WSFS

WSFS Financial Corp. 10-Q Summary: Period Ended June 30, 2000

Business Context and Reporting Period

WSFS Financial Corporation is a thrift holding company headquartered in Wilmington, Delaware, operating primarily in the Mid-Atlantic region. The company conducts business through its subsidiary, Wilmington Savings Fund Society, FSB, and several non-wholly owned subsidiaries including CustomerOne Financial Network (C1FN) and Wilmington National Finance (WNFI). This report covers the quarterly and six-month periods ended June 30, 2000.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Decline: Net income for the three months ended June 30, 2000, decreased to $2.4 million from $4.6 million in the same period in 1999. For the six-month period, net income fell to $6.5 million from $9.0 million.
• De-leveraging Strategy: Total assets declined $8.9 million year-over-year, driven by an $85.9 million reduction in mortgage-backed securities. The company sold approximately $126.5 million in investments and securities to reposition the balance sheet for higher-yielding loans and share buybacks.
• Deposit Growth: Total deposits increased by $165.8 million, including $108.2 million in growth at the internet-only banking division (everbank.com) and a $27.2 million increase in brokered deposits.
• Expense Increase: Operating expenses rose significantly, with a $5.2 million increase for the quarter and $9.2 million for the six-month period compared to 1999, largely due to startup costs for new subsidiaries and the opening of four new retail offices.

Guidance, Outlook, and Unusual Items

Management does not provide specific forward-looking numerical guidance in this filing but emphasizes a strategy of deleveraging and focusing on core banking while developing niche businesses. Several unusual items impacted results:

• Accounting Change (SFAS 133): Adoption of new accounting standards for derivatives resulted in a cumulative effect charge of $1.3 million (net of tax) due to the reclassification and sale of $55.4 million in securities.
• Leasing Portfolio Losses: A $3.4 million pretax charge was recorded for residual losses on the automobile leasing portfolio due to weakness in the used car market.
• Startup Costs: New subsidiaries C1FN and WNFI contributed approximately $923,000 in after-tax losses for the quarter and $3.1 million for the six-month period.
• Reverse Mortgage Adjustment: Results were favorably impacted by a $2.3 million (quarter) and $8.1 million (six-month) adjustment to the value of the reverse mortgage portfolio due to improved cash flows.
• Capital Actions: The company purchased 741,500 treasury shares at an average price of $11.76 per share during the period.

Investor Verification Checklist

• Nonperforming Assets: Verify the trend in nonperforming assets, which increased to $9.6 million (0.55% of total assets) from $8.4 million, including a $2.6 million commercial loan placed on nonaccrual status.
• Startup Subsidiary Viability: Assess the long-term profitability timeline for C1FN and WNFI, which are currently generating significant losses.
• Leasing Portfolio Exposure: Review the exposure to the used car market and the adequacy of provisions for residual value losses on the auto leasing portfolio.
• Interest Rate Sensitivity: Confirm the impact of the company's asset/liability management strategy, noting a shift to a positive interest-sensitive gap of $6.5 million.
• Regulatory Capital: Verify continued compliance with OTS "well-capitalized" status, currently holding 12.86% total capital to risk-weighted assets.