Interactive Brokers’ electronic brokerage segment marks 7% rise in pre-tax income in Q2 2019

Online trading major Interactive Brokers Group, Inc. (IEX:IBKR) has just posted its key performance metrics for the second quarter of 2019.

The electronic brokerage segment registered 7% year-on-year rise in income before income taxes to $302 million in the quarter ended June 30, 2019. The segment saw net revenues increase 7% to $473 million on the back of 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 645,000 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 828,000 from the year-ago quarter. Cleared DARTs were 740,000, slightly higher than the same period last year.

The market making segment registered income before income taxes of $11 million, up 22% from same three-month period last year, primarily due to lower operating costs in the remaining operations.

For the quarter ended June 30, 2019, Interactive Brokers recognized a mark-to-market loss of approximately $74 million in its 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.

Across all segments, Interactive Brokers reported diluted earnings per share on net income of $0.43 for the quarter to end-June 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 second quarter of 2019 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. 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.

Interactive Brokers did not provide an update on the so-called margin loans “incident”.

Over an extended period in 2018, a small number of Interactive Brokers’ brokerage customers had taken relatively large positions in a security listed on a major US exchange. The company extended margin loans against the security at a conservatively high collateral requirement. In December 2018, within a very short timeframe, this security lost a substantial amount of its value. During the quarter ended March 31, 2019, subsequent price declines in the stock have caused these accounts to fall into deficits, in the face of the company’s efforts to liquidate the customers’ positions.

For the quarter ended March 31, 2019, as previously guided, Interactive Brokers has recognized an aggregate loss of approximately $42 million. In its 10-Q report, Interactive Brokers explains that the maximum aggregate loss, which would occur if the security’s price fell to zero and none of the debts were collected, would be approximately $51 million.