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, 2007




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
            American
      Stock ExchangeSecurities
      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, 2007 was $60.7 million.  The registrant does
not have any non-voting common equity securities.




As of
March 14, 2008, there were 3,869,333 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 2008 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
      2.
            Properties
            12Item
      3.
            Legal
      Proceedings
            12PART
      IIItem
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            13Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
            19Item
      8.
            Financial
      Statements and Supplementary Data
            35Report
      of Independent Registered Public Accounting Firm – McGladrey & Pullen
      LLP
            35Report
      of Independent Registered Public Accounting Firm – Deloitte & Touche
      LLP
            36Audited
      Consolidated Balance Sheets as of December 31, 2007 and
    2006
            37Audited
      Consolidated Statements of Operations for the Years Ended December 31,
      2007 and 2006
            38Audited
      Consolidated Statements of Shareholders’ Equity for the Years Ended
      December 31, 2007 and 2006
            39Audited
      Consolidated Statements of Cash Flows for the Years Ended December 31,
      2007 and 2006
            40Notes
      to Audited Consolidated Financial Statements
            41Item
      9A(T).
            Controls
      and Procedures
            66





i










PART
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            68Item
      11.
            Executive
      Compensation
            68Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management  and
      Related Stockholder Matters
            69Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            69Item
      14.
            Principal
      Accounting Fees and Services
            69PART
      IVItem
      15.
            Exhibits
      and Financial Statement Schedules
            70SIGNATURES
            74





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 17 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 margin after provision for estimated losses was $35.5
million for the year ended December 31, 2007.  Net income for this
same period was $11.8 million.  At December 31, 2007, total assets
were $166.6 million.






COASTAL
CREDIT LLC




General




Coastal
Credit is a subprime finance company engaged in acquiring sub-prime auto
receivables from both franchised and independent automobile dealers which have
entered into contracts with purchasers of typically used, but some new, cars and
light trucks.  Coastal Credit then services the receivables it
acquires. Coastal Credit commenced operations in Virginia in 1987. It conducts
business in 21 states – Alaska, Arizona, California, Colorado, Delaware,
Florida, Georgia, Hawaii, Kansas, Louisiana, Maryland, Mississippi, Nevada,
North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and
Washington – through its 17 branch locations.




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







1





A
significant number of contracts acquired by Coastal Credit are contracts made
with borrowers who are in the United States military. During 2007, 28.5% 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 17 branches, with two branches in each of Florida, Georgia,
Mississippi, and Virginia, and one branch in each of California, Colorado,
Delaware, Louisiana, Nevada, Ohio, Oklahoma, Pennsylvania and Texas. Each branch
acquires, processes, and services contracts in its geographic area.




Coastal
Credit’s branch managers develop and maintain relationships with automobile
dealers in the branches’ geographic areas. Coastal Credit enters into
non-exclusive dealer agreements with these dealers for the acquisition of
individual contracts. The dealer agreement provides Coastal Credit with recourse
to the dealer in cases of dealer fraud or breach of the dealer’s representations
and warranties. As of December 31, 2007, Coastal Credit had non-exclusive
agreements with approximately 1,500 dealers, of which approximately 556 are
active. Coastal Credit considers a dealer agreement to be active if Coastal
Credit has acquired a contract under the dealer agreement in the last nine
months. After Coastal Credit acquires a contract from a dealer, the dealer is no
longer involved in the relationship between Coastal Credit and the borrower,
other than through the existence of limited representations and warranties of
the dealer.




Borrowers
under the contracts typically make down payments, in the form of cash or
trade-in, ranging from 5% to 20% of the sale price of the vehicle financed. The
balance of the purchase price of the vehicle plus taxes, title fees and, if
applicable, premiums for “add-on” products (described below), are generally
financed over a period of 32 to 48 months.




Coastal
Credit acquires each contract from the automobile dealer at a negotiated price
that is less than the original principal amount being financed by the purchaser
of the automobile. The amount of the variance depends upon factors such as the
creditworthiness of the borrower and the age and value of the automobile.
Coastal Credit will pay more for contracts as the credit risk of the borrower
improves. Coastal Credit typically acquires contracts at purchase prices that
range from 80% to 90% of the original principal amount of the contract. In
addition, Coastal Credit typically charges dealers a processing fee ranging from
$50 to $295 per contract acquired. See “Pricing of Contracts”
below.




As of
December 31, 2007, Coastal Credit’s contract portfolio consisted exclusively of
contracts acquired by Coastal Credit without credit recourse to the dealer.
Although all the contracts in Coastal Credit’s contract portfolio were acquired
without credit recourse, each dealer remains liable to Coastal Credit for
liabilities arising from any breach of certain representations and warranties
made by the dealer with respect to compliance with applicable federal and state
laws and valid title to the vehicle.







2





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




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




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


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


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




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




Underwriting
Guidelines




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




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




·
            the
      applicant’s length of residence;


·
            the
      applicant’s current and prior job
status;


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


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


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


·
            the
      applicant’s credit history;


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


·
            the
      term of the contract;


·
            the
      automobile make and mileage; and


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




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







3





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




The
branch manager of each branch is responsible for underwriting and purchasing
automobile contracts and providing servicing and collections. However, the
branch network is closely managed and supervised by Coastal Credit’s senior
management. Coastal Credit believes that its branch network operations enable
branch managers to develop strong relationships with its automobile dealers.
Coastal Credit, through its branches, provides a high level of service to its
dealers by providing consistent credit decisions and frequent management
contact. Coastal Credit has established internal buying guidelines to be used by
its underwriters when acquiring contracts. Although the buying guidelines vary
from branch to branch, Coastal Credit’s branch managers or senior management
must approve any contract that does not meet a branch’s guidelines in advance of
purchasing any such contract. Coastal Credit has 17 branch managers, each
charged with managing the specific branches in a defined geographic area. In
addition to a variety of administrative duties, the branch managers are
responsible for monitoring their assigned branches’ compliance with Coastal
Credit’s underwriting standards. On a regular basis, either a branch manager or
senior management reviews every newly purchased contract.




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






Pricing
of Contracts




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




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






Geographic
Concentration




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




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


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


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


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







4





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






Servicing,
Monitoring and Enforcement of Contracts




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




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




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




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




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







5





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




Once a
branch manager or senior management has approved a repossession request, a
repossession firm repossesses the vehicle and delivers it to a secure location
specified by Coastal Credit. Coastal Credit maintains relationships with several
licensed repossession firms that repossess vehicles for fees that typically
range from $225 to $375 for each vehicle repossessed. As required by applicable
state law, Coastal Credit notifies the borrower by certified letter that the
vehicle has been repossessed and that, to regain the vehicle, he or she must
make arrangements satisfactory to Coastal Credit and pay the amount owed under
the contract within the statutory redemption period allowed by the applicable
state law after delivery of the letter. If satisfactory arrangements for return
of the vehicle are not made within the statutory period, Coastal Credit then
sends title to the vehicle to the applicable state title transfer department,
which then registers the vehicle in Coastal Credit’s name. Coastal Credit then
sells the vehicle by public auction. On average, approximately 45 days lapse
from the time Coastal Credit takes possession of a vehicle and the time it is
sold at auction.




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




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






Marketing
and Advertising




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







6





Competition




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




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




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






Regulation




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







7




·
              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.




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




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




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




·
            Servicemembers' Civil Relief
      Act. Formerly called the Soldiers’ and Sailors’ Civil Relief Act,
      the Servicemembers’ Civil Relief Act provides certain protections to
      borrowers who, subsequent to entering into a contract, have joined or
      enlisted, or been called to active duty with, the military. Coastal Credit
      is prohibited from repossessing the vehicles of such borrowers and from
      terminating the contracts with such borrowers for breach. In addition,
      Coastal Credit is







8


required
      to reduce the interest rate charged on each loan to such borrowers to 6%
      if the borrower’s military duty affects the borrower’s ability to pay his
      or her contract.


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




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






Employees




Coastal
Credit’s executive management and various support functions are centralized at
its corporate headquarters in Virginia Beach, Virginia. As of December 31, 2007,
Coastal Credit employed approximately 122 persons. None of Coastal Credit’s
employees is subject to a collective bargaining agreement, and Coastal Credit
considers its relations with its employees generally to be
satisfactory.






UNION
ACCEPTANCE COMPANY LLC




Historical
Business of UAC




UAC is a
specialized finance company that, prior to the Bankruptcy Case, as defined
below, was engaged in the business of acquiring and servicing automobile retail
installment sales contracts and installment loan agreements. UAC’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.




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.







9





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, 2007
            
            
            December
      31, 2006Carrying
      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
            
            $
            -
            
            
            $
            -
            
            
            $
            454
            
            
            $
            -
            
            
            $
            -
            
            
            $
            956Restructured
      senior notes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Restructured
      subordinated notes
            
            
            1,324
            
            
            
            4,106
            
            
            
            25,156
            
            
            
            1,391
            
            
            
            4,394
            
            
            
            40,427Senior
      accrual notes
            
            
            -
            
            
            
            -
            
            
            
            4,106
            
            
            
            -
            
            
            
            -
            
            
            
            4,106Subordinated
      accrual notes
            
            
            -
            
            
            
            431
            
            
            
            3,964
            
            
            
            1
            
            
            
            431
            
            
            
            3,964Total
      creditor notes payable
            
            $
            1,324
            
            
            $
            4,537
            
            
            $
            33,680
            
            
            $
            1,392
            
            
            $
            4,825
            
            
            $
            49,453







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:







10





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


·
            collecting
      automobile dealer premium rebates contractually
  due;


·
            supporting
      deficiency account collections by third party collection
      agencies;


·
            managing
      deficiency account collections requiring legal action;
  and


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







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




December
      31,2007
            
            
            2006UAC
      and Subsidiary Receivables Held for InvestmentUAC
      Owned (1)
            
            
            $
            81
            
            
            $
            188UACSC
      Owned (2)
            
            
            
            12,491
            
            
            
            29812,572
            
            
            
            486Securitized Finance Receivables(3)2004-A1
            
            
            
            -
            
            
            
            4142004-A2
            
            
            
            -
            
            
            
            6372004-B
            
            
            
            -
            
            
            
            8552004-C
            
            
            
            -
            
            
            
            3,4242005-A
            
            
            
            -
            
            
            
            4,9132005-B
            
            
            
            -
            
            
            
            7,2272005-C
            
            
            
            -
            
            
            
            11,330-
            
            
            
            28,800Off-Balance
      Sheet Securitizations2001-B(4)
            
            
            
            -
            
            
            
            4,7192001-C
            
            
            
            -
            
            
            
            14,0702002-A
            
            
            
            -
            
            
            
            14,530-
            
            
            
            33,319Total
      Portfolios
            
            
            $
            12,572
            
            
            $
            62,605





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


(2)
            On
      June 8, 2007 the 2004-A1, 2004-A2 and 2004-B notes were paid in full. On
      December 10, 2007 the remaining notes for the securitized finance
      receivables and off-balance sheet securitizations were paid in full. The
      receivable portfolios are now owned outright by
  UACSC.


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


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





11







ITEM
2. PROPERTIES




White
River and its subsidiaries lease our headquarters and branch office facilities.
White River’s corporate headquarters, located at 1445 Brookville Way, Suite I,
in Indianapolis, Indiana, consists of approximately 1,800 square feet of office
space. UAC and its subsidiaries share this space with White River. The current
lease relating to this space expires August 31, 2008.




Coastal
Credit leases its corporate headquarters and branch office facilities. Its
headquarters, located at 3852 Virginia Beach Boulevard, in Virginia Beach,
Virginia, consist of approximately 9,340 square feet of office space. The
current lease relating to this space expires in September 2009.




