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Interactive Brokers Group Announces 2Q2019 Results

Interactive Brokers Group, Inc. (IEX: IBKR), an automated global electronic broker, reported diluted earnings per share on net income of $0.43 for the quarter ended June 30, 2019 compared to $0.57 for the same period in 2018, and diluted earnings per share on comprehensive income of $0.46 for the quarter, compared to $0.39 for the same period in 2018.

Net revenues were $413 million and income before income taxes was $225 million this quarter, compared to net revenues of $445 million and income before income taxes of $271 million for the same period in 2018. The results for the quarter were positively impacted by strong growth in net interest income, which increased $34 million, or 15%, from the year-ago quarter; partially counterbalanced by lower commissions revenue, which decreased $7 million, or 4%, from the year-ago quarter.

In addition, the results for the quarter also include a $6 million loss on our currency diversification strategy, compared to a $21 million loss in the same period in 2018; and a $74 million mark-to-market loss on our investment in Tiger Brokers.

The Interactive Brokers Group, Inc. Board of Directors declared a quarterly cash dividend of $0.10 per share. This dividend is payable on September 13, 2019 to shareholders of record as of August 30, 2019.

Business Highlights

  • 54% pretax profit margin for this quarter, down from 61% in the year-ago quarter.
  • 64% Electronic Brokerage pretax profit margin for this quarter, unchanged from the year-ago quarter.
  • Customer equity grew 14% from the year-ago quarter to $153.1 billion and customer debits decreased 11% to $25.7 billion.
  • Customer accounts increased 19% from the year-ago quarter to 645 thousand.
  • Total DARTs1 increased 4% from the year-ago quarter to 828 thousand.
  • Brokerage segment equity was $6.4 billion. Total equity was $7.6 billion.

____________________

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

Segment Overview

Electronic Brokerage

Electronic brokerage segment income before income taxes increased 7% to $302 million in the quarter ended June 30, 2019, compared to the same period last year. Net revenues increased 7% to $473 million on higher net interest and other income, partially offset by lower commissions revenue.

Commissions revenue decreased 4% from the year-ago quarter on lower customer trading volume across most product types, which reflected smaller average trade sizes. Net interest income increased 16% as average customer credit balances and benchmark interest rates increased from the year-ago quarter. Other income increased 3% on higher net mark-to-market gains on our U.S. government securities portfolio and higher fees earned from our Insured Bank Deposit Sweep Program. Pretax profit margin was 64% for the quarter ended June 30, 2019, unchanged from the same period last year.

Customer accounts grew 19% to 645 thousand and customer equity increased 14% from the year-ago quarter to $153.1 billion. Total DARTs for cleared and execution-only customers increased 4% to 828 thousand from the year-ago quarter. Cleared DARTs were 740 thousand, slightly higher than the same period last year.

Market Making

Market making segment income before income taxes increased 22% to $11 million in the quarter ended June 30, 2019, compared to the same period last year, primarily due to lower operating costs in the remaining operations.

Corporate

For the quarter ended June 30, 2019, we recognized a mark-to-market loss of approximately $74 million in our strategic investment in Up Fintech Holding Limited (“Tiger Brokers”), compared to a mark-to-market gain of $103 million recognized in the first quarter of 2019 after its initial public offering on March 20, 2019. As a result, we recognized a net gain of $29 million for the six months ended June 30, 2019.

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 increased our comprehensive earnings by $10 million, as the U.S. dollar value of the GLOBAL increased by approximately 0.24%. 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”).

Regulatory Matters

The Company is subject to regulatory oversight and examination by numerous governmental and self-regulatory authorities. It is currently providing information to certain of such authorities, including FINRA, the SEC, the CFTC and the United States Department of Justice, and cooperating with those authorities. The Company believes that the regulators are focused on compliance practices, including anti money laundering and Bank Secrecy Act practices. The Company periodically reviews these practices to make them more robust and to keep pace with changing regulatory standards, and the Company has been enhancing and augmenting its procedures and personnel in these areas over the past several years. While the outcome of the examinations and inquiries currently in progress cannot be predicted, the Company does not believe that they are likely to have a materially adverse effect on the Company’s financial results.

