Interactive Brokers Group, Inc. (IEX:IBKR) an automated global electronic broker, reported diluted earnings per share on net income of $0.51 for the quarter ended September 30, 2018, compared to $0.43 for the same period in 2017, and diluted earnings per share on comprehensive income of $0.50 for the quarter, compared to $0.44 for the same period in 2017.

Net revenues were $439 million and income before income taxes was $276 million this quarter, compared to net revenues of $426 million and income before income taxes of $268 million for the same period in 2017. The results for the quarter were positively impacted by strong growth in net interest income, which increased $62 million, or 34%, and higher commissions, which increased $4 million, or 2% from the year-ago quarter. The increase in our results for this quarter were counterbalanced by a $50 million reversal on our currency diversification strategy, which swung from a $26 million gain in the year-ago quarter to a $24 million loss this quarter, and by the non-recurrence of an $11 million gain on the sale of our U.S. market making business in the year-ago quarter.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on December 14, 2018 to shareholders of record as of November 30, 2018.

Business Highlights

  • 63% pretax profit margin for this quarter and the year-ago quarter.
  • 66% Electronic Brokerage pretax profit margin for this quarter, up from 61% in the year-ago quarter.
  • Customer equity grew 23% from the year-ago quarter to $142.5 billion and customer debits increased 22% to $30.7 billion.
  • Customer accounts increased 26% from the year-ago quarter to 576 thousand.
  • Total DARTs1 increased 10% from the year-ago quarter to 763 thousand.
  • Brokerage segment equity was $5.5 billion. Total equity was $6.9 billion.

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

Segment Overview

Electronic Brokerage

Electronic brokerage segment income before income taxes increased 30%, to $292 million in the quarter ended September 30, 2018, compared to the same period last year. Net revenues increased 21% to $444 million on higher net interest income, other income, and commissions revenue.

Net interest income increased 37% as average customer credit and margin loan balances and benchmark interest rates increased from the year-ago quarter. Commissions revenue increased 2% from the year-ago quarter on higher customer DARTs in stocks and options, partially offset by a decrease in futures DARTs, from the year-ago quarter. Other income increased 31% on higher net mark-to-market gains on other investments and higher fees earned from our FDIC sweep program. Pretax profit margin was 66% for the quarter ended September 30, 2018, up from 61% in the same period last year.

Customer accounts grew 26% to 576 thousand and customer equity increased 23% from the year-ago quarter to $142.5 billion. Total DARTs for cleared and execution-only customers increased 10% to 763 thousand from the year-ago quarter. Cleared DARTs were 696 thousand, 8% higher than in the same period last year.

Market Making

Market making segment income before income taxes decreased 36%, to $7 million in the quarter ended September 30, 2018, as compared the year-ago quarter, primarily due to the non-recurrence of an $11 million gain recognized on the transfer of our U.S. market making business in the third quarter of 2017. The current quarter’s results reflect lower operating costs on the remaining operations. 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 $27 million, as the U.S. dollar value of the GLOBAL decreased by approximately 0.29%. 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, October 16, 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
 
3Q2017 6,834 66,262 3,698 76,794 1,229
3Q2018 4,795 (30%) 71,646 8% 5,293 43% 81,734 6% 1,308
 
2Q2018 4,575 78,026 4,641 87,242 1,363
3Q2018 4,795 5% 71,646 (8%) 5,293 14% 81,734 (6%) 1,308
 
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%
 
3Q2017 93,470 31,508 55,195,706
3Q2018 92,297 (1%) 29,936 (5%) 45,572,711 (17%)
 
2Q2018 93,253 36,693 51,370,386
3Q2018 92,297 (1%) 29,936 (18%) 45,572,711 (11%)
 
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%)
 
3Q2017 18,676 1,040 1,814,393
3Q2018 11,805 (37%) 758 (27%) 2,995,942 65%
 
2Q2018 11,813 756 2,442,203
3Q2018 11,805 0% 758 0% 2,995,942 23%
 
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%
 
3Q2017 74,794 30,468 53,381,313
3Q2018 80,492 8% 29,178 (4%) 42,576,769 (20%)
 
2Q2018 81,440 35,937 48,928,183
3Q2018 80,492 (1%) 29,178 (19%) 42,576,769 (13%)

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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%
 
3Q2017 64,363 30,034 52,515,806
3Q2018 70,233 9% 28,922 (4%) 41,406,443 (21%)
 
2Q2018 71,873 35,679 47,840,126
3Q2018 70,233 (2%) 28,922 (19%) 41,406,443 (13%)

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1 Includes options on futures.
 
