Exhibit 99.1
Investors Financial Services Corp. Announces Third Quarter 2006 Results and Revises Full Year Guidance;
Total Assets Processed Reached $2 Trillion
Contact: | John N. Spinney, Jr. |
| (617) 937-3500 |
| john.spinney@ibtco.com |
BOSTON, MA, October 18, 2006 - Investors Financial Services Corp. (NASDAQ: IFIN) reported diluted earnings per share of $0.54 for the third quarter of 2006, compared to $0.53 in the third quarter of 2005. Net income for the third quarter of 2006 was $36.4 million, compared to $35.2 million in the third quarter of 2005. For the nine months ended September 30, 2006, the Company reported diluted earnings per share of $1.75, compared to $1.77 for the same period in 2005. Net income for the nine months ended September 30, 2006 was $118.1 million, compared to $120.3 million for the same period in 2005.
Kevin J. Sheehan, Chairman and Chief Executive Officer, commented, “In the third quarter of 2006, revenue from core service fees grew 17% year-over-year while revenue from value-added service fees grew 23% year-over-year, offsetting a portion of the greater than expected weakness in net interest income. Despite the inverted yield curve environment, this year we are aggressively accelerating disciplined investments for future growth. We expect our employee base to grow almost 25% during this year to service new business and build capacity for continued opportunities in our pipeline. In addition, we continue to invest in our Fund Accounting and Custody Tracking System (FACTS) to remain at the forefront of asset servicing automation.”
Net operating revenue for the third quarter of 2006 grew 15% to $193.9 million from $169.3 million for the same period in 2005. Revenue from core services such as middle office outsourcing, global custody, multicurrency accounting and fund administration rose to $111.2 million for the third quarter of 2006, up 17% from $95.4 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 $41.2 million for the quarter, up 23% from $33.4 million in the third quarter of 2005. Net interest income of $39.0 million for the third quarter of 2006 represented a 3% increase from $38.0 million for the same period in 2005. Operating expenses were $139.2 million for the third quarter of 2006, up 20% from $116.1 million for the same period in 2005.
Net operating revenue for the nine months ended September 30, 2006 grew 17% to $594.3 million from $507.8 million for the same period in 2005. Revenue from core services rose to $331.2 million for the nine months ended September 30, 2006, up 21% from $274.2 million for the same period in the prior year. Revenue from value-added services increased to $135.6 million for the nine months ended September 30, 2006, up 47% from $92.4 million in the first nine months of 2005. Net interest income of $120.9 million for the nine months ended September 30, 2006 represented a 5% decrease from $127.7 million for the same period in 2005. Securities gains were $2.5 million for the nine months ended September 30, 2006, compared to $11.1 million in the first nine months of 2005. Operating expenses were $423.8 million for the nine months ended September 30, 2006, up 27% from $334.2 million for the same period in 2005.
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Assets processed for clients totaled approximately $2.04 trillion at September 30, 2006, an increase of 5% compared to $1.95 trillion at June 30, 2006 and an increase of 18% compared to $1.73 trillion at September 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 November 15, 2006 to stockholders of record as of October 31, 2006.
For fiscal year 2006, net operating revenue is expected to grow approximately 14% compared to 2005. Total operating expenses in 2006 are now expected to grow approximately 24% compared to 2005 due to accelerated investments in additional personnel, technology and office space, to position the Company for future growth. An effective tax rate of approximately 33.5% is anticipated for 2006. The Company now expects 2006 diluted earnings per share to be approximately $2.25 to $2.30, including a tax benefit of $0.08 per diluted share from the reversal of previously accrued taxes in the second quarter of 2006. Key factors that are driving the change in expected diluted earnings per share include: accelerated investments in personnel and space to support future growth, increased investments in the Fund Accounting and Custody Tracking System (FACTS), the unanticipated degree and duration of the yield curve inversion, narrower than expected reinvestment spreads and lower than expected core and securities lending revenues.
Investors Financial Services Corp. will broadcast a conference call, via the Internet, today, October 18, 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 719-457-2625, confirmation code 3315714. Recorded replays of the conference call will be available on the website and by dialing 719-457-0820, confirmation code 3315714.
Investors Financial Services Corp. provides services for a variety of financial asset managers including mutual fund complexes, investment advisors, hedge funds, 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 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.
