Exhibit 99.1
INVESTORS FINANCIAL SERVICES CORP. ANNOUNCES 2004 DILUTED EARNINGS PER SHARE UP 50%
2004 NET OPERATING REVENUE INCREASES 25%
Contact: John N. Spinney, Jr.
(617) 937-3500
john.spinney@ibtco.com
BOSTON, MA, January 25, 2005 - Investors Financial Services Corp. (Nasdaq: IFIN) reported diluted earnings per share of $2.09 for the year ended December 31, 2004, an increase of 50% from $1.39 in 2003. Net income for the year ended December 31, 2004 was $142.0 million, up 54% from $92.4 million in 2003. For the fourth quarter of 2004, diluted earnings per share grew 11% to $0.52 from $0.47 for same period in 2003. Net income for the fourth quarter was $35.3 million, up 13% from $31.2 million in the fourth quarter of 2003.
For the year ended December 31, 2004, diluted operating earnings per share increased 39% to $2.09 per share from $1.50 per share in 2003 and net operating income increased 43% to $142.0 million from $99.6 million in 2003. Diluted operating earnings per share and net operating income for 2003 are presented on a non-GAAP basis, which excludes the impact of a retroactive change in Massachusetts tax law enacted during 2003 as described below in this press release.
Kevin J. Sheehan, Chairman and Chief Executive Officer, commented, “Investors Financial Services delivered another year of outstanding results during 2004. Sizeable wins from new and existing clients and the leverage inherent in our business model continue to drive our impressive performance. We remain confident in our ability to produce growth of 25% in diluted earnings per share in 2005.”
Diluted earnings per share and net income for the year ended December 31, 2003 include a $7.2 million charge, net of federal income tax benefit, that resulted from a retroactive change in Massachusetts tax law enacted in the first quarter of 2003 and the Company’s subsequent settlement of the resulting tax assessment with the Massachusetts Department of Revenue. The change in tax law disallowed a dividends received deduction taken by Investors Bank & Trust Company on dividends it had received since 1999 from a wholly-owned real estate investment trust. In the second quarter of 2003, the Company settled this disputed tax issue, agreeing to pay 50% of the liability, resulting in the $7.2 million charge, net of federal income tax benefit.
This press release includes both an income statement based on GAAP and a non-GAAP operating income statement that excludes the $7.2 million charge described above. Management believes that operating earnings per share and net operating income, which exclude the charge, present a more useful depiction of the Company’s actual results of operations because they exclude the effect of a one-time change in tax law that is unrelated to the Company’s ongoing operations. Excluding the $7.2 million
- MORE -
charge, the Company recorded net operating income for the year ended December 31, 2003 of $99.6 million and diluted operating earnings per share of $1.50.
Net operating revenue for the year ended December 31, 2004 grew 25% to $613.2 million from $490.1 million in 2003. Revenue from core services such as global custody, multicurrency accounting and mutual fund administration rose to $314.3 million for the year ended December 31, 2004, up 24% from $254.2 million in the prior year. Revenue from ancillary services including foreign exchange, securities lending, cash management, and investment advisory services increased to $108.9 million for the year ended December 31, 2004, up 37% from $79.4 million in 2003. Net interest income grew 22% to $187.7 million for the year ended December 31, 2004 from $153.9 million in 2003. Operating expenses were $398.4 million in 2004, up 16% from $344.9 million in 2003.
Net operating revenue for the fourth quarter grew 19% to $157.3 million from $131.7 million for the same period in 2003. Revenue from core services such as global custody, multicurrency accounting and mutual fund administration rose to $82.8 million for the fourth quarter, up 18% from $70.1 million from the same period in the prior year. Revenue from ancillary services including foreign exchange, securities lending, cash management, and investment advisory services increased to $25.1 million for the quarter, up 21% from $20.8 million in the fourth quarter of 2003. Net interest income grew 22% to $48.9 million for the fourth quarter of 2004 from $40.1 million for the same period in 2003. Operating expenses were $103.1 million for the fourth quarter of 2004, up 19% from $86.3 million for the same period in 2003.
Assets processed for clients totaled approximately $1.43 trillion at December 31, 2004, up 15% from $1.24 trillion at September 30, 2004 and up 35% from $1.06 trillion at December 31, 2003.
