ITEM 2.
|
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 Rancho Santa Fe, California with one principal operating subsidiary.
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 27 states through 14 offices.
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.
Allowance for Loan Losses – Finance Receivables
Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at a level considered adequate to cover probable credit losses inherent in finance receivables.
The allowance for loan losses is established systematically by management based on the determination of the amount of probable credit losses inherent in the finance receivables as of the reporting date. Coastal Credit reviews charge off experience factors, delinquency reports, historical collection rates and other information in order to make the necessary judgments as to credit losses inherent in the portfolio as of the reporting date. Assumptions regarding probable credit losses are reviewed quarterly and may be impacted by actual performance of finance receivables and changes in any of the factors discussed above. Should the credit loss assumptions increase, there could be an increase in the amount of allowance for loan losses required, which could decrease the net carrying value of finance receivables and increase the provision for loan losses recorded on the consolidated statements of operations. Coastal Credit believes that the existing allowance for loan losses is sufficient to absorb probable finance receivable losses.
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, their respective tax basis and net operating loss and tax credit carry forwards. 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.
Part I Financial Information
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 avoid an ownership change for tax purposes. A valuation allowance has been derived pursuant to the provisions of ASC Topic No. 740,
Income Taxes
, which reduces the total deferred tax asset to an amount that will “more likely than not” be realized. As of September 30, 2012 and December 31, 2011, there was no liability recorded for unrecognized tax benefits.
New Accounting Pronouncements
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 will supersede some of the guidance in Accounting Standards Codification Topic 220. The main provisions of this ASU provide that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one or two consecutive financial statements: (i) a single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income; (ii) in a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The option in current GAAP that permits the presentation of other comprehensive income in the statement of changes in equity has been eliminated. This ASU is effective beginning with the first quarter of 2012 and had no material impact on the White River consolidated financial statements.
In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No 2011-05”. ASU 2011-12 delayed the effective date of certain requirements of ASU 2011-05 related to the presentation of reclassifications of items out of accumulated other comprehensive income. This ASU is effective beginning with the first quarter of 2012 and had no material impact on the White River consolidated financial statements.
Results of Operations
The Quarter Ended September 30, 2012 Compared to the Quarter Ended September 30, 2011 – Overview
Net income was $2.5 million, or $0.71 per diluted share, for the quarter ended September 30, 2012, compared to $2.9 million, or $0.79 per diluted share, for the quarter ended September 30, 2011.
The Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011 – Overview
Net income was $6.9 million, or $1.93 per diluted share, for the nine months ended September 30, 2012, compared to $7.5 million, or $2.06 per diluted share, for the nine months ended September 30, 2011.
Part I Financial Information
Discussion of Results
The following table presents consolidating financial information for White River for the periods indicated ($ in thousands):
|
For The Quarter Ended September 30, 2012
|
|
Coastal Credit
|
|
|
Corporate and Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on receivables
|
|
$
|
9,229
|
|
|
$
|
—
|
|
|
$
|
9,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(619
|
)
|
|
|
—
|
|
|
|
(619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
8,610
|
|
|
|
—
|
|
|
|
8,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
(985
|
)
|
|
|
—
|
|
|
|
(985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin after provision for loan losses
|
|
|
7,625
|
|
|
|
—
|
|
|
|
7,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(3,426
|
)
|
|
|
(463
|
)
|
|
|
(3,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
4,199
|
|
|
|
(463
|
)
|
|
|
3,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
—
|
|
|
|
(1,217
|
)
|
|
|
(1,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,199
|
|
|
$
|
(1,680
|
)
|
|
$
|
2,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Quarter Ended September 30, 2011
|
|
Coastal Credit
|
|
|
Corporate and Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on receivables
