White River Liquidating Union Acceptance

INDIANAPOLIS — White River Capital, which includes subsidiaries Coastal Credit and Union Acceptance Co., recently reported that its net income for the third-quarter was down significantly compared to the same period in the previous year.

One of the main reasons for the decline was Union Acceptance, which has considerably decreased in size as it is being liquidated.

Officials said the breakdown included $2 million in earnings from Coastal Credit; $1.1 million in earnings from Union Acceptance; (0.7) million of interest and expenses at the holding; and an income tax expense of (0.8) million.

"During the third quarter, Coastal Credit continued excellent earnings performance, which included an increase in its allowance for loan loss reserves," explained Mark Ruh, president and chief operating officer. "Coastal's allowance for loan losses to total loans was 6.28 percent on Sept. 30, compared with 5.84 percent on June 30.

"Coastal's net charge-offs remained stable, while 30- day delinquency slightly increased, but it still comfortably within historical ranges," he continued, noting that Coastal Credit also opened a new office in Denver during the quarter.

He went on to point out that Union Acceptance's portfolio remains stable with its liquidation. Recovery cash flows from the portfolio are strong, leading to net portfolio recoveries for the last eight months, which Ruh foresees going forward.

"As anticipated, delinquency in the portfolio continues to rise as the managed portfolio nears the end of its life," he added. "The remaining $19.7 million balance of the managed portfolio represents 0.3 percent of $5.66 billion in originally securitized receivables.

"Thus, as a total portfolio balance continues to rapidly decline, even slight increases in the amount of delinquent receivables will appear as sizeable changes in the delinquency percentage," Ruh said. "We are comfortable with the trends in this portfolio and confident it will liquidate as expected."

Meanwhile, Martin Szumski, chief financial officer, added, "White River now has equity of $112.7 million and tangible equity is now $78 million. These values translate into a book value per share of $29.33 and a tangible book value per share of $20.30, while our tangible equity is now 52.4 percent of tangible assets."

He also indicated, "On Oct. 15, White River prepaid the remaining $9.4 million balance of its holding company secured not payable. This note had an interest rate of 10.75 percent, and its prepayment will result in significant future interest expense reductions.

"At the end of this quarter, White River had $7 million in cash and cash equivalents and $27.6 million in line of credit availability. This gave White River $36.6 million of cash at its disposal for both future opportunities and to pay company obligations at the end of the third quarter 2007 before the Oct. 15 prepayment of the secured note.

Continuing on, executives said provision for estimated credit losses was $1.5 million for the quarter, compared with $20,000 at the same point last year.

The provision at Coastal Credit for the third quarters of 2007 and 2006 was $2.0 million and $1.2 million, respectively. The increase in provision for estimated credit losses at Coastal Credit is due to what the management team says is its assessment of the reserves necessary for the current credit environment.

During the third quarter of 2007 and last year, Union Acceptance partially offset these provisions for estimated credit losses with recoveries, officials explained.

"The Union Acceptance recoveries were due to the stable performance of its contracting securitized finance receivable portfolio during these periods," executives highlighted.

The company said its charge to Master Trust net was $540,000 for the third quarter of 2007, compared with $5.6 million for the third quarter of 2006.

As the performance of Union Acceptance's on-balance-sheet securitized finance receivables has improved and stabilized, there has been a recovery for estimated credit losses and interest income has increased, officials pointed out.

However, as the subsidiary's portfolio has significantly declined in size, the amounts related to future transfers of funds owed to the Master Trust have decreased, according to the company.

Coastal Credit is a subprime auto finance company operating in 21 states. The company acquires auto receivables from both franchised and independent automobile dealers.

Meanwhile, Union Acceptance is a specialized auto finance company that holds and oversees a portfolio of both on- and off-balance-sheet securitized non-prime auto receivables.
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