<PAGE>
================================================================================
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
COMMISSION FILE NUMBER 0-26996
INVESTORS FINANCIAL
SERVICES CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3279817
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
200 CLAREDON STREET
P.O. BOX 9130 02117-9130
BOSTON, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 330-6700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
CLASS A COMMON STOCK, $.01 PAR VALUE
SERIES A JUNIOR PREFERRED STOCK PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
registrant was $189,006,707 based on the last reported sale price of $34.25 on
The Nasdaq National Market on February 18, 1997 as reported by Nasdaq.
As of February 18, 1997, there were 6,101,636 shares of Common Stock
outstanding and 342,676 shares of Class A Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
regulation 14A within 120 days of the end of the fiscal year ended December 31,
1996. Portions of such proxy statement are incorporated by reference into Part
III of this report.
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<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K as set
forth on the pages attached hereto:
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated herein by
reference to the information in the section entitled "Management and Principal
Holders of Voting Securities" contained in the Company's definitive proxy
statement pursuant to Regulation 14A, which proxy statement will be filed with
the Securities and Exchange Commission not later than 120 days after the close
of the Company's fiscal year ended December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by
reference to the information in the section entitled "Certain Relationships and
Related Transactions" contained in the Company's definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS.
For the following consolidated financial information included herein,
see Index on Page F-1:
Report of Independent Accountants.
Consolidated Balance Sheets as of December 31, 1995 and December 31,
1996.
Consolidated Statements of Income for the Years Ended October 31, 1994
and 1995, for the Two-Month Period Ended December 31, 1995, and for
the year ended December 31, 1996.
2
<PAGE>
Statements of Stockholders' Equity for the Years Ended October 31,
1994 and 1995, for the Two-Month Period Ended December 31, 1995, and
for the Year Ended December 31, 1996.
Consolidated Statements of Cash Flows for the Years Ended October 31,
1994 and 1995, for the Two-Month Period Ended December 31, 1995, and
for the year ended December 31, 1996.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES.
None.
3. LIST OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1(1) Plan of Exchange of Common and Class A Stock of the Company for all
outstanding stock of the Bank
3.1(1) Certificate of Incorporation of the Company
3.2(1) By-laws of the Company
4.1(1) Specimen certificate representing the Common Stock
4.2(1) Stockholder Rights Plan
5.1(1) Opinion of Testa, Hurwitz & Thibeault, LLP
10.1(1) * 1995 Stock Plan
10.2(1) Custodian Agreement among and between the Company, Eaton Vance
Corp. and each investment company advised by Eaton Vance Corp.
which adopted the Agreement dated December 17, 1990
10.3(1) Transfer and Assumption Agreement between the Company and Bank of
New York dated January 27, 1995 regarding the assignment of Merrill
Lynch Unit Investment Trust administration service
10.4(1) Information Technology Services Contract between the Company and
Electronic Data Systems, Inc. dated September 24, 1990
10.5(1) Third Party Hub and Spoke Processing License Agreement between the
Company and Signature Financial Group, Inc. dated May 21, 1993
10.6(1) Hub and Spoke Facilities Management Agreement between the Company
and Signature Financial Group, Inc. dated May 21, 1993
10.7(1) Loan Agreements with Landon Clay dated May 10, 1993 and October 6,
1994
10.8(1) * Description of the executive bonus arrangement
10.9(1) * Employment contract between the Company and Kevin Sheehan
10.10(1) * Employment contract between the Company and Michael Rogers
10.11(1) * Employment contract between the Company and Edmund Maroney
10.12(1) * Employment contract between the Company and Robert Mancuso
10.13(1) Sublease Agreement, as amended, between the Company and the Bank of
New England, N.A. dated May 25, 1990, for premises located at 89
South Street, Boston, Massachusetts
10.14 * 1995 Non-Employee Director Stock Option Plan
10.15(2) Information Technology Services Contract between the Company and
Electronic Data Systems, Inc. dated September 20,1995,
10.16(2) Lease Agreement between the Company and John Hancock Mutual Life
Insurance Company, dated November 13, 1995, for the premises
located at 200 Clarendon Street, Boston, Massachusetts.
10.17 * Employment contract between the Company and Karen C. Keenan
10.18 * 1995 Employee Stock Purchase Plan
10.19 Amended and Restated Declaration of Trust among the Company and the
Trustees named therein, dated January 31, 1997
10.20 Purchase Agreement among the Company, Investors Capital Trust I and
Keefe, Bruyette & Woods, Inc., dated January 30, 1997 (Included in
Exhibit 10.19)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
10.21 Indenture between the Company and The Bank of New York, dated
January 31, 1997
10.22 Registration Rights Agreement, among the Company, Investors Capital
Trust I and Keefe, Bruyette & Woods, Inc., dated January 31, 1997
10.23 Common Securities Guarantee Agreement by the Company as Guarantor,
dated January 31, 1997
10.24 Capital Securities Guarantee Agreement between the Company as
Guarantor and The Bank of New York as Capital Securities Guarantee
Trustee, dated January 31, 1997
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
24.1 ** Power of Attorney (See Page 56 of this Report)
</TABLE>
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-95980).
(2) Previously filed as an exhibit to Form 10-K for the fiscal year ended
October 31, 1995.
* Indicates a management contract or any compensatory plan, contract or
arrangement.
(b) REPORTS ON FORM 8-K.
On January 27, 1997, the Company filed a Current Report on Form 8-K
reporting the Company's financial results for the quarter and year ended
December 31, 1996 and reporting the sale of capital securities described in
Item 5 of this Report.
(c) EXHIBITS.
The Company hereby files as part of this Form 10-K the exhibits listed in
Item 14(a)(3) above. Exhibits which are incorporated herein by reference
can be inspected and copied at the public reference facilities maintained
by the Securities and Exchange Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C., and at the Securities and Exchange Commission's
regional offices at CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661-2511 and Seven World Trade Center, Suite 1300, New York,
NY 10048. Copies of such material can also be obtained from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 29549, at prescribed rates.
(d) FINANCIAL STATEMENT SCHEDULES
None.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Boston,
Massachusetts on the 16th day of July, 1997.
INVESTORS FINANCIAL SERVICES CORP.
By: /s/ Kevin J. Sheehan
----------------------------------
Kevin J. Sheehan
President, Chief Executive Officer and Chairman of
the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated and
on the 16th day of July, 1997.
Signature Title(s)
- --------- --------
* President, Chief Executive Officer and
- ---------------------------
Kevin J. Sheehan Chairman of the Board (Principal Executive
Officer); Director
* Executive Vice President
- ---------------------------
Michael F. Rogers
* Chief Financial Officer (Principal Financial
- ---------------------------
Karen C. Keenan Officer and Principal Accounting Officer)
* Director
- ---------------------------
Robert B. Fraser
* Director
- ---------------------------
Donald G. Friedl
* Director
- ---------------------------
James M. Oates
* Director
- ---------------------------
Phyllis S. Swersky
* Director
- ---------------------------
Thomas P. McDermott
* Director
- ---------------------------
Frank B. Condon, Jr.
