Interactive Brokers Group Announces 3Q2018 Results

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%)
______________________________
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%)
______________________________
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	%

View source version on businesswire.com: https://www.businesswire.com/news/home/20181016005992/en/