IBKR Interactive Brokers Group Inc

Reports Comprehensive Loss Per Share of $0.02, Income before Taxes of $364 Million on $515 Million in Net Revenues, and Loss Per Share on Net Income of $0.02.

Declares Quarterly Dividend of $0.10 Per Share.

Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) an automated global electronic broker and market maker, today reported a diluted loss per share on a comprehensive basis of $0.02 for the quarter ended December 31, 2017, compared to a diluted loss per share on a comprehensive basis of $0.05 for the same period in 2016. Excluding other comprehensive income, the Company reported a diluted loss per share of $0.02 for the quarter, compared to diluted earnings per share of $0.07 for the same period in 2016. The results for the quarter were negatively impacted by the effects of the Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017, which decreased diluted earnings per share by $0.45.

Net revenues were $515 million and income before income taxes was $364 million this quarter, compared to net revenues of $193 million and income before income taxes of $28 million for the same period in 2016. The results for the quarter were positively impacted by strong growth in net interest income, which increased $66 million, or 48%, and higher commissions, which increased $20 million, or 13% from the year-ago quarter. Trading gains decreased 64% from the year-ago quarter on lower market making trading volumes as we completed the transfer of our U.S. options market making business to Two Sigma Securities, LLC in the third quarter of 2017.

In addition, the results for the quarter include a $6 million gain on our currency diversification strategy, compared to a $152 million loss in the same period in 2016; and a $9 million net mark-to-market loss on our U.S. government securities portfolio, compared to an $11 million net mark-to-market loss in the same period in 2016.

The Tax Act significantly 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. As a result of the Tax Act, this quarter includes a net reduction in consolidated earnings of approximately $84 million, of which $62 million is due to the one-time repatriation tax and a net $22 million is related to the remeasurement of U.S. deferred tax assets at lower enacted corporate tax rates. The impact of the Tax Act recognized this quarter may materially differ due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Act.

For the year ended December 31, 2017, comprehensive diluted earnings per share were $1.22, compared to comprehensive diluted earnings per share of $1.19 in 2016. Excluding other comprehensive income, the Company reported diluted earnings per share of $1.07 for 2017, compared to diluted earnings per share of $1.25 in 2016. 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 $1,702 million and income before income taxes was $1,049 million for 2017, compared to net revenues of $1,396 million and income before income taxes of $761 million in 2016.

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, 2018 to shareholders of record as of March 1, 2018.

Business Highlights

Fourth Quarter 2017:

• 71% pretax profit margin for this quarter, up from 15% in the year-ago quarter.
• 65% Electronic Brokerage pretax profit margin for this quarter, up from 57% in the year-ago quarter.
• Customer equity grew 46% from the year-ago quarter to $124.8 billion and customer debits increased 52% to $29.5 billion.
• Customer accounts increased 25% from the year-ago quarter to 483 thousand.
• Total DARTs1 increased 14% from the year-ago quarter to 730 thousand.
• Brokerage segment equity was $4.9 billion. Total equity was $6.4 billion.

Full Year 2017:

• 62% pretax profit margin for 2017, up from 55% in 2016.
• 61% Electronic Brokerage pretax profit margin for 2017, unchanged from 2016.
• Total DARTs increased 4% from 2016 to 688 thousand.

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

Segment Overview

Electronic Brokerage

Electronic brokerage segment income before income taxes increased 50%, to $252 million in the quarter ended December 31, 2017, compared to the same period last year. Net revenues increased 33% to $390 million on higher net interest income and commissions revenue.

Net interest income increased 51% as average customer credit and margin loan balances and benchmark interest rates increased from the year-ago quarter. Commissions revenue increased 13% from the year-ago quarter on higher customer volumes in options and stocks, which increased 15% and 43%, respectively, from the year-ago quarter. Pretax profit margin was 65% for the quarter ended December 31, 2017, up from 57% in the same period last year.

Customer accounts grew 25% to 483 thousand and customer equity increased 46% from the year-ago quarter to $124.8 billion. Total DARTs for cleared and execution-only customers increased 14% to 730 thousand from the year-ago quarter. Cleared DARTs were 681 thousand, 15% higher than in the same period last year.

Market Making

Market making segment income before income taxes decreased to $8 million in the quarter ended December 31, 2017, due to lower trading gains, partially offset by lower operating costs, as we completed the transfer of our U.S. options market making business to Two Sigma Securities, LLC in the third quarter of 2017.

