SOURCE: Investors Financial Services Corp.

January 16, 2007 16:30 ET

Investors Financial Services Corp. Achieves 21% Core Services and 33% Value-Added Services Revenue Growth in 2006; Provides Full Year 2007 EPS Guidance

BOSTON, MA -- (MARKET WIRE) -- 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            For the Three
                                       Year Ended          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               For the
                                     Year Ended         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 at December 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
                                    -------------------------------------
                                      Average                   Average
                                      Balance      Interest   Yield/Cost
                                    -----------  ------------ -----------

Interest-earning assets:
  Federal funds sold and interest-
   bearing deposits with other
   banks                            $   341,045  $      4,490        5.27%
  Investment securities (1)
    Mortgage-backed securities        8,182,386       105,960        5.18%
    Federal agency securities         1,738,112        20,876        4.80%
    State and political subdivisions    447,728         4,817        4.30%
    Other securities                    193,314         2,976        6.16%
                                    -----------  ------------
  Total investment securities        10,561,540       134,629        5.10%
  Loans                                 308,213         5,934        7.70%
                                    -----------  ------------
    Total interest-earning assets    11,210,798       145,053        5.18%
                                    -----------  ------------
  Allowance for loan losses                (100)
  Noninterest-earning assets            640,416
                                    -----------

    Total assets                    $11,851,114
                                    ===========
Interest-bearing liabilities:
  Deposits:
    Demand                          $   105,344  $      1,235        4.69%
    Savings                           5,082,713        49,916        3.93%
    Time                                175,134         2,333        5.33%
  Securities sold under repurchase
   agreements                         4,350,277        42,256        3.89%
  Junior subordinated debentures         24,774           605        9.77%
  Other borrowings                      376,819         5,390        5.72%
                                    -----------  ------------
  Total interest-bearing liabilities 10,115,061       101,735        4.02%
                                    -----------  ------------
Noninterest-bearing liabilities:
    Demand deposits                     303,277
    Savings                              94,824
    Time deposits                       252,445
    Other liabilities                   150,987
                                    -----------
  Total liabilities                  10,916,594
  Equity                                934,520
                                    -----------

  Total liabilities and equity      $11,851,114
                                    ===========
  Net interest income                            $     43,318
                                                 ============
  Net interest margin (2)                                            1.55%
                                                              ===========

  Average interest rate spread (3)                                   1.16%
                                                              ===========
  Ratio of interest-earning assets
   to interest-bearing liabilities                                 110.83%
                                                              ===========


                                     Three Months Ended December 31, 2005
                                     -------------------------------------
                                       Average                   Average
                                       Balance      Interest   Yield/Cost
                                     -----------  ------------ -----------

Interest-earning assets:
  Federal funds sold and interest-
   bearing deposits with other
   banks                             $    92,739  $        932        4.02%
  Investment securities (1)
    Mortgage-backed securities         8,143,971        89,632        4.40%
    Federal agency securities          2,341,908        25,608        4.37%
    State and political subdivisions     455,081         5,111        4.49%
    Other securities                     212,222         2,537        4.78%
                                     -----------  ------------
  Total investment securities         11,153,182       122,888        4.41%
  Loans                                  305,279         3,215        4.21%
                                     -----------  ------------
    Total interest-earning assets     11,551,200       127,035        4.40%
                                     -----------  ------------
  Allowance for loan losses                 (100)
  Noninterest-earning assets             787,923
                                     -----------

    Total assets                     $12,339,023
                                     ===========
Interest-bearing liabilities:
  Deposits:
    Demand                           $    84,472  $        763        3.61%
    Savings                            3,875,862        27,224        2.81%
    Time                                  53,498           547        4.09%
  Securities sold under repurchase
   agreements                          5,043,733        39,585        3.14%
  Junior subordinated debentures          24,774           605        9.77%
  Other borrowings                     1,523,913        15,586        4.09%
                                     -----------  ------------
  Total interest-bearing liabilities  10,606,252        84,310        3.18%
                                     -----------  ------------
Noninterest-bearing liabilities:
    Demand deposits                      357,210
    Savings                               67,249
    Time deposits                        185,924
    Other liabilities                    363,584
                                     -----------
  Total liabilities                   11,580,219
  Equity                                 758,804
                                     -----------

  Total liabilities and equity       $12,339,023
                                     ===========
  Net interest income                             $     42,725
                                                  ============
  Net interest margin (2)                                             1.48%
                                                               ===========

  Average interest rate spread (3)                                    1.22%
                                                               ===========
  Ratio of interest-earning assets
   to interest-bearing liabilities                                  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 Three
                                    For the Year Ended     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 Three
                                       For the Year Ended   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
                                          ===============  ================

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