By: /s/ Kevin J. Sheehan
------------------------
Kevin J. Sheehan
Attorney in Fact
5
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants............................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and December 31, 1996.................... F-3
Consolidated Statements of Income for the Years Ended October 31, 1994 and 1995, for the
Two-Month Period ended December 31, 1995 and for the Year Ended December 31, 1996........ F-4
Consolidated Statements of Stockholders' Equity for the Year Ended October 31, 1995, for the
Two-Month Period ended December 31, 1995 and for the Year Ended December 31, 1996........ F-5
Consolidated Statements of Cash Flows for the Years Ended October 31, 1994 and 1995, for the
Two-Month Period Ended December 31, 1995, and for the Year Ended December 31, 1996....... F-6
Notes to Consolidated Financial Statements.................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
Investors Financial Services Corp.:
We have audited the accompanying consolidated balance sheets of Investors
Financial Services Corp., including its predecessor, Investors Bank & Trust
Company and its subsidiaries (collectively, the "Company"), as of December 31,
1995 and December 31, 1996 and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the two years in the period
ended October 31, 1995, for the two-month period ended December 31, 1995 and for
the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and December 31, 1996, and the results of their operations and their cash flows
for each of the two years in the period ended October 31, 1995, for the two-
month period ended December 31, 1995 and for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
As described in Note 1 to the consolidated financial statements, in November
1995 Investors Bank & Trust Company became a wholly owned subsidiary of
Investors Financial Services Corp. as a result of the share exchange between
Investors Financial Services Corp. and shareholders of Investors Bank & Trust
Company.
Deloitte & Touche LLP
February 14, 1997
Boston, Massachusetts
F-2
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Cash and due from banks $ 21,898,903 $ 19,226,453
Time deposits due from banks 1,000,000 -
Federal funds sold 15,000,000 120,000,000
Securities held to maturity (approximate market values of
$155,685,959 and $460,182,579 at December 31, 1995
and December 31, 1996, respectively) 154,123,901 460,009,923
Securities available for sale 90,819,293 271,120,964
Nonmarketable equity securities - 967,400
Loans, less allowance for loan losses of $35,000 and $100,000
at December 31, 1995 and December 31, 1996, respectively 22,864,216 66,236,889
Accrued interest and fees receivable 10,440,758 16,366,171
Equipment and leasehold improvements, net 3,525,581 5,243,974
Other assets 2,763,661 5,289,873
-------------- -------------
TOTAL ASSETS $322,436,313 $964,461,647
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $122,907,489 $264,914,614
Savings 21,085,503 276,602,295
Time 45,000,000 55,000,000
-------------- -------------
Total deposits 188,992,992 596,516,909
Securities sold under repurchase agreements 74,401,454 296,421,201
Other liabilities 5,620,936 9,664,227
-------------- -------------
Total liabilities 269,015,382 902,602,337
-------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Class A common stock 5,935 3,595
Common stock 58,505 60,848
Surplus 54,312,474 54,352,812
Deferred compensation (2,117,787) (1,687,675)
Retained earnings 899,794 8,480,431
Net unrealized gain on securities available for sale 262,010 649,299
-------------- -------------
Total stockholders' equity 53,420,931 61,859,310
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $322,436,313 $964,461,647
============== =============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1994 AND 1995, THE TWO-MONTH PERIOD
ENDED DECEMBER 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Interest income:
Federal funds sold $ 20,430 $ 315,270 $ 279,741 $ 1,858,541
Other short-term investments 37,993 58,114 10,102 6,448
Securities held to maturity
and available for sale 4,730,824 5,116,155 1,844,222 32,490,280
Loans 859,005 1,202,029 229,690 2,322,158
------------------- -------------------- -------------------- ------------------
Total interest income 5,648,252 6,691,568 2,363,755 36,677,427
------------------- -------------------- -------------------- ------------------
Interest expense:
Deposits 864,148 720,395 286,945 9,271,675
Securities sold under
repurchase agreements - - 98,248 9,016,792
Federal funds purchased - 81,957 8,483 367,103
Treasury, tax and loan
account 6,143 19,241 4,423 12,464
------------------- -------------------- -------------------- ------------------
Total interest expense 870,291 821,593 398,099 18,668,034
------------------- -------------------- -------------------- ------------------
Net interest income 4,777,961 5,869,975 1,965,656 18,009,393
Provision for loan losses - - - 65,000
------------------- -------------------- -------------------- ------------------
Net interest income after
provision for loan losses 4,777,961 5,869,975 1,965,656 17,944,393
Noninterest income:
Asset administration fees 42,422,555 48,412,551 7,988,056 56,075,625
Proceeds from assignment of UIT
servicing, net - 2,572,298 - -
Computer service fees 552,407 505,534 83,424 482,275
Other operating income 74,163 72,029 13,772 76,305
Net loss on securities
available for sale - - - (2,488)
------------------- -------------------- -------------------- ------------------
Net operating revenue 47,827,086 57,432,387 10,050,908 74,576,110
OPERATING EXPENSES
Compensation of officers
and employees 23,162,729 27,213,593 4,957,575 32,148,445
Pension and other employee
benefits 4,136,066 4,685,100 839,888 5,353,770
Occupancy 3,735,820 4,215,472 624,816 4,283,008
Equipment 4,292,523 4,828,811 807,931 5,585,704
Insurance 1,069,996 1,060,468 194,016 852,638
Subcustodian fees 1,326,783 1,844,214 216,899 4,151,500
Depreciation and amortization 1,375,850 1,220,988 185,791 1,502,196
Professional fees 955,341 1,516,720 202,006 2,362,909
Travel and sales promotion 735,385 837,136 122,682 1,157,718
Other operating expenses 1,712,950 2,801,451 329,212 4,537,689
------------------- -------------------- -------------------- ------------------
Total operating expenses 42,503,443 50,223,953 8,480,816 61,935,577
------------------- -------------------- -------------------- ------------------
INCOME BEFORE INCOME TAXES 5,323,643 7,208,434 1,570,092 12,640,533
INCOME TAXES 1,863,000 2,800,000 670,298 4,866,571
------------------- -------------------- -------------------- ------------------
NET INCOME $ 3,460,643 $ 4,408,434 $ 899,794 $ 7,773,962
=================== ==================== =================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING 6,504,382
==================
EARNINGS PER SHARE $1.20
==================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED OCTOBER 31, 1995, THE TWO-MONTH PERIOD
ENDED DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31, 1996.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
COMMON COMMON DEFERRED
STOCK STOCK SURPLUS COMPENSATION
<S> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1994 $ - $ 10,000,000 $ - $ -
Net income
Cash dividend, $0.06 share
------------ ------------- --------------- -------------
BALANCE, OCTOBER 31, 1995 $ - $ 10,000,000 $ - $ -
============ ============= =============== =============
Effect of share exchange (Note 1) $ 6,114 $ 34,186 $ 18,021,176 $ -
Common stock issuance, net of costs of $3,829,062 - 23,000 34,097,938 -
Issuance of restricted stock - 1,140 2,193,360 (2,194,500)
Conversion of Class A common stock (179) 179 - -
Amortization of deferred compensation - - - 76,713
Net income - - - -
Net unrealized gain on securities available for sale - - - -
------------ ------------- --------------- -------------
BALANCE, DECEMBER 31, 1995 5,935 58,505 54,312,474 (2,117,787)
Adjustment to costs of stock issuance - - 35,193 -
Conversion of class A to common stock (2,340) 2,340 - -
Amortization of deferred compensation - - - 430,112
Exercise of stock options - 3 5,145 -
Net income - - - -
Cash dividend, $0.03 per share - - - -
Change in net unrealized gain on - - - -
securities available for sale
------------ ------------- --------------- -------------
