Interactive Brokers’ electronic brokerage segment posts 23% Y/Y increase in pre-tax income in Q4 2018

Maria Nikolova

The electronic brokerage segment saw net revenues increase 26% to $490 million on the back of higher net interest income, commissions revenue and other income.

Online trading major Interactive Brokers Group, Inc. (IEX:IBKR) has just posted its key financial and operating metrics for the final quarter of 2018, with the data pointing to a rather robust three-month period for the electronic brokerage segment.

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

The segment marked a 20% year-on-year rise in net interest income 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 thanks to 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 598,000 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 951,000 from the year-ago quarter. Cleared DARTs were 856,000, 26% higher than in the same period last year.

Across all segments, Interactive Brokers registered net revenues of $492 million and income before income taxes was $309 million in the fourth quarter of 2018, 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.

On the downside, the company marked an $18 million reversal on its currency diversification strategy, which swung from a $6 million gain in the year-ago quarter to a $12 million loss in the final quarter of 2018.

Furthermore, Interactive Brokers’ earnings for the year-ago quarter were significantly impacted by the Tax Cuts and Jobs 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 onetime 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.

Interactive Brokers’ 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.

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