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Interactive Brokers Group Announces 2Q2018 Results
[July 17, 2018]

Interactive Brokers Group Announces 2Q2018 Results


Interactive Brokers Group, Inc. (NASDAQ GS: IBKR), an automated global electronic broker and market maker, today reported diluted earnings per share on net income of $0.58 for the quarter ended June 30, 2018, compared to $0.32 for the same period in 2017, and diluted earnings per share on comprehensive income of $0.39 for the quarter, compared to $0.41 for the same period in 2017.

Net revenues were $445 million and income before income taxes was $271 million this quarter, compared to net revenues of $387 million and income before income taxes of $204 million for the same period in 2017. The results for the quarter were positively impacted by strong growth in net interest income, which increased $70 million, or 45%, and higher commissions, which increased $25 million, or 16% from the year-ago quarter.

In addition, the results for the quarter include a $21 million loss on our currency diversification strategy, compared to a $29 million gain in the same period in 2017; and a $3 million net mark-to-market gain on our U.S. government securities portfolio, compared to a $3 million net mark-to-market loss in the same period in 2017.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on September 14, 2018 to shareholders of record as of August 31, 2018.

Business Highlights

  • 61% pretax profit margin for this quarter, up from 53% in the year-ago quarter.
  • 64% Electronic Brokerage pretax profit margin for this quarter, up from 59% in the year-ago quarter.
  • Customer equity grew 29% from the year-ago quarter to $134.7 billion and customer debits increased 27% to $28.8 billion.
  • Customer accounts increased 27% from the year-ago quarter to 542 thousand.
  • Total DARTs1 increased 19% from the year-ago quarter to 797 thousand.
  • Brokerage segment equity was $5.2 billion. Total equity was $6.7 billion.


__________

1 Daily average revenue trades (DARTs) are based on customer orders.
 

Segment Overview

Electronic Brokerage

Electronic brokerage segment income before income taxes increased 43%, to $283 million in the quarter ended June 30, 2018, compared to the same period last year. Net revenues increased 33% to $443 million on higher net interest income, commissions revenue and other income.

Net interest income increased 47% as average customer credit and margin loan balances and benchmark interest rates increased from the year-ago quarter. Commissions revenue increased 16% from the year-ago quarter on higher customer volumes in futures and options, which increased 21% and 13%, respectively, while stock volumes decreased 5% from the year-ago quarter. Other income increased 58% on higher net mark-to-market gains on our U.S. government securities portfolio and other investments. Pretax profit margin was 64% for the quarter ended June 30, 2018, up from 59% in the same period last year.

Customer accounts grew 27% to 542 thousand and customer equity increased 29% from the year-ago quarter to $134.7 billion. Total DARTs for cleared and execution-only customers increased 19% to 797 thousand from the year-ago quarter. Cleared DARTs were 739 thousand, 19% higher than in the same period last year.

Market Making

Market making segment income before income taxes increased to $9 million in the quarter ended June 30, 2018, as compared to a pretax loss of $24 million in the year-ago quarter, during which we continued to wind down operations in this segment. The quarter's results reflect lower operating costs on the remaining operations and the non-recurrence of $22 million in one-time exit costs related to the wind-down of our options market making business recognized in the year-ago quarter. In the third quarter of 2017 we completed the transfer of our U.S. options market making business to Two Sigma Securities, LLC and by year-end we had exited the majority of our market making activities outside the U.S.

Effects of Foreign Currency Diversification

In connection with our currency diversification strategy, we have determined to base our net worth in GLOBALs, a basket of 14 major currencies in which we hold our equity. In this quarter, our currency diversification strategy decreased our comprehensive earnings by $100 million, as the U.S. dollar value of the GLOBAL decreased by approximately 1.41%. The effects of the currency diversification strategy are reported as components of (1) Other Income in the corporate segment and (2) Other Comprehensive Income ("OCI").

Conference Call Information:

Interactive Brokers Group, Inc. will hold a conference call with investors today, July 17, 2018, at 4:30 p.m. ET to discuss its quarterly results. Investors who would like to listen to the conference call live should dial 877-324-1965 (U.S. domestic) and 631-291-4512 (international). The number should be dialed approximately ten minutes prior to the start of the conference call. Ask for the "Interactive Brokers Conference Call."

The conference call will also be accessible simultaneously, and through replays, as an audio webcast through the Investor Relations section of the Interactive Brokers web site, www.interactivebrokers.com/ir.

