Exhibit 99.1
Investors Financial Services Corp. Announces Second Quarter 2006 Results;
Net Operating Revenue Grew 22%
Contact: | John N. Spinney, Jr. |
| (617) 937-3500 |
| john.spinney@ibtco.com |
BOSTON, MA, July 13, 2006 — Investors Financial Services Corp. (NASDAQ: IFIN) reported diluted earnings per share of $0.67 for the second quarter of 2006, compared to $0.64 in the second quarter of 2005. Net income for the second quarter of 2006 was $45.5 million, compared to $44.1 million in the second quarter of 2005. For the six months ended June 30, 2006, the Company reported diluted earnings per share of $1.23, compared to $1.24 for the same period in 2005. Net income for the six months ended June 30, 2006 was $82.9 million, compared to $85.1 million for the same period in 2005.
Results for the second quarter of 2006 included a one-time tax benefit of $0.08 per diluted share from the reversal of previously accrued taxes related to a tax position that no longer met the probable recognition threshold under Statement of Financial Accounting Standard No. 5 — “Accounting for Contingencies”. Results for the second quarter of 2005 included a one-time tax benefit of $0.10 per diluted share related to the recognition of the indefinite reversal provision of Accounting Principles Board No. 23 — “Accounting for Income Taxes-Special Areas” with respect to the Company’s Irish subsidiaries.
Kevin J. Sheehan, Chairman and Chief Executive Officer, commented, “Strong core and value-added services revenue continued to drive our results, with foreign exchange, securities lending and cash management revenue achieving record levels this quarter. In addition, this year Investors Bank & Trust was once again ranked number one in two prominent client satisfaction surveys. We received the overall first place honors in Global Investor magazine’s 2006 Global Custody Survey and Global Custodian magazine’s 2006 Mutual Fund Administration Survey, validating our superior client service model.”
Net operating revenue for the second quarter of 2006 grew 22% to $207.7 million from $170.7 million for the same period in 2005. Revenue from core services such as middle office outsourcing, global custody, multicurrency accounting and mutual fund administration rose to $112.2 million for the second quarter of 2006, up 24% from $90.2 million for the same period in the prior year. Revenue from value-added services including foreign exchange, securities lending, cash management and investment advisory services increased to $53.9 million for the quarter, up 67% from $32.3 million in the second quarter of 2005. Net interest income of $38.6 million for the second quarter of 2006 represented an 8% decrease from $42.0 million for the same period in 2005. Securities gains were $2.5 million for the second quarter of 2006, compared to $5.6 million for the same period in 2005. Operating expenses were $147.2 million for the second quarter of 2006, up 30% from $113.2 million for the same period in 2005.
Net operating revenue for the six months ended June 30, 2006 grew 18% to $400.5 million from $338.5 million for the same period in 2005. Revenue from core services such as middle office outsourcing, global custody, multicurrency
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accounting and mutual fund administration rose to $220.0 million for the six months ended June 30, 2006, up 23% from $178.7 million for the same period in the prior year. Revenue from value-added services including foreign exchange, securities lending, cash management and investment advisory services increased to $94.4 million for the six months ended June 30, 2006, up 60% from $59.0 million in the first six months of 2005. Net interest income of $81.9 million for the six months ended June 30, 2006 represented a 9% decrease from $89.7 million for the same period in 2005. Securities gains were $2.5 million for the six months ended June 30, 2006, compared to $9.7 million in the first six months of 2005. Operating expenses were $282.9 million for the six months ended June 30, 2006, up 30% from $218.0 million for the same period in 2005.
Assets processed for clients totaled approximately $1.95 trillion at June 30, 2006, an increase of 1% compared to $1.93 trillion at March 31, 2006 and an increase of 30% compared to $1.50 trillion at June 30, 2005.
Today, the Company also announced that its Board of Directors declared a quarterly cash dividend on its common stock of $0.0225 per share. The dividend is payable August 15, 2006 to stockholders of record as of July 31, 2006. On June 15, 2006 the Company announced that its Board of Directors had authorized a repurchase plan of up to $150 million of the Company’s common stock over the next twelve months.