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 $5 million, as the U.S. dollar value of the GLOBAL increased by approximately 0.14%. In 2017, our currency diversification strategy increased our comprehensive earnings by $175 million, as the U.S. dollar value of the GLOBAL increased by approximately 3.06%. 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 will hold a conference call with investors today, January 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 20, 2017. 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 prices, 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   4Q2016 15,253 63,074 3,933 82,260 1,316 4Q2017 4,263 -72% 71,502 13% 3,800 -3% 79,565 -3% 1,273   3Q2017 6,834 66,262 3,698 76,794 1,229 4Q2017 4,263 -38% 71,502 8% 3,800 3% 79,565 4% 1,273   CONTRACT AND SHARE VOLUMES:       (in 000's, except %)     TOTAL Options % Futures* % 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%   4Q2016 141,695 34,173 41,805,268 4Q2017 89,381 -37% 31,445 -8% 58,373,129 40%   3Q2017 93,470 31,508 55,195,706 4Q2017 89,381 -4% 31,445 0% 58,373,129 6%   MARKET MAKING Options % Futures* % 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%   4Q2016 73,843 3,481 2,249,744 4Q2017 11,228 -85% 1,002 -71% 1,750,178 -22%   3Q2017 18,676 1,040 1,814,393 4Q2017 11,228 -40% 1,002 -4% 1,750,178 -4%   BROKERAGE TOTAL Options % Futures* % 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%   4Q2016 67,852 30,692 39,555,524 4Q2017 78,153 15% 30,443 -1% 56,622,951 43%   3Q2017 74,794 30,468 53,381,313 4Q2017 78,153 4% 30,443 0% 56,622,951 6%   * Includes options on futures    

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

OPERATING DATA, CONTINUED

 

BROKERAGE CLEARED         Options   % Futures* % 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%   4Q2016 59,354 30,452 38,598,113 4Q2017 66,232 12% 30,041 -1% 55,714,749 44%   3Q2017 64,363 30,034 52,515,806 4Q2017 66,232 3% 30,041 0% 55,714,749 6%   * Includes options on futures         BROKERAGE STATISTICS (in 000's, except % and where noted)   Year over Year 4Q2017 4Q2016 % Change Total Accounts 483 385 25% Customer Equity (in billions)* $ 124.8 $ 85.5 46%   Cleared DARTs 681 591 15% Total Customer DARTs 730 640 14%   Cleared Customers (in $'s, except DART per account) Commission per DART $ 3.92 $ 4.01 -2% DART per Avg. Account (Annualized) 363 394 -8% Net Revenue per Avg. Account (Annualized) $ 3,318 $ 3,205 4%   Consecutive Quarters 4Q2017 3Q2017 % Change Total Accounts 483 457 6% Customer Equity (in billions)* $ 124.8 $ 115.7 8%   Cleared DARTs 681 646 5% Total Customer DARTs 730 695 5%   Cleared Customers (in $'s, except DART per account) Commission per DART $ 3.92 $ 3.96 -1% DART per Avg. Account (Annualized) 363 365 -1% Net Revenue per Avg. Account (Annualized) $ 3,318 $ 3,249 2%   * Excludes non-customers.    

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

NET INTEREST MARGIN

(UNAUDITED)

          Three Months Twelve Months Ended December 31, Ended December 31, 2017 2016 2017 2016   (in millions) Average interest-earning assets Segregated cash and securities $ 22,803 $ 24,679 $ 23,824 $ 24,134 Customer margin loans 26,982 18,407 23,289 16,506 Securities borrowed 3,757 4,560 3,964 4,155 Other interest-earning assets   3,610   2,397   2,970   2,495 $ 57,152 $ 50,043 $ 54,047 $ 47,290   Average interest-bearing liabilities Customer credit balances $ 47,561 $ 42,315 $ 45,515 $ 39,980 Securities loaned   4,350   3,424   3,917   2,897 $ 51,911 $ 45,739 $ 49,432 $ 42,877   Net interest income Segregated cash and securities, net $ 66 $ 39 $ 226 $ 149 Customer margin loans 122 60 392 217 Securities borrowed and loaned, net 49 38 161 156 Customer credit balances (43) (4) (123) (12) Other net interest income1   13   5   32   17 Net interest income $ 207 $ 138 $ 688 $ 527   Net interest margin ("NIM")   1.44%   1.10%   1.27%   1.11%   Annualized yields Segregated cash and securities 1.15% 0.63% 0.95% 0.62% Customer margin loans 1.79% 1.30% 1.68% 1.31% Customer credit balances 0.36% 0.04% 0.27% 0.03%         1 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, 2017 2016 2017   2016

(in millions)