Conference Call Information:

Interactive Brokers Group, Inc. will hold a conference call with investors today, July 16, 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 125 markets in numerous countries and currencies, from a single IBKR Integrated Investment 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, February 25, 2019. 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

2Q2018

                     4,575

           78,026

             4,641

           87,242

                  1,363

2Q2019

                     3,853

 (16%)

           74,269

 (5%)

             6,827

47%

           84,949

 (3%)

                  1,348

1Q2019

                     4,342

           75,935

             6,669

           86,946

                  1,425

2Q2019

                     3,853

 (11%)

           74,269

 (2%)

             6,827

2%

           84,949

 (2%)

                  1,348

CONTRACT AND SHARE VOLUMES:

(in 000's, except %)

 

 

 

 

 

TOTAL

Options

 

%

 

Futures1

 

%

 

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%)

2Q2018

           93,253

           36,693

           51,370,386

2Q2019

           96,007

3%

           32,424

 (12%)

           42,995,205

 (16%)

1Q2019

           90,242

           31,142

           51,258,862

2Q2019

           96,007

6%

           32,424

4%

           42,995,205

 (16%)

MARKET MAKING

Options

 

%

 

Futures1

 

%

 

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%

2Q2018

           11,813

                756

             2,442,203

2Q2019

           10,008

 (15%)

                621

 (18%)

             2,598,531

6%

1Q2019

           11,638

                640

             2,842,219

2Q2019

           10,008

 (14%)

                621

 (3%)

             2,598,531

 (9%)

BROKERAGE TOTAL

Options

 

%

 

Futures1

 

%

 

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%)

2Q2018

           81,440

           35,937

           48,928,183

2Q2019

           85,999

6%

           31,803

 (12%)

           40,396,674

 (17%)

1Q2019

           78,604

           30,502

           48,416,643

2Q2019

           85,999

9%

           31,803

4%

           40,396,674

 (17%)

1 Includes options on futures.

 

 

 

 

 

BROKERAGE CLEARED

Options

 

%

 

Futures1

 

%

 

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%)

2Q2018

           71,873

           35,679

           47,840,126

2Q2019

           71,524

0%

           31,564

 (12%)

           39,086,399

 (18%)

1Q2019

           68,237

           30,246

           47,082,741

2Q2019

           71,524

5%

           31,564

4%

           39,086,399

 (17%)

1 Includes options on futures.

BROKERAGE STATISTICS

 

 

 

 

 

 

 

 

(in 000's, except % and where noted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year over Year

2Q2019

2Q2018

% Change

 

   Total Accounts

                     645

                     542

19%

   Customer Equity (in billions)1

$

153.1

$

134.7

14%

   Cleared DARTs

                     740

                     739

0%

   Total Customer DARTs

                     828

                     797

4%

Cleared Customers (in $'s, except DART per account)

 

   Commission per DART

$

3.68

$

3.86

 (5%)

   DART per Avg. Account (Annualized)

                     293

                     350

 (16%)

   Net Revenue per Avg. Account (Annualized)

$

2,863

$

3,190

 (10%)

Consecutive Quarters

2Q2019

1Q2019

% Change

 

   Total Accounts

                     645

                     623

4%

   Customer Equity (in billions)1

$

153.1

$

147.6

4%

   Cleared DARTs

                     740

                     757

 (2%)

   Total Customer DARTs

                     828

                     848

 (2%)

Cleared Customers (in $'s, except DART per account)

 

   Commission per DART

$

3.68

$

3.68

0%

   DART per Avg. Account (Annualized)

                     293

                     311

 (6%)

   Net Revenue per Avg. Account (Annualized)

$

2,863

$

2,961

 (3%)

1 Excludes non-customers.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
NET INTEREST MARGIN 
(UNAUDITED)

    Three Months Six Months 
    Ended June 30, Ended June 30, 
    

2019

 

2018

2019

 

2018

               
    (in millions)
Average interest-earning assets             
 Segregated cash and securities 

$

                  27,313

 

$

                  19,512

 

$

                  26,452

 

$

                  20,248

 
 Customer margin loans  

                  26,184

  

                  29,839

  

                  25,929

  

                  29,658

 
 Securities borrowed  

                    3,991

  

                    3,327

  

                    3,840

  

                    3,202

 
 Other interest-earning assets  

                    5,105

  

                    4,020

  

                    5,095

  

                    4,079

 
 FDIC sweeps1  

                    2,012

  

                    1,186

  

                    1,924

  

                       973

 
    

$

                  64,605

 

$

                  57,884

 

$

                  63,240

 

$

                  58,160

 
                
Average interest-bearing liabilities             
 Customer credit balances 

$

                  51,777

 

$

                  47,390

 

$

                  50,838

 

$

                  47,657

 
 Securities loaned  

                    4,131

  

                    4,013

  

                    3,913

  

                    4,178

 
    

$

                  55,908

 

$

                  51,403

 

$

                  54,751

 

$

                  51,835

 
                
Net interest income             
 Segregated cash and securities, net2 

$

                       145

 

$

                         71

 

$

                       281

 

$

                       142

 
 Customer margin loans3  

                       188

  

                       164

  

                       362

  

                       303

 
 Securities borrowed and loaned, net4  

                         48

  

                         53

  

                       100

  

                       112

 
 Customer credit balances, net3/4  

                     (147)

  

                       (80)

  

                     (284)