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 and future investments positioning for future growth, expected growth in personnel, effective tax rate, diluted earnings per share, the degree and duration of the yield curve inversion, expected reinvestment spreads, core and securities lending revenues and investment in FACTS 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
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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, predict and 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 Nine Months Ended |
| For the Three months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
| ||||
Fees and Other Revenue: |
|
|
|
|
|
|
|
|
| ||||
Asset servicing fees: |
|
|
|
|
|
|
|
|
| ||||
Core service fees |
| $ | 331,249 |
| $ | 274,150 |
| $ | 111,247 |
| $ | 95,447 |
|
Value-added service fees |
| 135,643 |
| 92,370 |
| 41,207 |
| 33,372 |
| ||||
Total asset servicing fees |
| 466,892 |
| 366,520 |
| 152,454 |
| 128,819 |
| ||||
Other operating income |
| 4,054 |
| 2,424 |
| 2,420 |
| 1,013 |
| ||||
Gain on sale of investments |
| 2,523 |
| 11,123 |
| — |
| 1,383 |
| ||||
Total fees and other revenue |
| 473,469 |
| 380,067 |
| 154,874 |
| 131,215 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
| 412,696 |
| 320,670 |
| 140,338 |
| 114,512 |
| ||||
Interest expense |
| 291,820 |
| 192,970 |
| 101,348 |
| 76,471 |
| ||||
Net interest income |
| 120,876 |
| 127,700 |
| 38,990 |
| 38,041 |
| ||||
Net operating revenue |
| 594,345 |
| 507,767 |
| 193,864 |
| 169,256 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Expenses: |
|
|
|
|
|
|
|
|
| ||||
Compensation and benefits |
| 238,846 |
| 185,779 |
| 74,639 |
| 65,428 |
| ||||
Technology and telecommunications |
| 54,750 |
| 39,901 |
| 19,625 |
| 13,988 |
| ||||
Transaction processing services |
| 45,487 |
| 35,252 |
| 16,018 |
| 12,476 |
| ||||
Occupancy |
| 24,163 |
| 19,409 |
| 8,600 |
| 6,569 |
| ||||
Depreciation and amortization |
| 23,513 |
| 23,724 |
| 7,971 |
| 7,740 |
| ||||
Professional fees |
| 9,881 |
| 9,253 |
| 4,477 |
| 2,874 |
| ||||
Travel and sales promotion |
| 6,451 |
| 4,823 |
| 2,374 |
| 1,649 |
| ||||
Recruitment |
| 3,388 |
| 1,928 |
| 1,568 |
| 873 |
| ||||
Insurance |
| 2,944 |
| 3,284 |
| 977 |
| 1,009 |
| ||||
Other operating expenses |
| 14,340 |
| 10,806 |
| 2,905 |
| 3,524 |
| ||||
Total operating expenses |
| 423,763 |
| 334,159 |
| 139,154 |
| 116,130 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income Before Income Taxes |
| 170,582 |
| 173,608 |
| 54,710 |
| 53,126 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
| 52,497 |
| 53,301 |
| 18,327 |
| 17,894 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
| $ | 118,085 |
| $ | 120,307 |
| $ | 36,383 |
| $ | 35,232 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic Earnings Per Share |
| $ | 1.80 |
| $ | 1.81 |
| $ | 0.55 |
| $ | 0.54 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted Earnings Per Share |
| $ | 1.75 |
| $ | 1.77 |
| $ | 0.54 |
| $ | 0.53 |
|
Share Information (unaudited)
|
| For the Nine Months Ended |
| For the Three Months Ended |
| ||||
|
| September 30, |
| September 30, |
| ||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding |
| 66,149,016 |
| 64,955,015 |
| 66,149,016 |
| 64,955,015 |
|
Weighted-average basic shares |
| 65,727,040 |
| 66,530,636 |
| 66,067,400 |
| 66,076,656 |
|
Weighted-average diluted shares |
| 67,586,143 |
| 67,966,493 |
| 67,817,587 |
| 67,010,888 |
|
Investors Financial Services Corp.
