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Interactive Brokers’ electronic brokerage segment posts solid results in Q3 2018

The electronic brokerage segment registered income before income taxes of $292 million in the quarter ended September 30, 2018, up 30% from the equivalent period last year.

Online trading major Interactive Brokers Group, Inc. (IBKR) has just posted its key financial and operating metrics for the quarter to September 30, 2018, with the electronic brokerage segment continuing to deliver robust results, whereas the market making segment failed to impress.

Interactive Brokers reported diluted earnings per share on net income of $0.51 for the third quarter of 2018, compared to $0.43 for the same period in 2017, and diluted earnings per share on comprehensive income of $0.50 for the quarter, compared to $0.44 for the same period in 2017.

Net revenues were $439 million and income before income taxes was $276 million this quarter, compared to net revenues of $426 million and income before income taxes of $268 million for the same period in 2017. The results for the quarter were driven by strong growth in net interest income, which increased $62 million, or 34%, and higher commissions, which increased $4 million, or 2% from the year-ago quarter.

On the downside, there was a $50 million reversal on Interactive Brokers’ currency diversification strategy, which swung from a $26 million gain in the year-ago quarter to a $24 million loss this quarter, and by the non-recurrence of an $11 million gain on the sale of the Group’s US market making business in the year-ago quarter.

Across segments, the electronic brokerage continued the robust performance already exhibited in preceding quarters, as pre-tax income and revenues kept climbing. The segment registered income before income taxes of $292 million in the quarter ended September 30, 2018, up 30% from the same period last year. Net revenues increased 21% in annual terms to $444 million on the back of higher net interest income, other income, and commissions revenue.

Net interest income marked a rise of 37% as average customer credit and margin loan balances and benchmark interest rates increased from the year-ago quarter. Commissions revenue increased 2% from the year-ago quarter on higher customer DARTs in stocks and options, partially offset by a decrease in futures DARTs, from the year-ago quarter. Other income increased 31% on higher net mark-to-market gains on other investments and higher fees earned from our FDIC sweep program. Pretax profit margin was 66% for the quarter ended September 30, 2018, up from 61% in the same period last year.

The operating metrics of the electronic brokerage segment were also strong. Customer accounts grew 26% to 576,000 and customer equity increased 23% from the year-ago quarter to $142.5 billion. Total DARTs for cleared and execution-only customers increased 10% to 763,000 from the year-ago quarter. Cleared DARTs were 696,000, 8% higher than in the same period last year.

Regarding the market making segment, its performance in the third quarter of 2018 was less impressive. The segment marked income before income taxes of $7 million, down 36% from the equivalent period a year earlier. This was largely due to the non-recurrence of an $11 million gain recognized on the transfer of the Group’s US market making business in the third quarter of 2017. The current quarter’s results reflect lower operating costs on the remaining operations, Interactive Brokers explained.

Let’s recall that, 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 it had exited the majority of its market making activities outside the United States.

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