Coastal
Credit’s 17 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.







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 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
10, 2008, there were 3,869,333 shares of common stock outstanding and
approximately 124 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 624 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 American Stock Exchange
beginning January 19, 2007 and on the Pink Sheets prior to that
date:




High
            
            
            Low
            
            
            CloseFiscal
      year ended December 31, 2006First
      Quarter
            
            $
            17.05
            
            
            $
            14.50
            
            
            $
            17.05Second
      Quarter
            
            
            17.05
            
            
            
            14.00
            
            
            
            16.00Third
      Quarter
            
            
            17.50
            
            
            
            16.00
            
            
            
            17.50Fourth
      Quarter
            
            
            18.00
            
            
            
            17.00
            
            
            
            17.00Fiscal
      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
            
            
            
            18.30







Dividends




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




While
Coastal Credit is not restricted by its charter from making distributions, its
line of credit restricts the payment of cash distributions without written
approval from its lender. Coastal Credit’s ability to receive the necessary
approval is largely dependent upon its portfolio performance, and Coastal Credit
may not be able to obtain the necessary approvals in the future for
distributions to White River that would enable White River to pay cash dividends
to its shareholders.







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







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




General




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 17 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 and 94.7% of
UAC's accrual notes issued under the Plan.  UAC was designated the
Creditor Representative to oversee the distribution of is remaining assets as
contractually required under the Plan.






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
  During
July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN No. 48”). FIN No. 48 establishes standards for measurement
and recognition in financial statements of positions taken by an entity in its
income tax returns. In addition, FIN No. 48 requires new disclosures about
positions taken by an entity in its tax returns that are not recognized in its
financial statements, information about potential significant changes in
estimates related to tax positions and descriptions of open tax years by major
jurisdiction.  We have adopted FIN No. 48 on January 1, 2007. See Note
16 for further details.
    19
  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
will apply 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. SFAS No. 157 was to be effective for financial statements issued for
fiscal years beginning after November 15, 2007. We have elected an early
adoption of SFAS No. 157 beginning January 1, 2007. There was no effect on the
consolidated financial statements as a result of the adoption of SFAS No. 157
(See Note 5 and Note 9).
  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. SFAS No. 159 was to be effective for financial
statements issued for fiscal years beginning after November 15, 2007. We have
elected an early adoption of SFAS No. 159 beginning January 1, 2007 solely
related to creditor notes payable. See Note 9 for further
details.






Net
Assets of Collateralized Financings




During
2003 through 2005, UAC Securitization Corporation (“UACSC”), a wholly owned
special purpose subsidiary of UAC, purchased receivables from off-balance sheet
securitizations that were eligible for clean-up calls. These receivables were
re-securitized through non-recourse collateralized financing issuances. The
associated future cash flows from these receivables were subject to the same
Master Trust Account provisions as the securitizations called.




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





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 UACSC.






Valuation
of Beneficial Interest in Master Trust




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






20




With the
prepayment of the collateralized financing debt and the subsequent termination
of the securitization agreements and the Master Trust Account Agreement, these
cash restrictions are no longer in effect.






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 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 inherent finance
receivable losses.






Income
Taxes




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





The
ultimate realization of the deferred tax asset depends on White River’s ability
to generate sufficient taxable income in the future and their ability to not
allow an ownership change to occur for tax purposes. The valuation allowance has
been derived pursuant to the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes, and reduces the total
deferred tax asset to an amount that will “more likely than not” be realized
(see Note 16).




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




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






21




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






Results
of Operations




The
Year Ended December 31, 2007 Compared to the Year Ended December 31,
2006




Net
income was $11.8 million, or $2.99 per diluted share, for the year ended
December 31, 2007, compared to $56.3 million, or $14.51 per diluted share, for
the year ended December 31, 2006. The decrease in income from the prior year is
primarily due to the following:




·
            an
      income tax expense of $6.8 million for 2007 compared to and income tax
      benefit of $39.0 million for 2006. The income tax benefit for 2006 was
      primarily a result of the reversal of the majority of the deferred tax
      asset valuation allowance;




·
            a
      decrease in accretion income from beneficial interest in Master Trust
      during 2007;




·
            the
      near elimination of gain from deficiency sale and litigation settlement as
      a result of a lack of such transactions occurring during 2007 as compared
      to 2006;




·
            a
      $6.2 million increase in provision for estimated credit losses during
      2007.







22





Discussion
of Results




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




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






For The Year EndedDecember 31, 2006
            
            UAC
            
            
            Coastal Credit
            
            
            Corporate and Other
            
            
            ConsolidatedTotal
      interest income
            
            $
            24,818
            
            
            $
            29,065
            
            
            $
            62
            
            
            $
            53,945Interest
      expense
            
            
            (4,805
            )
            
            
            (5,308
            )
            
            
            (1,707
            )
            
            
            (11,820
            )Net
      interest margin
            
            
            20,013
            
            
            
            23,757
            
            
            
            (1,645
            )
            
            
            42,125Recovery
      (provision) for estimated credit losses
            
            
            4,624
            
            
            
            (4,660
            )
            
            
            -
            
            
            
            (36
            )Net
      interest margin (deficit) after recovery (provision) for estimated credit
      losses
            
            
            24,637
            
            
            
            19,097
            
            
            
            (1,645
            )
            
            
            42,089Total
      other revenues (expenses)
            
            
            (23,183
            )
            
            
            (11,286
            )
            
            
            9,705
            
            
            
            (24,764
            )Income
      before income taxes
            
            $
            1,454
            
            
            $
            7,811
            
            
            $
            8,060
            
            
            $
            17,325









The
Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006 -
Consolidated




Interest
on receivables decreased 14.0% to $32.3 million compared to $37.5 million for
the years ended December 31, 2007 and 2006, respectively. Coastal Credit
interest on receivables increased $1.2 million due to a larger average finance
receivable balance of $86.4 million during the year ended December 31, 2007 as
compared to $82.2 million during the year ended December 31, 2006. Interest on
receivables from UAC declined $6.4 million due to a 78.5% decline in the average
receivable balance to $13.9 million during the year ended December 31, 2007 from
$64.7 million during the year ended December 31, 2006 from the liquidation of
securitization receivables.







23





Accretion
and other interest decreased 5.1% to $15.6 million compared to $16.4 million for
the years ended December 31, 2007 and 2006, respectively. This decrease is a
result from a decrease in accretion from accumulated other comprehensive income.
The balance of other comprehensive income has continued to decline as income is
accreted. This will result in the continued decline in future accretion income.
The individual components of accretion and other interest income are shown in
the following table (in thousands):




Years
      Ended December 31,2007
            
            
            2006UAC
      discount accretion for beneficial interest in Master Trust
            
            $
            15,079
            
            
            $
            15,538Interest
      on cash balances
            
            
            530
            
            
            
            907Accretion
      and other interest income
            
            $
            15,609
            
            
            $
            16,445







Interest
expense decreased 48.3% to $6.1 million compared to $11.8 million for the years
ended December 31, 2007 and 2006, respectively. Coastal Credit interest expense
was $4.1 million for the year ended December 31, 2007 as compared to $5.3
million for the year ended December 31, 2006 as a result of the decrease in
average line of credit and subordinated debentures of $49.5 million from $61.5
million for the years ended December 31, 2007 and 2006, respectively. UAC
interest expense decreased by $3.8 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 decrease in the average
collateralized financings of 79.0% to $14.7 million during the year ended
December 31, 2007 from $70.0 million during the same period ended December 31,
2006. Interest expense of Corporate and Other was $1.0 million and $1.7 million
for the years ended December 31, 2007 and 2006, respectively. This decrease is
primarily a result of a reduction in interest expense from the secured note
payable that was paid in full on October 15, 2007.




Provision
for estimated credit losses was $6.2 million compared to $36,000 for the years
ended December 31, 2007 and 2006, 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 $8.3 million for the year
ended December 31, 2007 as compared to $4.7 million for the year ended December
31, 2006. Coastal Credit has seen increases in delinquency rates in the latter
half of 2007. As a result of this delinquency, Coastal Credit’s net charge-offs
increased during the fourth quarter, but 30+ day delinquency decreased to 4.11%
at December 31, 2007 compared to 4.33% at September 30, 2007. In addition,
Coastal Credit increased its allowance reserves to 7.0% of receivables, net of
unearned income, during the forth quarter 2007. This activity resulted in the
increase of Coastal Credit’s provision for estimated credit losses. UAC recorded
recovery for estimated credit losses of $2.1 million compared to $4.6 million
for the years ended December 31, 2007 and 2006, respectively. This change in
recovery for estimated credit losses is a result of declining defaulted
receivables during 2007.




The
charge to Master Trust, net was a $2.1 million charge for the year ended
December 31, 2007 compared to a $14.9 million credit for the year ended December
31, 2006. Charge to Master Trust is expense related to future transfers of funds
to the Master Trust from securitized finance receivables of UAC. The $12.8
million decrease in charge to Master Trust is related to the sale of deficiency
receivables, the sale of receivables that filed for Chapter 13 bankrupt
protection, and settlement proceeds recorded as other income during 2006
compared to only a small sale of deficiency receivables during 2007. With the
“clean-up” call of all securitizations on December 10, 2007 and termination of
the Master Trust Agreement, there will be no future charge to Master Trust, net
activity.







24





Loss from
extinguishment of debt was $1.5 million for the year ended December 31, 2006.
The loss during 2006 is related to the settlement distribution White River paid
to UAC creditors who sold their general unsecured claims and Subordinated Notes
during 2005. There was no activity during 2007.




Gain from
deficiency sale and litigation settlement was $22,000 for the year ended
December 31, 2007 compared to $7.9 million for the year ended December 31, 2006.
This gain is the result of the sale of receivables that filed Chapter 13
bankruptcy protection, and the funds received from a legal settlement during
2006 and the UAC sale of deficiency receivables during 2006 and
2007.




Other
income (expense) was an expense of $(0.1) million compared to an income of $0.1
million for the years ended December 31, 2007 and 2006, respectively. Other
income is primarily the result of refunds of dealer rebates from charged-off and
prepaid finance contracts and collections of previously charged-off balances net
of expenses.




Salaries
and benefits decreased to $8.3 million for the year ended December 31, 2007
compared to $8.5 million for the year ended December 31, 2006. Coastal Credit
contributed $0.2 million to this decrease. There was no significant change in
salaries and benefits for UAC and Corporate and Other during these
periods.




Operating
expenses decreased to $5.6 million for the year ended December 31, 2007 compared
to $5.9 million for the year ended December 31, 2006. Coastal Credit operating
expenses remained relatively unchanged between these periods. UAC operating
expenses decreased $0.4 million as a result of the continued liquidation of its
assets. Corporate and Other operating expenses increased $0.1 million between
these periods. These Corporate and Other expenses were primarily professional
fees.




Third
party servicing expenses decreased 70.1% to $0.5 million for the year ended
December 31, 2007 compared to $1.8 million for the year ended December 31, 2006.
UAC is the only segment that incurs this expense. This decrease is the result of
the ongoing liquidation of the UAC receivable portfolio during 2007. 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 and $0.2 million for the years ended
December 31, 2007 and 2006, respectively. UAC is the only segment that incurs
these costs which were for the purpose of assisting the reorganized company in
complying with its bankruptcy plan. Future bankruptcy costs were eliminated with
the closure of the bankruptcy case on January 5, 2007.