Consolidated Balance Sheets (unaudited)
(Dollars in thousands, except share data)
|
| September 30, |
| December 31, |
| ||
|
| 2006 |
| 2005 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
| $ | 59,229 |
| $ | 79,637 |
|
Federal Funds sold |
| 250,000 |
| — |
| ||
Other short-term investments |
| 9,468 |
| — |
| ||
Securities held to maturity (including securities pledged of $4,498,296 and $4,529,421 at September 30, 2006 and December 31, 2005, respectively) (approximate fair value of $5,807,100 and $6,725,729 at September 30, 2006 and December 31, 2005, respectively) |
| 5,830,022 |
| 6,761,930 |
| ||
Securities available for sale (including securities pledged of $3,054,836 and $2,997,958 at September 30, 2006 and December 31, 2005, respectively) |
| 4,623,393 |
| 4,369,720 |
| ||
Nonmarketable equity securities |
| 33,250 |
| 50,000 |
| ||
Loans, less allowance for loan losses of $100 at September 30, 2006 and December 31, 2005 |
| 286,378 |
| 402,370 |
| ||
Accrued interest and fees receivable |
| 136,031 |
| 119,583 |
| ||
Equipment and leasehold improvements, less accumulated depreciation of $58,497 and $59,156 at September 30, 2006 and December 31, 2005, respectively |
| 96,677 |
| 69,401 |
| ||
Goodwill, net |
| 79,969 |
| 79,969 |
| ||
Other assets |
| 168,164 |
| 163,783 |
| ||
|
|
|
|
|
| ||
Total Assets |
| $ | 11,572,581 |
| $ | 12,096,393 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Demand |
| $ | 830,810 |
| $ | 537,558 |
|
Savings |
| 5,020,126 |
| 4,224,908 |
| ||
Time |
| 352,142 |
| 230,124 |
| ||
Total deposits |
| 6,203,078 |
| 4,992,590 |
| ||
|
|
|
|
|
| ||
Securities sold under repurchase agreements |
| 4,128,598 |
| 4,797,868 |
| ||
Short-term and other borrowings |
| 44,685 |
| 1,356,649 |
| ||
Due to brokers for open trades payable |
| 72,920 |
| 21,293 |
| ||
Junior subordinated deferrable interest debentures |
| 24,774 |
| 24,774 |
| ||
Accrued taxes and other expenses |
| 70,821 |
| 45,077 |
| ||
Other liabilities |
| 93,864 |
| 85,284 |
| ||
Total liabilities |
| 10,638,740 |
| 11,323,535 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
| — |
| — |
| ||
|
|
|
|
|
| ||
Stockholders’ Equity: |
|
|
|
|
| ||
Preferred stock, par value $0.01 (shares authorized: 1,000,000; issued: none at September 30, 2006 and December 31, 2005) |
| — |
| — |
| ||
Common stock, par value $0.01 (shares authorized: 175,000,000; issued: 68,274,003 and 67,177,306 at September 30, 2006 and December 31, 2005, respectively) |
| 683 |
| 672 |
| ||
Surplus |
| 326,724 |
| 286,265 |
| ||
Deferred compensation |
| — |
| (311 | ) | ||
Retained earnings |
| 686,201 |
| 572,549 |
| ||
Accumulated other comprehensive loss, net |
| (6,805 | ) | (13,369 | ) | ||
Treasury stock, at cost (2,124,987 shares and 2,124,669 shares at September 30, 2006 and December 31, 2005, respectively) |
| (72,962 | ) | (72,948 | ) | ||
Total stockholders’ equity |
| 933,841 |
| 772,858 |
| ||
|
|
|
|
|
| ||
Total Liabilities and Stockholders’ Equity |
| $ | 11,572,581 |
| $ | 12,096,393 |
|
Investors Financial Services Corp.
Average Balance Sheets (unaudited)
(Dollars in thousands)
|
| Three Months Ended September 30, 2006 |
| Three Months Ended September 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 |
| $ | 210,484 |
| $ | 2,782 |
| 5.29 | % | $ | 62,674 |
| $ | 565 |
| 3.61 | % |
Investment securities (1) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed securities |
| 8,089,321 |
| 101,913 |
| 5.04 | % | 8,254,384 |
| 80,937 |
| 3.92 | % | ||||
Federal agency securities |
| 1,898,953 |
| 22,160 |
| 4.67 | % | 2,352,235 |
| 23,395 |
| 3.98 | % | ||||
State and political subdivisions |
| 441,985 |
| 4,634 |
| 4.19 | % | 466,457 |
| 5,221 |
| 4.48 | % | ||||
Other securities |
| 200,626 |
| 3,094 |