For fiscal year 2006, net operating revenue is expected to grow approximately 12% to 15% compared to 2005. Total operating expenses in 2006 are forecasted to grow approximately 17% to 21% compared to 2005 due to continued investments in additional personnel, technology and office space, in both the U.S. and Europe, to position the Company for future growth. An effective tax rate of approximately 33.5% is forecasted for 2006. The Company expects 2006 diluted earnings per share to be approximately $2.40 to $2.45, including the tax benefit of $0.08 per diluted share from the reversal of previously accrued taxes. This guidance assumes the Federal Reserve will raise short-term interest rates by an additional 25 basis points in 2006 and the yield curve will remain flat, without a sustained inversion in 2006.
Investors Financial Services Corp. will broadcast a conference call, via the Internet, today, July 13, 2006 at 5:00 p.m. ET. The call will be accessible on the Company’s home page at www.ibtco.com. The conference call will also be available via telephone at 719-457-2653, confirmation code 8496410. Recorded replays of the conference call will be available on the website and by dialing 719-457-0820, confirmation code 8496410.
Investors Financial Services Corp. provides services for a variety of financial asset managers including mutual fund complexes, investment advisors, banks and insurance companies. The Company’s wholly-owned subsidiary, Investors Bank & Trust Company, provides core services including middle office outsourcing, global custody, multicurrency accounting and mutual fund administration, as well as value-added services including foreign exchange, securities lending, cash management and investment advisory services. Offices are located in the United States, Canada, Cayman Islands, Ireland, the United Kingdom and Luxembourg. Visit Investors Financial Services Corp. on the web at www.ibtco.com.
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Forward-Looking Statements
This news release contains forward-looking statements (statements that are not historical facts) made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. These statements, including the Company’s statements regarding expected net operating revenue, total operating expenses, positioning for future growth, effective tax rate, diluted earnings per share and assumptions regarding short-term interest rates and the shape of the yield curve, are subject to risks and uncertainties and are based upon certain assumptions and estimates that might not be realized. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include the timing and amount of interest rate movements by the Federal Reserve, the shape of the yield curve, reinvestment spreads, the performance of global financial markets, client fund flows, the Company’s ability to execute its stock repurchase plan, manage its costs, attract and retain employees and sell its services to new and existing customers and to retain existing customers. Additional factors that could also affect actual results are set forth under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and in the Company’s most recent Quarterly Report on Form 10-Q.
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Investors Financial Services Corp.
Consolidated Statements of Income (unaudited)
(Dollars in thousands, except share data)
|
|
| For the Six Months Ended |
| For the Three months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
| ||||
