SOURCE: Investors Financial Services Corp.

April 17, 2007 07:15 ET

Investors Financial Services Corp. Achieves 20% Core Services Revenue Growth in the First Quarter of 2007; Integration Planning With State Street Underway

BOSTON, MA -- (MARKET WIRE) -- April 17, 2007 -- Investors Financial Services Corp. (NASDAQ: IFIN) reported diluted earnings per share of $0.60 for the first quarter of 2007, compared to $0.56 in the first quarter of 2006. Net income for the first quarter of 2007 was $40.5 million, compared to $37.4 million in the first quarter of 2006. In addition, during the first quarter Investors Financial signed a definitive agreement to be acquired by State Street Corporation (NYSE: STT) in a stock transaction valued at approximately $4.5 billion at the time of signing. In the transaction, Investors Financial Services Corporation shareholders will receive 0.906 shares of State Street common stock for each share of Investors Financial Services Corporation common stock.

Kevin J. Sheehan, Chairman and Chief Executive Officer, commented, "The transaction with State Street, which is subject to customary closing conditions including regulatory and stockholder approvals, is expected to be completed in the third quarter of 2007. We believe that merging our servicing capabilities with State Street's resources and global reach will provide our clients with an investment servicing partner that is unmatched in the industry."

Net operating revenue for the first quarter of 2007 grew 14% to $220.3 million from $192.8 million for the same period in 2006. Revenue from core services such as global custody, multicurrency accounting, fund administration and middle office outsourcing rose to $129.0 million for the first quarter of 2007, up 20% from $107.8 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 was $40.6 million for the quarter, compared to $40.5 million in the first quarter of 2006. Net interest income of $49.2 million for the first quarter of 2007 represented a 14% increase from $43.3 million for the same period in 2006. Operating expenses were $159.4 million for the first quarter of 2007, up 17% from $135.7 million for the same period in 2006.

Assets processed for clients totaled approximately $2.28 trillion at March 31, 2007, an increase of 3% compared to $2.21 trillion at December 31, 2006 and an increase of 18% compared to $1.93 trillion at March 31, 2006.

Today, the Company also announced that its Board of Directors declared a quarterly cash dividend on its common stock of $0.025 per share. The dividend is payable May 15, 2007 to stockholders of record as of April 30, 2007.

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 the closing of the transaction with State Street, 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 failure to receive regulatory approval or stockholder approval for the transaction with State Street. 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, 2006.



Investors Financial Services Corp.
Consolidated Statements of Income (unaudited)
(Dollars in thousands, except share data)


                                               For the Three Months Ended
                                                        March 31,
                                              -----------------------------
                                                  2007           2006
                                              -------------- --------------
Fees and Other Revenue:
Asset servicing fees:
  Core service fees                           $      129,026 $      107,759
  Value-added service fees                            40,627         40,544
                                              -------------- --------------
    Total asset servicing fees                       169,653        148,303
Other operating income                                 1,479          1,164
                                              -------------- --------------
       Total fees and other revenue                  171,132        149,467
                                              -------------- --------------

Interest income                                      157,985        134,437
Interest expense                                     108,819         91,116
                                              -------------- --------------
     Net interest income                              49,166         43,321
                                              -------------- --------------
       Net operating revenue                         220,298        192,788
                                              -------------- --------------
Operating Expenses:
Compensation and benefits                             97,420         76,998
Technology and telecommunications                     18,535         17,338
Transaction processing services                       15,341         13,672
Occupancy                                             10,018          7,551
Depreciation and amortization                          9,691          7,806
Professional fees                                      2,273          3,461
Travel and sales promotion                             2,126          1,931
Insurance                                                980            973
Other operating expenses                               3,010          5,954
                                              -------------- --------------
       Total operating expenses                      159,394        135,684
                                              -------------- --------------

Income Before Income Taxes                            60,904         57,104

Provision for income taxes                            20,403         19,701
                                              -------------- --------------

Net Income                                    $       40,501 $       37,403
                                              ============== ==============

Basic Earnings Per Share                      $         0.61 $         0.57
                                              ============== ==============

Diluted Earnings Per Share                    $         0.60 $         0.56
                                              ============== ==============




                        Share Information (unaudited)


                                               For the Three Months Ended
                                                        March 31,
                                              -----------------------------
                                                  2007           2006
                                              -------------- --------------


Common stock outstanding                          66,765,087     65,531,272
Weighted-average basic shares                     66,068,993     65,313,068
Weighted-average diluted shares                   68,020,436     67,224,077