| 6.17 | % | 193,486 |
| 2,158 |
| 4.46 | % | ||||
Total investment securities |
| 10,630,885 |
| 131,801 |
| 4.96 | % | 11,266,562 |
| 111,711 |
| 3.97 | % | ||||
Loans |
| 293,723 |
| 5,755 |
| 7.84 | % | 241,692 |
| 2,236 |
| 3.70 | % | ||||
Total interest-earning assets |
| 11,135,092 |
| 140,338 |
| 5.04 | % | 11,570,928 |
| 114,512 |
| 3.96 | % | ||||
Allowance for loan losses |
| (100 | ) |
|
|
|
| (100 | ) |
|
|
|
| ||||
Noninterest-earning assets |
| 621,778 |
|
|
|
|
| 745,211 |
|
|
|
|
| ||||
Total assets |
| $ | 11,756,770 |
|
|
|
|
| $ | 12,316,039 |
|
|
|
|
| ||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand |
| $ | 96,453 |
| $ | 1,130 |
| 4.69 | % | $ | — |
| $ | — |
| — |
|
Savings |
| 4,914,089 |
| 48,544 |
| 3.95 | % | 3,338,204 |
| 19,718 |
| 2.36 | % | ||||
Time |
| 221,623 |
| 2,970 |
| 5.36 | % | 34,099 |
| 292 |
| 3.43 | % | ||||
Securities sold under repurchase agreements |
| 4,445,739 |
| 42,412 |
| 3.82 | % | 5,513,285 |
| 40,344 |
| 2.93 | % | ||||
Junior subordinated debentures |
| 24,774 |
| 605 |
| 9.77 | % | 24,774 |
| 605 |
| 9.77 | % | ||||
Other borrowings |
| 381,409 |
| 5,687 |
| 5.96 | % | 1,756,104 |
| 15,512 |
| 3.53 | % | ||||
Total interest-bearing liabilities |
| 10,084,087 |
| 101,348 |
| 4.02 | % | 10,666,466 |
| 76,471 |
| 2.87 | % | ||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposits |
| 289,727 |
|
|
|
|
| 255,114 |
|
|
|
|
| ||||
Savings |
| 61,370 |
|
|
|
|
| 64,761 |
|
|
|
|
| ||||
Time deposits |
| 257,065 |
|
|
|
|
| 202,772 |
|
|
|
|
| ||||
Other liabilities |
| 167,357 |
|
|
|
|
| 352,242 |
|
|
|
|
| ||||
Total liabilities |
| 10,859,606 |
|
|
|
|
| 11,541,355 |
|
|
|
|
| ||||
Equity |
| 897,164 |
|
|
|
|
| 774,684 |
|
|
|
|
| ||||
Total liabilities and equity |
| $ | 11,756,770 |
|
|
|
|
| $ | 12,316,039 |
|
|
|
|
| ||
Net interest income |
|
|
| $ | 38,990 |
|
|
|
|
| $ | 38,041 |
|
|
| ||
Net interest margin (2) |
|
|
|
|
| 1.40 | % |
|
|
|
| 1.32 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average interest rate spread (3) |
|
|
|
|
| 1.02 | % |
|
|
|
| 1.09 | % | ||||
Ratio of interest-earning assets to interest-bearing liabilities |
|
|
|
|
| 110.42 | % |
|
|
|
| 108.48 | % |
(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 Nine Months Ended |
| For the Three Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Core service fees: |
|
|
|
|
|
|
|
|
| ||||
Custody, accounting and administration |
| $ | 331,249 |
| $ | 274,150 |
| $ | 111,247 |
| $ | 95,447 |
|
|
|
|
|
|
|
|
|
|
| ||||
Value-added service fees: |
|
|
|
|
|
|
|
|
| ||||
Foreign exchange |
| 65,151 |
| 41,050 |
| 17,052 |
| 15,546 |
| ||||
Cash management |
| 40,866 |
| 25,956 |
| 16,411 |
| 9,419 |
| ||||
Securities lending |
| 21,779 |
| 17,162 |
| 5,125 |
| 5,312 |
| ||||
Investment advisory |
| 5,562 |
| 6,189 |
| 1,801 |
| 2,485 |
| ||||
Other service fees |
| 2,285 |
| 2,013 |
| 818 |
| 610 |
| ||||
Total value-added service fees |
| 135,643 |
| 92,370 |
| 41,207 |
| 33,372 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total asset servicing fees |
| $ | 466,892 |
| $ | 366,520 |
| $ | 152,454 |
| $ | 128,819 |
|
Change in net assets processed (unaudited) (dollars in billions):
|
| For the Nine Months Ended |
| For the Three Months Ended |
| ||
|
| September 30, 2006 |
| September 30, 2006 |
| ||
|
|
|
|
|
| ||
Net assets processed, beginning of period |
| $ | 1,793 |
| $ | 1,952 |
|
Change in net assets processed: |
|
|
|
|
| ||
Sales to new clients |
| 1 |
| — |
| ||
Further penetration of existing clients |
| 25 |
| 7 |
| ||
Lost clients |
| (1 | ) | (1 | ) | ||
Fund flows and market gain |
| 217 |
| 77 |
| ||
Total change in net assets processed |
| 242 |
| 83 |
| ||
Net assets processed, end of period |
| $ | 2,035 |
| $ | 2,035 |
|