Fees and Other Revenue: |
|
|
|
|
|
|
|
|
| ||||
Asset servicing fees: |
|
|
|
|
|
|
|
|
| ||||
Core service fees |
| $ | 220,002 |
| $ | 178,703 |
| $ | 112,243 |
| $ | 90,159 |
|
Value-added service fees |
| 94,436 |
| 58,998 |
| 53,892 |
| 32,339 |
| ||||
Total asset servicing fees |
| 314,438 |
| 237,701 |
| 166,135 |
| 122,498 |
| ||||
Other operating income |
| 1,634 |
| 1,411 |
| 470 |
| 626 |
| ||||
Gain on sale of investments |
| 2,523 |
| 9,740 |
| 2,523 |
| 5,552 |
| ||||
Total fees and other revenue |
| 318,595 |
| 248,852 |
| 169,128 |
| 128,676 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
| 272,358 |
| 206,158 |
| 137,921 |
| 108,103 |
| ||||
Interest expense |
| 190,472 |
| 116,499 |
| 99,356 |
| 66,057 |
| ||||
Net interest income |
| 81,886 |
| 89,659 |
| 38,565 |
| 42,046 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net operating revenue |
| 400,481 |
| 338,511 |
| 207,693 |
| 170,722 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Expenses: |
|
|
|
|
|
|
|
|
| ||||
Compensation and benefits |
| 164,207 |
| 120,351 |
| 87,209 |
| 63,432 |
| ||||
Technology and telecommunications |
| 35,125 |
| 25,913 |
| 17,787 |
| 13,077 |
| ||||
Transaction processing services |
| 29,469 |
| 22,776 |
| 15,797 |
| 11,656 |
| ||||
Occupancy |
| 15,563 |
| 12,840 |
| 8,012 |
| 6,227 |
| ||||
Depreciation and amortization |
| 15,542 |
| 15,984 |
| 7,736 |
| 8,093 |
| ||||
Professional fees |
| 5,404 |
| 6,379 |
| 1,943 |
| 3,406 |
| ||||
Travel and sales promotion |
| 4,077 |
| 3,174 |
| 2,146 |
| 1,825 |
| ||||
Insurance |
| 1,967 |
| 2,275 |
| 994 |
| 1,146 |
| ||||
Other operating expenses |
| 11,505 |
| 8,337 |
| 5,551 |
| 4,375 |
| ||||
Total operating expenses |
| 282,859 |
| 218,029 |
| 147,175 |
| 113,237 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income Before Income Taxes |
| 117,622 |
| 120,482 |
| 60,518 |
| 57,485 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
| 34,756 |
| 35,407 |
| 15,055 |
| 13,358 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
| $ | 82,866 |
| $ | 85,075 |
| $ | 45,463 |
| $ | 44,127 |
|
Basic Earnings Per Share |
| $ | 1.26 |
| $ | 1.27 |
| $ | 0.69 |
| $ | 0.66 |
|
Diluted Earnings Per Share |
| $ | 1.23 |
| $ | 1.24 |
| $ | 0.67 |
| $ | 0.64 |
|
Share Information (unaudited)
|
| For the Six Months Ended |
| For the Three Months Ended |
| ||||
|
| June 30, |
| June 30, |
| ||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding |
| 65,984,326 |
| 66,875,627 |
| 65,984,326 |
| 66,875,627 |
|
Weighted-average basic shares |
| 65,538,888 |
| 66,761,409 |
| 65,792,845 |
| 66,803,946 |
|
Weighted-average diluted shares |
| 67,462,197 |
| 68,443,649 |
| 67,723,584 |
| 68,247,361 |
|
Investors Financial Services Corp.
Consolidated Balance Sheets (unaudited)
(Dollars in thousands, except share data)
|
|
| June 30, |
| December 31, |
| ||
|
| 2006 |
| 2005 |
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
| $ | 120,429 |
| $ | 79,637 |
|
Federal Funds sold |
| 520,000 |
| — |
| ||
Other short-term investments |
| 7,282 |
| — |
| ||
Securities held to maturity (including securities pledged of $4,354,703 and $4,529,421 at June 30, 2006 and December 31, 2005, respectively) (approximate fair value of $6,110,925 and $6,725,729 at June 30, 2006 and December 31, 2005, respectively) |
| 6,143,864 |
| 6,761,930 |
| ||
Securities available for sale (including securities pledged of $3,202,890 and $2,997,958 at June 30, 2006 and December 31, 2005, respectively) |
| 4,659,782 |