Investors Financial Services Corp.
Consolidated Balance Sheets (unaudited)
(Dollars in thousands, except share data)

                                                March 31,    December 31,
                                                  2007           2006
                                              -------------  -------------

Assets
Cash and due from banks                       $     467,332  $      92,776
Interest-bearing deposits with other banks           20,868         21,218
Other short-term investments                          1,134          1,971
Federal funds sold and securities purchased
 under resale agreements                          2,950,000        300,000
Securities held to maturity (including
 securities pledged of $4,169,418 and
 $4,096,013 at March 31, 2007 and December
 31, 2006, respectively) (approximate fair
 value of $5,222,865 and $5,508,788 at March
 31, 2007 and December 31, 2006,
 respectively)                                    5,248,480      5,532,330
Securities available for sale (including
 securities pledged of $3,730,234 and
 $3,071,503 at March 31, 2007 and December
 31, 2006, respectively)                          5,050,836      4,799,740
Nonmarketable equity securities                      38,962         40,054
Loans, less allowance for loan losses of $100
 at March 31, 2007 and December 31, 2006            258,955        270,693
Accrued interest and fees receivable                142,106        134,748
Equipment and leasehold improvements, less
 accumulated depreciation of $66,477 and
 $64,290 at March 31, 2007 and December 31,
 2006, respectively                                 131,768        113,287
Goodwill, net                                        79,969         79,969
Other assets                                        139,822        171,420
                                              -------------  -------------
Total Assets                                  $  14,530,232  $  11,558,206
                                              =============  =============

Liabilities and Stockholders' Equity
Liabilities:
Deposits:
  Demand                                      $   1,678,028  $     695,821
  Savings                                         6,499,626      4,924,735
  Time                                              630,260        524,386
                                              -------------  -------------
    Total deposits                                8,807,914      6,144,942

Securities sold under repurchase agreements       4,424,073      3,727,800
Short-term and other borrowings                      62,497        517,051
Due to brokers for open trades payable                    -         26,359
Junior subordinated deferrable interest
 debentures                                          24,774         24,774
Accrued taxes and other expenses                     76,067         77,821
Other liabilities                                   110,648        100,721
                                              -------------  -------------
    Total liabilities                            13,505,973     10,619,468
                                              -------------  -------------

Commitments and contingencies                             -              -

Stockholders' Equity:
Preferred stock, par value $0.01 (shares
 authorized: 1,000,000;  issued: none at
 March 31, 2007 and December 31, 2006)                    -              -
Common stock, par value $0.01 (shares
 authorized: 175,000,000;  issued: 69,660,108
 and 68,523,129 at March 31, 2007 and
 December 31, 2006, respectively)                       697            685
Surplus                                             372,773        334,929
Deferred compensation                                     -              -
Retained earnings                                   759,284        720,433
Accumulated other comprehensive loss, net            (5,700)       (14,514)
Treasury stock, at cost (2,895,021 shares at
 March 31, 2007 and December 31, 2006)             (102,795)      (102,795)
                                              -------------  -------------
     Total stockholders' equity                   1,024,259        938,738
                                              -------------  -------------
Total Liabilities and Stockholders' Equity    $  14,530,232  $  11,558,206
                                              =============  =============




Investors  Financial  Services  Corp.
Average  Balance  Sheets  (unaudited)
(Dollars  in  thousands)


                                          Three Months Ended March 31, 2007
                                            ------------------------------
                                                                   Average
                                               Average              Yield/
                                               Balance    Interest   Cost
                                            ------------  -------- -------

Interest-earning assets:
  Federal funds sold and securities
   purchased under resale agreements,
   interest-bearing deposits with other
   banks and other short-term investments   $  1,584,121  $ 20,762    5.24%
  Investment securities (1)
    Mortgage-backed securities                 7,924,358   102,838    5.19%
    Federal agency securities                  1,717,695    20,964    4.88%
    State and political subdivisions             438,942     4,600    4.19%
    Other securities                             180,016     2,665    5.92%
                                            ------------  --------
  Total investment securities                 10,261,011   131,067    5.11%
  Loans                                          324,997     6,156    7.58%
                                            ------------  --------
    Total interest-earning assets             12,170,129   157,985    5.19%
                                            ------------  --------
  Allowance for loan losses                         (100)
  Noninterest-earning assets                     639,557
                                            ------------
    Total assets                            $ 12,809,586
                                            ============
Interest-bearing liabilities:
  Deposits:
    Demand                                  $    136,494  $  1,565    4.65%
    Savings                                    5,821,103    57,035    3.97%
    Time                                         294,892     3,844    5.21%
  Securities sold under repurchase
   agreements                                  4,491,610    43,993    3.92%
  Junior subordinated debentures                  24,774       605    9.77%
  Other borrowings                               104,651     1,777    6.79%
                                            ------------  --------
  Total interest-bearing liabilities          10,873,524   108,819    4.00%
                                            ------------  --------
Noninterest-bearing liabilities:
    Demand deposits                              412,091
    Savings                                       95,162
    Time deposits                                306,111
    Other liabilities                            143,616
                                            ------------
  Total liabilities                           11,830,504
  Equity                                         979,082
                                            ------------
  Total liabilities and equity              $ 12,809,586
                                            ============
  Net interest income                                     $ 49,166
                                                          ========
  Net interest margin (2)                                             1.62%
                                                                   =======

