                Second
      Quarter
                
                
                Third
      Quarter
                
                
                Fourth
      QuarterTotal
      interest income
                
                $
                11,635
                
                
                $
                9,432
                
                
                $
                8,515
                
                
                $
                7,973Net
      interest margin
                
                $
                10,803
                
                
                $
                8,789
                
                
                $
                7,900
                
                
                $
                7,343Other
      expense, net
                
                $
                (3,740
                )
                
                $
                (4,797
                )
                
                $
                (3,418
                )
                
                $
                (3,415
                )Goodwill
      impairment
                
                $
                -
                
                
                $
                -
                
                
                $
                (34,536
                )
                
                $
                -Net
      income (loss)
                
                $
                3,724
                
                
                $
                1,493
                
                
                $
                (20,472
                )
                
                $
                820Basic
      earnings per share
                
                $
                0.96
                
                
                $
                0.39
                
                
                $
                (5.29
                )
                
                $
                0.21Diluted
      earnings per share
                
                $
                0.94
                
                
                $
                0.38
                
                
                $
                (5.29
                )
                
                $
                0.21Basic
      weighted average shares
                
                
                3,863,507
                
                
                
                3,872,133
                
                
                
                3,872,610
                
                
                
                3,939,701Diluted
      weighted average shares
                
                
                3,942,503
                
                
                
                3,928,612
                
                
                
                3,872,610
                
                
                
                3,954,502Fiscal Year EndedDecember 31, 2007Total
      interest income
                
                $
                18,464
                
                
                $
                9,104
                
                
                $
                9,343
                
                
                $
                10,956Net
      interest margin
                
                $
                16,474
                
                
                $
                7,556
                
                
                $
                7,936
                
                
                $
                9,787Other
      expense, net
                
                $
                (4,802
                )
                
                $
                (4,109
                )
                
                $
                (4,164
                )
                
                $
                (3,858
                )Net
      income
                
                $
                7,011
                
                
                $
                1,660
                
                
                $
                1,491
                
                
                $
                1,636Basic
      earnings per share
                
                $
                1.83
                
                
                $
                0.43
                
                
                $
                0.39
                
                
                $
                0.43Diluted
      earnings per share
                
                $
                1.78
                
                
                $
                0.42
                
                
                $
                0.38
                
                
                $
                0.42Basic
      weighted average shares
                
                
                3,835,458
                
                
                
                3,842,287
                
                
                
                3,842,287
                
                
                
                3,842,557Diluted
      weighted average shares
                
                
                3,937,280
                
                
                
                3,949,069
                
                
                
                3,952,893
                
                
                
                3,940,991
 
  15.  ESTIMATED
FAIR VALUE OF FINANCIAL INSTRUMENTS
  The
carrying value of cash and cash equivalents and restricted cash approximates the
fair value due to the nature of these accounts.
  Finance
receivables–net approximates fair value based on the price paid to acquire the
loans. The price paid reflects competitive market interest rates and purchase
discounts for the Company’s chosen credit grade in the economic environment.
This market is highly liquid as the Company acquires individual loans on a daily
basis from dealers. In addition, there have been minimal changes in interest
rates and purchase discounts related to these types of loans.
  The
interest rate for the line of credit is a variable rate based on LIBOR. As a
result, the carrying value of the line of credit approximates fair
value.
  Accrued
interest is paid monthly. As a result of the short term nature of this activity,
the carrying value of the accrued interest approximates fair value.
  White
River’s adoption of SFAS No. 159 applied solely to creditor notes payable.
Creditor notes payable consists of debt owed to the one remaining third party
creditor from the UAC bankruptcy.
   50
  With the
adoption of SFAS No. 159, creditor notes payable is recorded at fair value which
represents the present value of the amount that UAC anticipates paying to the
creditors from the residual assets of the finance receivables. UAC’s finance
receivables are in essence the only asset UAC has remaining to pay the creditor
notes payable.
   16.  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
$0.7 million for the year ended December 31, 2008.  The following
table represents obligations under current operating lease agreements (in
thousands):
  Year
              