|
|
$
|
9,037
|
|
|
$
|
1
|
|
|
$
|
9,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(471
|
)
|
|
|
—
|
|
|
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
8,566
|
|
|
|
1
|
|
|
|
8,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
(928
|
)
|
|
|
—
|
|
|
|
(928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin after provision for loan losses
|
|
|
7,638
|
|
|
|
1
|
|
|
|
7,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(3,063
|
)
|
|
|
(342
|
)
|
|
|
(3,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
4,575
|
|
|
|
(341
|
)
|
|
|
4,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
—
|
|
|
|
(1,383
|
)
|
|
|
(1,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,575
|
|
|
$
|
(1,724
|
)
|
|
$
|
2,851
|
|
Part I Financial Information
|
For The Nine Months Ended September 30, 2012
|
|
Coastal Credit
|
|
|
Corporate and Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on receivables
|
|
$
|
27,448
|
|
|
$
|
—
|
|
|
$
|
27,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,834
|
)
|
|
|
—
|
|
|
|
(1,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
25,614
|
|
|
|
—
|
|
|
|
25,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
(3,566
|
)
|
|
|
—
|
|
|
|
(3,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin after provision for loan losses
|
|
|
22,048
|
|
|
|
—
|
|
|
|
22,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(10,087
|
)
|
|
|
(1,688
|
)
|
|
|
(11,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
11,961
|
|
|
|
(1,688
|
)
|
|
|
10,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
—
|
|
|
|
(3,420
|
)
|
|
|
(3,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
11,961
|
|
|
$
|
(5,108
|
)
|
|
$
|
6,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Nine Months Ended September 30, 2011
|
|
Coastal Credit
|
|
|
Corporate and Other
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on receivables
|
|
$
|
26,082
|
|
|
$
|
2
|
|
|
$
|
26,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,342
|
)
|
|
|
(43
|
)
|
|
|
(1,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
24,740
|
|
|
|
(41
|
)
|
|
|
24,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
(2,677
|
)
|
|
|
(6
|
)
|
|
|
(2,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin after provision for loan losses
|
|
|
22,063
|
|
|
|
(47
|
)
|
|
|
22,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(9,341
|
)
|
|
|
(1,303
|
)
|
|
|
(10,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
12,722
|
|
|
|
(1,350
|
)
|
|
|
11,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
—
|
|
|
|
(3,888
|
)
|
|
|
(3,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,722
|
|
|
$
|
(5,238
|
)
|
|
$
|
7,484
|
|
The Quarter Ended September 30, 2012 Compared to the Quarter Ended September 30, 2011 - Consolidated
Interest on receivables increased $0.2 million to $9.2 million for the quarter ended September 30, 2012 compared to $9.0 million for the quarter ended September 30, 2011. This increase is a result of an increase in the Coastal Credit average finance receivable balance to $131.2 million during the quarter ended September 30, 2012 as compared to $116.4 million during the quarter ended September 30, 2011. The increase in the average finance receivable balance is a result of Coastal Credit’s growth initiatives and the exploitation of market opportunities. As a result of an increase in competition over the last year, Coastal Credit has experienced a decrease of its weighted average annual percentage rate (“APR”) for loans acquired during the nine months ended September 30, 2012 to 17.8% as compared to 18.8% for the same period ended September 30, 2011. This decrease in weighted average APR partially offsets the increase of interest on receivables that the change in the average finance receivable balance may generate.
Interest expense was $0.6 million for the quarter ended September 30, 2012 as compared to $0.5 million for the quarter ended September 30, 2011. Costal Credit’s average line of credit was $83.5 million for the quarter ended September 30, 2012 compared to $63.1 million for the quarter ended September 30, 2011.
Part I Financial Information
Provision for loan losses was $1.0 million compared to $0.9 million for the quarters ended September 30, 2012 and 2011, respectively. Provision for loan losses is charged to income to bring Coastal Credit’s allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of finance receivables. This increase in provision for loan losses was a result of the significant increase in the finance receivables between the periods.
Salaries and benefits were $2.7 million for the quarter ended September 30, 2012 compared to $2.3 million for the quarter ended September 30, 2011.
Other operating expenses were $1.2 million and $1.0 million for the quarters ended September 30, 2012 and 2011, respectively.
Income tax expense was $1.2 million and $1.4 million for the quarters ended September 30, 2012 and 2011, respectively. The expense is based on the estimated effective tax rates for 2012 and 2011, respectively.
The Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011 - Consolidated
Interest on receivables increased $1.4 million to $27.5 million for the nine months ended September 30, 2012 compared to $26.1 million for the nine months ended September 30, 2011. This increase is a result of an increase in the Coastal Credit average finance receivable balance to $127.8 million during the nine months ended September 30, 2012 as compared to $110.9 million during the nine months ended September 30, 2011. The increase in the average finance receivable balance is a result of Coastal Credit’s growth initiatives and the exploitation of market opportunities.
Interest expense was $1.8 million for the nine months ended September 30, 2012 as compared to $1.4 million for the nine months ended September 30, 2011. Costal Credit’s average line of credit was $82.8 million for the nine months ended September 30, 2012 compared to $59.9 million for the nine months ended September 30, 2011.
Provision for loan losses was $3.6 million compared to $2.7 million for the nine months ended September 30, 2012 and 2011, respectively. Provision for loan losses is charged to income to bring Coastal Credit’s allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of finance receivables. This increase in provision for loan losses was a result of the significant increase in the finance receivables between the periods.
Salaries and benefits were $7.7 million for the nine months ended September 30, 2012 compared to $6.9 million for the nine months ended September 30, 2011.
Other operating expenses were $3.7 million compared to $3.4 million for the nine months ended September 30, 2012 and 2011, respectively. This increase is due primarily to an increase in professional fees.
Income tax expense was $3.4 million and $3.9 million for the nine months ended September 30, 2012 and 2011, respectively. The expense is based on the estimated effective tax rates for 2012 and 2011, respectively.
Part I Financial Information
Financial Condition as of September 30, 2012 and December 31, 2011
Finance Receivables, Net
Finance receivables, net increased to $124.1 million at September 30, 2012 as compared to $114.7 million at December 31, 2011. A significant number of contracts acquired by Coastal Credit are contracts made with borrowers who are in the United States military. As of September 30, 2012, 58.1% of the Coastal Credit receivables were with borrowers who are in the United States military as compared to 55.4% as of December 31, 2011. 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 non-military contracts.
Other Payables and Accrued Expenses
Other payables and accrued expenses were $2.1 million at September 30, 2012, compared to $2.4 million at December 31, 2011. This decrease is primarily attributable to the payments of accrued incentive compensation and annual director compensation.
Liquidity and Capital Resources for the Nine Months Ended September 30, 2012 and 2011
Net cash provided by operating activities was $13.8 million for the nine months ended September 30, 2012 compared to $13.5 million for the nine months ended September 30, 2011. This increase is primarily a result of the increase in interest on receivables from Coastal Credit partially offset by the reduction of other payables and accrued expenses.
Net cash used in investing activities was $13.0 million for the nine months ended September 30, 2012 compared to $17.2 million for the nine months ended September 30, 2011 and is a result of increased collections on finance receivables.
Net cash provided by financing activities was $0.3 million for the nine months ended September 30, 2012 compared to net cash provided by financing activities of $2.9 million for the nine months ended September 30, 2011. Net cash flows provided by financing activities for the nine months ended September 30, 2012 primarily resulted from the $3.0 million increase in the line of credit. This activity was partially offset by the $2.7 million cash dividends paid. Net cash flows provided by financing activities for the nine months ended September 30, 2011 primarily resulted from the $9.0 million increase in the line of credit partially offset by the $3.4 million repurchase of White River common stock and $2.7 million of cash dividends paid.
At September 30, 2012, White River and its subsidiary had cash and cash equivalents of $4.4 million compared to $3.2 million at December 31, 2011.
Part I Financial Information
Coastal Credit has a revolving credit facility from a lending institution with a maximum borrowing limit at September 30, 2012 of $100.0 million. The maturity date on the line of credit is December 31, 2014 and the interest rate is the 1 month London Interbank Offered Rate (“LIBOR”) plus 2.60%. As of September 30, 2012, Coastal Credit had $84.0 million of indebtedness outstanding under this facility as compared to $81.0 million as of December 31, 2011. Total availability under the line of credit at September 30, 2012 was $100.0 million based upon the level of eligible collateral, with $16.0 million available in excess of the amount utilized at September 30, 2012. 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 each of the months of September, 2012 and December, 2011 was LIBOR plus 2.60% which equated to 2.8%. There is an annual commitment fee of 1/8 of 1% on the average daily unused commitment, but will increase to 1/2 of 1% if the average unused portion of the commitment for such calendar month is less than or equal to 50% of the 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 80% of Coastal Credit’s pre-tax net income.