| 4,369,720 |
| ||
Nonmarketable equity securities |
| 50,000 |
| 50,000 |
| ||
Loans, less allowance for loan losses of $100 at June 30, 2006 and December 31, 2005 |
| 335,697 |
| 402,370 |
| ||
Accrued interest and fees receivable |
| 134,178 |
| 119,583 |
| ||
Equipment and leasehold improvements, less accumulated depreciation of $53,505 and $59,156 at June 30, 2006 and December 31, 2005, respectively |
| 85,976 |
| 69,401 |
| ||
Goodwill, net |
| 79,969 |
| 79,969 |
| ||
Other assets |
| 230,292 |
| 163,783 |
| ||
Total Assets |
| $ | 12,367,469 |
| $ | 12,096,393 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Demand |
| $ | 556,071 |
| $ | 537,558 |
|
Savings |
| 4,846,925 |
| 4,224,908 |
| ||
Time |
| 516,297 |
| 230,124 |
| ||
Total deposits |
| 5,919,293 |
| 4,992,590 |
| ||
|
|
|
|
|
| ||
Securities sold under repurchase agreements |
| 4,632,803 |
| 4,797,868 |
| ||
Short-term and other borrowings |
| 729,742 |
| 1,356,649 |
| ||
Due to brokers for open trades payable |
| 29,314 |
| 21,293 |
| ||
Junior subordinated deferrable interest debentures |
| 24,774 |
| 24,774 |
| ||
Accrued taxes and other expenses |
| 48,439 |
| 45,077 |
| ||
Other liabilities |
| 112,759 |
| 85,284 |
| ||
Total liabilities |
| 11,497,124 |
| 11,323,535 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
| — |
| — |
| ||
|
|
|
|
|
| ||
Stockholders’ Equity: |
|
|
|
|
| ||
Preferred stock, par value $0.01 (shares authorized: 1,000,000; issued: none at June 30, 2006 and December 31, 2005) |
| — |
| — |
| ||
Common stock, par value $0.01 (shares authorized: 175,000,000; issued 65,984,326 and 65,052,637 at June 30, 2006 and December 31, 2005, respectively) |
| 681 |
| 672 |
| ||
Surplus |
| 319,847 |
| 286,265 |
| ||
Deferred compensation |
| — |
| (311 | ) | ||
Retained earnings |
| 652,467 |
| 572,549 |
| ||
Accumulated other comprehensive loss, net |
| (29,702 | ) | (13,369 | ) | ||
Treasury stock, at cost (2,124,669 shares at June 30, 2006 and December 31, 2005) |
| (72,948 | ) | (72,948 | ) | ||
Total stockholders’ equity |
| 870,345 |
| 772,858 |
| ||
Total Liabilities and Stockholders’ Equity |
| $ | 12,367,469 |
| $ | 12,096,393 |
|
Investors Financial Services Corp.
Average Balance Sheets (unaudited)
(Dollars in thousands)
|
|
| Three Months Ended June 30, 2006 |
| Three Months Ended June 30, 2005 |
| ||||||||||||
|
| Average |
|
|
| Average |
| Average |
|
|
| Average |
| ||||
|
| Balance |
| Interest |
| Yield/Cost |
| Balance |
| Interest |
| Yield/Cost |
| ||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds sold and other short- term investments |
| $ | 109,438 |
| $ | 1,387 |
| 5.07 | % | $ | 51,374 |
| $ | 390 |
| 3.04 | % |
Investment securities(1) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed securities |
| 8,185,415 |
| 99,072 |
| 4.84 | % | 8,162,041 |
| 75,943 |
| 3.72 | % | ||||
Federal agency securities |
| 2,066,095 |
| 24,162 |
| 4.68 | % | 2,339,296 |
| 21,701 |
| 3.71 | % | ||||
State and political subdivisons |
| 476,701 |
| 5,116 |
| 4.29 | % | 451,807 |
| 5,280 |
| 4.67 | % | ||||
Other securities |
| 212,366 |
| 3,050 |
| 5.74 | % | 217,989 |
| 2,537 |
| 4.66 | % | ||||
Total investment securities |
| 10,940,577 |
| 131,400 |
| 4.80 | % | 11,171,133 |
| 105,461 |
| 3.78 | % | ||||
Loans |
| 295,854 |
| 5,134 |
| 6.94 | % | 222,489 |
| 2,252 |
| 4.05 | % | ||||
Total interest-earning assets |
| 11,345,869 |
| 137,921 |
| 4.86 | % | 11,444,996 |
| 108,103 |
| 3.78 | % | ||||
Allowance for loan losses |
| (100 | ) |
|
|
