Exhibit 99.1
Investors Financial Services Corp. Achieves 21% Core Services and 33% Value-Added Services
Revenue Growth in 2006; Provides Full Year 2007 EPS Guidance
Contact: |
| John N. Spinney, Jr. |
BOSTON, MA, January 16, 2007 - Investors Financial Services Corp. (NASDAQ: IFIN) reported diluted earnings per share of $0.53 for the fourth quarter of 2006, compared to $0.60 in the fourth quarter of 2005. Net income for the fourth quarter of 2006 was $35.7 million, compared to $39.5 million in the fourth quarter of 2005. For the year ended December 31, 2006, the Company reported diluted earnings per share of $2.28, compared to $2.37 for the same period in 2005. Net income for the year ended December 31, 2006 was $153.8 million, compared to $159.8 million for the same period in 2005.
Kevin J. Sheehan, Chairman and Chief Executive Officer, commented, “We achieved impressive revenue growth in 2006 despite the challenging yield curve environment. In 2006 revenue from core service fees grew 21% year-over-year while revenue from value-added service fees grew 33% year-over-year. The infrastructure investments in new hires, technology and office space we aggressively implemented in 2006 to support future growth and continued customer satisfaction will be completed in the first half of 2007.”
Net operating revenue for the fourth quarter of 2006 grew 11% to $209.3 million from $188.2 million for the same period in 2005. Revenue from core services such as global custody, multicurrency accounting, fund administration and middle office outsourcing rose to $122.3 million for the fourth quarter of 2006, up 21% from $101.4 million for the same period in the prior year. Revenue from value-added services including foreign exchange, cash management, securities lending and investment advisory services rose to $42.0 million for the fourth quarter of 2006, up 2% from $41.1 million in the fourth quarter of 2005. Net interest income of $43.3 million for the fourth quarter of 2006 represented a 1% increase from $42.7 million for the same period in 2005. Operating expenses were $155.6 million for the fourth quarter of 2006, up 23% from $126.0 million for the same period in 2005.
Net operating revenue for the year ended December 31, 2006 grew 15% to $803.6 million from $696.0 million for the same period in 2005. Revenue from core services rose to $453.6 million for the year ended December 31, 2006, up 21% from $375.6 million for the same period in the prior year. Revenue from value-added services increased to $177.7 million for the year ended December 31, 2006, up 33% from $133.5 million for the year ended December 31, 2005. Net interest income of $164.2 million for the year ended December 31, 2006 represented a 4% decrease from $170.4 million for the same period in 2005. Securities gains were $2.5 million for the year ended December 31, 2006, compared to $12.4 million for the year ended December 31, 2005. Operating expenses were $579.4 million for the year ended December 31, 2006, up 26% from $460.1 million for the same period in 2005.
Assets processed for clients totaled approximately $2.21 trillion at December 31, 2006, an increase of 8% compared to $2.04 trillion at September 30, 2006 and an increase of 23% compared to $1.79 trillion at December 31, 2005.
Today, the Company also announced that its Board of Directors declared an increase in the quarterly cash dividend on its common stock to $0.025 per share. The dividend is payable February 15, 2007 to stockholders of record as of January 31, 2007.
For fiscal year 2007, net operating revenue is expected to grow approximately 15% to 18% compared to 2006. Total operating expenses in 2007 are expected to grow approximately 21% to 24% compared to 2006, which reflects the addition of office space in 2007 and the full year impact of the 2006 investments in additional personnel, technology and office space to position the Company for future growth. An effective tax rate of approximately 33.50% is anticipated for 2007. The Company expects 2007 diluted earnings per share to be approximately $2.25 to $2.30.
Investors Financial Services Corp. will broadcast a conference call, via the Internet, tomorrow, on January 17, 2007 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 8301249. Recorded replays of the conference call will be available on the website and by dialing 719-457-0820, confirmation code 8301249.
Investors Financial Services Corp. provides services for a variety of financial asset managers including fund complexes, investment advisors, hedge funds, banks and insurance companies. The Company’s wholly-owned subsidiary, Investors Bank & Trust Company, provides core services including global custody, multicurrency accounting, fund administration and middle office outsourcing, as well as value-added services including foreign exchange, cash management, securities lending 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 growth in net operating revenue, growth in total operating expenses, effective tax rate, diluted earnings per share and completion of our infrastructure investments in the first half of 2007 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 cost to renew client engagements and 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 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.
Investors Financial Services Corp.