BROKERAGE STATISTICS
(in 000's, except % and where noted)
     
Year over Year

3Q2018

3Q2017

% Change

Total Accounts 576 457 26%
Customer Equity (in billions)1 $ 142.5 $ 115.7 23%
Cleared DARTs 696 646 8%
Total Customer DARTs 763 695 10%
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $ 3.78 $ 3.96 (5%)
DART per Avg. Account (Annualized) 312 365 (15%)
Net Revenue per Avg. Account (Annualized) $ 3,109 $ 3,249 (4%)
 
Consecutive Quarters

3Q2018

2Q2018

% Change

Total Accounts 576 542 6%
Customer Equity (in billions)1 $ 142.5 $ 134.7 6%
Cleared DARTs 696 739 (6%)
Total Customer DARTs 763 797 (4%)
 
Cleared Customers (in $'s, except DART per account)
Commission per DART $ 3.78 $ 3.86 (2%)
DART per Avg. Account (Annualized) 312 350 (11%)
Net Revenue per Avg. Account (Annualized) $ 3,109 $ 3,190 (3%)

______________________________

1 Excludes non-customers.
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

NET INTEREST MARGIN

(UNAUDITED)

 
Three Months   Nine Months
Ended September 30, Ended September 30,
2018   2017 2018   2017
(in millions)
Average interest-earning assets
Segregated cash and securities $ 20,923 $ 24,043 $ 20,437 $ 24,207
Customer margin loans 29,339 24,132 29,599 22,017
Securities borrowed 3,531 4,096 3,295 4,071
Other interest-earning assets 4,371 3,155 4,208 2,748
FDIC sweeps1   1,423     63     1,122     52  
$ 59,587   $ 55,489   $ 58,661   $ 53,095  
 
Average interest-bearing liabilities
Customer credit balances $ 48,544 $ 46,910 $ 47,954 $ 44,901
Securities loaned   3,882     3,964     4,068     3,765  
$ 52,426   $ 50,874   $ 52,022   $ 48,666  
 
Net interest income
Segregated cash and securities, net2/3 $ 91 $ 60 $ 233 $ 143
Customer margin loans4 182 106 485 270
Securities borrowed and loaned, net 33 42 116 112
Customer credit balances, net2/4 (79 ) (36 ) (191 ) (68 )
Other net interest income1/3/5   25     11     63     23  
Net interest income $ 252   $ 183   $ 706   $ 480  
 
Net interest margin ("NIM")   1.68 %   1.31 %   1.61 %   1.21 %
 
Annualized yields
Segregated cash and securities 1.73 % 0.99 % 1.52 % 0.79 %
Customer margin loans 2.46 % 1.74 % 2.19 % 1.64 %
Customer credit balances 0.65 % 0.30 % 0.53 % 0.20 %

______________________________

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 nine months ended September 30, 2017, $4 million and $12 million has been recategorized from net interest income on “segregated cash and securities, net” to “customer credit balances, net”, respectively.
 
3 During the current quarter, we have reclassified certain components of net interest income related to investments in U.S. Treasury notes and reverse repurchase agreements and as such, prior period amounts have been adjusted to conform to the current period presentation. For the quarter and the nine months ended September 30, 2017, $2 million and $5 million has been reclassified from net interest income on "Segregated cash and securities, net" to "Other net interest income, net", respectively. For the quarters ended March 31, 2017, June 30, 2017, December 31, 2017, March 31, 2018, and June 30, 2018 the amounts reclassified were $1 million, $2 million, $3 million, $3 million, and $4 million, respectively.
 
4 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).
 
5 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   Nine Months
Ended September 30, Ended September 30,
2018   2017 2018   2017
(in millions)
 
Electronic Brokerage Net revenues $ 444 $ 367 $ 1,352 $ 1,015
Non-interest expenses   152     142     486     407  
 
Income before income taxes $ 292   $ 225   $ 866   $ 608  
 
Pre-tax profit margin 66 % 61 % 64 % 60 %
 
Market Making Net revenues $ 16 $ 30 $ 59 $ 61
Non-interest expenses   9     19     34     96  
 
Income (loss) before income taxes $ 7   $ 11   $ 25   $ (35 )
 
Pre-tax profit (loss) margin 44 % 37 % 42 % (57 %)
 
Corporate 1 Net revenues $ (21 ) $ 29 $ - $ 111
Non-interest expenses   2     (3 )   4     (1 )
 
Income (loss) before income taxes $ (23 ) $ 32   $ (4 ) $ 112  
 
 
Total Net revenues $ 439 $ 426 $ 1,411 $ 1,187
Non-interest expenses   163     158     524     502  
 