Today the Company also announced that its Board of Directors declared an increase in the cash dividend on its common stock from $0.0175 per share to $0.02 per share. The dividend is payable February 15, 2005 to stockholders of record as of January 31, 2005.
Investors Financial will broadcast a conference call, via the Internet, today, January 25, 2005 at 5:00 p.m. ET. The call will be accessible on Investors Financial’s home page at http://www.ibtco.com. The conference call will also be available via telephone at (719) 457-2679, confirmation code 294343. Recorded replays of the conference call will be available at www.ibtco.com or by dialing (719) 457-0820, confirmation code 294343.
Investors Financial Services Corp. provides services for a variety of financial asset managers including mutual fund complexes, investment advisors, banks, and insurance companies. Through our wholly-owned subsidiary, Investors Bank & Trust Company, we provide core services including global
custody, multicurrency accounting, and mutual fund administration, as well as ancillary services including securities lending, foreign exchange, and cash management. Offices are located in the United States, Canada, Cayman Islands, and Ireland. Visit Investors Financial on the web at http://www.ibtco.com.
This news release contains forward-looking statements (statements that are not historical facts). These statements, such as the Company’s statements regarding its ability to grow diluted earnings per share for the year ending December 31, 2005 are based upon assumptions and estimates that might not be realized and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Such risks and uncertainties include the performance of global financial markets, changes in interest rates, changes in the relationship between long-term and short-term interest rates, regulatory actions affecting the Company’s clients, the Company’s ability to manage the conversion of new business, and the Company’s ability to continue to manage its costs, including the costs of compliance with increasing regulatory requirements. Additional factors that could also affect actual results are set forth under the heading “Certain Factors That May Affect Future Results” in the Company’s Form 10-Q for the quarter ended September 30, 2004 and in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2003.
Investors Financial Services Corp.
Condensed Consolidated Statements of Income (unaudited)
(Dollars in thousands, except share data)
|
| For the Year Ended |
| For the Three Months Ended |
| ||||||||
|
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| ||||
Operating Revenue: |
|
|
|
|
|
|
|
|
| ||||
Asset servicing fees: |
|
|
|
|
|
|
|
|
| ||||
Core service fees |
| $ | 314,272 |
| $ | 254,225 |
| $ | 82,787 |
| $ | 70,074 |
|
Ancillary service fees |
| 108,928 |
| 79,361 |
| 25,079 |
| 20,844 |
| ||||
Total asset servicing fees |
| 423,200 |
| 333,586 |
| 107,866 |
| 90,918 |
| ||||
Other operating income |
| 2,057 |
| 2,607 |
| 542 |
| 743 |
| ||||
Gain on sale of investment |
| 234 |
| — |
| — |
| — |
| ||||
Total operating revenue |
| 425,491 |
| 336,193 |
| 108,408 |
| 91,661 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
| 313,149 |
| 247,094 |
| 89,899 |
| 64,987 |
| ||||
Interest expense |
| 125,469 |
| 93,180 |
| 40,982 |
| 24,903 |
| ||||
Net interest income |
| 187,680 |
| 153,914 |
| 48,917 |
| 40,084 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net operating revenue |
| 613,171 |
| 490,107 |
| 157,325 |
| 131,745 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Expenses: |
|
|
|
|
|
|
|
|
| ||||
Compensation and benefits |
| 205,728 |
| 186,932 |
| 51,676 |
| 43,623 |
| ||||
Technology and telecommunications |
| 49,816 |
| 38,914 |
| 14,924 |
| 9,894 |
| ||||
Transaction processing services |
| 42,159 |
| 33,299 |
| 11,393 |
| 9,675 |
| ||||
Depreciation and amortization |
| 32,124 |
| 27,971 |
| 7,736 |
| 7,738 |
| ||||
Occupancy |
| 29,032 |
| 29,218 |
| 7,419 |
| 7,398 |
| ||||
Professional fees |
| 15,346 |