Consolidated Statements of Income (unaudited)
(Dollars in thousands, except share data)
|
| For the Year Ended |
| For the Three Months Ended |
| ||||||||
|
| December 31, |
| December 31, |
| ||||||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
| ||||
Fees and Other Revenue: |
|
|
|
|
|
|
|
|
| ||||
Asset servicing fees: |
|
|
|
|
|
|
|
|
| ||||
Core service fees |
| $ | 453,573 |
| $ | 375,596 |
| $ | 122,324 |
| $ | 101,446 |
|
Value-added service fees |
| 177,667 |
| 133,463 |
| 42,024 |
| 41,093 |
| ||||
Total asset servicing fees |
| 631,240 |
| 509,059 |
| 164,348 |
| 142,539 |
| ||||
Other operating income |
| 5,691 |
| 4,081 |
| 1,637 |
| 1,657 |
| ||||
Gain on sale of investments |
| 2,523 |
| 12,397 |
| — |
| 1,274 |
| ||||
Total fees and other revenue |
| 639,454 |
| 525,537 |
| 165,985 |
| 145,470 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
| 557,749 |
| 447,705 |
| 145,053 |
| 127,035 |
| ||||
Interest expense |
| 393,555 |
| 277,280 |
| 101,735 |
| 84,310 |
| ||||
Net interest income |
| 164,194 |
| 170,425 |
| 43,318 |
| 42,725 |
| ||||
Net operating revenue |
| 803,648 |
| 695,962 |
| 209,303 |
| 188,195 |
| ||||
Operating Expenses: |
|
|
|
|
|
|
|
|
| ||||
Compensation and benefits |
| 327,342 |
| 250,459 |
| 88,496 |
| 64,680 |
| ||||
Technology and telecommunications |
| 73,909 |
| 54,732 |
| 19,159 |
| 14,831 |
| ||||
Transaction processing services |
| 61,396 |
| 49,873 |
| 15,909 |
| 14,621 |
| ||||
Occupancy |
| 33,653 |
| 26,490 |
| 9,490 |
| 7,081 |
| ||||
Depreciation and amortization |
| 32,819 |
| 31,578 |
| 9,306 |
| 7,854 |
| ||||
Professional fees |
| 13,845 |
| 13,380 |
| 3,964 |
| 4,127 |
| ||||
Travel and sales promotion |
| 8,883 |
| 6,825 |
| 2,432 |
| 2,002 |
| ||||
Insurance |
| 3,929 |
| 4,219 |
| 985 |
| 935 |
| ||||
Other operating expenses |
| 23,578 |
| 22,553 |
| 5,850 |
| 9,819 |
| ||||
Total operating expenses |
| 579,354 |
| 460,109 |
| 155,591 |
| 125,950 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income Before Income Taxes |
| 224,294 |
| 235,853 |
| 53,712 |
| 62,245 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for income taxes |
| 70,491 |
| 76,035 |
| 17,994 |
| 22,734 |
| ||||
Net Income |
| $ | 153,803 |
| $ | 159,818 |
| $ | 35,718 |
| $ | 39,511 |
|
Basic Earnings Per Share |
| $ | 2.34 |
| $ | 2.42 |
| $ | 0.54 |
| $ | 0.61 |
|
Diluted Earnings Per Share |
| $ | 2.28 |
| $ | 2.37 |
| $ | 0.53 |
| $ | 0.60 |
|
Share Information (unaudited)
|
| For the Year Ended |
| For the Three Months Ended |
| ||||
|
| December 31, |
| December 31, |
| ||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding |
| 65,628,108 |
| 65,052,637 |
| 65,628,108 |
| 65,052,637 |
|
Weighted-average basic shares |
| 65,730,456 |
| 66,139,323 |
| 65,740,259 |
| 64,978,937 |
|
Weighted-average diluted shares |
| 67,493,081 |
| 67,473,804 |
| 67,132,111 |
| 66,003,565 |
|
Investors Financial Services Corp.