Income
tax expense was $(6.8) million for the year ended December 31, 2007 compared to
an income tax benefit of $39.0 million for the year ended December 31, 2006.
Prior to 2006, any income tax provision (benefit) in the year was offset by an
increase (decrease) in the valuation allowance against deferred tax assets. As
of December 31, 2007, White River had federal net operating loss carryforwards
for income tax purposes of $100.1 million. Net operating losses may be carried
forward up to 20 years for federal income tax purposes. White River’s earliest
net operating losses available for carryforward were generated in the tax year
ended June 30, 2003, and will expire if not used prior to the tax year ending
December 31, 2022. With the acquisition of Coastal Credit on August 31, 2005,
White River acquired a historically profitable subsidiary that enabled White
River to recognize a portion of the net operating loss (“NOL”)
carryforwards.







25





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




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







26





Financial
Condition as of December 31, 2007 and 2006




Securitized
Finance Receivables, Net




Securitized
finance receivables, net were $27.4 million at December 31, 2006. 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. All UAC receivables will now be reported as finance
receivables, net. The principal balances of the securitized finance receivables,
net and the off-balance sheet securitization portfolios are summarized in the
following table (in thousands):




December
      31,2007
            
            
            2006Securitized Finance Receivables(1)2004-A1
            
            
            $
            -
            
            
            $
            4142004-A2
            
            
            
            -
            
            
            
            6372004-B
            
            
            
            -
            
            
            
            8552004-C
            
            
            
            -
            
            
            
            3,4242005-A
            
            
            
            -
            
            
            
            4,9132005-B
            
            
            
            -
            
            
            
            7,2272005-C
            
            
            
            -
            
            
            
            11,330-
            
            
            
            28,800Off-Balance
      Sheet Securitizations2001-B
            
            
            
            -
            
            
            
            4,7192001-C
            
            
            
            -
            
            
            
            14,0702002-A
            
            
            
            -
            
            
            
            14,530-
            
            
            
            33,319Total
      Portfolios
            
            
            $
            -
            
            
            $
            62,119





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







Finance
Receivables, Net




Finance
receivables, net increased to $90.7 million at December 31, 2007 as compared to
$79.1 million at December 31, 2006. 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. All receivables
for UAC are now reported as finance receivables, net. UAC finance receivables,
net increased to $11.5 million at December 31, 2007 as compared to $0.5 million
at December 31, 2006. Coastal Credit finance receivables, net increased to $79.2
million compared to $78.7 million for the years ended December 31, 2007 and
2006, respectively.







27





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, 2007,
31.2% of the Coastal Credit Receivables were with borrowers who are in the
United State military as compared to 32.6% as of December 31, 2006. Coastal
Credit believes that having in the portfolio a significant percentage of
contracts for which the borrowers are United States military personnel
contributes to lower payment delinquency and greater collection personnel
efficiencies. Coastal Credit requests that all borrowers who are in the military
use the military allotment system to make payments on their contracts. Under
this allotment system, the borrower authorizes the military to make a payroll
deduction for the amount of the borrower’s monthly contract payment and to
direct this deduction payment to Coastal Credit on behalf of the borrower.
Delinquency of payments on contracts paid by allotment historically has been
less than delinquency of payments on contracts not paid by allotment. As a
result, the collection effort associated with the military contracts requires
substantially less time, allowing Coastal Credit’s collection staff to focus on
an increasing number of non-military contracts. Throughout 2007, the percentage
of contracts made with borrowers who are in the United States military has
declined due to the deployment of troops abroad. Until these deployments are
reduced, it is likely that Coastal Credit will continue to see a decline in
contracts with military personnel.




As of
December 31, 2007, Coastal Credit’s finance receivables consisted exclusively of
contracts acquired by Coastal Credit without credit recourse to the dealer.
Although all the contracts in Coastal Credit’s portfolio were acquired without
credit recourse, each dealer remains liable to Coastal Credit for liabilities
arising from certain representations and warranties made by the dealer with
respect to compliance with applicable federal and state laws and valid title to
the vehicle.




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






Beneficial
Interest in Master Trust




Beneficial
interest in Master Trust was $23.6 million at December 31, 2006. UAC used a 15%
discount rate to value the beneficial interest in Master Trust as of December
31, 2006. 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 the beneficial interest in Master Trust was
eliminated.






Collateralized
Financings




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. Collateralized financings were $32.4
million at December 31, 2006.







28





Accrued
Interest Payable




Accrued
interest payable was $0.4 million at December 31, 2007, compared to $1.2 million
at December 31, 2006. The decrease was primarily the result of (i) the
prepayment in full of the secured note payable on October 15, 2007, (ii) the
prepayment in full the collateralized financing debt of the securitized finance
receivables on December 31, 2007 and (iii) the elimination of accrued interest
payable for creditor notes payable as a result of the early adoption of SFAS No.
157, Fair Value
Measurements,  (“SFAS No. 157”) and SFAS No. 159, The Fair Value Opinion for Financial
Assets and Financial Liabilities(“SFAS No. 159”). Any accrued interest
as a result of interest expense from creditor notes payable is included in the
fair market valuation of creditor notes payable.






Creditor
Notes Payable




Creditor
notes payable was $1.3 million at December 31, 2007, compared to $1.4 million at
December 31, 2006. 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, 2007 and
2006




Net cash
provided by operating activities was $4.2 million for the year ended December
31, 2007 compared to $6.0 million for the year ended December 31, 2006. The
change in net cash provided by operating activities was primarily a result of
the cash sent to the Master Trust Account in accordance with the Master Trust
Agreement of UAC partially offset by a reduction of interest expense as a result
of a lower average line of credit balance for 2007 as compared to 2006 and the
prepayment of the secured note payable and subordinated debentures during
2007.




Net cash
provided by investing activities was $47.0 million for the year ended December
31, 2007 compared to $88.2 million for the year ended December 31, 2006. This
change was primarily the result of a reduction in the principal collection and
recoveries on securitized finance receivables. In addition, the purchases of
finance receivables declined during 2007 as a result in a reduction of the
number of loans acquired by Coastal Credit during 2007, 6,001, as compared to
2006, 6,235. This activity was partially offset by the collection on beneficial
interest in Master Trust.




Net cash
used in financing activities was $54.4 million for the year ended December 31,
2007 compared to $94.2 million for the year ended December 31, 2006. This change
is primarily the result of a decline in the principal payments on collateralized
financings as they continued to liquidate during 2007 compared to 2006 partially
offset by the prepayment of the secured note payable and subordinated debentures
during 2007.




At
December 31, 2007, White River and its subsidiaries had cash and cash
equivalents of $3.8 million compared to $7.0 million at December 31,
2006.







29





Coastal
Credit has a revolving credit facility from a lending institution with a maximum
borrowing limit of $100 million. This facility increased from $80 million during
July 2006. The maturity date on the line of credit was extended to December 31,
2011 effective January 1, 2007 and the interest rate was reduced to the London
Interbank Offered Rate (“LIBOR”) plus 2.60 from LIBOR plus 2.85%.  As
of December 31, 2007, Coastal Credit had $50.0 million of indebtedness
outstanding under this facility as compared to $49.5 million as of December 31,
2006. There was $20.8 million and $20.5 million available in excess of the
amount utilized at December 31, 2007 and 2006, 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, 2007 was
LIBOR plus 2.60% which equated to 7.84%. The average rate during the month of
December, 2006 was LIBOR plus 2.85% which equated to 8.20% at December 31, 2006.
There is an annual commitment fee of 1/8 of 1% on the average daily unused
commitment. In the event of a significant pay down or an earlier retirement of
the revolver commitment, Coastal Credit would sustain certain prepayment
penalties. This facility limits distributions Coastal Credit may make to White
River to 50% of Coastal Credit’s net income in addition to permitted payments on
subordinated debt (including White River debt guaranteed by Coastal
Credit.)




Coastal
Credit prepaid in full its subordinated debentures during April and May 2007.
Coastal Credit had $7.7 million of subordinated debentures outstanding at
December 31, 2006. Interest on the debentures was payable quarterly at a fixed
rate of interest of 12% per annum. At December 31, 2006, approximately 43% of
the holders of subordinated debentures were related parties.




UAC’s
sources of liquidity are limited and consist of cash on hand, escrowed cash for
operations, funds from consolidated operations and cash collections of 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 had outstanding $13.1 million in a secured note at December 31, 2006. The
secured note payable was paid in full on October 15, 2007. Coastal Credit used
its line of credit to distribute the necessary funds to the parent company. The
scheduled prepayment fee of 2% was negotiated down to 1%. Interest on the note
was payable quarterly in arrears at a fixed rate of 10.75% per annum. The
secured note payable was secured by White River’s ownership interest in Coastal
Credit and was guaranteed by Coastal Credit, but subordinate to the revolving
credit facility of Coastal Credit. Principal was payable in quarterly
installments of $937,500 which began July 1, 2006.




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.







30





Asset
Quality




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






Securitized
Finance Receivables




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. All receivables for UAC will now be reported as finance
receivables, net.







Finance
Receivables – Coastal Credit




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




December
      31,2007
            
            
            2006Finance
      receivables - gross balance
            
            $
            101,948
            
            
            $
            104,399Delinquencies:30-59
      days
            
            $
            1,564
            
            
            $
            1,26160-89
      days
            
            
            1,002
            
            
            
            89890+
      days
            
            
            1,626
            
            
            
            1,208Total
      delinquencies
            
            $
            4,192
            
            
            $
            3,367Delinquencies
      as a percentage of finance receivables - gross balance
            
            
            4.1
            %
            
            
            3.2
            %







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







31





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




Years
      Ended December 31,2007
            
            
            2006Balance
      at beginning of period
            
            $
            5,694
            
            
            $
            6,031Charge-offs,
      net of recoveries
            
            
            (7,213
            )
            
            
            (4,997
            )Provision
      for estimated credit losses
            
            
            8,329
            
            
            
            4,660Balance
      at the end of the period
            
            $
            6,810
            
            
            $
            5,694Net
      charge-offs
            
            $
            7,213
            
            
            $
            4,997Finance
      receivables, net of unearned finance charges
            
            $
            96,784
            
            
            $
            95,825Allowance
      for loan losses as a percent of finance receivables, net of unearned
      finance charges
            
            
            7.04
            %
            
            
            5.94
            %Net
      charge-offs as a percent of finance receivables, net of unearned finance
      charges
            
            
            7.45
            %
            
            
            5.21
            %Allowance
      for loan losses as a percent of net charge-offs
            
            
            94.41
            %
            
            
            113.95
            %







Finance
Receivables – UAC




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 UACSC. All receivables for UAC will now be reported as
finance receivables, net.







32





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




December
      31,2007
            
            
            2006Finance
      receivables principal balance (1)
            
            $
            12,572
            
            
            $
            62,119Delinquencies:30-59
      days
            
            $
            1,179
            
            
            $
            4,74160-89
      days
            
            
            467
            
            
            
            1,29290+
      days
            
            
            149
            
            
            
            639Total
      delinquencies
            
            $
            1,795
            
            
            $
            6,672Delinquencies
      as a percentage of securitized finance receivables
            
            
            14.3
            %
            
            
            10.7
            %





(1)
Finance receivables as of December 31, 2006 represents securitized finance
receivables and off-balance sheet securitized finance receivables for comparison
purposes.