  

                     (141)

 
 Other net interest income1/2/5  

                         33

  

                         24

  

                         63

  

                         38

 
  Net interest income5 

$

                       267

 

$

                       232

 

$

                       522

 

$

                       454

 
                
Net interest margin ("NIM")  

1.66%

  

1.61%

  

1.66%

  

1.57%

 
                
Annualized yields             
 Segregated cash and securities  

2.13%

  

1.46%

  

2.14%

  

1.41%

 
 Customer margin loans  

2.88%

  

2.20%

  

2.82%

  

2.06%

 
 Customer credit balances  

1.14%

  

0.68%

  

1.13%

  

0.60%

 
 

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

 

During the quarter ended September 30, 2018, we 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 three
and six months ended June 30, 2018, $4 million and $7 million have been reclassified from net interest income on "Segregated cash and securities, net"
to "Other net interest income, 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

 

During the quarter ended December 31, 2018, we reclassified components of net interest income related to interest paid on short sale proceeds and as
such, prior period amounts have been adjusted to conform to the current period presentation. For the three and six months ended June 30, 2018, ($17)
million and ($29) million have been reclassified from net interest income on “Securities borrowed and loaned, net” to “Customer credit balances, net”, respectively.   

 

5

 

Includes income from financial instruments which has the same characteristics as interest, but is reported in other income in the Company’s consolidated
statements of comprehensive income, of $8 million and $7 million for the three months ended June 30, 2019 and 2018, and $17 million and $12 million for
the six months ended June 30, 2019 and 2018, respectively.

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
(UNAUDITED)

  

 

  

  

  

 
   Three Months Six Months
   Ended June 30, Ended June 30,
   

2019

 

2018

2019

 

2018

   (in millions)
   

  

 

  

 

  

 

 
Electronic BrokerageNet revenues 

$

473

 

$

443

 

$

929

 

$

908

 Non-interest expenses 

171

160

 

377

 

334

   

 Income before income taxes 

$

302

$

283

 

$

552

 

$

574

   

 

 

 Pre-tax profit margin 

64%

 

64%

 

59%

 

63%

   

  

  

  

 
Market MakingNet revenues 

$

20

 

$

22

 

$

35

 

$

43

 Non-interest expenses 

9

13

 

18

 

25

   

 

 

 Income before income taxes 

$

11

$

9

 

$

17

 

$

18

   

 

 

 Pre-tax profit margin 

55%

 

41%

 

49%

 

42%

   

  

  

  

 
Corporate 1Net revenues 

$

(80)

 

$

(20)

 

$

                         7

 

$

21

 Non-interest expenses 

                         8

                         1

 

                       12

 

                         2

   

 

 

 Income (loss) before income taxes 

$

(88)

$

(21)

 

$

(5)

 

$

19

   

 

 

   

  

  

  

 
TotalNet revenues 

$

413

 

$

445

 

$

971

 

$

972

 Non-interest expenses 

188

174

 

407

 

361

   

 

 

 Income before income taxes 

$

225

$

271

 

$

564

 

$

611

   

  

  

  

 
 Pre-tax profit margin 

54%

 

61%

 

58%

 

63%

   

  

  

  

 

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,
    

2019

 

2018

2019

 

2018

    

(in millions, except share and per share data)
    

  

  

  

 
Revenues: 

  

  

  

 
 Commissions 

$

178

 

$

185

 

$

351

 

$

405

 Interest income 

432

 

333

 

840

 

644

 Trading gains 

6

 

12

 

13

 

25

 Other income (loss) 

(30)

 

23

 

102

 

100

    

 

  

  

  

 
  Total revenues 

586

 

553

 

1,306

 

1,174

    

 

  

  

  

 
 Interest expense 

173

 

108

 

335

 

202

    

 

  

  

  

 
  Total net revenues  

413

 

445

 

971

 

972

    

 

  

  

  

 
Non-interest expenses: 

  

  

  

 
 Execution, clearing and distribution fees 

63

 

66

 

124

 

139

 Employee compensation and benefits 

75

 

68

 

146

 

138

 Occupancy, depreciation and amortization 

 

14

 

11

 

28

 

23

 Communications 

6

 

7

 

12

 

13

 General and administrative  

26

 

22

 

50

 

45

 Customer bad debt 

                         4

 

                         -

 

47

 

3

    

 

  

  

  

 
  Total non-interest expenses  

188

 

174

 

407

 

361

    

 

  

  

  

 
Income before income taxes 

225

 

271

 

564

 

611

    

  

  

  

 
Income tax expense 

15

 

13

 

30

 

34

    

  

  

  

 
Net income 

210

 

258

 

534

 

577

    

  

  

  

 
Net income attributable to noncontrolling interests 

178

 

217

 

453

 

490

    

 

