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Interactive Brokers Group Announces 4Q2018 Results

GREENWICH, Conn.--(BUSINESS WIRE)--

Income before Taxes of $309 Million on $492 Million in Net Revenues, Earnings Per Share on Net Income of $0.57 and Earnings Per Share on Comprehensive Income of $0.56.

Declares Quarterly Dividend of $0.10 Per Share.

Interactive Brokers Group, Inc. ( IBKR ), an automated global electronic broker, reported diluted earnings per share on net income of $0.57 for the quarter ended December 31, 2018, compared to a diluted loss per share of $0.02 for the same period in 2017, and diluted earnings per share on comprehensive income of $0.56 for the quarter, compared to a diluted loss per share of $0.02 for the same period in 2017.

Net revenues were $492 million and income before income taxes was $309 million this quarter, compared to net revenues of $515 million and income before income taxes of $364 million for the same period in 2017. The results for the quarter were positively impacted by strong growth in net interest income, which increased $39 million, or 19%, and higher commissions, which increased $35 million, or 21%, from the year-ago quarter. The increase in our results for this quarter was counterbalanced by an $18 million reversal on our currency diversification strategy, which swung from a $6 million gain in the year-ago quarter to a $12 million loss this quarter.

In addition, the Company’s earnings for the year-ago quarter were significantly impacted by the Tax Cuts and Jobs Act (the “Tax Act”), which revised U.S. corporate income tax law by, among other things, reducing the corporate income tax rate to 21% and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The results for the year-ago quarter were negatively impacted by the effects of the Tax Act, which decreased diluted earnings per share by $0.45.

For the year ended December 31, 2018, diluted earnings per share on net income were $2.28, compared to $1.07 in 2017, and diluted earnings per share on comprehensive income were $2.09, compared to $1.22 in 2017. The results for 2017 were negatively impacted by the effects of the Tax Act, which decreased diluted earnings per share by $0.46. Net revenues were $1,903 million and income before income taxes was $1,196 million for 2018, compared to net revenues of $1,702 million and income before income taxes of $1,049 million 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 March 14, 2019 to shareholders of record as of March 1, 2019.

Business Highlights

Fourth Quarter 2018:

  • 63% pretax profit margin for this quarter, down from 71% in the year-ago quarter.
  • 63% Electronic Brokerage pretax profit margin for this quarter, down from 65% in the year-ago quarter.
  • Customer equity grew 3% from the year-ago quarter to $128.4 billion and customer debits decreased 9% to $26.9 billion.
  • Customer accounts increased 24% from the year-ago quarter to 598 thousand.
  • Total DARTs 1 increased 30% from the year-ago quarter to 951 thousand.
  • Brokerage segment equity was $5.8 billion. Total equity was $7.2 billion.

Full Year 2018:

  • 63% pretax profit margin for 2018, up from 62% in 2017.
  • 64% Electronic Brokerage pretax profit margin for 2018, up from 61% in 2017.
  • Total DARTs increased 25% from 2017 to 862 thousand.

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

Segment Overview

Electronic Brokerage

Electronic brokerage segment income before income taxes increased 23% to $311 million in the quarter ended December 31, 2018, compared to the same period last year. Net revenues increased 26% to $490 million on higher net interest income, commissions revenue and other income.

Net interest income increased 20% as average customer credit and margin loan balances and benchmark interest rates increased from the year-ago quarter. Commissions revenue increased 21% from the year-ago quarter on higher customer DARTs across all product types. Other income increased 104% on higher net mark-to-market gains on other investments and higher fees earned from our FDIC sweep program. Pretax profit margin was 63% for the quarter ended December 31, 2018, down from 65% in the same period last year.

Customer accounts grew 24% to 598 thousand and customer equity increased 3% from the year-ago quarter to $128.4 billion, despite a 6% drop in the S&P 500 index for the year. Total DARTs for cleared and execution-only customers increased 30% to a record high 951 thousand from the year-ago quarter. Cleared DARTs were 856 thousand, 26% higher than in the same period last year.