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




Years
      Ended December 31,2007
            
            
            2006Balance
      at the beginning of period
            
            $
            1,617
            
            
            $
            6,503Charge-offs
            
            
            (2,671
            )
            
            
            (9,189
            )Recoveries
            
            
            3,362
            
            
            
            8,927Recovery
      for credit losses
            
            
            (2,086
            )
            
            
            (4,624
            )Balance
      at the end of the period
            
            $
            222
            
            
            $
            1,617Net
      charge-offs (recoveries)
            
            $
            (691
            )
            
            $
            262Finance
      receivables
            
            $
            12,572
            
            
            $
            28,800Allowance
      for loan losses as a percent of finance receivables
            
            
            1.77
            %
            
            
            5.61
            %Net
      charge-offs (recoveries) as a percent of finance
    receivables
            
            
            (5.50
            )%
            
            
            0.91
            %










33





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


·
            changes
      in White River’s competitive
position;


·
            White
      River’s ability to manage growth;


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


·
            competitive
      actions by other companies;


·
            changes
      in laws or regulations;


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


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







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







34







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 consolidated balance sheet of White River Capital, Inc. and
subsidiaries as of December 31, 2007, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for the year 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether 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 audit provides a
reasonable basis for our opinion.




In our
opinion, such 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, 2007 and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.




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 assertion about the effectiveness of White
River Capital, Inc. and subsidiaries’ internal control over financial reporting
as of December 31, 2007 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 14,
2008





35





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






To the
Board of Directors and Shareholders of


White
River Capital, Inc.


Indianapolis,
Indiana





We have
audited the accompanying consolidated balance sheet of White River Capital, Inc.
and subsidiaries (the “Company”) as of December 31, 2006, and the related
consolidated statements of operations, shareholders’ equity, and cash flows for
the year 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 audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.




In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of White River Capital, Inc. and subsidiaries
as of December 31, 2006, and the results of their operations and their cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.







/s/
Deloitte & Touche LLP





Columbus,
Ohio


March 15,
2007





36










WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(Dollars
in thousands)








ASSETS
            
            December
      31, 2007
            
            
            December
      31, 2006Cash
      and cash equivalents
            
            $
            3,785
            
            
            $
            6,958Restricted
      cash
            
            
            -
            
            
            
            13,618Securitized
      finance receivables—net
            
            
            -
            
            
            
            27,447Finance
      receivables—net
            
            
            90,725
            
            
            
            78,693Beneficial
      interest in Master Trust
            
            
            -
            
            
            
            23,601Goodwill
            
            
            34,536
            
            
            
            34,698Deferred
      tax assets—net
            
            
            36,031
            
            
            
            38,189Other
      assets
            
            
            1,488
            
            
            
            2,220TOTAL
            
            $
            166,565
            
            
            $
            225,424LIABILITIES
      AND SHAREHOLDERS’ EQUITYLIABILITIES:Collateralized
      financings
            
            $
            -
            
            
            $
            32,368Line
      of credit
            
            
            50,000
            
            
            
            49,500Secured
      note payable
            
            
            -
            
            
            
            13,125Subordinated
      debentures
            
            
            -
            
            
            
            7,700Accrued
      interest
            
            
            351
            
            
            
            1,169Amounts
      due to Master Trust
            
            
            -
            
            
            
            8,400Creditor
      notes payable
            
            
            1,324
            
            
            
            1,392Other
      payables and accrued expenses
            
            
            2,093
            
            
            
            3,852Total
      liabilities
            
            
            53,768
            
            
            
            117,506SHAREHOLDERS’
      EQUITY:Preferred
      Stock, without par value, authorized 3,000,000 shares; none issued and
      outstanding
            
            
            -
            
            
            
            -Common
      Stock, without par value, authorized 20,000,000 shares; 3,843,087 and
      3,813,155 issued and outstanding at December 31, 2007 and 2006,
      respectively
            
            
            179,976
            
            
            
            179,594Warrants,
      150,000 outstanding at December 31, 2007 and
      2006, respectively
            
            
            534
            
            
            
            534Accumulated
      other comprehensive income, net of taxes
            
            
            4,437
            
            
            
            11,107Accumulated
      deficit
            
            
            (72,150
            )
            
            
            (83,317
            )Total
      shareholders’ equity
            
            
            112,797
            
            
            
            107,918TOTAL
            
            $
            166,565
            
            
            $
            225,424







See notes
to consolidated financial statements.







37










WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Dollars
in thousands, except per share amounts)





Years
      Ended December 31,2007
            
            
            2006INTEREST:Interest
      on receivables
            
            $
            32,258
            
            
            $
            37,500Accretion
      and other interest
            
            
            15,609
            
            
            
            16,445Total
      interest income
            
            
            47,867
            
            
            
            53,945Interest
      expense
            
            
            (6,114
            )
            
            
            (11,820
            )Net
      interest margin
            
            
            41,753
            
            
            
            42,125Provision
      for credit losses
            
            
            (6,243
            )
            
            
            (36
            )Net
      interest margin after provision for credit losses
            
            
            35,510
            
            
            
            42,089OTHER
      REVENUES (EXPENSES):Salaries
      and benefits
            
            
            (8,261
            )
            
            
            (8,495
            )Third
      party servicing expense
            
            
            (545
            )
            
            
            (1,824
            )Other
      operating expenses
            
            
            (5,601
            )
            
            
            (5,916
            )Bankruptcy
      costs
            
            
            (6
            )
            
            
            (183
            )Charge
      to Master Trust—net
            
            
            (2,093
            )
            
            
            (14,853
            )Change
      in fair market valuation of creditor notes payable
            
            
            (395
            )
            
            
            -Loss
      from extinguishment of debt
            
            
            -
            
            
            
            (1,524
            )Gain
      from deficiency sale and litigation settlement
            
            
            22
            
            
            
            7,924Other
      income (expense)
            
            
            (54
            )
            
            
            107Total
      other revenues (expenses)
            
            
            (16,933
            )
            
            
            (24,764
            )INCOME
      BEFORE INCOME TAXES
            
            
            18,577
            
            
            
            17,325INCOME
      TAX BENEFIT (EXPENSE)
            
            
            (6,779
            )
            
            
            38,993NET
      INCOME
            
            $
            11,798
            
            
            $
            56,318NET
      INCOME PER COMMON SHARE (BASIC)
            
            $
            3.07
            
            
            $
            14.77NET
      INCOME PER COMMON SHARE (DILUTED)
            
            $
            2.99
            
            
            $
            14.51BASIC
      WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
            
            
            3,840,663
            
            
            
            3,813,073DILUTED
      WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
            
            
            3,947,642
            
            
            
            3,882,017







See notes
to consolidated financial statements.







38










WHITE
RIVER CAPITAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY


YEARS
ENDED DECEMBER 31, 2007AND 2006


(Dollars
in thousands)





Number
      of Common Shares Outstanding
            
            
            Common
      Stock
            
            
            Warrants
            
            
            Accumulated
      Other Comprehensive Income (Loss)
            
            
            Accumulated
      Deficit
            
            
            Total
      Shareholders’ EquityBALANCE—January
      1, 2006
            
            
            3,810,155
            
            
            $
            179,157
            
            
            $
            534
            
            
            $
            13,305
            
            
            $
            (139,635
            )
            
            $
            53,361Comprehensive
      loss:Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            56,318
            
            
            
            56,318Net
      unrealized gain on beneficial interest in Master Trust
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,186
            
            
            
            
            
            
            
            4,186Tax
      effect of OCI
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,384
            )
            
            
            
            
            
            
            (6,384
            )Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            54,120Stock-based
      compensation expense
            
            
            3,000
            
            
            
            437
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            437BALANCE—December
      31, 2006
            
            
            3,813,155
            
            
            
            179,594
            
            
            
            534
            
            
            
            11,107
            
            
            
            (83,317
            )
            
            
            107,918Comprehensive
      loss:Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11,798
            
            
            
            11,798Net
      unrealized loss on beneficial interest in Master Trust
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (10,504
            )
            
            
            
            
            
            
            (10,504
            )Tax
      effect of OCI
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            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
            )
            
            $
            112,797





See notes
to consolidated financial statements.










39






WHITE RIVER CAPITAL, INC. AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Dollars in
thousands)








Years
      Ended December 31,2007
            
            
            2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
            
            $
            11,798
            
            
            $
            56,318Adjustments
      to reconcile net income to net cash provided by operating
      activities:Accretion
      of beneficial interest in Master Trust
            
            
            (15,079
            )
            
            
            (15,538
            )Accretion
      of securitization discount
            
            
            (222
            )
            
            
            -Provision
      for credit losses
            
            
            6,243
            
            
            
            36Amortization
      and depreciation
            
            
            477
            
            
            
            462Amortization
      of discount and interest accrued on creditor notes payable
            
            
            249
            
            
            
            664Gain
      from disposition of equipment
            
            
            (14
            )
            
            
            -Loss
      from extinguishment of debt
            
            
            -
            
            
            
            1,524Deferred
      income taxes
            
            
            6,547
            
            
            
            (39,866
            )Change
      in fair value of creditor notes payable
            
            
            395
            
            
            
            -Stock
      based compensation expense
            
            
            382
            
            
            
            437Changes
      in assets and liabilities:Accrued
      interest receivable and other assets
            
            
            318
            
            
            
            2,306Amounts
      due to Master Trust
            
            
            (4,071
            )
            
            
            983Payment
      of creditor notes payable accrued interest
            
            
            (137
            )
            
            
            (993
            )Other
      payables and accrued expenses
            
            
            (2,680
            )
            
            
            (291
            )Net
      cash provided by operating activities
            
            
            4,206
            
            
            
            6,042CASH
      FLOWS FROM INVESTING ACTIVITIES:Payment
      of Coastal Credit purchase holdback
            
            
            -
            
            
            
            (3,840
            )Purchase
      of securitized finance receivables
            
            
            (2,288
            )
            
            
            -Principal
      collections and recoveries on securitized finance
    receivables
            
            
            24,009
            
            
            
            82,815Purchase
      of finance receivables
            
            
            (53,548
            )
            
            
            (61,317
            )Collections
      on finance receivables
            
            
            44,679
            
            
            
            48,748Principal
      collections and recoveries on receivables held for
    investment
            
            
            3,301
            
            
            
            3,055Collections
      on beneficial interest in Master Trust
            
            
            17,407
            
            
            
            9,872Change
      in restricted cash
            
            
            13,618
            
            
            
            9,121Proceeds
      from sale of equipment
            
            
            14
            
            
            
            -Capital
      expenditures
            
            
            (217
            )
            
            
            (228
            )Net
      cash provided by investing activities
            
            
            46,975
            
            
            
            88,226CASH
      FLOWS FROM FINANCING ACTIVITIES:Principal
      payments on collateralized financings
            
            
            (32,368
            )
            
            
            (89,925
            )Principal
      payments on secured note payable
            
            
            (13,125
            )
            
            
            (1,875
            )Principal
      payments on creditor notes payable
            
            
            (1,661
            )
            
            
            (388
            )Net
      borrowing (repayment) on line of credit
            
            
            500
            
            
            
            (2,000
            )Principal
      payments of subordinated debentures
            
            
            (7,700
            )
            
            
            -Net
      cash used in financing activities
            
            
            (54,354
            )
            
            
            (94,188
            )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (3,173
            )
            
            
            80CASH
      AND CASH EQUIVALENTS—Beginning of year
            
            
            6,958
            
            
            
            6,878CASH
      AND CASH EQUIVALENTS—End of period
            
            $
            3,785
            
            
            $
            6,958SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Income
      tax refunds
            
            $
            1
            
            
            $
            2Interest
      paid
            
            $
            6,421
            
            
            $
            10,681Non
      cash items:Initial
      fair value adjustment for creditor notes payable
            
            $
            994
            
            
            $
            -Transfer
      of securitized finance receivables—net to other assets after the
      collateralized financing for securitization 2003-A was paid in
      full
            
            $
            -
            
            
            $
            2,771See
      notes to consolidated financial statements.




