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.

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.

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.

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.

Discussion of Results

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

                                                          Coastal        Corporate
For The Year Ended December 31, 2007          UAC          Credit        and Other        Consolidated

Total interest income                      $  17,548     $   30,242     $         77     $       47,867

Interest expense                              (1,036 )       (4,088 )           (990 )           (6,114 )

Net interest margin                           16,512         26,154             (913 )           41,753

Recovery (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 )           35,510

Total other revenues (expenses)              (19,457 )      (11,117 )         13,641            (16,933 )

Income (loss) before income taxes          $    (859 )   $    6,708     $     12,728     $       18,577

                                                          Coastal        Corporate
For The Year Ended December 31, 2006          UAC          Credit        and Other        Consolidated

Total interest income                      $  24,818     $   29,065     $         62     $       53,945

Interest expense                              (4,805 )       (5,308 )         (1,707 )          (11,820 )

Net interest margin                           20,013         23,757           (1,645 )           42,125

Recovery (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 )           42,089

Total 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.

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               2006

UAC discount accretion for beneficial interest in Master Trust   $     15,079       $     15,538
Interest on cash balances                                                 530                907

Accretion 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.

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.

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.

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        2006
Securitized Finance Receivables (1)
      2004-A1                             $   -     $    414
      2004-A2                                 -          637
      2004-B                                  -          855
      2004-C                                  -        3,424
      2005-A                                  -        4,913
      2005-B                                  -        7,227
      2005-C                                  -       11,330
                                              -       28,800
Off-Balance Sheet Securitizations
      2001-B                                  -        4,719
      2001-C                                  -       14,070
      2002-A                                  -       14,530
                                              -       33,319

Total 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 . . .