BALANCE, DECEMBER 31, 1996 $ 3,595 $ 60,848 $ 54,352,812 $ (1,687,675)
============ ============= =============== =============
<CAPTION>
NET
UNREALIZED
GAIN ON
INVESTMENT
SECURITIES
RETAINED AVAILABLE
EARNINGS FOR SALE TOTAL
<S> <C> <C> <C>
BALANCE, NOVEMBER 1, 1994 $ 3,713,042 $ - $ 13,713,042
Net income 4,408,434 4,408,434
Cash dividend, $0.06 share (60,000) (60,000)
------------- -------------- --------------
BALANCE, OCTOBER 31, 1995 $ 8,061,476 $ - $ 18,061,476
============= ============== ==============
Effect of share exchange (Note 1) $ - $ - $ 18,061,476
Common stock issuance, net of costs of $3,829,062 - - 34,120,938
Issuance of restricted stock - - -
Conversion of Class A common stock - - -
Amortization of deferred compensation - - 76,713
Net income 899,794 - 899,794
Net unrealized gain on securities available for sale - 262,010 262,010
------------- -------------- --------------
BALANCE, DECEMBER 31, 1995 899,794 262,010 53,420,931
Adjustment to costs of stock issuance - - 35,193
Conversion of class A to common stock - - -
Amortization of deferred compensation - - 430,112
Exercise of stock options - - 5,148
Net income 7,773,962 - 7,773,962
Cash dividend, $0.03 per share (193,325) - (193,325)
Change in net unrealized gain on
securities available for sale - 387,289 387,289
------------- -------------- --------------
BALANCE, DECEMBER 31, 1996 $ 8,480,431 $ 649,299 $ 61,859,310
============= ============== ==============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1994, AND 1995, THE TWO MONTH PERIOD ENDED DECEMBER 31,
1995 AND THE YEAR ENDED DECEMBER 31, 1996.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31 DECEMBER 31 DECEMBER
1994 1995 1995 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,460,643 $ 4,408,434 $ 899,794 $ 7,773,962
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,375,850 1,220,988 185,791 1,502,196
Amortization of deferred compensation - - 76,713 430,112
Provision for loan losses - - - 65,000
Amortization of premiums on securities, net of
accretion of discounts 1,300,037 792,574 205,071 2,521,119
Loss on sale of securities available for sale - - - 2,488
Loss on disposal of fixed assets - - - 15,211
Deferred income taxes (127,000) (469,000) 78,377 1,156,706
Adjustment to carrying value of interest rate
floor contracts - 1,057,700 - -
Changes in assets and liabilities:
Accrued interest and fees receivable (3,714,212) (189,689) (868,478) (5,925,413)
Other assets 1,185,210 (639,592) 814,394 (3,568,354)
Other liabilities 1,589,835 1,074,563 (667,218) 3,670,535
-------------- ------------- ---------------- ---------------
Total adjustments 1,609,720 2,847,544 (175,350) (130,400)
-------------- ------------- ---------------- ---------------
Net cash provided by operating activities 5,070,363 7,255,978 724,444 7,643,562
-------------- ------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available for sale - - - 48,406,151
Proceeds from maturities of securities held
to maturity 16,264,293 18,404,529 12,865,343 39,691,309
Proceeds from sale of securities available
for sale - - - 26,904,258
Purchases of securities available for sale - - - (243,550,740)
Purchases of securities held to maturity (25,636,094) (40,936,504) (147,559,658) (359,516,797)
Purchase of nonmarketable equity securities - - - (967,400)
Net (increase) decrease in time deposits due
from banks - (24,345) 24,345 1,000,000
Net (increase) decrease in federal funds sold - (36,000,000) 21,000,000 (105,000,000)
Net (increase) decrease in loans (3,349,620) (129,487) (9,164,520) (43,437,672)
Purchases of equipment (1,616,307) (1,563,538) (118,205) (3,235,800)
-------------- ------------- ---------------- ---------------
Net cash used for investing activities (14,337,728) (60,249,345) (122,952,695) (639,706,691)
-------------- ------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits (32,657,559) 53,411,987 (39,453,616) 142,007,125
Net increase in time and savings deposits 35,088,220 332,489 66,023,363 265,516,792
Net increase in securities sold under
repurchase agreements - - 74,401,454 222,019,746
Proceeds from common stock - - 37,950,000 -
Costs of stock issuance - - (3,829,062) 35,193
Proceeds from exercise of stock options - - - 5,148
Dividends paid (60,000) (60,000) - (193,325)
-------------- ------------- ---------------- ---------------
Net cash provided by financing activities 2,370,661 53,684,476 135,092,139 629,390,679
-------------- ------------- ---------------- ---------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (6,896,704) 691,109 12,863,888 (2,672,450)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 15,240,610 8,343,906 9,035,015 21,898,903
-------------- ------------- ---------------- ---------------
CASH AND DUE FROM BANKS, END OF PERIOD $ 8,343,906 $ 9,035,015 $ 21,898,903 $ 19,226,453
============== ============= ================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 807,000 $ 898,000 $ 197,750 $ 17,253,000
============== ============= ================ ===============
Cash paid for income taxes $ 2,136,000 $ 2,919,000 $ 885,000 $ 4,220,000
============== ============= ================ ===============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
INVESTORS FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1994 AND 1995, THE TWO MONTH PERIOD ENDED DECEMBER 31,
1995 AND THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Investors Financial Services Corp. ("IFSC") provides asset administration
services for the financial services industry through its wholly owned
subsidiary, Investors Bank & Trust Company (the "Bank"). The Bank provides
domestic and global custody, multicurrency accounting, institutional
transfer agency, performance measurement, foreign exchange, securities
lending, and mutual fund administration services to a variety of financial
asset managers, including mutual fund complexes, investment advisors, banks
and insurance companies. IFSC and the Bank are subject to regulation by the
Federal Reserve Board of Governors, the Office of the Commissioner of Banks
of the Commonwealth of Massachusetts and the Federal Deposit Insurance
Corporation.
As used herein, the defined term "the Company" shall mean IFSC together
with the Bank from the date of the share exchange discussed below and shall
mean the Bank prior to that date.
On November 8, 1995, the business operations of the Company were separated
from its former parent, Eaton Vance Corp. ("EVC"), by means of a tax-free,
pro rata distribution of EVC's ownership interest in the Company to the EVC
stockholders (the "Spin-off Transaction"). Immediately prior to the Spin-
off Transaction, all of the stockholders of the Bank exchanged their
1,000,000 shares of the Bank's common stock for a combination of 3,418,573
shares of Common Stock and 611,427 shares of Class A Common Stock ("Class A
Stock") of a newly formed bank holding company formed for the purpose of
facilitating the Spin-off Transaction. For financial reporting purposes,
the exchange has been accounted for as if it occurred on November 1, 1995.
Subsequent to the completion of the Spin-off Transaction, IFSC sold
2,300,000 additional shares of its Common Stock in an initial public
offering at an offering price of $16.50 per share. The net effect of this
transaction was an increase in the Company's consolidated capital of
approximately $34,000,000.
In December 1995, the Company changed its fiscal year end from October 31
to December 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of the Company and its domestic and foreign subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
CUSTODY AND TRUST ASSETS - Asset administration fees, including securities
lending and foreign exchange services and computer services fees, are
composed primarily of fee and fee-related income and are recorded on the
accrual basis.
ACCOUNTING ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES - Effective November 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires
investments in equity securities that have readily determinable fair values
and all investments in debt securities to be classified into three
categories as follows:
. Debt securities that the Company has the positive intent and ability
to hold to maturity are classified as held to maturity and reported at
amortized cost.