40





WHITE RIVER CAPITAL,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


YEARS
ENDED DECEMBER 31, 2007 AND 2006




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 17 offices. UAC, based in
Indianapolis, Indiana, holds and oversees its portfolio of approximately $12.6
million in non-prime auto receivables, as of December 31, 2007. 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 Securitization Corporation (“UACSC”), a wholly owned special purpose
subsidiary of UAC. All receivables for UAC will now be reported as finance
receivables, net. 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.




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







41





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, 2007
            
            
            December
      31, 2006Carrying
      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
            
            $
            -
            
            
            $
            -
            
            
            $
            454
            
            
            $
            -
            
            
            $
            -
            
            
            $
            956Restructured
      subordinated notes
            
            
            1,324
            
            
            
            4,106
            
            
            
            25,156
            
            
            
            1,391
            
            
            
            4,394
            
            
            
            40,427Senior
      accrual notes
            
            
            -
            
            
            
            -
            
            
            
            4,106
            
            
            
            -
            
            
            
            -
            
            
            
            4,106Subordinated
      accrual notes
            
            
            -
            
            
            
            431
            
            
            
            3,964
            
            
            
            1
            
            
            
            431
            
            
            
            3,964Total
      creditor notes payable
            
            $
            1,324
            
            
            $
            4,537
            
            
            $
            33,680
            
            
            $
            1,392
            
            
            $
            4,825
            
            
            $
            49,453







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.




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




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




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




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







42





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




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




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




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




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




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.  As 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.  This
would allow the accounting for AOCI to be 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.







43





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,
Kansas, Louisiana, Maryland, Mississippi, Nevada, North Carolina, Ohio,
Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and Washington – through its
17 branch locations.






2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




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




New Accounting
Pronouncements— During July 2006, the Financial Accounting Standards
Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN No. 48”). FIN No. 48 establishes standards for measurement
and recognition in financial statements of positions taken by an entity in its
income tax returns. In addition, FIN No. 48 requires new disclosures about
positions taken by an entity in its tax returns that are not recognized in its
financial statements, information about potential significant changes in
estimates related to tax positions and descriptions of open tax years by major
jurisdiction.  We have adopted FIN No. 48 on January 1, 2007. See Note
16 for further details.




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
will apply 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. SFAS No. 157 was to be effective for financial statements issued for
fiscal years beginning after November 15, 2007. We have elected an early
adoption of SFAS No. 157 beginning January 1, 2007. There was no effect on the
consolidated financial statements as a result of the adoption of SFAS No. 157
(See Note 5 and Note 9).




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. SFAS No. 159 was to be effective for financial
statements issued for fiscal years beginning after November 15, 2007. We have
elected an early adoption of SFAS No. 159 beginning January 1, 2007 solely
related to creditor notes payable. See Note 9 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.




Restricted
Cash—Restricted cash consisted of funds held in reserve accounts in
compliance with the terms of the collateralized financing agreements which were
terminated on December 10, 2007.







44





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




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




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 UACSC.




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




Finance
Receivables—net—Finance receivables are recorded at cost, net of unearned
finance charges, discounts and an allowance for credit losses. Coastal Credit
purchases finance contracts from auto dealers without recourse, and accordingly,
the dealer usually has no liability to Coastal Credit if the consumer defaults
on the contract. There is no off-balance sheet credit exposure related to these
receivables.




Allowance for
Loan Losses – Finance Receivables—Provisions for loan losses are charged
to operations in amounts sufficient to maintain the allowance for loan losses at
a level considered adequate to cover 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 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 inherent finance receivable
losses.




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







45





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.




Beneficial
Interest in Master Trust—UAC recorded beneficial interest in Master Trust
as an “available for sale” security at fair value. Any associated unrealized
gains and losses attributable to changes in fair value, net of income taxes,
were recorded as a separate component of shareholders’ equity (“accumulated
other comprehensive income”), net of taxes. Accumulated other comprehensive
income was accreted to income based on projected cash releases from 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 UACSC. With this change accumulated other comprehensive
income is accreted to income over the estimated life of the UAC finance
receivables using the interest method.




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




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




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




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







46





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
            %







During
2005, White River purchased a significant percentage of the UAC creditor notes
payable. Creditor notes payable were reduced for the portion owned by White
River and a gain from extinguishment of debt of $11.4 million was recorded.
During September 2006, UAC settled litigation and in accordance with White
River’s agreement to acquire the UAC creditor notes payable, White River paid a
portion of the settlement distribution to the claim holders resulting in a
contribution to the loss from extinguishment of debt of $1.3 million for the
year ended December 31, 2006.




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 to pay 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.




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 16).




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.







47





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




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.
            NET
      ASSETS OF COLLATERALIZED FINANCINGS




UACSC, in
conjunction with a conduit provider and its surety provider, purchased
receivables from outstanding securitizations during 2005, 2004 and 2003. These
receivables were re-securitized through non-recourse asset backed note
issuances. The associated future cash flows from these receivables were subject
to the same Master Trust Account provisions as the securitizations
called.




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




The
collateralized financing for 2003-A was paid in full during the first quarter of
2006. At that time, the remaining receivables were released from the related
collateral arrangements and inured directly to UACSC. These receivables were
recorded as finance receivables, net.







48





The
following table represents the restricted net assets and liabilities related to
non-recourse collateralized financings (in millions) as of December 31,
2006:




Securitized
      finance receivables—net
            
            $
            27.4Restricted
      cash
            
            
            13.3Receivable
      from servicer included in other assets
            
            
            0.3Collateralized
      financings
            
            
            (32.4
            )Accrued
      interest payable
            
            
            (0.1
            )Other
      payables and accrued expenses
            
            
            (0.1
            )Amounts
      due to Master Trust
            
            $
            8.4







4.
            COLLATERALIZED
      FINANCINGS




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




The note
principal and interest was paid monthly with total cash received from the
corresponding securitized finance receivables collateralizing the notes. If the
cash received within the month was insufficient to pay the note principal and
interest, funds are drawn from restricted cash accounts or the Master Trust
Account in accordance with the Master Trust Agreement.




Interest
expense related to these collateralized financings, including the amortization
of debt issuance costs, was $0.7 million and $3.5 million for the years ended
December 31, 2007 and 2006, respectively.




The
following table summarizes the outstanding principal balance of the
collateralized financings (in thousands) at December 31, 2006:




Note
            
            
            Initial
      Note
            
            
            December
      31,Notes
      Series
            
            Rate
            
            
            Amount
            
            
            2006Series
      2004-A1
            
            
            4.15
            %
            
            $
            29,485
            
            
            $
            425Series
      2004-A2
            
            
            4.55
            
            
            
            29,298
            
            
            
            764Series
      2004-B
            
            
            5.02
            
            
            
            25,896
            
            
            
            1,009Series
      2004-C
            
            
            4.89
            
            
            
            51,992
            
            
            
            3,946Series
      2005-A
            
            
            4.49
            
            
            
            47,742
            
            
            
            5,564Series
      2005-B
            
            
            4.69
            
            
            
            50,684
            
            
            
            8,087Series
      2005-C
            
            
            5.40
            
            
            
            54,933
            
            
            
            12,573$
            290,030
            
            
            $
            32,368










49





5.
            BENEFICIAL
      INTEREST IN MASTER TRUST




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




The
assumptions used to calculate the beneficial interest in Master Trust prior to
the prepayment of collateralized financing debt were as follows:




Credit Loss Assumptions—the
gross credit losses are calculated using the loss to liquidation factor
methodology. However, recovery cash flows from gross credit losses are estimated
independently as two different cash flow streams. These two recovery cash flow
streams are:





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





o
            Bankruptcy recovery –
      consisted of cash recovered from accounts charged off and in bankruptcy
      status. Bankruptcy cash flows were somewhat independent of default rates
      due to bankruptcy court involvement and the latitude allowed debtors
      during the bankruptcy process. UAC had observed a reasonably predictable
      cash flow stream from bankruptcy payments in each securitized pool. This
      cash flow stream would, however, eventually expire as the bankruptcy cases
      are dismissed from the various courts with either a successful or
      non-successful outcome. A previous twelve month average of bankruptcy cash
      flows was calculated for each pool. This value was then reduced on a
      straight line basis over either a 18 or 30 month
  period.





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





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





Prepayment Assumptions—UAC
estimated prepayments by evaluating the historical prepayment performance of
each pool of receivables. UAC used annual prepayment rates ranging from 30.2% to
46.0% at December 31, 2006.





50





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




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. Beneficial interest in Master Trust was eliminated with
the consolidation of the securitized finance receivables to finance receivables,
net.




The
following table presents the beneficial interest in Master Trust (in thousands)
on a recurring basis using significant unobservable inputs (Level 3) per SFAS
No. 157 for the year ended December 31, 2007:




Beneficial
      Interest in Master TrustBeginning
      balance
            
            $
            23,601Total
      unrealized gains included in other comprehensive income
            
            
            4,680Purchases,
      issuances and settlements
            
            
            (28,281
            )Transfers
      in and/or out of Level 3
            
            
            -Ending
      balance
            
            $
            -







Total
gains realized and unrealized included in earnings reported in accretion and
other interest for the year ended December 31, 2007 was $15.1
million.  There was no effect recorded in beneficial interest in
Master Trust for the adoption of SFAS No. 157.






6.
            FINANCE
      RECEIVABLES – NET




Coastal
Credit




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







51





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









December
      31,2007
            
            
            2006Finance
      receivables, gross
            
            $
            101,948
            
            
            $
            104,399Unearned
      interest
            
            
            (5,164
            )
            
            
            (8,574
            )Finance
      receivables, net of unearned finance charge income
            
            
            96,784
            
            
            
            95,825Accretable
      unearned acquisition discounts and fees
            
            
            (10,740
            )
            
            
            (11,438
            )Finance
      receivables, net of unearned finance charge income and discounts and
      fees
            
            
            86,044
            
            
            
            84,387Allowance
      for loan losses
            
            
            (6,810
            )
            
            
            (5,694
            )Finance
      receivables, net
            
            $
            79,234
            
            
            $
            78,693







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




Years
      Ended December 31,2007
            
            
            2006Balance
      at beginning of period
            
            $
            5,694
            
            
            $
            6,031Charge-offs,
      net of recoveries
            
            
            (7,213
            )
            
            
            (4,997
            )Provision
      for credit losses
            
            
            8,329
            
            
            
            4,660Balance
      at the end of the period
            
            $
            6,810
            
            
            $
            5,694







UAC




The
securitized finance receivables along with the off-balance sheet receivables
will now be reported as finance receivables, net. In addition, the beneficial
interest in Master Trust and the due to Master Trust have been
eliminated.  An unearned discount resulted from the net effect of
these transactions. This unearned discount will be recognized as interest income
over the life of the UAC finance receivables using the interest
method.







52





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









December
      31,2007
            
            
            2006
      (1)Principal
      balance of finance receivables
            
            $
            12,572
            
            
            $
            28,800Unearned
      discount
            
            
            (955
            )
            
            
            -Accrued
      interest receivable
            
            
            96
            
            
            
            264Allowance
      for credit losses
            
            
            (222
            )
            
            
            (1,617
            )Finance
      receivables—net
            
            $
            11,491
            
            
            $
            27,447





(1)
            Finance
      receivables as of December 31, 2006 represents securitized finance
      receivables displayed on balance sheet for comparison
      purposes.