| 11,189 |
| 3,485 |
| 2,299 |
| ||||
Travel and sales promotion |
| 5,470 |
| 4,822 |
| 1,530 |
| 1,507 |
| ||||
Insurance |
| 4,625 |
| 3,203 |
| 1,126 |
| 1,199 |
| ||||
Other operating expenses |
| 14,083 |
| 9,373 |
| 3,769 |
| 2,976 |
| ||||
Total operating expenses |
| 398,383 |
| 344,921 |
| 103,058 |
| 86,309 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income Before Income Taxes |
| 214,788 |
| 145,186 |
| 54,267 |
| 45,436 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
| 72,826 |
| 52,765 |
| 18,988 |
| 14,264 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
| $ | 141,962 |
| $ | 92,421 |
| $ | 35,279 |
| $ | 31,172 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic Earnings Per Share |
| $ | 2.15 |
| $ | 1.42 |
| $ | 0.54 |
| $ | 0.48 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted Earnings Per Share |
| $ | 2.09 |
| $ | 1.39 |
| $ | 0.52 |
| $ | 0.47 |
|
|
| Share Information (unaudited) |
| ||||||
|
| For the Year Ended |
| For the Three Months Ended |
| ||||
|
| 2004 |
| 2003 |
| 2004 |
| 2003 |
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding |
| 66,595,349 |
| 65,436,788 |
| 66,595,349 |
| 65,436,788 |
|
Weighted-average basic shares |
| 66,179,286 |
| 65,098,960 |
| 66,461,316 |
| 65,306,548 |
|
Weighted-average diluted shares |
| 67,916,217 |
| 66,475,462 |
| 68,106,442 |
| 66,909,373 |
|
Investors Financial Services Corp.
Condensed Consolidated Balance Sheets (unaudited)
(Dollars in thousands, except share data)
|
| December 31, |
| December 31, |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
| $ | 49,059 |
| $ | 39,689 |
|
Securities held to maturity (approximate fair value of $5,937,462 and $4,308,578 at December 31 2004 and 2003, respectively) |
| 5,942,717 |
| 4,306,216 |
| ||
Securities available for sale |
| 4,565,505 |
| 4,296,637 |
| ||
Nonmarketable equity securities |
| 50,000 |
| 50,000 |
| ||
Loans, less allowance for loan losses of $100 at December 31, 2004 and 2003 |
| 134,530 |
| 199,530 |
| ||
Accrued interest and fees receivable |
| 89,292 |
| 72,816 |
| ||
Equipment and leasehold improvements, less accumulated depreciation of $61,017 and $47,683 at December 31, 2004 and 2003, respectively |
| 67,883 |
| 76,420 |
| ||
Goodwill, net |
| 79,969 |
| 79,969 |
| ||
Other assets |
| 188,565 |
| 101,901 |
| ||
|
|
|
|
|
| ||
Total Assets |
| $ | 11,167,520 |
| $ | 9,223,178 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Demand |
| $ | 690,308 |
| $ | 334,823 |
|
Savings |
| 4,448,405 |
| 3,682,295 |
| ||
Time |
| 257,669 |
| 190,000 |
| ||
Total deposits |
| 5,396,382 |
| 4,207,118 |
| ||
|
|
|
|
|
| ||
Securities sold under repurchase agreements |
| 4,255,497 |
| 3,258,001 |
| ||
Short-term and other borrowings |
| 594,681 |
| 1,098,087 |
| ||
Due to brokers for open trades payable |
| 5,475 |
| — |
| ||
Junior subordinated deferrable interest debentures |
| 24,774 |
| 24,774 |
| ||
Accrued taxes and other expenses |
| 52,767 |
| 52,222 |
| ||
Other liabilities |
| 123,787 |
| 42,719 |
| ||
Total liabilities |
| 10,453,363 |
| 8,682,921 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
| — |
| — |
| ||
|
|
|
|
|
| ||
Stockholders’ Equity: |
|
|
|
|
| ||
Preferred stock, par value $0.01 (shares authorized: 1,000,000; issued and outstanding: none in, 2004 and 2003) |
| — |
| — |
| ||
Common stock, par value $0.01 (shares authorized: 175,000,000 and 100,000,000 in 2004 and 2003, respectively; issued and outstanding: 66,595,349 and 65,436,788 in 2004 and 2003, respectively) |
| 667 |
| 655 |
| ||
Surplus |
| 272,536 |
| 242,662 |
| ||
Deferred compensation |
| (572 | ) | (1,076 | ) | ||
Retained earnings |
| 418,034 |
| 280,701 |
| ||
Accumulated other comprehensive income, net |
| 25,783 |
| 17,865 |
| ||
Treasury stock, at cost (73,235 and 26,508 shares in 2004 and 2003, respectively) |
| (2,291 | ) | (550 | ) | ||
Total stockholders’ equity |
| 714,157 |
| 540,257 |
| ||
Total Liabilities and Stockholders’ Equity |
| $ | 11,167,520 |
| $ | 9,223,178 |
|
Investors Financial Services Corp.
