WSFS

WSFS Financial Corp. 10-K Summary (Fiscal Year Ended Dec 31, 2000)

Business Context and Reporting Period

WSFS Financial Corporation is a thrift holding company headquartered in Wilmington, Delaware, with its primary subsidiary being Wilmington Savings Fund Society, FSB (WSFS). The company operates 28 retail banking offices in northern Delaware and southeastern Pennsylvania. The reporting period covers the fiscal year ended December 31, 2000. During this period, WSFS exited its indirect auto leasing business (WSFS Credit Corporation), classifying it as discontinued operations. The company also expanded its internet banking presence through its subsidiary, CustomerOne Financial Network, Inc. (C1FN), and its home equity lending subsidiary, Wilmington National Finance, Inc. (WNF).

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Decline: Net income decreased 44% to $11.0 million from $19.7 million in 1999. This was driven by a $2.4 million loss from discontinued operations (auto leasing wind-down), a $2.2 million charge for the wind-down of discontinued operations, and a $1.3 million cumulative effect of a change in accounting principle (SFAS 133).
• Revenue Growth: Net interest income increased 30% to $64.0 million, driven by higher loan volumes and increased yields on the reverse mortgage portfolio. Other income rose 56% to $18.1 million, largely due to contributions from new subsidiaries C1FN and WNF.
• Expense Increase: Other expenses increased 44% to $61.4 million. Approximately $14.2 million of this increase was attributable to the new subsidiaries (C1FN and WNF). Core expenses also rose due to branch expansion and the re-assumption of IT operations previously outsourced.
• Balance Sheet Shifts: Total assets decreased slightly ($11.7 million) due to a deleveraging strategy that reduced mortgage-backed securities by $108.0 million. Conversely, deposits grew significantly by $211.5 million, and borrowings decreased by $228.8 million.

Guidance, Outlook, Risks, and Unusual Items

• Discontinued Operations: The company ceased accepting new applications for its auto leasing business (WCC) in December 2000. Results are presented as discontinued operations, with a projected wind-down period ending in 2003.
• Subsidiary Investments: WSFS retains majority control of C1FN (economic ownership reduced to 29% due to third-party investment) and WNF (51% ownership). Both are consolidated, with minority interest reported separately.
• Accounting Changes: Adoption of SFAS No. 133 (Derivatives) resulted in a reclassification of securities and a cumulative effect charge of $1.3 million. Adoption of SFAS No. 140 is pending for 2001.
• Subsequent Event (Risk): In Q1 2001, the company discovered missing funds related to an armored car carrier used for ATM cash supplies. The carrier declared bankruptcy. Management estimates a net loss between $450,000 and $650,000, to be charged in Q1 2001.
• Capital Position: WSFS remains "well-capitalized" under OTS regulations, with a total risk-based capital ratio of 12.72%.

Investor Verification Checklist

• Discontinued Operations Impact: Verify the accuracy of the $2.2 million wind-down charge and the projected timeline for the auto leasing portfolio maturity.
• Subsequent Event Loss: Monitor Q1 2001 earnings for the specific charge related to the armored car carrier theft and the status of insurance/bankruptcy recoveries.
• Reverse Mortgage Valuation: Review the sensitivity of the $33.7 million reverse mortgage portfolio to changes in collateral values and actuarial assumptions, which significantly impacted 2000 income.
• Subsidiary Performance: Assess the profitability trajectory of C1FN and WNF, which contributed significantly to expense growth but also to other income.
• Deleveraging Strategy: Confirm the impact of the reduced mortgage-backed securities portfolio on future net interest margins and liquidity.