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




Years
      Ended December 31,2007
            
            
            2006Balance
      at the beginning of period
            
            $
            1,617
            
            
            $
            6,503Charge-offs
            
            
            (2,671
            )
            
            
            (9,189
            )Recoveries
            
            
            3,362
            
            
            
            8,927Recovery
      for credit losses
            
            
            (2,086
            )
            
            
            (4,624
            )Balance
      at the end of the period
            
            $
            222
            
            
            $
            1,617









7.
            OTHER
      ASSETS




Other
assets are as follows (in thousands) at:




December
      31,2007
            
            
            2006Receivable
      from servicer
            
            $
            203
            
            
            $
            296Prepaid
      expenses
            
            
            573
            
            
            
            408Property,
      equipment and leasehold improvements, net
            
            
            622
            
            
            
            609Receivable
      from Master Trust account
            
            
            -
            
            
            
            268Other
            
            
            90
            
            
            
            639Total
      other assets
            
            $
            1,488
            
            
            $
            2,220










53





8.
            GOODWILL




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




Years
      Ended December 31,2007
            
            
            2006Beginning
      Balance
            
            $
            34,698
            
            
            $
            35,097Impairment
      losses
            
            
            -
            
            
            
            -Adjustment
      related to excess tax deductibility of goodwill
            
            
            (162
            )
            
            
            (399
            )Ending
      Balance
            
            $
            34,536
            
            
            $
            34,698







Goodwill
was tested for impairment as of August 31, 2007 and 2006. There were no changes
to the Coastal Credit segment goodwill for impairment.






9.
            CREDITOR
      NOTES PAYABLE




White
River’s adoption of SFAS No. 159 will apply 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 to pay 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 1/1/07 prior to Adoption
            
            
            Net
      Loss upon Adoption
            
            
            Balance
      Sheet 1/1/07 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










54





The
following table presents the creditor notes payable (in thousands) on a
recurring basis using significant unobservable inputs (Level 3) per SFAS No. 157
for the year ended December 31, 2007:




Creditor
      Notes PayableBeginning
      balance
            
            $
            2,478Total
      losses included in earnings (recorded as other revenues
      (expenses))
            
            
            394Purchases,
      issuances and settlements
            
            
            (1,548
            )Transfers
      in and/or out of Level 3
            
            
            -Ending
      balance
            
            $
            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 difference between the aggregate fair value and the unpaid
principal balance of creditor notes payable was $1.8 million as of December 31,
2007.  The ultimate amount paid on creditor notes payable could differ
dependent on the actual cash flows from UAC’s finance receivables.






10.
            LINE
      OF CREDIT




The line
of credit is utilized by Coastal Credit to finance the purchase of finance
receivables. $50.0 million and $49.5 million of the line of credit was utilized
at December 31, 2007 and 2006, respectively. This line of credit was $100
million at December 31, 2007 and 2006. The maturity date on the line of credit
was extended to December 31, 2011 effective January 1, 2007 and the interest
rate was reduced to the London Interbank Offered Rate (“LIBOR”) plus 2.60 from
LIBOR plus 2.85%. The availability of the line of credit allows Coastal Credit
to borrow up to 84% of the aggregate balance of outstanding eligible receivables
net of unearned interest, commissions and discounts. Eligible receivables
exclude the following: (i) receivables for which a payment is 90 or more days
past due on a contractual basis; (ii) receivables which have been deferred more
than two times during the same calendar year, or more than six times over the
contract term; (iii) receivables subject to foreclosure, repossession or
bankruptcy proceedings or the account debtor with respect to which is a debtor
under the Bankruptcy Code; (iv) receivables from officers, employees or
shareholders of the borrower or any affiliate; (v) interest only accounts; (vi)
receivables missing titles after 120 days from their origination date; and (vii)
receivables which, in the lender’s reasonable discretion, do not constitute
acceptable collateral. Total available under the line of credit was $70.8
million and $70.0 million based upon the level of eligible collateral with $20.8
million and $20.5 million available in excess of the amount utilized at December
31, 2007 and 2006, 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, 2007 and
2006. Interest is paid monthly at a variable rate, based on meeting certain
financial criteria. The average rate for the month of December, 2007 was LIBOR
plus 2.60% which equated to 7.84%. The average rate for the month of December
2006 was LIBOR plus 2.85% which equated to 8.20%. 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.)







55





11.
            SECURED
      NOTE PAYABLE




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






12.
            SUBORDINATED
      DEBENTURES




Coastal
Credit prepaid in full the subordinated debentures during April and May 2007.
Coastal Credit had $7.7 million of subordinated debentures outstanding at
December 31, 2006. Interest on the debentures was payable quarterly at a fixed
rate of interest of 12% per annum.






13.
            SELECT
      DEBT REPAYMENT SCHEDULES




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




Total
            
            
            Less
      than 1 Year
            
            
            1-3
      Years
            
            
            3-5
      Years
            
            
            More
      than 5 YearsLong-term
      debt obligationsCoastal
      Credit
            
            $
            50,000
            
            
            $
            -
            
            
            $
            -
            
            
            $
            50,000
            
            
            $
            -UAC
            
            
            1,324
            
            
            
            1,261
            
            
            
            63
            
            
            
            -
            
            
            
            -Total
      long-term debt obligations
            
            $
            51,324
            
            
            $
            1,261
            
            
            $
            63
            
            
            $
            50,000
            
            
            $
            -









14.
            ACCRETION
      AND OTHER INTEREST




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




Years
      Ended December 31,2007
            
            
            2006UAC
      discount accretion for beneficial interest in Master Trust
            
            $
            15,079
            
            
            $
            15,538Interest
      on cash balances
            
            
            530
            
            
            
            907Accretion
      and other interest income
            
            $
            15,609
            
            
            $
            16,445







15.
            RELATED
      PARTY TRANSACTIONS




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







56





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




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




During
August, 2005, Coastal Credit effected a private placement of $7.7 in subordinate
debentures, due 2008, bearing interest at 12% per annum. Mr. John W. Rose
and members of his family purchased $1.5 million, a family partnership
of William E. McKnight purchased $1.5 million of such debentures and
certain employees of Castle Creek purchased $0.3 million of such debentures.
Coastal Credit 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 and $0.4 million for the years ended
December 31, 2007 and 2006, respectively.




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 2007 and 2006, approximately $170,000 and 178,000,
respectively, was paid for this purpose.




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.




White
River paid a management fee to Mark Ruh, an employee of Castle Creek, during
2007 for services rendered during 2006. This fee was approximately $182,000.
During 2006, White River paid a management fee to Castle Creek for services
rendered during 2005 of approximately $117,000.







57





16.
            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 $100.1 million and $102.1 million as of December 31, 2007 and
2006, respectively. These tax losses will expire during 2022 through
2025.




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




During
the fourth quarter 2006, White River continued to evaluate its future taxable
income based on the successful integration of Coastal Credit and other activity
at UAC during 2006 that increased current and expected future taxable income.
This evaluation determined that it was more likely than not that the federal
deferred tax assets will be realized resulting in the reversal of the
corresponding valuation allowance. A valuation allowance of $1.6 million was
retained related to state operating loss carryforwards as it is more likely than
not that these carryforwards will not be realized.  The reversal of
the valuation allowance for the federal and state net operating loss
carryforwards contributed to the income tax benefit of $39.0 million for the
year ended December 31, 2006.  In addition, a credit of $6.4 million
was recorded to income tax benefit in 2006 related to recording the amount in
accumulated other comprehensive income as of December 31, 2006 related to the
beneficial interest in Master Trust net of tax.




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, 2007, 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 U.S. federal income tax and income tax
of multiple state and local jurisdictions. The 2004 - 2006 U.S. federal income
tax returns remain open to examination by the Internal Revenue Service. Various
state jurisdictions remain open to examination for tax years 2002 and
forward.







58





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




2007
            
            
            2006Current
      tax expense
            
            $
            232
            
            
            $
            873Deferred
      tax expense (benefit)
            
            
            7,083
            
            
            
            6,039Valuation
      allowance increase (reversal)
            
            
            (536
            )
            
            
            (45,905
            )Net
      income tax expense (benefit)
            
            $
            6,779
            
            
            $
            (38,993
            )







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




2007
            
            
            2006Statutory
      rate
            
            
            35.0
            %
            
            
            35.0
            %State
      income taxes
            
            
            1.5
            
            
            
            1.5Valuation
      allowance and other
            
            
            (0.2
            )
            
            
            (261.9
            )Bankruptcy
      costs not deductible
            
            
            0.2
            
            
            
            0.3Effective
      rate
            
            
            36.5
            %
            
            
            (225.1
            )%










59





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




2007
            
            
            2006Deferred
      tax assets:Net
      operating loss carryforward
            
            $
            37,223
            
            
            $
            38,109AMT
      credit carryforward
            
            
            965
            
            
            
            928Basis
      difference in beneficial interest in Master Trust
            
            
            -
            
            
            
            2,004Allowance
      for estimated credit losses
            
            
            2,467
            
            
            
            2,092Other
            
            
            187
            
            
            
            158Total
      deferred tax assets
            
            
            40,842
            
            
            
            43,291Valuation
      allowance
            
            
            (1,099
            )
            
            
            (1,635
            )39,743
            
            
            
            41,656Deferred
      tax liabilities:Basis
      difference in creditor notes payable
            
            
            623
            
            
            
            1,252Basis
      difference in goodwill
            
            
            2,752
            
            
            
            2,033Other
            
            
            337
            
            
            
            182Total
      deferred tax liabilities
            
            
            3,712
            
            
            
            3,467Net
      deferred tax assets
            
            $
            36,031
            
            
            $
            38,189







17.
            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 terms of the
plan includes the reservation of 50,000 shares of White River common stock for
issuance under the plan.




Effective
January 1, 2006, the restated employment agreement between Coastal Credit and
William McKnight, President of Coastal Credit, includes a long-term incentive
award. This award provides for the payment, in cash, of the value of 100,000
shares of White River stock, vesting in three annual increments of 33,333.33
shares on January 1, 2007, 2008 and 2009. In accordance with SFAS No. 123R,
Share-Based Payment (“SFAS No. 123R”), this award is accounted for as a
liability award. The value of payment is to be determined based on the mean of
the trading value of White River shares for 20 trading days prior to the vesting
date. Compensation expense related to this award approximated $613,000 and
$582,500 for the year ended December 31, 2007 and 2006, respectively, and is
included in salaries and benefits expense in the accompanying consolidated
statements of operations. Additional compensation costs will be incurred based
on the value of White River’s stock price through 2008.







60





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, 2007, White River awarded restricted stock awards totaling 98,100 shares and
29,800 of these shares have vested and have been issued and 14,000 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, 2007. 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 312007
            
            
            2006Restricted
      Stock Awards
            
            Shares
            
            
            Weighted
      Average Grant Date Fair Value
            
            
            Shares
            
            
            Weighted
      Average Grant Date Fair ValueBeginning
      nonvested awards
            
            
            86,400
            
            
            $
            14.25
            
            
            
            -Granted
            
            
            5,100
            
            
            $
            23.10
            
            
            
            93,000
            
            
            $
            14.25Vested
            
            
            (29,800
            )
            
            $
            14.55
            
            
            
            -Forfeited
            
            
            (7,400
            )
            
            $
            14.25
            
            
            
            (6,600
            )
            
            $
            14.25Ending
      nonvested awards
            
            
            54,300
            
            
            $
            14.91
            
            
            
            86,400
            
            
            $
            14.25







SFAS No.
123R is used for guidance in accounting for these awards. 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 3% was used during the year
ended December 31, 2006. This forfeiture rate was increased to 7% during the
year ended December 31, 2007. Compensation expense related to these awards
approximated $352,600 and $391,500 for years ended December 31, 2007 and 2006,
respectively, and is included in salaries and benefits expense in the
accompanying consolidated statements of operations. There was $1.0 million and
$2.0 million of total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted as of December 31, 2007 and 2006,
respectively. That cost is expected to be recognized over a weighted-average
period of 1.1 years and 2.0 years as of December 31, 2007 and 2006,
respectively.