              Total2009
              
              $5372010
              
              1042011
              
              11
 
  17.  SUMMARY
OF STOCK TRANSFER RESTRICTIONS AND RELATED PROVISIONS
  General
  The
following is a summary of the material transfer restrictions set forth in
Article 10 of White River’s articles of incorporation. The following summary is
not complete. The transfer restrictions apply to transfers of White River’s
common stock and any other instrument that would be treated as “stock,” as
determined under applicable Treasury Regulations. The transfer restrictions will
apply until the earlier of:
  ·
              the
      repeal by the Internal Revenue Service of the NOL carryforward limitations
      in the Code if White River’s board of directors determines the transfer
      restrictions are no longer necessary for the preservation of the tax
      benefits; and
  ·
              the
      beginning of a taxable year of White River to which White River’s board
      determines that no tax benefits may be carried
  forward.
  However,
White River’s board of directors will have the power to extend the expiration
date of the transfer restrictions if it determines in writing that such action
is reasonably necessary or desirable to preserve the tax benefits or to
accelerate the expiration date if it determines in writing that the continuation
of the transfer restrictions is no longer reasonably necessary for the
preservation of the tax benefits. This power is vested in White River’s board of
directors to ensure that White River retains the power to make, in light of all
relevant circumstances, including positions that might be taken by tax
authorities and contested by White River, the complex determination whether the
tax benefits have been fully used or are otherwise available.
   51
  Prohibited
Transfers
  The
transfer restrictions generally prohibit any conveyance, from one person to
another, by any means, of legal or beneficial ownership, directly or indirectly,
of any class of White River stock including indirect transfers of White River
stock, accomplished by transferring interests in other entities that own White
River stock, to the extent that the transfer, if effective:
  ·
              would
      create a new “public group” of White River. For example, the transfer of
      stock by an existing 5-percent shareholder to the public would be deemed
      to result in the creation of a separate, segregated “public group” that
      would be a new 5-percent
shareholder;
  ·
              would
      give rise to a “prohibited ownership percentage,” which is defined by
      reference to complex federal tax laws and regulations, but generally means
      any direct or indirect ownership that would cause any person, including a
      “public group” as defined in the NOL carryforward limitations, to be
      considered a 5-percent shareholder of White River. By way of example, if
      shareholder A owns 4% of White River’s outstanding shares of common stock,
      and shareholder B attempted to sell 2% of White River’s outstanding shares
      to shareholder A, the transfer restrictions would prohibit the sale of
      approximately 1.1% of the shares out of the 2% attempted to be sold;
      or
  ·
              would
      increase the ownership percentage of any person, including a public group
      that is already a 5-percent shareholder of White River. Therefore, no
      shareholder will be permitted to sell any shares to 5-percent holders or
      their affiliates without board
approval.
  Exemptive
Power of White River’s Board
  White
River’s board of directors has the power to approve any otherwise prohibited
transfer, conditionally or unconditionally, if it determines, in its discretion,
that a specific proposed transaction will not jeopardize White River’s full use
of the tax benefits. In addition, White River’s board of directors has the power
to waive any of the transfer restrictions in any instance where it determines
that a waiver would be in the best interests of White River despite the effect
of the waiver on the tax benefits.
  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.
  
