Interactive Brokers registers continued growth in pre-tax profits, revenues in Q2 2018

Maria Nikolova

Revenues and pre-tax profits rose in annual terms although the earnings lagged behind the results seen in Q1 2018.

Electronic trading major Interactive Brokers Group, Inc. (NASDAQ:IBKR) had a solid second quarter of 2018, the metrics reported earlier today show. Although the results were not as impressive as in the first quarter of 2018, the revenues and profits improved when compared to their levels from the equivalent period in 2017.

The broker reported diluted earnings per share on net income of $0.58 for the quarter ended June 30, 2018, compared to $0.32 for the same period in 2017. This compares to $0.63 for the first quarter of 2018. The Group posted diluted earnings per share on comprehensive income of $0.39 for the second quarter of 2018, compared to $0.41 for the same period in 2017.

Net revenues also staged a rise in annual terms – they amounted to $445 million in the three months to the end of June 2018, whereas income before income taxes was $271 million this quarter, compared to net revenues of $387 million and income before income taxes of $204 million for the corresponding period in 2017. Interactive Brokers attributed the robust results for the quarter to strong growth in net interest income, which increased $70 million, or 45%, and higher commissions, which increased $25 million, or 16% from the year-ago quarter.

On the downside, the results for the quarter include a $21 million loss on Interactive Brokers’ currency diversification strategy, compared to a $29 million gain in the same period in 2017. The results also include a $3 million net mark-to-market gain on the brokerage’s U.S. government securities portfolio, compared to a $3 million net mark-to-market loss in the equivalent period in 2017.

Across segments, the electronic brokerage business saw income before income taxes increase 43%, to $283 million in the quarter ended June 30, 2018, compared to the same period last year. Net revenues rose 33% to $443 million on the back of higher net interest income, commissions revenue and other income.

The electronic brokerage segment registered a 47% year-on-year increase in net interest income as average customer credit and margin loan balances and benchmark interest rates staged a rise from the year-ago quarter. Commissions revenue grew 16% from the year-ago quarter thanks to higher customer volumes in futures and options, which increased 21% and 13%, respectively, while stock volumes decreased 5% from the year-ago quarter.

Pretax profit margin in this segment was 64% for the quarter ended June 30, 2018, up from 59% in the same period last year.

Let’s also mention some of the operating metrics of the electronic brokerage segment. Customer accounts grew 27% to 542,000 and customer equity increased 29% from the year-ago quarter to $134.7 billion. Total DARTs for cleared and execution-only customers marked a 19% year-on-year rise to 797,000. Cleared DARTs were 739,000, up 19% from the same period last year.

Regarding the market making segment, the brokerage notes that this business saw income before income taxes increased to $9 million in the quarter ended June 30, 2018, as compared to a pretax loss of $24 million in the year-ago quarter, during which Interactive Brokers continued to wind down operations in this segment.

The results for the second quarter of 2018 reflect lower operating costs on the remaining operations and the non-recurrence of $22 million in one-time exit costs related to the wind-down of Interactive Brokers’ options market making business recognized in the year-ago quarter. In the third quarter of 2017, the broker completed the transfer of its US options market making business to Two Sigma Securities, LLC and by year-end the broker had exited the majority of its market making activities outside the US.

Interactive Brokers’ Board of Directors has declared a quarterly cash dividend of $0.10 per share. This dividend is payable on September 14, 2018 to shareholders of record as of August 31, 2018.

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