  Average interest rate spread (3)                                    1.19%
                                                                   =======
  Ratio of interest-earning assets to
   interest-bearing liabilities                                     111.92%
                                                                   =======





                                          Three Months Ended March 31, 2006
                                            ------------------------------
                                                                   Average
                                               Average              Yield/
                                               Balance    Interest   Cost
                                            ------------  -------- -------

Interest-earning assets:
  Federal funds sold and securities
   purchased under resale agreements,
   interest-bearing deposits with other
   banks and other short-term investments   $     42,784  $    478    4.47%
  Investment securities (1)
    Mortgage-backed securities                 8,160,279    96,777    4.74%
    Federal agency securities                  2,210,833    24,663    4.46%
    State and political subdivisions             505,096     5,503    4.36%
    Other securities                             212,146     2,807    5.29%
                                            ------------  --------
  Total investment securities                 11,088,354   129,750    4.68%
  Loans                                          316,996     4,209    5.31%
                                            ------------  --------
    Total interest-earning assets             11,448,134   134,437    4.70%
                                            ------------  --------
  Allowance for loan losses                         (100)
  Noninterest-earning assets                     641,002
                                            ------------
    Total assets                            $ 12,089,036
                                            ============
Interest-bearing liabilities:
  Deposits:
    Demand                                  $     95,778  $    919    3.84%
    Savings                                    4,078,497    31,922    3.13%
    Time                                          75,974       846    4.45%
  Securities sold under repurchase
   agreements                                  4,826,124    40,954    3.39%
  Junior subordinated debentures                  24,774       605    9.77%
  Other borrowings                             1,401,077    15,870    4.53%
                                            ------------  --------
  Total interest-bearing liabilities          10,502,224    91,116    3.47%
                                            ------------  --------
Noninterest-bearing liabilities:
    Demand deposits                              342,368
    Savings                                       56,212
    Time deposits                                215,000
    Other liabilities                            174,591
                                            ------------
  Total liabilities                           11,290,395
  Equity                                         798,641
                                            ------------
  Total liabilities and equity              $ 12,089,036
                                            ============
  Net interest income                                     $ 43,321
                                                          ========
  Net interest margin (2)                                             1.51%
                                                                   =======

  Average interest rate spread (3)                                    1.23%
                                                                   =======
  Ratio of interest-earning assets to
   interest-bearing liabilities                                     109.01%
                                                                   =======


(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 Three Months Ended
                                                        March 31,
                                              -----------------------------
                                                  2007           2006
                                              -------------- --------------

Core service fees:
  Custody, accounting and administration      $      129,026 $      107,759
                                              -------------- --------------

Value-added service fees:
  Foreign exchange                                    17,594         20,334
  Cash management                                     14,343         11,312
  Securities lending                                   6,060          6,162
  Investment advisory                                  1,839          1,936
  Other service fees                                     791            800
                                              -------------- --------------
    Total value-added service fees                    40,627         40,544
                                              -------------- --------------

Total asset servicing fees                    $      169,653 $      148,303
                                              ============== ==============






Change in net assets processed (unaudited) (dollars in billions):


                                                            For the Three
                                                             Months Ended
                                                            March 31, 2007
                                                           ----------------

     Net assets processed, beginning of period             $          2,212
                                                           ----------------
     Change in net assets processed:
       Sales to new clients                                               1
       Further penetration of existing clients                           12
       Lost clients                                                       -
       Fund flows and market gain                                        51
                                                           ----------------
         Total change in net assets processed                            64
                                                           ----------------
     Net assets processed, end of period                   $          2,276
                                                           ================

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