Consolidated Balance Sheets (unaudited)
(Dollars in thousands, except share data)
|
| December 31, |
| December 31, |
| ||
|
| 2006 |
| 2005 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
| $ | 92,776 |
| $ | 60,743 |
|
Interest-bearing deposits with other banks |
| 23,189 |
| 18,894 |
| ||
Federal funds sold |
| 300,000 |
| — |
| ||
Securities held to maturity (including securities pledged of $4,096,013 and $4,529,421 at December 31, 2006 and 2005, respectively) (approximate fair value of $5,508,788 and $6,725,729 at December 31, 2006 and 2005, respectively) |
| 5,532,330 |
| 6,761,930 |
| ||
Securities available for sale (including securities pledged of $3,071,503 and $2,997,958 atDecember 31, 2006 and 2005, respectively) |
| 4,799,740 |
| 4,369,720 |
| ||
Nonmarketable equity securities |
| 40,054 |
| 51,251 |
| ||
Loans, less allowance for loan losses of $100 at December 31, 2006 and 2005 |
| 270,693 |
| 402,370 |
| ||
Accrued interest and fees receivable |
| 134,748 |
| 119,583 |
| ||
Equipment and leasehold improvements, less accumulated depreciation of $64,290 and $59,156 at December 31, 2006 and 2005, respectively |
| 113,287 |
| 69,401 |
| ||
Goodwill, net |
| 79,969 |
| 79,969 |
| ||
Other assets |
| 165,804 |
| 162,532 |
| ||
Total Assets |
| $ | 11,552,590 |
| $ | 12,096,393 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Demand |
| $ | 695,821 |
| $ | 537,558 |
|
Savings |
| 4,924,735 |
| 4,224,908 |
| ||
Time |
| 524,386 |
| 230,124 |
| ||
Total deposits |
| 6,144,942 |
| 4,992,590 |
| ||
|
|
|
|
|
| ||
Securities sold under repurchase agreements |
| 3,727,800 |
| 4,797,868 |
| ||
Short-term and other borrowings |
| 517,051 |
| 1,356,649 |
| ||
Due to brokers for open trades payable |
| 26,359 |
| 21,293 |
| ||
Junior subordinated deferrable interest debentures |
| 24,774 |
| 24,774 |
| ||
Accrued taxes and other expenses |
| 65,446 |
| 45,077 |
| ||
Other liabilities |
| 100,721 |
| 85,284 |
| ||
Total liabilities |
| 10,607,093 |
| 11,323,535 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
| — |
| — |
| ||
|
|
|
|
|
| ||
Stockholders’ Equity: |
|
|
|
|
| ||
Preferred stock, par value $0.01 (shares authorized: 1,000,000; issued: none at December 31, 2006 and 2005) |
| — |
| — |
| ||
Common stock, par value $0.01 (shares authorized: 175,000,000; issued: 68,523,129 and 67,177,306 at December 31, 2006 and 2005, respectively) |
| 685 |
| 672 |
| ||
Surplus |
| 334,929 |
| 286,265 |
| ||
Deferred compensation |
| — |
| (311 | ) | ||
Retained earnings |
| 720,433 |
| 572,549 |
| ||
Accumulated other comprehensive loss, net |
| (7,755 | ) | (13,369 | ) | ||
Treasury stock, at cost (2,895,021 and 2,124,669 shares at December 31, 2006 and 2005, respectively) |
| (102,795 | ) | (72,948 | ) | ||
Total stockholders’ equity |
| 945,497 |
| 772,858 |
| ||
Total Liabilities and Stockholders’ Equity |
| $ | 11,552,590 |
| $ | 12,096,393 |
|
Investors Financial Services Corp.
Average Balance Sheets (unaudited)
(Dollars in thousands)
|
| Three Months Ended December 31, 2006 |
| Three Months Ended December 31, 2005 |
| ||||||||||||
|
| Average |
|
|
| Average |
| Average |
|
|
| Average |
| ||||
|
| Balance |
| Interest |
| Yield/Cost |
| Balance |
| Interest |
| Yield/Cost |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Federal funds sold and interest-bearing deposits with other banks |
| $ | 341,045 |
| $ | 4,490 |
| 5.27 | % | $ | 92,739 |
| $ | 932 |
| 4.02 | % |
Investment securities (1) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage-backed securities |
| 8,182,386 |
| 105,960 |
| 5.18 | % | 8,143,971 |
| 89,632 |
| 4.40 | % | ||||
Federal agency securities |
| 1,738,112 |
| 20,876 |
| 4.80 | % | 2,341,908 |
| 25,608 |
| 4.37 | % | ||||
State and political subdivisions |
| 447,728 |
| 4,817 |
| 4.30 | % | 455,081 |
| 5,111 |
| 4.49 | % | ||||
Other securities |
| 193,314 |
| 2,976 |