Average Balance Sheet (unaudited)
(Dollars in thousands)
|
| Three Months Ended December 31, 2004 |
| Three Months Ended December 31, 2003 |
| ||||||||||||
|
| Average |
| Interest |
| Average |
| Average |
| Interest |
| Average |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds sold and securities purchased under resale agreements |
| $ | 51,326 |
| $ | 247 |
| 1.92 | % | $ | 27,043 |
| $ | 67 |
| 0.99 | % |
Investment securities (1) |
| 10,218,542 |
| 88,364 |
| 3.46 | % | 8,176,007 |
| 63,993 |
| 3.13 | % | ||||
Loans |
| 158,160 |
| 1,288 |
| 3.26 | % | 146,730 |
| 927 |
| 2.53 | % | ||||
Total interest-earning assets |
| 10,428,028 |
| 89,899 |
| 3.45 | % | 8,349,780 |
| 64,987 |
| 3.11 | % | ||||
Allowance for loan losses |
| (100 | ) |
|
|
|
| (100 | ) |
|
|
|
| ||||
Noninterest-earning assets |
| 563,545 |
|
|
|
|
| 496,607 |
|
|
|
|
| ||||
Total assets |
| $ | 10,991,473 |
|
|
|
|
| $ | 8,846,287 |
|
|
|
|
| ||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Savings |
| $ | 3,921,057 |
| $ | 14,622 |
| 1.49 | % | $ | 3,419,895 |
| $ | 11,112 |
| 1.30 | % |
Time |
| 112,741 |
| 557 |
| 1.98 | % | 4,696 |
| 9 |
| 0.77 | % | ||||
Securities sold under repurchase agreements |
| 4,776,215 |
| 20,990 |
| 1.76 | % | 3,269,592 |
| 6,986 |
| 0.85 | % | ||||
Junior subordinated debentures |
| 24,774 |
| 605 |
| 9.77 | % | 24,774 |
| 605 |
| 9.77 | % | ||||
Other borrowings(2) |
| 796,934 |
| 4,208 |
| 2.11 | % | 965,579 |
| 6,191 |
| 2.56 | % | ||||
Total interest-bearing liabilities |
| 9,631,721 |
| 40,982 |
| 1.70 | % | 7,684,536 |
| 24,903 |
| 1.30 | % | ||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposits |
| 247,971 |
|
|
|
|
| 273,129 |
|
|
|
|
| ||||
Savings |
| 93,825 |
|
|
|
|
| 124,416 |
|
|
|
|
| ||||
Noninterest-bearing time deposits |
| 143,370 |
|
|
|
|
| 127,065 |
|
|
|
|
| ||||
Other liabilities |
| 184,858 |
|
|
|
|
| 115,926 |
|
|
|
|
| ||||
Total liabilities |
| 10,301,745 |
|
|
|
|
| 8,325,072 |
|
|
|
|
| ||||
Equity |
| 689,728 |
|
|
|
|
| 521,215 |
|
|
|
|
| ||||
Total liabilities and equity |
| $ | 10,991,473 |
|
|
|
|
| $ | 8,846,287 |
|
|
|
|
| ||
Net interest income |
|
|
| $ | 48,917 |
|
|
|
|
| $ | 40,084 |
|
|
| ||
Net interest margin (3) |
|
|
|
|
| 1.88 | % |
|
|
|
| 1.92 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average interest rate spread (4) |
|
|
|
|
| 1.75 | % |
|
|
|
| 1.81 | % | ||||
Ratio of interest-earning assets to interest-bearing liabilities |
|
|
|
|
| 108.27 | % |
|
|
|
| 108.66 | % |
(1) Average yield/cost on available for sale securities is based on amortized cost.