. Debt and equity securities that are bought and held principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings.
. All other debt and equity securities are classified as available for
sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
stockholders' equity.
At the adoption of SFAS No. 115, the Company classified its entire
portfolio of securities as held-to-maturity based upon the Company's
positive intent and ability to hold such securities to maturity. Factors
considered in determining the Company's ability to hold such securities to
maturity include the Company's historical experience, the maturity
distribution of securities and the Company's access to additional deposits
from custody and trust clients. The effect of adopting SFAS No. 115 was not
significant.
In connection with the initial adoption of the Financial Accounting
Standards Board's ("FASB") Special Report, A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities, the Company reassessed the appropriateness of the
classifications of all securities held as of December 31, 1995. As a result
of this reassessment, the Company reclassified debt securities with a
carrying value of $90,382,610 from Held to Maturity to Available for Sale
on December 31, 1995. The net effect of this transfer was a $262,010
increase to stockholders' equity, net of taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments," requires the disclosure of the
estimated fair value of financial instruments, whether or not recognized in
the Company's consolidated balance sheets, estimated using available market
information or other appropriate valuation methodologies.
The carrying amounts of cash and due from banks are a reasonable estimate
of their fair value. The fair value of the Company's securities is
estimated based on quoted market prices. Both loans (including commitments
to lend) and deposits (including time deposits) bear interest at variable
rates and are subject to periodic repricing. As such, the carrying amount
of loans and deposits is a reasonable estimate of fair value. The fair
value of the Company's interest rate contracts is estimated based on quoted
market prices. The Company does not have any other significant financial
instruments.
LOANS - Interest income on loans is recorded on the accrual basis. Losses
on loans are provided for under the allowance method of accounting. The
allowance is increased by provisions charged to operating expenses based on
amounts management considers necessary to meet reasonably foreseeable
losses on loans.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold
improvements are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided on the straight-
line method over the estimated useful lives of the assets which range from
three to seven years.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - Income tax expense is based on estimated taxes payable or
refundable on a tax return basis for the current year and the changes in
deferred tax assets and liabilities during the year in accordance with SFAS
No. 109, "Accounting for Income Taxes." Deferred tax assets and liabilities
are established for temporary differences between the accounting basis and
the tax basis of the Company's assets and liabilities at enacted tax rates
expected to be in effect when the amounts related to such temporary
differences are realized or settled.
TRANSLATION OF FOREIGN CURRENCIES - The functional currency of the
Company's foreign subsidiaries is the U.S. dollar. Accordingly, gains and
losses realized from the settlement of foreign currency transactions, which
were not significant in the years ended October 31, 1994 and 1995, the two
month period ended December 31, 1995, or the year ended December 31, 1996,
are included in other operating expenses in the consolidated statements of
income.
DERIVATIVE FINANCIAL INSTRUMENTS - Prior to the assignment of the unit
investment trust servicing more fully described in Note 10, the Bank used
derivative financial instruments in the form of interest rate floor
contracts ("Floors"). These instruments were matched with fees on trust and
custody assets that were based on current interest rates. Periodic cash
payments were accrued on a settlement basis. The premiums associated with
the instruments were amortized over their term until they were adjusted to
market value in March 1995 in connection with the sale of the hedged assets
as more fully described in Note 10.
The Company also enters into interest rate swap agreements as discussed in
Note 13 and foreign exchange contracts as discussed in Note 16. The Company
implemented SFAS 119, "Disclosure About Derivative Financial Investments
and Fair Value of Financial Instruments," in fiscal 1996. This standard
requires expanded disclosure about amounts, nature and terms associated
with the derivative financial instruments held. The adoption of SFAS 119
did not have a significant impact on the Company's consolidated financial
statements.
The Company does not purchase derivative financial instruments for trading
purposes. Interest rate swap agreements are matched with specific financial
instruments reported on the balance sheet and periodic cash payments are
accrued on a settlement basis.
The Company enters into foreign exchange contracts with clients and
simultaneously enters into a matched position with another bank. These
contracts are subject to market value fluctuations in foreign currencies.
Gains and losses from such fluctuations are netted and recorded as an
adjustment of asset administration fees.
STOCK-BASED COMPENSATION - The Company accounts for stock-based
compensation using the intrinsic value-based method of Accounting
Principles Board Opinion No. 25, as allowed under SFAS No. 123, "Accounting
for Stock-Based Compensation."
EARNINGS PER SHARE - Earnings per share are based on the weighted average
number of shares outstanding during the period.
NEW ACCOUNTING PRONOUNCEMENTS - "Extinguishments of Liabilities," SFAS No.
125 establishes consistent accounting standards for transfers and servicing
of financial assets and extinguishments of liabilities. SFAS No. 125
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers of financial assets that are secured
borrowings based upon the existence of control. SFAS No. 125 is required to
be adopted by the Company in 1997 and is not expected to have a material
effect upon the Company's consolidated financial statements.
RECLASSIFICATIONS - Certain amounts in the prior periods' financial
statements have been reclassified to conform to the current year's
presentation.
F-9
<PAGE>
3. SECURITIES
Carrying amounts and approximate market values of securities are summarized
as follows as of December 31, 1995:
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED APPROXIMATE
HELD TO MATURITY VALUE GAINS LOSSES MARKET VALUE
<S> <C> <C> <C> <C>
Mortgage-backed securities $144,123,901 $1,562,732 $117,924 $145,568,709
Federal Agency securities 10,000,000 117,250 - 10,117,250
------------ ---------- -------- ------------
Total $154,123,901 $1,679,982 $117,924 $155,685,959
============ ========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED CARRYING
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 50,312,501 $ 346,672 $ 6,673 $ 50,652,500
Mortgage-backed securities 40,070,111 117,667 20,985 40,166,793
------------ ---------- -------- ------------
Total $ 90,382,612 $ 464,339 $ 27,658 $ 90,819,293
============ ========== ======== ============
</TABLE>
Carrying amounts and approximate market values of securities are summarized
as follows as of December 31, 1996:
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED APPROXIMATE
HELD TO MATURITY VALUE GAINS LOSSES MARKET VALUE
<S> <C> <C> <C> <C>
Mortgage-backed securities $414,664,590 $1,973,263 $1,750,168 $414,887,685
Federal Agency securities 37,517,495 49,546 224,972 37,342,069
Foreign government
securities 7,827,838 124,987 - 7,952,825
------------ ---------- ---------- ------------
Total $460,009,923 $2,147,796 $1,975,140 $460,182,579
============ ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED CARRYING
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 40,107,999 $ 151,304 $ 3 $ 40,259,300
Mortgage-backed securities 229,930,801 1,086,092 155,229 230,861,664
--------------- ---------- ---------- ------------
Total $270,038,800 $1,237,396 $ 155,232 $271,120,964
=============== ========== ========== ============
</TABLE>
F-10
<PAGE>
3. SECURITIES (CONTINUED)
Nonmarketable equity securities at December 31, 1996 consisted of $967,400
of stock of the Federal Home Loan Bank of Boston (the "FHLBB"). As a member
of the FHLBB, the Company is required to invest in $100 par value stock of
the FHLBB in an amount equal to 1% of its outstanding residential mortgage
loans or .3% of total assets, whichever is higher. If the Company borrows
under this arrangement, the Company is required to hold FHLBB stock equal
to 5% of such outstanding advances. If and when such stock is redeemed, the
Company will receive an amount equal to the par value of the stock.