About Interactive Brokers Group, Inc.:

Interactive Brokers Group affiliates provide automated trade execution and custody of securities, commodities and foreign exchange around the clock on over 120 markets in numerous countries and currencies, from a single IB Universal Account? to customers worldwide. We service individual investors, hedge funds, proprietary trading groups, financial advisors and introducing brokers. Our four decades of focus on technology and automation has enabled us to equip our customers with a uniquely sophisticated platform to manage their investment portfolios at the lowest cost according to Barron's Best Online Brokers review, March 26, 2018. We strive to provide our customers with advantageous execution prices and trading, risk and portfolio management tools, research facilities and investment products, all at low or no cost, positioning them to achieve superior returns on investments.

Cautionary Note Regarding Forward-Looking Statements:

The foregoing information contains certain forward-looking statements that reflect the Company's current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the Company's operations and business environment which may cause the Company's actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements in this release are based upon information available to the Company on the date of this release. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the Company's financial results may be found in the Company's filings with the Securities and Exchange Commission.

 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA

 
TRADE VOLUMES:
(in 000'S, except %)
            Brokerage        
Market Brokerage Non Avg. Trades
Making % Cleared % Cleared % Total % per U.S.

Period

Trades

Change

Trades

Change

Trades

Change

Trades

Change

Trading Day

2015 65,937 242,846 18,769 327,553 1,305
2016 64,038 (3%) 259,932 7% 16,515 (12%) 340,485 4% 1,354
2017 31,282 (51%) 265,501 2% 14,835 (10%) 311,618 (8%) 1,246
 
2Q2017 7,960 64,823 3,672 76,455 1,214
2Q2018 4,575 (43%) 78,026 20% 4,641 26% 87,242 14% 1,363
 
1Q2018 4,469 89,621 4,695 98,785 1,619
2Q2018 4,575 2% 78,026 (13%) 4,641 (1%) 87,242 (12%) 1,363
 
CONTRACT AND SHARE VOLUMES:
(in 000's, except %)
         
TOTAL
Options % Futures1 % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2015 634,388 140,668 172,742,520
2016 572,834 (10%) 143,287 2% 155,439,227 (10%)
2017 395,885 (31%) 124,123 (13%) 220,247,921 42%
 
2Q2017 91,879 30,805 53,378,165
2Q2018 93,253 1% 36,693 19% 51,370,386 (4%)

 

1Q2018 115,438 43,449 68,380,398
2Q2018 93,253 (19%) 36,693 (16%) 51,370,386 (25%)
 
MARKET MAKING
Options % Futures1 % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2015 335,406 14,975 15,376,076
2016 307,377 (8%) 14,205 (5%) 13,082,887 (15%)
2017 102,025 (67%) 5,696 (60%) 7,139,622 (45%)
 
2Q2017 19,831 1,143 1,620,275
2Q2018 11,813 (40%) 756 (34%) 2,442,203 51%
 
1Q2018 13,256 935 2,817,831
2Q2018 11,813 (11%) 756 (19%) 2,442,203 (13%)
 
BROKERAGE TOTAL
Options % Futures1 % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2015 298,982 125,693 157,366,444
2016 265,457 (11%) 129,082 3% 142,356,340 (10%)
2017 293,860 11% 118,427 (8%) 213,108,299 50%
 
2Q2017 72,048 29,662 51,757,890
2Q2018 81,440 13% 35,937 21% 48,928,183 (5%)
 
1Q2018 102,182 42,514 65,562,567
2Q2018 81,440 (20%) 35,937 (15%) 48,928,183 (25%)

__________

1 Includes options on futures.

     

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA, CONTINUED

 

BROKERAGE CLEARED  
Options   % Futures1 % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2015 244,356 124,206 153,443,988
2016 227,413 (7%) 128,021 3% 138,523,932 (10%)
2017 253,304 11% 116,858 (9%) 209,435,662 51%
 
2Q2017 62,342 29,255 50,807,138
2Q2018 71,873 15% 35,679 22% 47,840,126 (6%)
 
1Q2018 87,705 41,742 64,494,943
2Q2018 71,873 (18%) 35,679 (15%) 47,840,126 (26%)

__________

1 Includes options on futures.

BROKERAGE STATISTICS      
(in 000's, except % and where noted)
 
Year over Year

2Q2018

2Q2017

% Change

Total Accounts 542 428 27%
Customer Equity (in billions)1 $ 134.7 $ 104.8 29%
 
Cleared DARTs 739 621 19%
Total Customer DARTs 797 669 19%
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $ 3.86 $ 4.00 (4%)
DART per Avg. Account (Annualized) 350 372 (6%)
Net Revenue per Avg. Account (Annualized) $ 3,190 $ 3,141 2%
 