   52
  ITEM
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  Not
applicable.
   ITEM
9A(T).  CONTROLS AND PROCEDURES
  Management’s
Report on Internal Control Over Financial Reporting
  White
River carried out an evaluation, under the supervision of its Chief Executive
Officer, President and Chief Financial Officer, of the effectiveness of the
design and operation of White River’s disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15 and 15d-15 as of December 31, 2008. Based
upon that evaluation, the Chief Executive Officer, President and Chief Financial
Officer concluded that, at December 31, 2008, White River’s disclosure controls
and procedures are effective in accumulating and communicating to management
(including such officers) the information required to be included in White
River’s periodic SEC filings.
  Management
of White River is responsible for establishing and maintaining adequate internal
control over financial reporting.  White River’s internal control over
financial reporting includes policies and procedures pertaining to White River’s
ability to record, process, and report reliable information.  White
River’s internal control system is designed to provide reasonable assurance to
White River’s management and Board of Directors regarding the preparation and
fair presentation of White River’s published financial statements.
  White
River’s management assessed the effectiveness of internal control over financial
reporting as of December 31, 2008.  In making this assessment, it used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control – Integrated
Framework.  Based on this assessment, White River’s management
concluded that, as of December 31, 2008, White River’s internal control over
financial reporting is effective based on those criteria.
  This
annual report does not include an attestation report of White River’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by White River’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.
  During
White River’s fiscal quarter ended December 31, 2008, there were no changes
in White River’s internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect White River’s internal
control over financial reporting.
   ITEM
9B.  OTHER INFORMATION
  Not
applicable.
   53
  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 2009 annual
meeting of shareholders (“Proxy Statement”) is incorporated herein by
reference.
  Code
of Ethics
  White
River has adopted the White River Capital, Inc. Code of Business Conduct and
Ethics (“code of ethics”), a code of ethics that applies to the Chief Executive
Officer, President and Chief Financial Officer.
  Audit
Committee and Audit Committee Financial Expert
  The
information with respect to White River’s audit committee and its audit
committee financial expert contained under the caption “Corporate Governance and
Board Committees – Audit Committee” in White River’s Proxy Statement is
incorporated herein by reference.
   ITEM
11.  EXECUTIVE COMPENSATION
  Information
contained under the captions “Executive Compensation” and “Compensation of
Directors” in the Proxy Statement is incorporated herein by
reference.
   54
  ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
  Security
Ownership
  Information
contained under the caption “Security Ownership of Certain Beneficial Owners and
Management” in the Proxy Statement is incorporated herein by
reference.
  Securities
Authorized for Issuance under Equity Compensation Plans
  As of
December 31, 2008, the following shares were authorized to be issued under White
River’s equity compensation plans:
  
 Equity
      Compensation Plan InformationPlan
      Category
                
                Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                
                Weighted
      average exercise price of outstanding options, warrants and
      rights
                
                Number
      of securities remaining available for future
  issuanceEquity
      compensation plans approved by security holders
                
                
                21,4001
                
                
                
                $0.00
                
                
                
                213,9022Equity
      compensation plans not approved by security holders
                
                
                0
                
                
                
                0
                
                
                
                0Total
                
                
                204,3001
                
                
                
                $0.00
                
                
                
                213,9022
 1Includes 21,400 shares
issuable pursuant to outstanding performance awards under the 2005 Stock
Incentive Plan.
 2  Includes
179,600 shares issuable pursuant to the 2005 Stock Incentive Plan in the form of
stock options, restricted stock awards, or performance stock awards, and 34,302
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 Person
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 ACCOUNTANT 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.
   55
  PART
IV
 