The carrying amounts and approximate market values of securities by
effective maturity are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
CARRYING APPROXIMATE CARRYING APPROXIMATE
HELD TO MATURITY VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
Due within one year $ - $ - $ 19,052,213 $ 18,873,837
Due from one to five years 79,803,891 80,885,330 114,459,070 113,819,081
Due five years up to ten
years 68,228,986 68,639,409 240,620,332 241,016,881
Due after ten years 6,091,024 6,161,220 85,878,308 86,472,780
-------------- -------------- ------------ ---------------
Total $154,123,901 $155,685,959 $460,009,923 $460,182,579
============== ============== ============ ===============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
AMORTIZED CARRYING AMORTIZED CARRYING
AVAILABLE FOR SALE COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due within one year $ 25,240,028 $ 25,263,000 $ 19,964,080 $ 20,046,800
Due from one to five years 58,395,211 58,791,503 213,758,992 214,525,641
Due five years up to ten
years 6,747,373 6,764,790 36,315,728 36,548,523
-------------- -------------- ------------ ---------------
Total $ 90,382,612 $ 90,819,293 $270,038,800 $271,120,964
============== ============== ============ ===============
</TABLE>
The maturity distributions of mortgage-backed securities have been allocated
over maturity groupings based upon actual pre-payments to date and anticipated
pre-payments based upon historical experience.
Five securities available for sale were sold during the year ended December 31,
1996 resulting in losses totaling $19,178 and gains totaling $16,690.
The carrying value of securities pledged amounted to approximately $206,000,000
and $362,000,000 at December 31, 1995 and December 31, 1996, respectively.
Securities are pledged primarily to secure public funds and clearings with other
depository institutions.
F-11
<PAGE>
4. LOANS
Loans consist of demand loans with individuals and not-for-profit
institutions located in the greater Boston, Massachusetts metropolitan area
and loans to mutual fund clients. The loans to mutual funds include
advances pursuant to the terms of the custody agreements between the
Company and those mutual fund clients to facilitate securities transactions
and redemptions. The loans are generally collateralized with marketable
securities. There were no impaired or nonperforming loans at December 31,
1995 or December 31, 1996. In addition, there have been no loan charge-offs
or recoveries during the years ended October 31, 1994 and 1995, the two
months ended December 31, 1995 or the year ended December 31, 1996. Loans
consisted of the following at December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Loans to individuals $12,610,018 $23,448,999
Loans to not-for-profit institutions 289,198 12,500
Loans to mutual funds 10,000,000 42,875,390
----------- -----------
22,899,216 66,336,889
Less allowance for loan losses 35,000 100,000
----------- -----------
Total $22,864,216 $66,236,889
=========== ===========
</TABLE>
The Company had commitments to lend of approximately $1,708,000 and
$37,127,518 at December 31, 1995 and December 31, 1996, respectively. The
terms of these commitments are similar to the terms of outstanding loans.
During 1996, the Company increased the allowance for loan losses by $65,000
due to the overall increase in lending activities.
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The major components of equipment and leasehold improvements are as follows
at December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Furniture, fixtures and equipment $6,281,172 $8,516,450
Leasehold improvements 761,929 744,395
------------ ------------
Total 7,043,101 9,260,845
Less accumulated depreciation and
amortization 3,517,520 4,016,871
------------ ------------
Equipment and leasehold improvements, net $3,525,581 $5,243,974
============ ============
</TABLE>
F-12
<PAGE>
6. DEPOSITS
Time deposits at December 31, 1995 and December 31, 1996 include
noninterest-bearing amounts of approximately $45,000,000 and $55,000,000,
respectively.
All time deposits had a minimum balance of $100,000 and a maturity of less
than three months at December 31, 1995 and December 31, 1996.
7. REPURCHASE AGREEMENTS
The Company enters into repurchase agreements whereby securities are sold
by the Company under agreements to repurchase. The Company had liabilities
under these agreements of $74,401,454 and $ 296,421,201 at December 31,
1995 and December 31, 1996 respectively. The interest rate on the
outstanding agreements at December 31, 1995 ranged from 5.5% to 6.0% and
all agreements matured on January 2, 1996. The interest rate on the
outstanding agreements at December 31, 1996 was 5.91% and all agreements
matured by January 2, 1997. The following securities were pledged under
these agreements at December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
CARRYING APPROXIMATE CARRYING APPROXIMATE
VALUE MARKET VALUE VALUE MARKET VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities $29,345,800 $29,345,800 $ 37,249,940 $ 37,249,940
Federal Agency securities - - 25,000,000 24,803,950
Mortgage-backed
securities 47,211,518 47,254,137 245,689,672 246,777,873
------------ ----------- ------------ ------------
Total $76,557,318 $76,599,937 $307,939,612 $308,831,763
============ =========== ============ ============
</TABLE>
The amount outstanding at December 31, 1996 was the highest amount
outstanding at any month end during the year ended December 31, 1996. The
average balance during the year ended December 31, 1996 was $180,181,000.
8. INCOME TAXES
The components of income tax expenses are as follows for the years ended
October 31, 1994 and 1995, the two-month period ended December 31, 1995,
and the year ended December 31, 1996:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Current:
Federal $1,829,000 $2,781,000 $445,480 $3,593,391
State 161,000 484,000 139,429 181,416
Foreign - 4,000 7,012 193,251
---------- ---------- -------- ----------
1,990,000 3,269,000 591,921 3,968,058
========== ========== ======== ==========
Deferred:
Federal (7,000) (391,000) 50,538 619,357
State (3,000) (154,000) 17,580 240,861
Foreign (117,000) 76,000 10,259 38,295
---------- ---------- -------- ----------
(127,000) (469,000) 78,377 898,513
========== ========== ======== ==========
Total income
taxes $1,863,000 $2,800,000 $670,298 $4,866,571
========== ========== ======== ==========
</TABLE>
F-13
<PAGE>
8. INCOME TAXES (CONTINUED)
Differences between the effective income tax rate and the federal statutory
rates are as follows for the years ended October 31, 1994 and 1995, the
two-month period ended December 31, 1995, and the year ended December 31,
1996:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0% 35.0%
State income tax rate, net of federal benefit 2.0 3.0 6.6 2.2
Foreign income taxes with different rates (1.5) 0.7 1.1 1.2
Other 0.5 1.1 1.0 0.1
-------- -------- --------- ----------
Effective tax rate 35.0% 38.8% 42.7% 38.5%
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following at
October 31, 1994, December 31, 1995, and December 31, 1996:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996
<S> <C> <C> <C>
Deferred tax assets:
Employee benefit plans $1,060,000 $1,012,922 $ 933,216
Foreign operating losses 54,000 38,295 -
Other 18,000 9,810 37,562
---------- ----------- -----------
1,132,000 1,061,027 970,778
Deferred tax liabilities:
Prepaid insurance - - (620,979)
Securities available for sale - (174,673) (432,866)
Unearned compensation - - (183,175)
Depreciation and amortization (95,000) (102,404) (106,514)
---------- ----------- -----------
Net deferred tax asset (liability) $1,037,000 $ 783,950 $(372,756)
========== =========== ===========
</TABLE>
Net deferred tax assets are reported as a component of other assets in the
1995 consolidated balance sheets. Net deferred tax liabilities are reported
as a component of other liabilities in the 1996 consolidated balance sheet.