Market Making

Market making segment income before income taxes increased 13% to $9 million in the quarter ended December 31, 2018, as compared to the year-ago quarter, primarily due to lower operating costs on the remaining operations.

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 $18 million, as the U.S. dollar value of the GLOBAL decreased by approximately 0.16%. In 2018, our currency diversification strategy decreased our comprehensive earnings by $99 million, as the U.S. dollar value of the GLOBAL decreased by approximately 1.14%. 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, January 22, 2019, 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 SM 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

2016 64,038 259,932 16,515 340,485 1,354
2017 31,282 (51%) 265,501 2% 14,835 (10%) 311,618 (8%) 1,246
2018 18,663 (40%) 328,099 24% 21,880 47% 368,642 18% 1,478
4Q2017 4,263 71,502 3,800 79,565 1,273
4Q2018 4,825 13% 88,806 24% 7,251 91% 100,882 27% 1,627
3Q2018 4,795 71,646 5,293 81,734 1,308
4Q2018 4,825 1% 88,806 24% 7,251 37% 100,882 23% 1,627
CONTRACT AND SHARE VOLUMES:
(in 000's, except %)
TOTAL Options % Futures 1 % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2016 572,834 143,287 155,439,227
2017 395,885 (31%) 124,123 (13%) 220,247,921 42%
2018 408,406 3% 151,762 22% 210,257,186 (5%)
4Q2017 89,381 31,445 58,373,129
4Q2018 107,417 20% 41,684 33% 44,933,688 (23%)
3Q2018 92,297 29,936 45,572,711
4Q2018 107,417 16% 41,684 39% 44,933,688 (1%)
MARKET MAKING Options % Futures 1 % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2016 307,377 14,205 13,082,887
2017 102,025 (67%) 5,696 (60%) 7,139,622 (45%)
2018 49,554 (51%) 3,277 (42%) 11,347,811 59%
4Q2017 11,228 1,002 1,750,178
4Q2018 12,680 13% 828 (17%) 3,091,834 77%
3Q2018 11,805 758 2,995,942
4Q2018 12,680 7% 828 9% 3,091,834 3%
BROKERAGE TOTAL Options % Futures 1 % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2016 265,457 129,082 142,356,340
2017 293,860 11% 118,427 (8%) 213,108,299 50%
2018 358,852 22% 148,485 25% 198,909,375 (7%)
4Q2017 78,153 30,443 56,622,951
4Q2018 94,737 21% 40,856 34% 41,841,854 (26%)
3Q2018 80,492 29,178 42,576,769
4Q2018 94,737 18% 40,856 40% 41,841,854 (2%)
1 Includes options on futures.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA, CONTINUED

BROKERAGE CLEARED Options % Futures 1 % Stocks %

Period

(contracts)

Change

(contracts)

Change

(shares)

Change

2016 227,413 128,021 138,523,932
2017 253,304 11% 116,858 (9%) 209,435,662 51%
2018 313,795 24% 146,806 26% 194,012,882 (7%)
4Q2017 66,232 30,041 55,714,749
4Q2018 83,984 27% 40,463 35% 40,271,369 (28%)
3Q2018 70,233 28,922 41,406,443
4Q2018 83,984 20% 40,463 40% 40,271,369 (3%)
1 Includes options on futures.
BROKERAGE STATISTICS
(in 000's, except % and where noted)
Year over Year

4Q2018

4Q2017

% Change

Total Accounts 598 483 24%
Customer Equity (in billions) 1

$128.4

$124.8

3%
Cleared DARTs 856 681 26%
Total Customer DARTs 951 730 30%
Cleared Customers (in $'s, except DART per account)
Commission per DART

$3.79

$3.92

(3%)
DART per Avg. Account (Annualized) 364 363 0%
Net Revenue per Avg. Account (Annualized)