  ITEM
15.  EXHIBITS
  1.       Financial
Statements
  The
consolidated financial statements of White River Capital, Inc. and its
subsidiaries and independent auditors’ report are included in Part II (Item 8)
of this Form 10-K.
  2.       Financial
Statement Schedules
  Not
applicable.
  3.       Exhibits
  The
following documents are included or incorporated by reference in this Annual
Report on Form 10K:
  2.1
                                      Agreement
      and Plan of Merger between White River Capital, Inc. and First Chicago
      Bancorp dated as of June 27, 2008 (incorporated by reference to Exhibit
      2.1 of registrant’s Form 8-K filed July 2, 2008)3.1
                                      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 (incorporated by
      reference to registrant’s Articles of Incorporation filed as Exhibit 3.1
      of registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))4.3
                                      Article
      III – “Shareholder Meetings,” Article VI – “Certificates for Shares” and
      Article VII, Section 3 – “Corporate Books and Records” of registrant’s
      Code of By-laws (incorporated by reference to registrant’s Code of By-laws
      filed as Exhibit 3.2 of the registrant’s Registration Statement on Form
      S-1/S-4 (Reg. No. 333-123909))4.4
                                      Second
      Amended and Restated Plan of Reorganization of Union Acceptance
      Corporation dated August 8, 2003 (incorporated by reference to Exhibit 4.6
      of registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))4.5(a)
                                      Amended
      Finance Agreement dated April 16, 2001, between Coastal Credit, LLC and
      Wells Fargo Financial Preferred Capital, Inc. (incorporated by reference
      to Exhibit 4.8(a) of registrant’s Registration Statement on Form S-1/S-4
      (Reg. No. 333-123909))4.5(b)
                                      First
      Amendment to Finance Agreement dated March 22, 2004, between Coastal
      Credit, LLC and Wells Fargo Financial Preferred Capital, Inc.
      (incorporated by reference to Exhibit 4.8(b) of registrant’s Registration
      Statement on Form S-1/S-4 (Reg. No. 333-123909))4.5(c)
                                      Second
      Amendment to Finance Agreement, dated August 24, 2005, between Coastal
      Credit LLC and Wells Fargo Financial Preferred Capital, Inc. (including
      replacement Promissory Note and White River Capital
      Inc. Guaranty) (incorporated by reference to Exhibit 4.1 of
      registrant’s Form 8-K filed September 2, 2005)4.5(d)
                                      Third
      Amendment to Finance Agreement, dated January 2, 2007, between Coastal
      Credit LLC and Wells Fargo Financial Preferred Capital, Inc. (incorporated
      by reference to Exhibit 4.8(d) of the registrant’s 2006 Annual Report on
      Form 10-K filed on March 16,
2007)
 
  56
 
 4.6
                                                  Regulation
      S-K, Item 601(b)(4)(iii) undertaking to furnish debt instruments to the
      Commission upon request (incorporated by reference to Exhibit 4.9 of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))10.1
                                                  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
                                                  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))10.4(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))10.4(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, 200610.5
                                                  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))10.6
                                                  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)10.7
                                                  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)10.8
                                                  Employment
      Agreement dated as of June 27, 2008 by and among Castle Creek Capital,
      L.L.C., First Chicago Bancorp, White River Capital, Inc., and Mark Ruh
      (incorporated by reference to Exhibit 99.1 of registrant’s Current Report
      on Form 8-K filed by the registrant on July 2, 2008)10.9
                                                  Employment
      Agreement dated as of June 27, 2008 by and among Castle Creek Capital,
      L.L.C., First Chicago Bancorp, White River Capital, Inc., and Martin J.
      Szumski (incorporated by reference to Exhibit 99.2 of registrant’s Current
      Report on Form 8-K filed by the registrant on July 2,
  2008)14.1
                                                  Code
      of Ethics (incorporated by reference to Exhibit 14.1 of registrant’s Form
      10-K for the year ended December 31, 2005)21.1
                                                  Subsidiaries
      of White River Capital, Inc. (incorporated by reference to Exhibit 21.1 of
      registrant’s Form 10-K for the year ended December 31,
    2005)23.1
                                                  Consent
      of McGladrey & Pullen LLP31.1
                                                  Certification
      by Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the
      Exchange Act31.2
                                                  Certification
      by Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the
      Exchange Act32.1
                                                  Section
      1350
Certifications
 
  57
  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
      13, 2009
              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
      13, 2009John
      M. Eggemeyer/s/
      Mark
      R. Ruh
                  
                  President,
      Chief Operating Officer and Director
                  
                  March
      13, 2009Mark
      R. Ruh/s/
      Martin
      J. Szumski
                  
                  Chief
      Financial Officer (Principal Financial Officer and Principal Accounting
      Officer)
                  
                  March
      13, 2009Martin
      J. Szumski/s/
      Thomas
      C. Heagy
                  
                  Director
                  
                  March
      13, 2009Thomas
      C. Heagy/s/
      William
      E. McKnight
                  
                  Director
                  
                  March
      13, 2009William
      E. McKnight/s/
      Daniel
      W. Porter
                  
                  Director
                  
                  March
      13, 2009Daniel
      W. Porter/s/
      John
      W. Rose
                  
                  Director
                  
                  March
      13, 2009John
      W. Rose/s/
      Richard
      D. Waterfield
                  
                  Director
                  
                  March
      13, 2009Richard
      D. Waterfield
 
   58