WSFS

WSFS Financial Corp. 10-K Summary (Fiscal Year Ended Dec 31, 1999)

Business Context and Reporting Period

WSFS Financial Corporation is a savings and loan holding company headquartered in Wilmington, Delaware. Its primary subsidiary, Wilmington Savings Fund Society, FSB (WSFS), is the largest thrift institution in Delaware. The company operates 24 retail banking offices in Northern Delaware and Southeastern Pennsylvania. The reporting period covers the fiscal year ended December 31, 1999. The company expanded its footprint into internet-only banking through a majority investment in CustomerOne Financial Network, Inc. (C1FN) and expanded home equity lending via Wilmington National Finance, Inc. (WNFI).

Key Financial Metrics

Liquidity and Capital: The Bank maintained a liquidity ratio of 6.4% (required minimum 4.0%) and was classified as "well-capitalized" under OTS regulations. Total borrowings were $672.5 million, primarily consisting of Federal Home Loan Bank advances.

Material Changes vs. Prior Period

• Profitability: Net income increased 19.4% to $19.7 million. Adjusted for nonrecurring items, net income was $18.0 million, flat compared to the adjusted 1998 figure, though EPS grew 10% due to share buybacks.
• Asset Growth: Total assets grew 7.2% ($118.1 million), driven by a $117.5 million increase in net loans and a $20.2 million increase in vehicles under operating leases.
• Interest Rates: Net interest income rose to $38.8 million despite a decline in the net interest margin (2.84% vs 2.88%) due to falling average yields on loans and mortgage-backed securities.
• Asset Quality: Nonperforming assets decreased to $8.4 million (0.48% of total assets) from $11.1 million (0.68%) in 1998. The allowance for loan losses decreased slightly to $23.0 million.
• Investments: The company recorded $1.0 million in securities losses and a $1.0 million charge for residual value losses on leased vehicles.

Outlook, Risks, and Unusual Items

Unusual Items: 1999 results included approximately $1.7 million in nonrecurring items that added to net income. Conversely, 1998 included an extraordinary charge of $1.5 million for the extinguishment of senior notes.

Strategic Initiatives: The company is actively pursuing "branchless" banking via everbank.com (C1FN) and expanding sub-prime home equity lending (WNFI). Management anticipates replacing lower-yielding assets with higher-yielding assets in 2000.

Risks and Contingencies:

• Interest Rate Risk: The company maintains a negative interest-rate sensitive gap of approximately 1.03% of total assets, meaning net interest income could be adversely affected by rising rates, though management utilizes caps and asset/liability matching to mitigate this.
• Reverse Mortgages: Significant deferred tax assets ($19 million) are tied to reverse mortgage pools with uncertain realization timing.
• Legal: Ongoing arbitration risks related to the former Providential Home Income Plan subsidiary, though management believes claims are without merit.
• Commitments: The company has an obligation to invest an additional $5.4 million in C1FN and $1.6 million in WNFI in 2000 contingent on meeting specific criteria.

Investor Verification Checklist

• Verify the realization of deferred tax assets related to the Providential reverse mortgage portfolio.
• Monitor the performance and integration of the new internet banking division (everbank.com) and the WNFI home equity subsidiary.
• Assess the impact of the negative interest-rate sensitive gap on net interest income if interest rates rise significantly in 2000.
• Review the residual value assumptions for the growing vehicle operating lease portfolio ($220.2 million).
• Confirm the status of the $5.4 million contingent investment obligation to C1FN.