Consecutive Quarters

2Q2018

1Q2018

% Change

Total Accounts 542 517 5%
Customer Equity (in billions)1 $ 134.7 $ 129.2 4%
 
Cleared DARTs 739 876 (16%)
Total Customer DARTs 797 939 (15%)
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $ 3.86 $ 4.04 (4%)
DART per Avg. Account (Annualized) 350 439 (20%)
Net Revenue per Avg. Account (Annualized) $ 3,190 $ 3,768 (15%)

__________

1 Excluded non-customers.

 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

NET INTEREST MARGIN

(UNAUDITED)

           
Three Months Six Months
Ended June 30, Ended June 30,
2018     2017 2018     2017
 
(in millions)
Average interest-earning assets
Segregated cash and securities $ 19,512 $ 24,063 $ 20,248 $ 24,298
Customer margin loans 29,839 22,134 29,658 20,924
Securities borrowed 3,327 4,062 3,202 4,031
Other interest-earning assets 4,020 2,681 4,079 2,512
FDIC sweeps1   1,186     61     973     47  
$ 57,884   $ 53,001   $ 58,160   $ 51,812  
 
Average interest-bearing liabilities
Customer credit balances $ 47,390 $ 44,791 $ 47,657 $ 43,903
Securities loaned  

4,013

    3,653     4,178     3,632  
$ 51,403   $ 48,444   $ 51,835   $ 47,535  
 
Net interest income
Segregated cash and securities, net2 $ 75 $ 47 $ 149 $ 86
Customer margin loans3 164 89 303 164
Securities borrowed and loaned, net 36 37 83 70
Customer credit balances, net2/3 (63 ) (23 ) (112 ) (32 )
Other net interest income1/4   20     5     31     9  
Net interest income $ 232  

 

$ 155   $ 454   $ 297  
 
Net interest margin ("NIM")   1.61 %   1.17 %   1.57 %   1.16 %
 
Annualized yields
Segregated cash and securities 1.54 % 0.78 % 1.48 % 0.71 %
Customer margin loans 2.20 % 1.61 % 2.06 % 1.58 %
Customer credit balances 0.53 % 0.21 % 0.47 % 0.15 %
   
    1   Represents the average amount of customer cash swept into FDIC-insured banks as part of our Insured Bank Deposit Sweep Program. This item is not recorded in the Company's consolidated statements of financial condition. Income derived from program deposits is reported in other net interest income in the table above.
 
2 We have recategorized components of net interest income related to currencies with negative interest rates and as such, prior period amounts have been adjusted to conform to the current period presentation. For the quarter and six months ended June 30, 2017, $4 million and $8 million has been recategorized from net interest income on "segregated cash and securities, net" to "customer credit balances, net", respectively.
 
3 Interest income and interest expense on customer margin loans and customer credit balances, respectively, are calculated on daily cash balances within each customer's account on a net basis, which may result in an offset of balances across multiple account segments (e.g., between securities and commodities segments).
 
4 Includes income from financial instruments which has the same characteristics as interest, but is reported in other income.
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(UNAUDITED)

           
Three Months Six Months
Ended June 30, Ended June 30,
2018     2017 2018     2017
(in millions)
 
Electronic Brokerage Net revenues $ 443 $ 334 $ 908 $ 648
Non-interest expenses   160     136     334     265  
 
Income before income taxes $ 283   $ 198   $ 574   $ 383  
 
Pre-tax profit margin 64 % 59 % 63 % 59 %
 
Market Making Net revenues $ 22 $ 23 $ 43 $ 31
Non-interest expenses   13     47     25     77  
 
Income (loss) before income taxes $ 9   $ (24 ) $ 18   $ (46 )
 
Pre-tax profit (loss) margin 41 % (104 %) 42 % (148 %)
 
Corporate 1 Net revenues $ (20 ) $ 30 $ 21 $ 82
Non-interest expenses   1     -     2     2  
 
Income (loss) before income taxes $ (21 ) $ 30   $ 19   $ 80  
 
 
Total Net revenues $ 445 $ 387 $ 972 $ 761
Non-interest expenses   174     183     361     344  
 
Income before income taxes $ 271   $ 204   $ 611   $ 417  
 
Pre-tax profit margin 61 % 53 % 63 % 55 %
       
1   Corporate includes corporate related activities as well as inter-segment eliminations and gains and losses on positions held as part of our overall currency diversification strategy.
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