| 6.16 | % | 212,222 |
| 2,537 |
| 4.78 | % | ||||
Total investment securities |
| 10,561,540 |
| 134,629 |
| 5.10 | % | 11,153,182 |
| 122,888 |
| 4.41 | % | ||||
Loans |
| 308,213 |
| 5,934 |
| 7.70 | % | 305,279 |
| 3,215 |
| 4.21 | % | ||||
Total interest-earning assets |
| 11,210,798 |
| 145,053 |
| 5.18 | % | 11,551,200 |
| 127,035 |
| 4.40 | % | ||||
Allowance for loan losses |
| (100 | ) |
|
|
|
| (100 | ) |
|
|
|
| ||||
Noninterest-earning assets |
| 640,416 |
|
|
|
|
| 787,923 |
|
|
|
|
| ||||
Total assets |
| $ | 11,851,114 |
|
|
|
|
| $ | 12,339,023 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand |
| $ | 105,344 |
| $ | 1,235 |
| 4.69 | % | $ | 84,472 |
| $ | 763 |
| 3.61 | % |
Savings |
| 5,082,713 |
| 49,916 |
| 3.93 | % | 3,875,862 |
| 27,224 |
| 2.81 | % | ||||
Time |
| 175,134 |
| 2,333 |
| 5.33 | % | 53,498 |
| 547 |
| 4.09 | % | ||||
Securities sold under repurchase agreements |
| 4,350,277 |
| 42,256 |
| 3.89 | % | 5,043,733 |
| 39,585 |
| 3.14 | % | ||||
Junior subordinated debentures |
| 24,774 |
| 605 |
| 9.77 | % | 24,774 |
| 605 |
| 9.77 | % | ||||
Other borrowings |
| 376,819 |
| 5,390 |
| 5.72 | % | 1,523,913 |
| 15,586 |
| 4.09 | % | ||||
Total interest-bearing liabilities |
| 10,115,061 |
| 101,735 |
| 4.02 | % | 10,606,252 |
| 84,310 |
| 3.18 | % | ||||
Noninterest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposits |
| 303,277 |
|
|
|
|
| 357,210 |
|
|
|
|
| ||||
Savings |
| 94,824 |
|
|
|
|
| 67,249 |
|
|
|
|
| ||||
Time deposits |
| 252,445 |
|
|
|
|
| 185,924 |
|
|
|
|
| ||||
Other liabilities |
| 150,987 |
|
|
|
|
| 363,584 |
|
|
|
|
| ||||
Total liabilities |
| 10,916,594 |
|
|
|
|
| 11,580,219 |
|
|
|
|
| ||||
Equity |
| 934,520 |
|
|
|
|
| 758,804 |
|
|
|
|
| ||||
Total liabilities and equity |
| $ | 11,851,114 |
|
|
|
|
| $ | 12,339,023 |
|
|
|
|
| ||
Net interest income |
|
|
| $ | 43,318 |
|
|
|
|
| $ | 42,725 |
|
|
| ||
Net interest margin (2) |
|
|
|
|
| 1.55 | % |
|
|
|
| 1.48 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average interest rate spread (3) |
|
|
|
|
| 1.16 | % |
|
|
|
| 1.22 | % | ||||
Ratio of interest-earning assets to interest-bearing liabilities |
|
|
|
|
| 110.83 | % |
|
|
|
| 108.91 | % |
(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 Year Ended |
| For the Three Months Ended |
| ||||||||
|
| December 31, |
| December 31, |
| ||||||||
|
| 2006 |
| 2005 |
| 2006 |
| 2005 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Core service fees: |
|
|
|
|
|
|
|
|
| ||||
Custody, accounting and administration |
| $ | 453,573 |
| $ | 375,596 |
| $ | 122,324 |
| $ | 101,446 |
|
|
|
|
|
|
|
|
|
|
| ||||
Value-added service fees: |
|
|
|
|
|
|
|
|
| ||||
Foreign exchange |
| 80,957 |
| 62,107 |
| 15,806 |
| 21,057 |
| ||||
Cash management |
| 58,777 |
| 37,592 |
| 17,911 |
| 11,636 |
| ||||
Securities lending |
| 27,381 |
| 22,536 |
| 5,602 |
| 5,374 |
| ||||
Investment advisory |
| 7,464 |
| 8,442 |
| 1,902 |
| 2,253 |
| ||||
Other service fees |
| 3,088 |
| 2,786 |
| 803 |
| 773 |
| ||||
Total value-added service fees |
| 177,667 |
| 133,463 |
| 42,024 |
| 41,093 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total asset servicing fees |
| $ | 631,240 |
| $ | 509,059 |
| $ | 164,348 |
| $ | 142,539 |
|
Change in net assets processed (unaudited) (dollars in billions):
|
| For the Year Ended |
| For the Three Months Ended |
| ||
|
| December 31, 2006 |
| December 31, 2006 |
| ||
|
|
|
|
|
| ||
Net assets processed, beginning of period |
| $ | 1,793 |
| $ | 2,035 |
|
Change in net assets processed: |
|
|
|
|
| ||
Sales to new clients |
| 8 |
| 7 |
| ||
Further penetration of existing clients |
| 29 |
| 4 |
| ||
Lost clients |
| (1 | ) | — |
| ||
Fund flows and market gain |
| 383 |
| 166 |
| ||
Total change in net assets processed |
| 419 |
| 177 |
| ||
Net assets processed, end of period |
| $ | 2,212 |
| $ | 2,212 |
|