61





18.
            BUSINESS
      SEGMENT INFORMATION




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




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) (1)
            
            
            (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
            
            
            $
            11,798For The Year EndedDecember 31, 2006
            
            UAC
            
            
            Coastal Credit
            
            
            Corporate and Other
            
            
            ConsolidatedTotal
      interest income
            
            $
            24,818
            
            
            $
            29,065
            
            
            $
            62
            
            
            $
            53,945Interest
      expense
            
            
            (4,805
            )
            
            
            (5,308
            )
            
            
            (1,707
            )
            
            
            (11,820
            )Net
      interest margin
            
            
            20,013
            
            
            
            23,757
            
            
            
            (1,645
            )
            
            
            42,125Recovery
      (provision) for estimated credit losses
            
            
            4,624
            
            
            
            (4,660
            )
            
            
            -
            
            
            
            (36
            )Net
      interest margin (deficit) after recovery (provision) for estimated credit
      losses
            
            
            24,637
            
            
            
            19,097
            
            
            
            (1,645
            )
            
            
            42,089Total
      other revenues (expenses) (2)
            
            
            (23,183
            )
            
            
            (11,286
            )
            
            
            9,705
            
            
            
            (24,764
            )Income
      before income taxes
            
            
            1,454
            
            
            
            7,811
            
            
            
            8,060
            
            
            
            17,325Income
      tax benefit
            
            
            -
            
            
            
            -
            
            
            
            38,993
            
            
            
            38,993Net
      income
            
            $
            1,454
            
            
            $
            7,811
            
            
            $
            47,053
            
            
            $
            56,318





(1)
            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.


(2)
            Depreciation
      and amortization is included in total other revenues (expenses) and was
      approximately $14,000, $204,000 and $244,000 for UAC, Coastal Credit and
      Corporate and Other for the year ended December 31,
  2006.










62





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









December
      31,2007
            
            
            2006Corporate
      and other
            
            $
            36,709
            
            
            $
            43,205Coastal
      Credit
            
            
            116,447
            
            
            
            114,900UAC
            
            
            13,409
            
            
            
            67,319$
            166,565
            
            
            $
            225,424







19.
            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 31,2007
            
            
            2006Net
      income in thousands
            
            $
            11,798
            
            
            $
            56,318Weighted
      average shares outstanding
            
            
            3,840,663
            
            
            
            3,813,073Incremental
      shares from assumed conversions:Warrants
            
            
            81,669
            
            
            
            57,904Stock
      award plans
            
            
            25,310
            
            
            
            11,040Weighted
      average shares and assumed incremental shares
            
            
            3,947,642
            
            
            
            3,882,017Earnings
      per share:Basic
            
            $
            3.07
            
            
            $
            14.77Diluted
            
            $
            2.99
            
            
            $
            14.51










63





20.
            QUARTERLY
      FINANCIAL DATA (UNAUDITED)




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




First Quarter
            
            
            Second Quarter
            
            
            Third Quarter
            
            
            Fourth QuarterFiscal Year EndedDecember 31, 2007Total
      interest income
            
            $
            18,464
            
            
            $
            9,104
            
            
            $
            9,343
            
            
            $
            10,956Net
      interest margin
            
            $
            16,474
            
            
            $
            7,556
            
            
            $
            7,936
            
            
            $
            9,787Other
      revenue (expense)
            
            $
            (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
            
            
            
            3,940,991Fiscal Year EndedDecember 31, 2006Total
      interest income
            
            $
            10,742
            
            
            $
            12,274
            
            
            $
            17,328
            
            
            $
            13,601Net
      interest margin
            
            $
            7,420
            
            
            $
            9,192
            
            
            $
            14,456
            
            
            $
            11,057Other
      revenue (expense)
            
            $
            (6,678
            )
            
            $
            (6,525
            )
            
            $
            (6,549
            )
            
            $
            (5,012
            )Net
      income
            
            $
            1,137
            
            
            $
            3,629
            
            
            $
            8,135
            
            
            $
            43,417Basic
      earnings per share
            
            $
            0.30
            
            
            $
            0.95
            
            
            $
            2.13
            
            
            $
            11.39Diluted
      earnings per share
            
            $
            0.29
            
            
            $
            0.94
            
            
            $
            2.09
            
            
            $
            11.11Basic
      weighted average shares
            
            
            3,812,822
            
            
            
            3,813,155
            
            
            
            3,813,155
            
            
            
            3,813,155Diluted
      weighted average shares
            
            
            3,864,086
            
            
            
            3,868,828
            
            
            
            3,900,930
            
            
            
            3,907,345







21.
            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.




White
River began reporting creditor notes payable early adopted SFAS 159 beginning
January 1, 2007, see Note 9. As a result of the early adoption of SFAF 159,
White River reported creditor notes payable at fair value by discounting
estimated future cash payments at appropriate discount rates. The following
table represents the estimated fair value for creditor notes payable and related
accrued interest at December 31, 2006 (in thousands) prior to the adoption of
SFAF 159:




Carrying
            
            
            FairAmount
            
            
            ValueCreditor
      notes payable and related accrued interest
            
            $
            1,484
            
            
            $
            2,512










64





The fair
value of securitized finance receivables–net, was estimated by discounting the
future cash flows, which were reduced by estimated credit losses for the life of
the receivables, using the current interest rates at which similar loans would
be made to borrowers with similar credit ratings and for the same remaining
maturities and was approximately $0.1 million greater than the carrying amount
as of December 31, 2006. With the securitization “clean-up” during the year
ended December 31, 2007, the securitized receivables were reclassed to finance
receivables-net




The fair
value of collateralized financings was determined by discounting estimated
future cash payments at appropriate discount rates and was $0.3 million less
than the carrying amount at December 31, 2006. Collateralized financings were
prepaid in full with the securitization “clean-up” during the year ended
December 31, 2007.




The fair
value of beneficial interest in Master Trust as of December 31, 2006 was
calculated by discounting the estimated cash flows released from the Master
Trust Account using a discount rate that UAC believed was commensurate with the
risks involved. An allowance for estimated credit losses was established and
applied. Discount rates utilized were based upon current market conditions and
prepayment assumptions were based on historical performance experience. See
Notes 2 and 5 for a detailed discussion of each of the components of the
fair value of beneficial interest in Master Trust. During 2007, beneficial
interest in Master Trust was eliminated with the consolidation of the
securitized finance receivables to finance receivables, net.




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.




Subordinated
debentures approximate the fair value due to minimal change in interest rates
related to these types of accounts at December 31, 2006. These debentures were
paid in full during 2007.






22.
            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.







65





White
River and its subsidiaries’ obligations under operating lease agreements were
$0.7 million for the year ended December 31, 2007.  The following
table represents obligations under current operating lease agreements (in
thousands):




Year
            
            Total2008
            
            $
            5892009
            
            
            4152010
            
            
            752011
            
            
            -2012
            
            
            -Thereafter
            
            
            -$
            1,078







23.
            SUBSEQUENT
      EVENTS




On
January 2, 2008, White River issued 18,160 shares of common stock to certain
employees as part of stock awards in accordance with agreements under the 2005
Stock Incentive Plan.




On
January 24, 2008, UAC sold charged-off loans that have deficiency balances
remaining to a third party (the “Buyer”) for $159,000.




On
February 1, 2008, White River issued 400 shares of common stock to a certain
employee as part of stock awards in accordance with an agreement under the 2005
Stock Incentive Plan.




On March
10, 2008 White River issued 7,686 shares to directors in accordance with the
Directors Stock Compensation Plan for services rendered during
2007.






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, 2007. Based
upon that evaluation, the Chief Executive Officer, President and Chief Financial
Officer concluded that, at December 31, 2007, 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.







66





White
River’s management assessed the effectiveness of internal control over financial
reporting as of December 31, 2007.  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, 2007, 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, 2007, 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.







67





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 2008 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.







68







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, 2007, 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
      averageexercise
      price of outstanding options,warrants
      and rights
            
            Number
      of securitiesremaining
      availablefor
      future issuanceEquity
      compensation plans approved by security holders
            
            
            204,300
            1
            
            $
            10.00
            2
            
            
            207,888
            3Equity
      compensation plans not approved by security holders
            
            
            0
            
            
            
            0
            
            
            
            0Total
            
            
            204,300
            1
            
            $
            10.00
            2
            
            
            207,888
            3


1
            Includes
      54,300 shares issuable pursuant to outstanding performance awards under
      the 2005 Stock Incentive Plan and 150,000 shares issuable upon exercise of
      outstanding warrants.


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


3
            Includes
      165,900 shares issuable pursuant to the 2005 Stock Incentive Plan in the
      form of stock options, restricted stock awards, or performance stock
      awards, and 41,988 shares issuable pursuant to the 2005 Directors Stock
      Compensation Plan.








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




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






ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES




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







69





PART
IV


ITEM
15. EXHIBITS




1.       Financial
Statements




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




2.       Financial
Statement Schedules




Not
applicable.




3.       Exhibits




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




2.1
            Agreement
      and Plan of Share Exchange dated March 9, 2005 between registrant and
      Union Acceptance Corporation (incorporated by reference to Exhibit 2.1 of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))2.2
            Limited
      Liability Company Interests Purchase Agreement dated March 9, 2005 among
      registrant, Coastal Credit, LLC and the members of Coastal Credit, LLC
      (incorporated by reference to Exhibit 2.2 of registrant’s Registration
      Statement on Form S-1/S-4 (Reg. No. 333-123909))3.1
            Articles
      of Incorporation of registrant (incorporated by reference to Exhibit 3.1
      of registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))3.2
            Code
      of By-laws of registrant (incorporated by reference to Exhibit 3.2 of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))4.1
            Form
      of common stock certificate of registrant (incorporated by reference to
      Exhibit 4.1 of registrant’s Registration Statement on Form S-1/S-4 (Reg.
      No. 333-123909))4.2
            Article
      5 – “Number of Shares,” Article 6 – “Terms of Shares,” Article 10 –
      “Transfer and Ownership Restrictions” and Article 11 – “Miscellaneous
      Provisions”  (concerning the applicability of the Indiana
      Control Share Acquisitions Chapter and the Indiana Business Combinations
      Chapter) of registrant’s Articles of Incorporation (contained in
      registrant’s Articles of Incorporation filed with this annual report as
      Exhibit 3.1)4.3
            Article
      III – “Shareholder Meetings,” Article VI – “Certificates for Shares” and
      Article VII, Section 3 – “Corporate Books and Records” of registrant’s
      Code of By-laws (contained in registrant’s Code of By-laws filed with this
      annual report as Exhibit 3.2)4.4(a)
            Note
      Purchase Agreement dated March 9, 2005, between registrant and the note
      purchaser named therein (incorporated by reference to Exhibit 4.4(a) of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))4.4(b)
            Form
      of Secured Note of registrant due April 1, 2010 (incorporated by reference
      to Exhibit 4.4(b) of registrant’s Registration Statement on Form S-1/S-4
      (Reg. No. 333-123909))4.4(c)
            Form
      of Subordinated Guaranty between Coastal Credit, LLC and the note
      purchaser (incorporated by reference to Exhibit 4.4(c) of registrant’s
      Registration Statement on Form S-1/S-4 (Reg. No.
    333-123909))4.4(d)
            Form
      of Pledge Agreement between the registrant and the note purchaser
      (incorporated by reference to Exhibit 4.4(d) of registrant’s Registration
      Statement on Form S-1/S-4 (Reg. No.
333-123909))