  Electronic Brokerage Net revenues $ 390 $ 294 $ 1,405 $ 1,239 Non-interest expenses   138   126   545   483   Income before income taxes $ 252 $ 168 $ 860 $ 756   Pre-tax profit margin 65% 57% 61% 61%   Market Making Net revenues $ 25 $ 45 $ 86 $ 190 Non-interest expenses   17   33   113   146   Income (loss) before income taxes $ 8 $ 12 $ (27) $ 44   Pre-tax profit (loss) margin 32% 27% (31%) 23%   Corporate 1 Net revenues $ 100 $ (146) $ 211 $ (33) Non-interest expenses   (4)   6   (5)   6   Income (loss) before income taxes $ 104 $ (152) $ 216 $ (39)     Total Net revenues $ 515 $ 193 $ 1,702 $ 1,396 Non-interest expenses   151   165   653   635   Income before income taxes $ 364 $ 28 $ 1,049 $ 761   Pre-tax profit margin 71% 15% 62% 55%

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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, 2017 2016 2017   2016 (in millions, except share and per share data)   Revenues: Trading gains $ 14 $ 39 $ 40 $ 163 Commissions 170 150 647 612 Interest income 282 160 908 606 Other income (loss)   127   (134)   332   94   Total revenues 593 215 1,927 1,475   Interest expense   78   22   225   79   Total net revenues   515   193   1,702   1,396   Non-interest expenses: Execution and clearing 56 61 241 244 Employee compensation and benefits 57 68 249 242 Occupancy, depreciation and amortization 13 13 47 51 Communications 6 7 28 30 General and administrative 19 16 86 62 Customer bad debt   -   -   2   6   Total non-interest expenses   151   165   653   635   Income before income taxes 364 28 1,049 761   Income tax expense   200   7   256   62   Net income 164 21 793 699   Net income attributable to noncontrolling interests   166   17   717   615   Net income (loss) available for common stockholders $ (2) $ 4 $ 76 $ 84   Earnings (loss) per share: Basic $ (0.02) $ 0.07 $ 1.09 $ 1.28 Diluted $ (0.02) $ 0.07 $ 1.07 $ 1.25   Weighted average common shares outstanding: Basic 71,473,863 67,983,085 69,926,933 66,013,247 Diluted 72,373,829 68,967,280 70,904,921 67,299,413   Comprehensive income: Net income (loss) available for common stockholders $ (2) $ 4 $ 76 $ 84 Other comprehensive income: Cumulative translation adjustment, before income taxes - (7) 11 (4) Income taxes related to items of other comprehensive income -   -   -   - Other comprehensive income, net of tax   -   (7)   11   (4) Comprehensive income (loss) available for common stockholders $ (2) $ (3) $ 87 $ 80   Comprehensive income attributable to noncontrolling interests: Net income attributable to noncontrolling interests $ 166 $ 17 $ 717 $ 615 Other comprehensive income - cumulative translation adjustment (1)   (40)   54   (21) Comprehensive income (loss) attributable to noncontrolling interests $ 165 $ (23) $ 771 $ 594    

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)

            Three Months Twelve Months Ended December 31, Ended December 31, 2017 2016 2017   2016 (in millions, except share and per share data)   Comprehensive income (loss) available for common stockholders, net of tax $ (2) $ (3) $ 87 $ 80   Comprehensive earnings (loss) per share: Basic $ (0.02) $ (0.05) $ 1.24 $ 1.21 Diluted $ (0.02) $ (0.05) $ 1.22 $ 1.19     Weighted average common shares outstanding: Basic 71,473,863 67,983,085 69,926,933 66,013,247 Diluted 72,373,829 68,967,280 70,904,921 67,299,413    

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

            December 31,

2017

December 31,

2016

(in millions)   Assets Cash and cash equivalents $ 1,781 $ 1,925 Cash and securities - segregated for regulatory purposes 20,232 24,017 Securities borrowed 2,957 3,629 Securities purchased under agreements to resell 2,061 111 Financial instruments owned, at fair value 3,154 4,037 Receivables from customers, net of allowance for doubtful accounts 29,821 19,409 Receivables from brokers, dealers and clearing organizations 774 1,040 Other assets   382   505   Total assets $ 61,162 $ 54,673     Liabilities and equity   Liabilities Short-term borrowings $ 15 $ 74 Securities loaned 4,444 4,293 Securities sold under agreements to repurchase 1,316 - Financial instruments sold but not yet purchased, at fair value 767 2,145 Other payables: Customers 47,548 41,731 Brokers, dealers and clearing organizations 283 239 Other payables   356   371   48,187   42,341   Total liabilities   54,729   48,853   Equity Stockholders' equity 1,090 974 Noncontrolling interests   5,343   4,846 Total equity   6,433   5,820   Total liabilities and equity $ 61,162 $ 54,673     December 31, 2017 December 31, 2016 Ownership of IBG LLC Membership Interests

Interests

%

Interests

%

  IBG, Inc. 71,479,604 17.4% 67,989,967 16.6% Noncontrolling interests (IBG Holdings LLC) 340,229,444 82.6% 341,444,304 83.4%   Total IBG LLC membership interests 411,709,048 100.0% 409,434,271 100.0%

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