White River’s sources of liquidity, as the parent company, are limited and consist of cash on hand and distributions by Coastal Credit (subject to restrictions under Coastal Credit’s credit facility).
On August 11, 2011, White River announced that its Board of Directors approved a program to repurchase, from time to time and subject to market conditions, up to 250,000 shares of White River’s outstanding common stock, without par value, on the open market or in privately negotiated transactions. As of September 30, 2012, White River has repurchased 62,829 shares of its outstanding common stock under the program for $1.2 million.
Asset Quality
Set forth below is certain information concerning the credit loss experiences on the fixed rate retail automobile receivables of White River. There can be no assurance that future net loan loss experience on the receivables will be comparable to that set forth below. See “Discussion of Forward-Looking Statements.”
Finance Receivables – Coastal Credit
With recent personnel reductions by the U.S. military which are limiting reenlistments, individuals are being released into a civilian job market that, while improving, is still experiencing high unemployment. These reductions by the U.S. military had been anticipated and the results of the reductions are now contributing to the recent increase in charge-offs and delinquencies. Once the U.S. military reaches its personnel targets, we expect delinquency and charge-offs to return to normalized levels.
Part I Financial Information
Delinquency status of finance receivables at Coastal Credit under their contractual terms are as follows ($ in thousands):
|
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables - gross balance
|
|
$
|
145,788
|
|
|
|
|
|
$
|
137,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 days
|
|
$
|
1,607
|
|
|
|
1.1
|
%
|
|
$
|
1,317
|
|
|
|
1.0
|
%
|
|
60-89 days
|
|
|
1,357
|
|
|
|
0.9
|
%
|
|
|
689
|
|
|
|
0.5
|
%
|
|
90+ days
|
|
|
1,698
|
|
|
|
1.2
|
%
|
|
|
697
|
|
|
|
0.5
|
%
|
|
Total delinquencies
|
|
$
|
4,662
|
|
|
|
3.2
|
%
|
|
$
|
2,703
|
|
|
|
2.0
|
%
|
During the challenging economic conditions of the past four years, we have worked diligently to operate at delinquency and charge-off levels that were well below normal sub-prime lenders. We were successful in doing so while still generating strong growth. We have found that it is now increasingly difficult to meet both objectives as the economy improves and competition has intensified. As such, we have made the decision to allow charge-offs and delinquency to move toward levels consistent with this business sector. This action is expected to improve our ability to grow more in line with that which was achieved over the past several years. We have begun to reduce the allowance for loan losses to reflect the overall improvements in the U.S. economy as seen by the recent reductions in unemployment and the strengthening in the housing market. Even with the reduction in the allowance for loan losses, these reserves continue to be in excess of the annualized net charge-offs incurred reflecting a cautious outlook on the economy and the increased competition in this sector.
As a result of the nature of the customers in Coastal Credit’s portfolio, Coastal Credit considers the establishment of an adequate allowance for loan losses to be critical to its financial results. Coastal Credit has an allowance for loan losses that is calculated independent of the aggregate acquisition discounts and fees on finance receivables. Coastal Credit’s allowance for loan losses is based upon the historical rate at which (1) current loans, (2) contracts in a 30, 60 and 90+ day delinquency state and (3) loans ineligible for its borrowing line, have defaulted. These historical rates are evaluated and revised on a quarterly basis for current conditions. See “Discussion of Forward-Looking Statements.”