Income before income taxes $ 276   $ 268   $ 887   $ 685  
 
Pre-tax profit margin 63 % 63 % 63 % 58 %

______________________________

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   Nine Months
Ended September 30, Ended September 30,
2018   2017 2018   2017
(in millions, except share and per share data)
 
Revenues:
Commissions $ 167 $

163

 

$ 572 $

477

 

Interest income 363 243 1,007 626
Trading gains 7 11 32 26
Other income   21     70     121     205  
 
Total revenues 558 487 1,732 1,334
 
Interest expense   119     61     321     147  
 
Total net revenues   439     426     1,411     1,187  
 
Non-interest expenses:
Execution and clearing 57 61 196 185
Employee compensation and benefits 63 64 201 192
Occupancy, depreciation and amortization 12 11 35 34
Communications 7 7 20 22
General and administrative 25 15 70 67
Customer bad debt   (1 )   -     2     2  
 
Total non-interest expenses   163     158     524     502  
 
Income before income taxes 276 268 887 685
 
Income tax expense   18     21     52     56  
 
Net income 258 247 835 629
 
Net income attributable to noncontrolling interests   219     216     709     551  
 
Net income available for common stockholders $ 39   $ 31   $ 126   $ 78  
 
Earnings per share:
Basic $ 0.52   $ 0.44   $ 1.73   $ 1.12  
Diluted $ 0.51   $ 0.43   $ 1.71   $ 1.10  
 
Weighted average common shares outstanding:
Basic 74,649,469 71,109,577 72,879,007 69,405,624
Diluted 75,360,089 71,973,483 73,745,640 70,409,619
 
Comprehensive income:
Net income available for common stockholders $ 39 $ 31 $ 126 $ 78
Other comprehensive income:
Cumulative translation adjustment, before income taxes (1 ) 1 (14 ) 11
Income taxes related to items of other comprehensive income -     -     (1 )   -  
Other comprehensive income (loss), net of tax   (1 )   1     (13 )   11  
Comprehensive income available for common stockholders $ 38   $ 32   $ 113   $ 89  
 
Comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests $ 219 $ 216 $ 709 $ 551
Other comprehensive income - cumulative translation adjustment (2 )   5     (60 )   55  
Comprehensive income attributable to noncontrolling interests $ 217   $ 221   $ 649   $ 606  
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)

 
  Three Months   Nine Months
Ended September 30, Ended September 30,

2018

  

2017

2018

  

2017

(in millions, except share and per share data)
 
Comprehensive income available for common stockholders, net of tax $ 38   $ 32   $ 113   $ 89  
 
Comprehensive earnings per share:
Basic $ 0.51   $ 0.45   $ 1.55   $ 1.28  
Diluted $ 0.50   $ 0.44   $ 1.54   $ 1.26  
 
Weighted average common shares outstanding:
Basic 74,649,469 71,109,577 72,879,007 69,405,624
Diluted 75,360,089 71,973,483 73,745,640 70,409,619
 

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
     

September 30,

  

December 31,

2018

2017

(in millions)
 
Assets
Cash and cash equivalents $ 3,062 $ 1,732
Cash - segregated for regulatory purposes 7,523 6,547
Securities - segregated for regulatory purposes 12,832 13,685
Securities borrowed 3,551 2,957
Securities purchased under agreements to resell 331 2,035
Financial instruments owned, at fair value 2,588 3,154
Receivables from customers, net of allowance for doubtful accounts 30,913 29,821
Receivables from brokers, dealers and clearing organizations 846 823
Other assets   416     408  
 
Total assets $ 62,062   $ 61,162  
 
Liabilities and equity
 
Liabilities
Short-term borrowings $ 28 $ 15
Securities loaned 3,834 4,444
Securities sold under agreements to repurchase - 1,316
Financial instruments sold but not yet purchased, at fair value 915 767
Other payables:
Customers 49,823 47,548
Brokers, dealers and clearing organizations 179 283
Other payables   380     356  
  50,382     48,187  
 
Total liabilities   55,159     54,729  
 
Equity
Stockholders' equity 1,243 1,090
Noncontrolling interests   5,660     5,343  
Total equity   6,903     6,433  
 
Total liabilities and equity $ 62,062   $ 61,162  
 
 
September 30, 2018 December 31, 2017
Ownership of IBG LLC Membership Interests

Interests

%

Interests

%

 
IBG, Inc.

75,097,443

 

18.1 % 71,479,604 17.4 %
Noncontrolling interests (IBG Holdings LLC) 338,691,717   81.9 % 340,229,444   82.6 %
 
Total IBG LLC membership interests 413,789,160   100.0 % 411,709,048   100.0 %