70








4.5(a)
            Revolving
      Note of registrant dated April 21, 2005 (incorporated by reference to
      Exhibit 4.5(a) of registrant’s Registration Statement on Form S-1/S-4
      (Reg. No. 333-123909))4.5(b)
            Revolving
      Note of registrant dated April 21, 2005 (incorporated by reference to
      Exhibit 4.5(b) of registrant’s Registration Statement on Form S-1/S-4
      (Reg. No. 333-123909))4.6
            Second
      Amended and Restated Plan of Reorganization of Union Acceptance
      Corporation dated August 8, 2003 (incorporated by reference to Exhibit 4.6
      of registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))4.7(a)
            Note
      Purchase Agreement dated October 7, 2003, among UAC Securitization
      Corporation, Wachovia Capital Markets, LLC, the note purchasers named
      therein, Wachovia Bank, National Association and Variable Funding Capital
      Corporation (incorporated by reference to Exhibit 4.7(a) of registrant’s
      Registration Statement on Form S-1/S-4 (Reg. No.
    333-123909))4.7(b)
            Indenture
      dated October 7, 2003 among UAC Securitization Corporation, Wilmington
      Trust Company and JPMorgan Chase Bank (related to UAC Securitization
      Corporation Asset-Backed Notes) (incorporated by reference to Exhibit
      4.7(b) of registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))4.7(c)
            UAC
      Securitization Corporation Series 2003-A Asset Backed Note (incorporated
      by reference to Exhibit 4.7(c) of registrant’s Registration Statement on
      Form S-1/S-4 (Reg. No. 333-123909))4.7(d)
            UAC
      Securitization Corporation Series 2004-A, Class A-1 Asset Backed Note
      (incorporated by reference to Exhibit 4.7(d) of registrant’s Registration
      Statement on Form S-1/S-4 (Reg. No. 333-123909))4.7(e)
            UAC
      Securitization Corporation Series 2004-A, Class A-2 Asset Backed Note
      (incorporated by reference to Exhibit 4.7(e) of registrant’s Registration
      Statement on Form S-1/S-4 (Reg. No. 333-123909))4.7(f)
            UAC
      Securitization Corporation Series 2004-B Asset Backed Note (incorporated
      by reference to Exhibit 4.7(f) of registrant’s Registration Statement on
      Form S-1/S-4 (Reg. No. 333-123909))4.7(g)
            UAC
      Securitization Corporation Series 2004-C Asset Backed Note (incorporated
      by reference to Exhibit 4.7(g) of registrant’s Registration Statement on
      Form S-1/S-4 (Reg. No. 333-123909))4.7(h)
            UAC
      Securitization Corporation Series 2005-A Asset Backed Note (incorporated
      by reference to Exhibit 4.7(h) of registrant’s Registration Statement on
      Form S-1/S-4 (Reg. No. 333-123909))4.7(i)
            UAC
      Securitization Corporation Series 2005-B Asset Backed Note (incorporated
      by reference to Exhibit 4.7(i) of registrant’s Registration Statement on
      Form S-1/S-4 (Reg. No. 333-123909))4.8(a)
            Amended
      Finance Agreement dated April 16, 2001, between Coastal Credit, LLC and
      Wells Fargo Financial Preferred Capital, Inc. (incorporated by reference
      to Exhibit 4.8(a) of registrant’s Registration Statement on Form S-1/S-4
      (Reg. No. 333-123909))4.8(b)
            First
      Amendment to Finance Agreement dated March 22, 2004, between Coastal
      Credit, LLC and Wells Fargo Financial Preferred Capital, Inc.
      (incorporated by reference to Exhibit 4.8(b) of registrant’s Registration
      Statement on Form S-1/S-4 (Reg. No. 333-123909))4.8(c)
            Second
      Amendment to Finance Agreement, dated August 24, 2005, between Coastal
      Credit LLC and Wells Fargo Financial Preferred Capital, Inc. (including
      replacement Promissory Note and White River Capital
      Inc. Guaranty) (incorporated by reference to Exhibit 4.1 of
      registrant’s Form 8-K filed September 2,
2005)








71








4.8(d)
            Third
      Amendment to Finance Agreement, dated January 2, 2007, between Coastal
      Credit LLC and Wells Fargo Financial Preferred Capital,
    Inc.4.9
            Regulation
      S-K, Item 601(b)(4)(iii) undertaking to furnish debt instruments to the
      Commission upon request (incorporated by reference to Exhibit 4.9 of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))4.10(a)
            Secured
      Bridge Note of registrant, dated June 22, 2005, to Castle Creek Capital
      Partners Fund IIa (incorporated by reference to Exhibit 4.10(a) of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))4.10(b)
            Secured
      Bridge Note of registrant, dated June 22, 2005, to Castle Creek Capital
      Partners Fund IIb (incorporated by reference to Exhibit 4.10(b) of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))4.10(c)
            Pledge
      and Security Agreement, dated June 22, 2005, among registrant, Castle
      Creek Capital, LLC, Castle Creek Capital Partners Fund IIa and Castle
      Creek Capital Partners Fund IIb (incorporated by reference to Exhibit
      4.10(c) of registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))10.1
            Warrant
      Issuance Agreement dated March 9, 2005, between registrant, Union
      Acceptance Corporation, Castle Creek Capital, L.L.C., Castle Creek Capital
      Partners Fund IIa, LP and Castle Creek Capital Partners Fund IIb, LP, as
      amended (incorporated by reference to Exhibit 10.1 of registrant’s
      Registration Statement on Form S-1/S-4 (Reg. No.
    333-123909))10.2
            Memorandum
      of Understanding dated February 15, 2005, among registrant, Union
      Acceptance Corporation and the Plan Committee under Union Acceptance
      Corporation’s Second Amended and Restated Plan of Reorganization
      (incorporated by reference to Exhibit 10.2 of registrant’s Registration
      Statement on Form S-1/S-4 (Reg. No. 333-123909))10.3
            Form
      of Tender Agreement for Restructured Senior Noteholders of Union
      Acceptance Corporation (incorporated by reference to Exhibit 10.3 of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))10.4
            Form
      of Tender Agreement for Restructured Subordinated Noteholders of Union
      Acceptance Corporation (incorporated by reference to Exhibit 10.4 of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))10.5
            Summary
      of arrangement between Union Acceptance Corporation and Castle Creek
      Capital, LLC (incorporated by reference to Exhibit 10.5 of registrant’s
      Registration Statement on Form S-1/S-4 (Reg. No.
    333-123909))10.6(a)
            Employment
      Agreement dated April 1, 1998, between Coastal Credit, LLC and William E.
      McKnight (incorporated by reference to Exhibit 10.6 of registrant’s
      Registration Statement on Form S-1/S-4 (Reg. No.
    333-123909))10.6(b)
            Restated
      Employment Agreement, as of December 28, 2005, between William E. McKnight
      and Coastal Credit LLC (incorporated by reference to Exhibit 10.1 of
      registrant’s Form 8-K filed January 10, 200610.7(a)
            Master
      Trust Account Agreement dated April 17, 2003 among Union Acceptance
      Corporation, UAC Securitization Corporation, Performance Securitization
      Corporation, Official Committee of Unsecured Creditors of Union Acceptance
      Corporation, MBIA Insurance Corporation, BNY Midwest Trust Company, The
      Bank of New York, Systems & Services Technologies, Inc., JPMorgan
      Chase Bank and Wilmington Trust Company (incorporated by reference to
      Exhibit 10.7(1b) of registrant’s Registration Statement on Form S-1/S-4
      (Reg. No. 333-123909))10.7(b)
            Amendment
      No. 1 to Master Trust Account Agreement dated October 7, 2003
      (incorporated by reference to Exhibit 10.7(b) of registrant’s Registration
      Statement on Form S-1/S-4 (Reg. No.
333-123909))








72








10.7(c)
            Amendment
      No. 2 to Master Trust Account Agreement dated May 21, 2004 (incorporated
      by reference to Exhibit 10.7(c) of registrant’s Registration Statement on
      Form S-1/S-4 (Reg. No. 333-123909))10.7(d)
            Amendment
      No. 3 to Master Trust Account Agreement dated August 1, 2004 (incorporated
      by reference to Exhibit 10.7(d) of registrant’s Registration Statement on
      Form S-1/S-4 (Reg. No. 333-123909))10.8
            Servicing
      Transfer Agreement dated April 17, 2003, among Union Acceptance
      Corporation, UAC Securitization Corporation, Performance Securitization
      Corporation, Systems & Services Technologies, Inc., MBIA Insurance
      Corporation and the Official Committee of Unsecured Creditors of Union
      Acceptance Corporation (incorporated by reference to Exhibit 10.8 of
      registrant’s Registration Statement on Form S-1/S-4 (Reg. No.
      333-123909))10.9
            White
      River Capital, Inc. 2005 Stock Incentive Plan (incorporated by reference
      to Exhibit 4.4 of registrant’s Form S-8 (File No.
    333-130187))10.10
            Letter
      Agreement between registrant and Martin J. Szumski dated April 8, 2005
      (incorporated by reference to Exhibit 10.10 of registrant’s Registration
      Statement on Form S-1/S-4 (Reg. No. 333-123909))10.11
            Expense
      Sharing Agreement, dated November 8, 2005, between White River Capital,
      Inc. and Castle Creek Capital, LLC and Castle Creek Advisors LLC
      (incorporated by reference to Exhibit 10.1 of registrant’s Form 10-Q for
      the period ended September 30, 2005)10.12
            White
      River Capital Inc. Directors Stock Compensation Plan (incorporated by
      reference to Exhibit 10.2 of registrant’s Form 10-Q for the period ended
      September 30, 2005)14.1
            Code
      of Ethics (incorporated by reference to Exhibit 14.1 of registrant’s Form
      10-K for the year ended December 31, 2005)21.1
            Subsidiaries
      of White River Capital, Inc. (incorporated by reference to Exhibit 21.1 of
      registrant’s Form 10-K for the year ended December 31,
    2005)23.1
            Consent
      of Deloitte & Touche LLP23.2
            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








73





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
      14, 2008
            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
            
            Title
            
            Date/s/
      John
      M. Eggemeyer
            
            Chairman
      and Chief Executive Officer, Director (Principal Executive
      Officer)
            
            March
      14, 2008John
      M. Eggemeyer/s/
      Mark
      R. Ruh
            
            President,
      Chief Operating Officer and Director
            
            March
      14, 2008Mark
      R. Ruh/s/
      Martin
      J. Szumski
            
            Chief
      Financial Officer (Principal Financial Officer and Principal Accounting
      Officer)
            
            March
      14, 2008Martin
      J. Szumski/s/
      Thomas
      C. Heagy
            
            Director
            
            March
      14, 2008Thomas
      C. Heagy/s/
      William
      E. McKnight
            
            Director
            
            March
      14, 2008William
      E. McKnight/s/
      Daniel
      W. Porter
            
            Director
            
            March
      14, 2008Daniel
      W. Porter/s/
      John
      W. Rose
            
            Director
            
            March
      14, 2008John
      W. Rose/s/
      Richard
      D. Waterfield
            
            Director
            
            March
      14, 2008Richard
      D. Waterfield











74