F-14
<PAGE>
9. STOCKHOLDERS' EQUITY
COMMON STOCK - On May 27, 1994, the Bank's Board of Directors approved a
reduction in the par value of the Company's common stock from $100 per
share to $10 per share, and a 100-for-1 stock split which caused the number
of shares of common stock authorized, issued and outstanding to increase
from 10,000 shares to 1,000,000 shares. The stock split resulted in a
$9,000,000 increase in common stock, a $1,000,000 decrease in surplus and
an $8,000,000 decrease in retained earnings. There were no other changes in
authorized, issued or outstanding common stock for any period presented
prior to the Spin-off Transaction.
IFSC has authorized 1,000,000 shares of Preferred Stock, 650,000 shares of
Class A Common Stock and 20,000,000 shares of Common Stock, all with a par
value of $.01 per share. At December 31, 1995 and December 31, 1996, there
were no preferred shares issued or outstanding. There were 593,500 and
359,545 shares of Class A Common Stock and 5,850,500 and 6,084,767 Common
Stock issued and outstanding at December 31, 1995 and December 31, 1996,
respectively. The Common Stock and Class A Common Stock are identical
except that the Class A Common Stock has ten votes per share and
automatically converts into Common Stock upon transfer and under certain
other circumstances.
STOCK OPTIONS - The Company has two stock option plans, the 1995 Stock Plan
and the 1995 Non-Employee Director Stock Option Plan.
Under the terms of the 1995 Stock Plan, the Company may grant options to
purchase up to a maximum of 560,000 shares of Common Stock to certain
employees, consultants, directors and officers. The options may be awarded
as incentive stock options (employees only), nonqualified stock options,
stock awards or opportunities to make direct purchases of stock.
Under the terms of the 1995 Non-Employee Director Stock Option Plan, the
Company may grant options to non-employee directors to purchase up to a
maximum of 40,000 shares of Common Stock. Options to purchase 2,500 shares
of Common Stock were awarded at the date of initial public offering to each
director. Subsequently, any director elected or appointed after such date
will receive an automatic initial grant of options to purchase 2,500 shares
upon becoming a director. Thereafter, each director will receive an
automatic grant of options to purchase 2,500 shares effective upon each
one-year anniversary of the date of such director's original grant.
Additionally, in April 1996 the Company's stockholders approved an
amendment to the 1995 Non-Employee Director Plan that will allow non-
employee directors to elect to receive options to acquire shares of the
Company's Common Stock in lieu of such director's cash retainer. Any
election is subject to certain restrictions under the 1995 Non-Employee
Director Stock Option Plan. The number of shares of stock underlying the
option is equal to the quotient obtained by dividing the cash retainer by
the value of an option on the date of grant as determined using the Black-
Scholes model.
The exercise price of options under the 1995 Non-Employee Director Stock
Option Plan and the incentive options under the 1995 Stock Plan may not be
less than fair market value at the date of the grant. The exercise price of
the nonqualified options from the 1995 Stock Plan is determined by the
compensation committee of the Board of Directors. All options become
exercisable as specified at the date of the grant.
In November 1995, the Company granted 114,000 shares to certain officers of
the Company under the 1995 Stock Plan. Of these grants, 105,000 shares vest
in sixty equal monthly installments, and the remainder vest in five equal
annual installments. Upon termination of employment, the Company has the
right to repurchase all unvested shares at a price equal to the fair market
value at the date of the grant. The Company has recorded deferred
compensation of $2,117,787 and $1,687,675 at December 31, 1995 and December
31, 1996, respectively, pursuant to these grants.
F-15
<PAGE>
9. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of option activity under all plans is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
<S> <C> <C>
Outstanding at December 31, 1995 211,500 $ 16.50
Granted 141,150 $22.375 - $26.125
Exercised (312) $ 16.50
Expired (7,188) $ 16.50
-----------
Outstanding at December 31, 1996 345,150 $ 16.50 - $26.125
-----------
Exercisable at December 31, 1996 60,489
-----------
</TABLE>
EMPLOYEE STOCK-BASED COMPENSATION - With respect to employee stock-based
compensation, the Company has adopted the disclosure-only requirements of
SFAS No. 123. Accordingly, no compensation cost has been recognized in the
accompanying consolidated financial statements for employee stock-based
compensation awarded under employee stock option plans. If compensation
cost had been determined for awards granted commencing November 8, 1995
under the Company's employee stock option plans based on the fair value of
the awards at the date of grant in accordance with the provisions of SFAS
No. 123, the Company's net income and earnings per share for the year ended
December 31, 1996 would have decreased to the pro forma amounts indicated
below:
<TABLE>
<S> <C>
Net income - as reported $7,773,962
Net income - pro forma 7,502,714
Earnings per share - as reported 1.20
Earnings per share - pro forma 1.16
</TABLE>
The pro forma amounts do not include any adjustment for compensation
expense that would have been recorded in the current fiscal year for
nonemployee stock-based awards made on or prior to December 15, 1995.
Accordingly, the pro forma disclosures are not likely to be representative
of the effects on reported net income for future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with an assumed risk-free interest
rate of 6.25%, an expected life of five years, an expected volatility of
20%, and assumes nominal dividends will be paid.
F-16
<PAGE>
10. PROCEEDS FROM ASSIGNMENT OF UNIT INVESTMENT TRUST SERVICING, NET
On March 1, 1995, the Company recognized a net gain of $2,572,298 of
noninterest income resulting from the assignment to another company of the
rights to service approximately $5.0 billion of unit investment trust
assets. In connection with the assignment, the Company adjusted to market
value interest rate floors with a notional amount of $80,000,000, and the
resulting loss of $1,057,700 is reported net of the cash proceeds from the
assignment of unit investment trust servicing. These interest rate floors
had previously been designated as hedges of fees from the unit investment
trusts (see Note 13).
11. EMPLOYEE BENEFIT PLANS
PENSION PLAN - The Company has a trusteed, noncontributory, qualified
defined benefit pension plan covering substantially all of its employees
who were hired before January 1, 1997. The benefits are based on years of
service and the employee's compensation during employment. The Company's
funding policy is to contribute annually the maximum amount which can be
deducted for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date but also for
benefits expected to be earned in the future.
The Company established a supplemental retirement plan in 1994 that covers
certain employees and pays benefits that supplements any benefits paid
under the qualified plan. Benefits under the supplemental plan are
generally based on compensation not includable in the calculation of
benefits to be paid under the qualified plan. The total cost of this plan
to the Company was $41,148, $86,563, $6,827 and $36,960 in the years ended
October 31, 1994 and 1995, the two-month period ended December 31, 1995,
and the year ended December 31, 1996, respectively.