$3,225

$3,318

(3%)
Consecutive Quarters

4Q2018

3Q2018

% Change

Total Accounts 598 576 4%
Customer Equity (in billions) 1

$128.4

$142.5

(10%)
Cleared DARTs 856 696 23%
Total Customer DARTs 951 763 25%
Cleared Customers (in $'s, except DART per account)
Commission per DART

$3.79

$3.78

0%
DART per Avg. Account (Annualized) 364 312 17%
Net Revenue per Avg. Account (Annualized)

$3,225

$3,109

4%
1 Excludes non-customers.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

NET INTEREST MARGIN

(UNAUDITED)

Three Months Twelve Months
Ended December 31, Ended December 31,
2018 2017 2018 2017
(in millions)
Average interest-earning assets
Segregated cash and securities $ 21,957 $ 22,803 $ 20,911 $ 23,824
Customer margin loans 28,805 26,982 29,253 23,289
Securities borrowed 3,407 3,757 3,310 3,964
Other interest-earning assets 4,825 3,553 4,362 2,930
FDIC sweeps 1 1,673 292 1,259 124
$ 60,667 $ 57,387 $ 59,095 $ 54,131
Average interest-bearing liabilities
Customer credit balances $ 49,153 $ 47,561 $ 48,179 $ 45,515
Securities loaned 3,729 4,350 3,982 3,917
$ 52,882 $ 51,911 $ 52,161 $ 49,432
Net interest income
Segregated cash and securities, net 2/3 $ 104 $ 58 $ 337 $ 201
Customer margin loans 4 192 122 677 392
Securities borrowed and loaned, net 24 49 140 161
Customer credit balances, net 2/4 (95) (38) (286) (106)
Other net interest income 1/3/5 27 16 90 40
Net interest income $ 252 $ 207 $ 958 $ 688
Net interest margin ("NIM") 1.65% 1.43% 1.62% 1.27%
Annualized yields
Segregated cash and securities 1.88% 1.01% 1.61% 0.84%
Customer margin loans 2.64% 1.79% 2.31% 1.68%
Customer credit balances 0.77% 0.32% 0.59% 0.23%

_________________________________

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 twelve months ended December 31, 2017, $5 million and $17 million have been recategorized from net interest income on “Segregated cash and securities, net” to “Customer credit balances, net”, respectively.
3 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 twelve months ended December 31, 2017, $3 million and $8 million have been reclassified from net interest income on "Segregated cash and securities, net" to "Other net interest income, net", 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 Twelve Months
Ended December 31, Ended December 31,
2018 2017 2018 2017
(in millions)
Electronic Brokerage Net revenues $ 490 $ 390 $ 1,842 $ 1,405
Non-interest expenses 179 138 665 545
Income before income taxes $ 311 $ 252 $ 1,177 $ 860
Pre-tax profit margin 63% 65% 64% 61%
Market Making Net revenues $ 17 $ 25 $ 76 $ 86
Non-interest expenses 8 17 42 113
Income (loss) before income taxes $ 9 $ 8 $ 34 $ (27)
Pre-tax profit (loss) margin 53% 32% 45% (31%)
Corporate 1 Net revenues $ (15) $ 100 $ (15) $ 211
Non-interest expenses (4) (4) - (5)
Income (loss) before income taxes $ (11) $ 104 $ (15) $ 216
Total Net revenues $ 492 $ 515 $ 1,903 $ 1,702
Non-interest expenses 183 151 707 653
Income before income taxes $ 309 $ 364 $ 1,196 $ 1,049
Pre-tax profit margin 63% 71% 63% 62%