|
| (100 | ) |
|
|
|
| ||||
Noninterest-earning assets |
| 673,908 |
|
|
|
|
| 670,224 |
|
|
|
|
| ||||
Total assets |
| $ | 12,019,677 |
|
|
|
|
| $ | 12,115,120 |
|
|
|
|
| ||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand |
| $ | 87,487 |
| $ | 943 |
| 4.31 | % | $ | — |
| $ | — |
| — |
|
Savings |
| 4,237,506 |
| 37,866 |
| 3.57 | % | 3,011,989 |
| 15,172 |
| 2.01 | % | ||||
Time |
| 136,255 |
| 1,704 |
| 5.00 | % | 129,083 |
| 946 |
| 2.93 | % | ||||
Securities sold under repurchase agreements |
| 4,344,539 |
| 39,347 |
| 3.62 | % | 5,362,821 |
| 34,197 |
| 2.55 | % | ||||
Junior subordinated debentures |
| 24,774 |
| 605 |
| 9.77 | % | 24,774 |
| 605 |
| 9.77 | % | ||||
Other borrowings |
| 1,511,153 |
| 18,891 |
| 5.00 | % | 2,001,900 |
| 15,137 |
| 3.02 | % | ||||
Total interest-bearing liabilities |
| 10,341,714 |
| 99,356 |
| 3.84 | % | 10,530,567 |
| 66,057 |
| 2.51 | % | ||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposits |
| 337,710 |
|
|
|
|
| 274,163 |
|
|
|
|
| ||||
Savings |
| 83,342 |
|
|
|
|
| 37,287 |
|
|
|
|
| ||||
Time deposits |
| 198,352 |
|
|
|
|
| 240,989 |
|
|
|
|
| ||||
Other liabilities |
| 221,778 |
|
|
|
|
| 267,253 |
|
|
|
|
| ||||
Total liabilities |
| 11,182,896 |
|
|
|
|
| 11,350,259 |
|
|
|
|
| ||||
Equity |
| 836,781 |
|
|
|
|
| 764,861 |
|
|
|
|
| ||||
Total liabilities and equity |
| $ | 12,019,677 |
|
|
|
|
| $ | 12,115,120 |
|
|
|
|
| ||
Net interest income |
|
|
| $ | 38,565 |
|
|
|
|
| $ | 42,046 |
|
|
| ||
Net interest margin(2) |
|
|
|
|
| 1.36 | % |
|
|
|
| 1.47 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average interest rate spread(3) |
|
|
|
|
| 1.02 | % |
|
|
|
| 1.27 | % | ||||
Ratio of interest-earning assets to interest-bearing liabilities |
|
|
|
|
| 109.71 | % |
|
|
|
| 108.68 | % |
(1) Average yield/cost on available for sale securities is based on amortized cost.
(2) Annualized net interest income divided by total interest-earning assets.
(3) 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 Six Months Ended |
| For the Three Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Core service fees: |
|
|
|
|
|
|
|
|
| ||||
Custody, accounting and administration |
| $ | 220,002 |
| $ | 178,703 |
| $ | 112,243 |
| $ | 90,159 |
|
|
|
|
|
|
|
|
|
|
| ||||
Value-added service fees: |
|
|
|
|
|
|
|
|
| ||||
Foreign exchange |
| 48,099 |
| 25,504 |
| 27,765 |
| 12,255 |
| ||||
Cash management |
| 24,455 |
| 16,537 |
| 13,143 |
| 9,173 |
| ||||
Securities lending |
| 16,654 |
| 11,850 |
| 10,492 |
| 8,170 |
| ||||
Investment advisory |
| 3,761 |
| 3,704 |
| 1,825 |
| 1,989 |
| ||||
Other service fees |
| 1,467 |
| 1,403 |
| 667 |
| 752 |
| ||||
Total value-added service fees |
| 94,436 |
| 58,998 |
| 53,892 |
| 32,339 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total asset servicing fees |
| $ | 314,438 |
| $ | 237,701 |
| $ | 166,135 |
| $ | 122,498 |
|
Change in net assets processed (unaudited) (dollars in billions):
|
| For the Six Months Ended |
| For the Three Months Ended |
| ||
|
| June 30, 2006 |
| June 30, 2006 |
| ||
|
|
|
|
|
| ||
Net assets processed, beginning of period |
| $ | 1,793 |
| $ | 1,930 |
|
Change in net assets processed: |
|
|
|
|
| ||
Sales to new clients |
| 1 |
| — |
| ||
Further penetration of existing clients |
| 18 |
| 16 |
| ||
Lost clients |
| — |
| — |
| ||
Fund flows and market gain |
| 140 |
| 6 |
| ||
Total change in net assets processed |
| 159 |
| 22 |
| ||
Net assets processed, end of period |
| $ | 1,952 |
| $ | 1,952 |
|