  

  

  

 
Net income available for common stockholders 

$

32

 

$

41

 

$

81

 

$

87

    

  

  

  

 
Earnings per share: 

  

  

  

 
 Basic  

$

0.43

 

$

0.57

 

$

1.08

 

$

1.21

 Diluted 

$

0.43

 

$

0.57

 

$

1.07

 

$

1.20

    

  

  

  

 
Weighted average common shares outstanding: 

  

  

  

 
 Basic  

 

75,868,349

 

72,476,729

 

75,486,825

 

71,979,104

 Diluted 

 

76,594,934

 

73,329,496

 

76,288,342

 

72,923,744

    

  

  

  

 
Comprehensive income: 

  

  

  

 
 Net income available for common stockholders 

$

32

 

$

41

 

$

81

 

$

87

 Other comprehensive income: 

  

  

  

 
  Cumulative translation adjustment, before income taxes 

                         4

 

                     (14)

 

3

 

(13)

  Income taxes related to items of other comprehensive income 

                         -

 

                       (1)

 

                         -

 

                       (1)

 Other comprehensive income (loss), net of tax 

                         4

 

                     (13)

 

3

 

(12)

Comprehensive income available for common stockholders 

$

36

 

$

28

 

$

84

 

$

75

    

  

  

  

 
Comprehensive income attributable to noncontrolling interests: 

  

  

  

 
Net income attributable to noncontrolling interests 

$

178

 

$

217

 

$

453

 

$

490

Other comprehensive income - cumulative translation adjustment 

12

 

(65)

 

11

 

(58)

Comprehensive income attributable to noncontrolling interests 

$

190

 

$

152

 

$

464

 

$

432

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
EARNINGS PER SHARE ON COMPREHENSIVE INCOME
(UNAUDITED)

            
 Three Months Six Months
 Ended June 30, Ended June 30,
 

2019

 

2018

2019

 

2018

  (in millions, except share and per share data)
            
Comprehensive income available for common stockholders 

$

36

 

$

28

 

$

84

 

$

75

            
Comprehensive earnings per share:            
Basic 

$

0.47

 

$

0.39

 

$

1.11

 

$

1.05

Diluted 

$

0.46

 

$

0.39

 

$

1.10

$

1.03

            
Weighted average common shares outstanding:            
Basic  

75,868,349

  

72,476,729

  

75,486,825

  

71,979,104

Diluted  

76,594,934

  

73,329,496

  

76,288,342

  

72,923,744

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)     

    

  

 
    June 30,
2019
 December 31,
2018
    (in millions)
    

  

 
Assets   

  

 
Cash and cash equivalents   

$

3,162

 

$

2,597

Cash - segregated for regulatory purposes   

                 8,819

 

                 7,503

Securities - segregated for regulatory purposes   

               20,273

 

               15,595

Securities borrowed   

                 4,028

 

                 3,331

Securities purchased under agreements to resell   

                 1,302

 

                 1,242

Financial instruments owned, at fair value   

                 1,192

 

                 2,119

Receivables from customers, net of allowance for doubtful accounts   

               25,904

 

               27,017

Receivables from brokers, dealers and clearing organizations   

                    685

 

                    706

Other assets   

                    669

 

                    437

    

  

 
Total assets   

$

66,034

 

$

60,547

    

  

 
Liabilities and equity   

  

 
    

  

 
Liabilities   

  

 
Short-term borrowings   

$

15

 

$

17

Securities loaned   

                 4,101

 

                 4,037

Financial instruments sold but not yet purchased, at fair value   

                    357

 

                    681

Other payables:   

  

 
Customers   

               53,054

 

               47,993

Brokers, dealers and clearing organizations   

                    385

 

                    298

Other payables   

                    502

 

                    365

    

               53,941

 

               48,656

    

  

 
Total liabilities   

               58,414

 

               53,391

    

  

 
Equity   

  

 
Stockholders' equity   

                 1,380

 

                 1,282

Noncontrolling interests   

                 6,240

 

                 5,874

Total equity   

                 7,620

 

                 7,156

    

  

 
Total liabilities and equity   

$

66,034

 

$

60,547

    

  

 
 June 30, 2019

 

December 31, 2018
Ownership of IBG LLC Membership InterestsInterests  %

Interests 

 %
    

  

 
IBG, Inc.

76,727,339

 

18.5%

75,100,955

 

18.1%

Noncontrolling interests (IBG Holdings LLC)

338,691,717

 

81.5%

338,691,717

 

81.9%

    

  

 
Total IBG LLC membership interests

415,419,056

 

100.0%

413,792,672

 

100.0%

Contacts:

For Interactive Brokers Group, Inc.
Investors: Nancy Stuebe, 203-618-4070
or
Media: Kalen Holliday, 203-913-1369

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