The following table sets forth the funded status and accrued pension cost
for the Company's pension and supplemental retirement plans.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits
of $4,600,000 and $3,746,000 for December 31, 1995 and
1996, respectively $ 4,918,000 $ 4,109,000
=============== ==============
Projected benefit obligations for services rendered to date $ 7,995,000 $ 6,885,000
Plan assets at fair value, primarily listed stocks and U.S.
government obligations 5,625,000 6,213,000
--------------- --------------
Projected benefit obligations in excess of assets (2,370,000) (672,000)
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions (358,000) (1,075,000)
Prior service cost not yet recognized in periodic pension cost 267,000 238,000
Unrecognized net (asset) liability 562,000 (378,000)
--------------- --------------
Accrued pension cost $(1,899,000) $(1,887,000)
=============== ==============
</TABLE>
F-17
<PAGE>
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net pension cost included the following components for the years ended
October 31, 1994 and 1995, the two-month period ended December 31, 1995 and
the year ended December 31, 1996:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
<S> <C> <C> <C> <C>
Service cost - benefits earned during the $ 559,000 $ 618,000 $123,000 $ 848,000
period
Interest cost on projected benefit obligations 400,000 425,000 86,000 520,000
Return on plan assets (389,000) (420,000) (73,000) (1,013,000)
Net amortization and deferral (5,000) (5,000) 1,000 508,000
------------- ------------- ------------ -----------
Net periodic pension cost $ 565,000 $ 618,000 $137,000 $ 863,000
============= ============= ============ ===========
</TABLE>
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Weighted average discount rate 7.5% 7.5%
Rate of increase in future compensation levels 5.0 5.0
Long-term rate of return on plan assets 8.5 8.5
</TABLE>
EMPLOYEE SAVINGS PLAN - The Company sponsors a qualified defined
contribution employee savings plan covering substantially all employees who
elect to participate. The Company matches employee contributions to the
plan up to specified amounts. The total cost of this plan to the Company
was $164,000, $222,000, $36,000 and $208,000 in the years ended October 31,
1994 and 1995, the two-month period ended December 31, 1995, and the year
ended December 31, 1996, respectively.
12. RELATED-PARTY TRANSACTIONS
As a result of the Spin-off Transaction described in Note 1, transactions
between the Company and EVC are no longer considered related-party
transactions. However, prior to the Spin-off Transaction, the Company
entered into various transactions with EVC and a group of mutual funds
sponsored by EVC. The following is a summary of such related-party
transactions for the years ended October 31, 1994 and 1995:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1994 1995
<S> <C> <C>
Asset administration fee income $8,565,000 $8,355,000
Computer service fee income 552,000 506,000
Occupancy expense 344,000 260,000
</TABLE>
The aggregate of the above fees exceeds 10% of interest income and non-
interest income.
F-18
<PAGE>
12. RELATED-PARTY TRANSACTIONS (CONTINUED)
In addition, EVC and its group of mutual funds had the following amounts
outstanding with the Company at October 31, 1995:
<TABLE>
<S> <C>
Fees receivable $ 308,000
Deposits 102,869,000
</TABLE>
The Company also makes loans to officers of EVC and other related parties.
Such loans are made in the ordinary course of business and on the same
terms and conditions prevailing at the time for comparable transactions.
The following is a summary of loans to related parties during the years
ended October 31, 1994 and 1995.
<TABLE>
<CAPTION>
<S> <C>
Balance at October 31, 1993 $1,261,000
Loans made/advanced 507,000
Repayments (135,000)
-----------
Balance at October 31, 1994 1,633,000
Loans made/advanced 55,000
Repayments (55,000)
-----------
Balance at October 31, 1995 $1,633,000
===========
</TABLE>
13. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
LINES OF CREDIT - At December 31, 1996, the Company had commitments to
individuals under collateralized open lines of credit totaling $74,743,700,
against which $37,616,182 in loans were drawn. The credit risk involved in
issuing lines of credit is essentially the same as that involved in
extending loan facilities. The Company does not anticipate any loss as a
result of these lines of credit.
INTEREST-RATE CONTRACTS - The following table summarizes the contractual or
notional amounts of derivative financial instruments held by the Company at
December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Interest Rate Contracts:
Swap agreements $180,000,000 -
Floor contracts 30,000,000 80,000,000
</TABLE>
Interest rate contracts involve an agreement with a counterparty to
exchange cash flows based on an underlying interest rate index. An interest
rate floor is a contract purchased from a counterparty which specifies a
minimum interest rate for the specified period of time. A swap agreement
involves the exchange of a series of interest payments, either at a fixed
or variable rate, based upon the notional amount without the exchange of
the underlying principal amount. The Company's exposure from these interest
rate contracts results from the possibility that one party may default on
its contractual obligation. Credit risk is limited to the posititve market
value of the derivative financial instrument, which is significantly less
than the notional value. During 1996, the Company entered into agreements
to assume fixed-rate interest payments in exchange for variable market-
indexed interest payments. The original terms range from 12 to 18 months.
The weighted-average fixed-payment rates were 5.74 percent at December 31,
1996. Variable-interest payments received are indexed to 1 month LIBOR. At
December 31, 1996, the weighted-average rate of variable market-indexed
interest payment obligations to the Bank was 5.61 percent. The effect of
these agreements was to lengthen short-term variable-rate liabilities into
longer-term fixed-rate liabilities. These contracts had no carrying value
and the market value was approximately ($112,000) at December 31, 1996.
F-19
<PAGE>
14. COMMITMENTS AND CONTINGENCIES
RESTRICTIONS ON CASH BALANCES - The Company is required to maintain certain
average cash reserve balances with the Federal Reserve Bank. The reserve
balance requirement as of December 31, 1996 was $22,170,000. In addition,
other cash balances in the amount of $1,391,679 were pledged to secure
clearings with a depository institution as of December 31, 1996.
LEASE COMMITMENTS - Minimum future commitments on noncancelable operating
leases at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Bank
Fiscal Year Ending Premises Equipment
<S> <C> <C>
1997 $ 4,014,746 $1,043,538
1998 4,252,481 751,090
1999 4,252,481 416,208
2000 4,252,481 -
2001 and beyond 26,963,921 -
</TABLE>
Total rent expense was $4,604,000, $5,511,000, $843,000 and $4,129,000 for
the years ended October 31, 1994 and 1995, the two months ended December
31, 1995, and the year ended December 31, 1996, respectively.
On February 1, 1996, the Company entered into a five year facility
management agreement with a third party provider of duplicating and
delivery services. Under the terms of the agreement, the Company agrees to
pay minimum annual charges of $368,970, $387,214, $406,788, $427,119, and
$35,735 in the years ended December 31, 1997, 1998, 1999, 2000, and 2001,
respectively. These minimum charges can increase due to certain usage
thresholds. Service expense under this contract was $239,597 for the year
ended December 31, 1996.
CONTINGENCIES - The Company provides domestic and global custody,
multicurrency accounting, institutional transfer agency, performance
measurement, foreign exchange, securities lending and mutual fund
administration services to a variety of financial asset managers, including
mutual fund complexes, investment advisors, banks and insurance companies.
Assets under custody and management, held by the Company in a fiduciary
capacity, are not included in the consolidated balance sheets since such
items are not assets of the Company. Management conducts regular reviews of
its fiduciary responsibilities and considers the results in preparing its
consolidated financial statements. In the opinion of management, there are
no contingent liabilities at December 31, 1996 that are material to the
consolidated financial position or results of operations of the Company.
F-20
<PAGE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of financial instruments are as
follows at December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
On-balance sheet amounts:
Cash and due from banks $ 21,899 $ 21,899 $ 19,226 $ 19,226
Time deposits due from banks 1,000 1,000 - -
Federal funds sold 15,000 15,000 120,000 120,000
Securities held to maturity 154,124 155,686 460,010 460,183
Securities available for sale 90,819 90,819 271,121 271,121
Loans 22,864 22,864 66,237 66,237
Deposits 188,993 188,993 596,517 596,517
Off-balance sheet amounts:
Commitments to lend ($1,708 and
$37,127 at December 31, 1995 and 1996) - 1,708 - 37,127
Interest rate floor contracts
(notional amounts of $80,000 and
$30,000 at December 31, 1995 and 1996) - - - -
Interest rate swap agreements
(notional amounts of $0 and $180,000
at December 31, 1995 and 1996) - - - (112,160)
Foreign exchange contracts
(notional amounts of $108,372 and
$114,302 at December 31, 1995 and 1996) - - - -
</TABLE>
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995 and 1996.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
significantly revalued for purposes of these consolidated financial
statements since those dates and therefore, current estimates of fair value
may differ significantly from the amounts presented herein.