Part I Financial Information
Allowance for loan losses of finance receivables ($ in thousands):
|
|
|
Quarters Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
7,703
|
|
|
$
|
7,703
|
|
|
$
|
7,703
|
|
|
$
|
8,153
|
|
|
Charge-offs
|
|
|
(1,932
|
)
|
|
|
(1,614
|
)
|
|
|
(5,782
|
)
|
|
|
(5,051
|
)
|
|
Recoveries
|
|
|
647
|
|
|
|
686
|
|
|
|
1,916
|
|
|
|
1,924
|
|
|
Provision for loan losses
|
|
|
985
|
|
|
|
928
|
|
|
|
3,566
|
|
|
|
2,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
7,403
|
|
|
$
|
7,703
|
|
|
$
|
7,403
|
|
|
$
|
7,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables, net of unearned finance charges
|
|
$
|
144,022
|
|
|
$
|
132,070
|
|
|
$
|
144,022
|
|
|
$
|
132,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of finance receivables, net of unearned finance charges
|
|
|
5.14
|
%
|
|
|
5.83
|
%
|
|
|
5.14
|
%
|
|
|
5.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized net charge-offs as a percent of finance receivables, net of unearned finance charges
|
|
|
3.57
|
%
|
|
|
2.81
|
%
|
|
|
3.58
|
%
|
|
|
3.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of annualized net charge-offs
|
|
|
144.03
|
%
|
|
|
207.52
|
%
|
|
|
143.62
|
%
|
|
|
184.75
|
%
|
Market Developments
Despite persisting economic challenges, we continue to believe White River is well positioned to continue operations and grow the company responsibly based on the following factors:
·
|
Coastal Credit is not dependent on the securitization market for financing.
|
·
|
At September 30, 2012, there was $16.0 million available, in excess of the amount utilized, from the line of credit which has a maturity date of December 31, 2014.
|
·
|
White River is well capitalized with an equity to asset ratio of 46.9% as of September 30, 2012.
|
While there is never any guarantee White River will not be faced with the constrained financing scenarios seen by other auto finance companies during and since the recession of 2007-2009, we believe White River is well positioned in this uncertain economic environment, and we expect to be able to fund normal business operations and meet our general liquidity needs for the next 12 months through access to the current or a renewed line of credit, cash flows from operations, and our other funding sources.
Part I Financial Information
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), includes provisions affecting large and small financial industry participants alike, including several provisions that profoundly affect the regulation of certain companies providing consumer financial products and services, such as Coastal Credit. Among other things, the Dodd-Frank Act established the CFPB as an independent entity within the Federal Reserve, which has the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including non-bank commercial companies in the business of extending credit and servicing consumer loans. The Dodd-Frank Act contains numerous other provisions affecting financial industry participants of all types, many of which may have an impact on the operating environment of the Company in substantial and unpredictable ways. Consequently, the Dodd-Frank Act is likely to affect our cost of doing business, it may limit or expand our permissible activities, and it may affect the competitive balance within our industry and market areas. The nature and extent of future legislative and regulatory changes affecting financial institutions and non-bank commercial companies, including as a result of the Dodd-Frank Act, is very unpredictable at this time. The Company’s management continues to actively monitor the implementation of the Dodd-Frank Act and the regulations promulgated thereunder, including regulations issued by the CFPB, and assess their probable impact on the business, financial condition, and results of operations of the Company. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and the Company in particular, continues to be uncertain.
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 White River’s Annual Report on Form 10-K;
|
·
|
general economic, market, or business conditions;
|
·
|
changes in economic variables, such as the availability of business and consumer credit, conditions in the housing market, energy costs, the number and size of personal bankruptcy filings, the rate of unemployment and the levels of consumer confidence and consumer debt;
|
·
|
changes in interest rates, the cost of funds, and demand for White River’s financial services;
|
·
|
the level and volatility of equity prices, commodity prices, currency values, investments, and other market fluctuations and other market indices;
|
·
|
changes in White River’s competitive position;
|
·
|
White River’s ability to manage growth;
|
·
|
the opportunities that may be presented to and pursued by White River;
|
·
|
competitive actions by other companies;
|
·
|
changes in laws or regulations, including the impact of current, pending and future legislation and regulations, including the impact of the Dodd-Frank Act and legislation regarding U.S. fiscal policy;
|
·
|
changes in the policies of federal or state regulators and agencies; and
|
·
|
other circumstances, many of which are beyond White River’s control.
|
Part I Financial Information
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.