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 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 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.

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.

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

For the Six For the Three Months Ended 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 For the Three Months Ended 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 ------------------------------ Average Average Yield/ Balance Interest Cost ------------ -------- -------

Interest-earning assets: Federal funds sold and other short-term investments $ 109,438 $ 1,387 5.07% Investment securities (1) Mortgage-backed securities 8,185,415 99,072 4.84% Federal agency securities 2,066,095 24,162 4.68% State and political subdivisons 476,701 5,116 4.29% Other securities 212,366 3,050 5.74% ------------ -------- Total investment securities 10,940,577 131,400 4.80% Loans 295,854 5,134 6.94% ------------ -------- Total interest-earning assets 11,345,869 137,921 4.86% ------------ -------- Allowance for loan losses (100) Noninterest-earning assets 673,908 ------------ Total assets $ 12,019,677 ============ Interest-bearing liabilities:

Deposits: Demand $ 87,487 $ 943 4.31% Savings 4,237,506 37,866 3.57% Time 136,255 1,704 5.00% Securities sold under repurchase agreements 4,344,539 39,347 3.62% Junior subordinated debentures 24,774 605 9.77% Other borrowings 1,511,153 18,891 5.00% ------------ -------- Total interest-bearing liabilities 10,341,714 99,356 3.84% ------------ -------- Noninterest-bearing liabilities: Demand deposits 337,710 Savings 83,342 Time deposits 198,352 Other liabilities 221,778 ------------ Total liabilities 11,182,896 Equity 836,781 ------------ Total liabilities and equity $ 12,019,677 ============ Net interest income $ 38,565 ========

Net interest margin (2) 1.36% =======

Average interest rate spread (3) 1.02% ======= Ratio of interest-earning assets to interest-bearing liabilities 109.71% =======

Three Months Ended June 30, 2005 ------------------------------ Average Average Yield/ Balance Interest Cost ------------ -------- -------

Interest-earning assets: Federal funds sold and other short-term investments $ 51,374 $ 390 3.04% Investment securities (1) Mortgage-backed securities 8,162,041 75,943 3.72% Federal agency securities 2,339,296 21,701 3.71% State and political subdivisons 451,807 5,280 4.67% Other securities 217,989 2,537 4.66% ------------ -------- Total investment securities 11,171,133 105,461 3.78% Loans 222,489 2,252 4.05% ------------ -------- Total interest-earning assets 11,444,996 108,103 3.78% ------------ -------- Allowance for loan losses (100) Noninterest-earning assets 670,224 ------------ Total assets $ 12,115,120 ============ Interest-bearing liabilities:

Deposits: Demand $ - $ - - Savings 3,011,989 15,172 2.01% Time 129,083 946 2.93% Securities sold under repurchase agreements 5,362,821 34,197 2.55% Junior subordinated debentures 24,774 605 9.77% Other borrowings 2,001,900 15,137 3.02% ------------ -------- Total interest-bearing liabilities 10,530,567 66,057 2.51% ------------ -------- Noninterest-bearing liabilities: Demand deposits 274,163 Savings 37,287 Time deposits 240,989 Other liabilities 267,253 ------------ Total liabilities 11,350,259 Equity 764,861 ------------ Total liabilities and equity $ 12,115,120 ============ Net interest income $ 42,046 ======== Net interest margin (2) 1.47% =======

Average interest rate spread (3) 1.27% ======= Ratio of interest-earning assets to interest-bearing liabilities 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 For the Three Months Ended 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 For the Three Months Ended 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 ============ ============

Contact: John N. Spinney, Jr. (617) 937-3500 Email Contact

SOURCE: Investors Financial Services Corp.

Source: marketwire