(2) Interest expense for the three months ended December 31, 2003 includes a contractual prepayment penalty of $2.0 million for the prepayment of certain FHLBB borrowings.
(3) Net interest income divided by total interest-earning assets.
(4) Yield on interest-earning assets less rate paid on interest-bearing liabilities.
Investors Financial Services Corp.
Asset servicing fees by service lines (unaudited) (dollars in thousands)
|
| For the Year Ended |
| For the Three Months Ended |
| ||||||||
|
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Core service fees: |
|
|
|
|
|
|
|
|
| ||||
Custody, accounting and administration |
| $ | 314,272 |
| $ | 254,225 |
| $ | 82,787 |
| $ | 70,074 |
|
|
|
|
|
|
|
|
|
|
| ||||
Ancillary service fees: |
|
|
|
|
|
|
|
|
| ||||
Foreign exchange |
| 54,466 |
| 36,501 |
| 12,132 |
| 10,517 |
| ||||
Cash management |
| 26,396 |
| 20,884 |
| 6,809 |
| 5,097 |
| ||||
Investment advisory |
| 15,020 |
| 11,777 |
| 2,674 |
| 2,886 |
| ||||
Securities lending |
| 10,385 |
| 8,903 |
| 2,667 |
| 1,985 |
| ||||
Other service fees |
| 2,661 |
| 1,296 |
| 797 |
| 359 |
| ||||
Total ancillary service fees |
| 108,928 |
| 79,361 |
| 25,079 |
| 20,844 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total asset servicing fees |
| $ | 423,200 |
| $ | 333,586 |
| $ | 107,866 |
| $ | 90,918 |
|
Change in net assets processed (unaudited) (dollars in billions):
|
| For the Year Ended |
| For the Three Months Ended |
| ||
|
|
|
|
|
| ||
Net assets processed, beginning of period |
| $ | 1,057 |
| $ | 1,243 |
|
Change in net assets processed: |
|
|
|
|
| ||
Sales to new clients |
| 54 |
| 50 |
| ||
Further penetration of existing clients |
| 37 |
| 15 |
| ||
Lost clients |
| (3 | ) | (1 | ) | ||
Fund flows and market gain |
| 285 |
| 123 |
| ||
Total change in net assets processed |
| 373 |
| 187 |
| ||
Net assets processed, end of period |
| $ | 1,430 |
| $ | 1,430 |
|
Investors Financial Services Corp.
(Dollars in thousands)
GAAP Earnings (unaudited)
|
| For the Year Ended |
| For the Three Months Ended |
| ||||||||
|
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before taxes |
| $ | 214,788 |
| $ | 145,186 |
| $ | 54,267 |
| $ | 45,436 |
|
Provision for income taxes |
| 72,826 |
| 52,765 |
| 18,988 |
| 14,264 |
| ||||
Net income |
| $ | 141,962 |
| $ | 92,421 |
| $ | 35,279 |
| $ | 31,172 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 2.15 |
| $ | 1.42 |
| $ | 0.54 |
| $ | 0.48 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted |
| $ | 2.09 |
| $ | 1.39 |
| $ | 0.52 |
| $ | 0.47 |
|
Non-GAAP Operating Earnings (unaudited)
|
| For the Year Ended |
| For the Three Months Ended |
| ||||||||
|
| 2004 |
| 2003 |
| 2004 |
| 2003 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before taxes |
| $ | 214,788 |
| $ | 145,186 |
| $ | 54,267 |
| $ | 45,436 |
|
Provision for income taxes |
| 72,826 |
| 45,565 | (1) | 18,988 |
| 14,264 |
| ||||
Net income |
| $ | 141,962 |
| $ | 99,621 |
| $ | 35,279 |
| $ | 31,172 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 2.15 |
| $ | 1.53 |
| $ | 0.54 |
| $ | 0.48 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted |
| $ | 2.09 |
| $ | 1.50 |
| $ | 0.52 |
| $ | 0.47 |
|
(1) Provision for income taxes for the year ended December 31, 2003 excludes a $7.2 million charge, net of federal income tax benefit, related to a retroactive change in Massachusetts tax law enacted in the first quarter of 2003 and the Company’s subsequent settlement of the resulting tax assessment with the Massachusetts Department of Revenue. The effect of the exclusion is an increase of $0.11 per basic and diluted share.