_____________________________________

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 Twelve Months
Ended December 31, Ended December 31,
2018 2017 2018 2017
(in millions, except share and per share data)
Revenues:
Commissions $ 205 $ 170 $ 777 $ 647
Interest income 385 282 1,392 908
Trading gains 7 14 39 40
Other income 37 127 158 332
Total revenues 634 593 2,366 1,927
Interest expense 142 78 463 225
Total net revenues 492 515 1,903 1,702
Non-interest expenses:
Execution, clearing and distribution fees 73 56 269 241
Employee compensation and benefits 63 57 264 249
Occupancy, depreciation and amortization 14 13 49 47
Communications 5 6 25 28
General and administrative 26 19 96 86
Customer bad debt 2 - 4 2
Total non-interest expenses 183 151 707 653
Income before income taxes 309 364 1,196 1,049
Income tax expense 19 200 71 256
Net income 290 164 1,125 793
Net income attributable to noncontrolling interests 247 166 956 717
Net income (loss) available for common stockholders $ 43 $ (2) $ 169 $ 76
Earnings (loss) per share:
Basic $ 0.58 $ (0.02) $ 2.30 $ 1.09
Diluted $ 0.57 $ (0.02) $ 2.28 $ 1.07
Weighted average common shares outstanding:
Basic 75,097,578 71,473,863 73,438,209 69,926,933
Diluted 75,810,322 72,373,829 74,266,370 70,904,921
Comprehensive income:
Net income (loss) available for common stockholders $ 43 $ (2) $ 169 $ 76
Other comprehensive income:
Cumulative translation adjustment, before income taxes - - (14) 11
Income taxes related to items of other comprehensive income - - (1) -
Other comprehensive income (loss), net of tax - - (13) 11
Comprehensive income (loss) available for common stockholders $ 43 $ (2) $ 156 $ 87
Comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests $ 247 $ 166 $ 956 $ 717
Other comprehensive income - cumulative translation adjustment (6) (1) (66) 54
Comprehensive income attributable to noncontrolling interests $ 241 $ 165 $ 890 $ 771

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Twelve Months
Ended December 31, Ended December 31,
2018 2017 2018 2017
(in millions, except share and per share data)
Comprehensive income (loss) available for common stockholders, net of tax $ 43 $ (2) $ 156 $ 87
Comprehensive earnings (loss) per share:
Basic $ 0.56 $ (0.02) $ 2.12 $ 1.24
Diluted $ 0.56 $ (0.02) $ 2.09 $ 1.22
Weighted average common shares outstanding:
Basic 75,097,578 71,473,863 73,438,209 69,926,933
Diluted 75,810,322 72,373,829 74,266,370 70,904,921

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

December 31,

2018

December 31,

2017

(in millions)
Assets
Cash and cash equivalents $ 2,597 $ 1,732
Cash - segregated for regulatory purposes 7,503 6,547
Securities - segregated for regulatory purposes 15,595 13,685
Securities borrowed 3,331 2,957
Securities purchased under agreements to resell 1,242 2,035
Financial instruments owned, at fair value 2,119 3,154
Receivables from customers, net of allowance for doubtful accounts 27,017 29,821
Receivables from brokers, dealers and clearing organizations 706 823
Other assets 437 408
Total assets $ 60,547 $ 61,162
Liabilities and equity
Liabilities
Short-term borrowings $ 17 $ 15
Securities loaned 4,037 4,444
Securities sold under agreements to repurchase - 1,316
Financial instruments sold but not yet purchased, at fair value 681 767
Other payables:
Customers 47,993 47,548
Brokers, dealers and clearing organizations 298 283
Other payables 365 356
48,656 48,187
Total liabilities 53,391 54,729
Equity
Stockholders' equity 1,282 1,090
Noncontrolling interests 5,874 5,343
Total equity 7,156 6,433
Total liabilities and equity $ 60,547 $ 61,162
December 31, 2018 December 31, 2017
Ownership of IBG LLC Membership Interests

Interests

%

Interests

%

IBG, Inc. 75,100,955 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 413,792,672 100.0% 411,709,048 100.0%

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