F-21
<PAGE>
16. FOREIGN EXCHANGE CONTRACTS
A summary of foreign exchange contracts outstanding at December 31, 1995
and December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------- -------------------------------
UNREALIZED UNREALIZED
CURRENCY PURCHASES SALES GAIN/LOSS PURCHASES SALES GAIN/LOSS
<S> <C> <C> <C> <C> <C> <C>
Japan (Yen) $46,211 $46,211 - $40,828 $40,828 -
Malaysia (Ringgit) 505 505 - 6,009 6,009 -
Germany (Mark) 955 955 - 2,118 2,118 -
United Kingdom (Pound) 111 111 - 1,873 1,873 -
Hong Kong (Dollar) 1,991 1,991 - 1,807 1,807 -
France (Franc) 859 859 - 1,093 1,093 -
Netherlands (Guilder) 1,797 1,797 - 918 918 -
Belgium (Franc) 715 715 - 450 450 -
Thailand (Baht) - - - 382 382 -
Singapore (Dollar) - - - 331 331 -
Other currencies 1,042 1,042 - 1,337 1,337 -
---------------------------------- --------------------------------
$54,186 $54,186 - $57,146 $57,146 -
================================== ================================
</TABLE>
The maturity of contracts outstanding as of December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Maturity Purchases Sales
<S> <C> <C>
January 1997 $51,246 $51,246
February 1997 5,770 5,770
March 1997 130 130
</TABLE>
17. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is
subject.
F-22
<PAGE>
As of December 21, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-
based, Tier I risk based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category. The following
table presents the capital ratios for the Bank. The capital ratios for the
Company are the same as the capital ratios for the Bank.
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------------------------ ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- --------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $60,818,485 24.71% $19,691,528 8.00% $24,614,410 10.00%
Tier I Capital
(to Risk Weighted Assets) $60,718,485 24.67% $ 9,845,764 4.00% $14,768,646 6.00%
Tier I Capital
(to Average Assets) $60,718,485 9.65% $25,155,710 4.00% $31,444,637 5.00%
As of December 31, 1995
Total Capital
(to Risk Weighted Assets) $53,422,219 44.58% $ 9,587,613 8.00% $11,984,516 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $53,387,219 44.55% $ 4,793,806 4.00% $ 7,190,710 6.00%
Tier I Capital
(to Average Assets) $53,387,219 36.59% $ 5,836,684 4.00% $ 7,295,855 5.00%
</TABLE>
Under Massachusetts law, trust companies such as the Bank may only pay
dividends out of "net profits" and only to the extent that such payments
will not impair the Bank's capital stock and surplus account. If, prior to
declaration of a dividend, the Bank's capital stock and surplus accounts do
not equal at least 10% of its deposit liabilities, then prior to the
payment of the dividend, the Bank must transfer from net profits to its
surplus account the amount required to make its surplus account equal to
either (i) together with capital stock, 10% of deposit liabilities, or (ii)
subject to certain adjustments, 100% of capital stock.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Interest income $ 5,964,713 $ 7,966,327 $10,360,380 $12,386,007
Interest expense 2,022,877 3,904,330 5,662,451 7,078,376
Noninterest income 12,944,198 14,097,339 14,034,278 15,555,902
Operating expenses 14,517,448 14,912,163 15,377,305 17,128,661
Income before income taxes 2,347,539 3,219,106 3,354,903 3,718,985
Income taxes 927,277 1,215,814 1,289,905 1,433,575
Net income 1,420,262 2,003,292 2,064,998 2,285,410
Earnings Per Share 0.22 0.31 0.32 0.35
</TABLE>
F-23
<PAGE>
19. FINANCIAL STATEMENTS OF INVESTORS FINANCIAL SECURITIES CORP. (PARENT ONLY)
The following represents the separate condensed financial statements of
IFSC as of December 31, 1995 and 1996, and for the two-month period ended
December 31, 1995 and the year ended December 31, 1996.
<TABLE>
<CAPTION>
STATEMENT OF INCOME TWO MONTHS ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
<S> <C> <C>
Equity in undistributed income of subsidiary $ 899,794 $ 7,601,082
Dividend income from subsidiary - 478,546
Operating expenses - (305,666)
---------------------- ---------------
Net income $ 899,794 $ 7,773,962
====================== ===============
BALANCE SHEET
DECEMBER 31, 1995 DECEMBER 31, 1996
Assets:
Investments in subsidiary $53,344,218 $61,367,783
Receivable due from subsidiary 76,713 493,089
Other assets - 3,438
---------------------- ---------------
Total Assets $53,420,931 $61,864,310
====================== ===============
Liabilities and Stockholders' Equity
Total Liabilities $ - $ 5,000
---------------------- ---------------
Stockholders' Equity
Common stock 64,440 64,443
Surplus 54,312,474 54,352,812
Deferred compensation (2,117,787) (1,687,675)
Retained earnings 899,794 8,480,431
Net unrealized gains on available for sale securities 262,010 649,299
---------------------- ---------------
Total Stockholders' Equity 53,420,931 61,859,310
---------------------- ---------------
Total Liabilities and Stockholders' Equity $53,420,931 $61,864,310
====================== ===============
</TABLE>
F-24
<PAGE>
19. FINANCIAL STATEMENTS OF INVESTORS FINANCIAL SECURITIES CORP. (PARENT ONLY)
(CONTINUED)
<TABLE>
<CAPTION>
TWO MONTHS ENDED YEAR ENDED
STATEMENT OF CASH FLOWS DECEMBER 31, 1995 DECEMBER 31, 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 899,794 $ 7,773,962
--------------------- -----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred compensation 76,713 430,112
Change in assets and liabilities:
Receivable due from subsidiary (416,376)
Other Assets (3,438)
Other Liabilities 5,000
Equity in undistributed earnings of subsidiary (976,507) (7,601,082)
-------------------- ----------------
Total adjustments (899,794) (7,585,784)
-------------------- ----------------
Net cash provided by operating activities - 188,178
---------------------- ----------------
Cash flows from investing activities:
Payments for investments in and advances to subsidiary (34,120,938) (35,193)
---------------------- ----------------
Net cash used by investing activities (34,120,938) (35,193)
---------------------- ----------------
Cash flows from financing activities:
Proceeds from common stock 37,950,000 -
Costs of stock issuance (3,829,062) 35,193
Proceeds from exercise of stock options - 5,148
Dividends paid (193,326)
---------------------- ----------------
Net cash provided by financing activities 34,120,938 (152,985)
---------------------- ----------------
Net increase in cash and due from banks $ - $ -
Cash and Due from Banks, beginning of period $ - $ -
---------------------- ---------------
Cash and Due from Banks, end of period $ - $ -
====================== ===============
</TABLE>
F-25
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 333-
3440 of Investors Financial Services Corp. on Form S-8 of our report dated
February 14, 1997 appearing in this Annual Report on Form 10-K of Investors
Financial Services Corp. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
July 16, 1997
Boston, Massachusetts