     
Three Months Six Months
Ended June 30, Ended June 30,
2018   2017 2018   2017
(in millions, except share and per share data)
 
Revenues:
Commissions $ 185 $ 160 $ 405 $ 314
Interest income 333 206 644 383
Trading gains 12 13 25 15
Other income   23     59   100     135
 
Total revenues 553 438 1,174 847
 
Interest expense   108     51   202     86
 
Total net revenues   445     387   972     761
 
Non-interest expenses:
Execution and clearing 66 63 139 124
Employee compensation and benefits 68 66 138 128
Occupancy, depreciation and amortization 11 10 23 23
Communications 7 7 13 15
General and administrative 22 36 45 52
Customer bad debt   -     1   3     2
 
Total non-interest expenses   174     183   361     344
 
Income before income taxes 271 204 611 417
 
Income tax expense   12     17   33     35
 
Net income 259 187 578 382
 
Net income attributable to noncontrolling interests   217     164   490     335
 
Net income available for common stockholders $ 42   $ 23 $ 88   $ 47
 
Earnings per share:
Basic $ 0.58   $ 0.33 $ 1.22   $ 0.68
Diluted $ 0.58   $ 0.32 $ 1.21   $ 0.67
 
Weighted average common shares outstanding:
Basic 72,476,729 69,087,853 71,979,104 68,539,526
Diluted 73,329,496 70,063,427 72,923,743 69,613,567
 
Comprehensive income:
Net income available for common stockholders $ 42 $ 23 $ 88 $ 47
Other comprehensive income:
Cumulative translation adjustment, before income taxes (14 ) 6 (13 ) 10
Income taxes related to items of other comprehensive income -     -   -     -
Other comprehensive income (loss), net of tax   (14 )   6   (13 )   10
Comprehensive income available for common stockholders $ 28   $ 29 $ 75   $ 57
 
Comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests $ 217 $ 164 $ 490 $ 335
Other comprehensive income - cumulative translation adjustment (65 )   31   (58 )   50
Comprehensive income attributable to noncontrolling interests $ 152   $ 195 $ 432   $ 385
 
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)

         
Three Months Six Months
Ended June 30, Ended June 30,
2018   2017 2018   2017
(in millions, except share and per share data)
 
Comprehensive income available for common stockholders, net of tax $ 28 $ 29 $ 75 $ 57
 
Comprehensive earnings per share:
Basic $ 0.39 $ 0.42 $ 1.05 $ 0.83
Diluted $ 0.39 $ 0.41 $ 1.03 $ 0.81
 
 
Weighted average common shares outstanding:
Basic 72,476,729 69,087,853 71,979,104 68,539,526
Diluted 73,329,496 70,063,427 72,923,743 69,613,567
 
         

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
June 30,

2018

December 31,

2017

(in millions)
 
Assets
Cash and cash equivalents $ 2,500 $ 1,732
Cash - segregated for regulatory purposes 7,686 6,547
Securities - segregated for regulatory purposes 13,368 13,685
Securities borrowed 3,588 2,957
Securities purchased under agreements to resell 533 2,035
Financial instruments owned, at fair value 2,088 3,154
Receivables from customers, net of allowance for doubtful accounts 28,970 29,821
Receivables from brokers, dealers and clearing organizations 1,134 823
Other assets   436   408
 
Total assets $ 60,303 $ 61,162
 
Liabilities and equity
 
Liabilities
Short-term borrowings $ 193 $ 15
Securities loaned 4,091 4,444
Securities sold under agreements to repurchase - 1,316
Financial instruments sold but not yet purchased, at fair value 630 767
Other payables:
Customers 48,239 47,548
Brokers, dealers and clearing organizations 100 283
Other payables   350   356
  48,689   48,187
 
Total liabilities   53,603   54,729
 
Equity
Stockholders' equity 1,183 1,090
Noncontrolling interests   5,517   5,343
Total equity   6,700   6,433
 
Total liabilities and equity $ 60,303 $ 61,162
 
 
June 30, 2018 December 31, 2017
Ownership of IBG LLC Membership Interests

Interests

               %

Interests

%

 
IBG, Inc. 73,544,946 17.8% 71,479,604 17.4%
Noncontrolling interests (IBG Holdings LLC) 340,229,444 82.2% 340,229,444 82.6%
 
Total IBG LLC membership interests 413,774,390 100.0% 411,709,048 100.0%


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