IBKR Interactive Brokers Group Inc

Reports Comprehensive Earnings Per Share of $1.19, Income before Taxes of $761 Million on $1,396 Million in Net Revenues, and Earnings Per Share on Net Income of $1.25

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 diluted earnings per share on a comprehensive basis of $1.19 for the year ended December 31, 2016, compared to diluted earnings per share on a comprehensive basis of $0.62 for 2015.

Excluding other comprehensive income, the Company reported diluted earnings per share of $1.25 for the year ended December 31, 2016, compared to diluted earnings per share of $0.78 for 2015.

Net revenues were $1,396 million and income before income taxes was $761 million for 2016, compared to net revenues of $1,189 million and income before income taxes of $458 million in 2015.

The results for the year were positively impacted by strong growth in net interest income, which increased 24% from 2015, and the non-recurrence of unsecured customer losses caused by the sudden move in the value of the Swiss franc in January 2015. Trading gains decreased 39% in 2016 on lower market making trading volumes and decreases in volatility and in the actual-to-implied volatility ratio compared to 2015.

In addition, the results for the year include a $65 million loss on our currency diversification strategy, compared to a $269 million loss in 2015; and a $26 million net mark-to-market gain on our U.S. government securities portfolio compared to a $33 million net mark-to-market loss in 2015.

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, 2017 to shareholders of record as of March 1, 2017.

Business Highlights

• 55% pretax profit margin for 2016.
• 61% Electronic Brokerage pretax profit margin for 2016, up from 49% in 2015.
• 23% Market Making pretax profit margin for 2016, down from 44% in 2015.
• Customer equity grew 27% from 2015 to $85.5 billion and customer debits increased 14% to $19.4 billion.
• Customer accounts increased 16% from 2015 to 385 thousand.
• Total DARTs increased 2% from 2015 to 660 thousand.
• Brokerage segment equity was $4.1 billion. Total equity was $5.8 billion.

Segment Overview

Electronic Brokerage

Electronic Brokerage segment income before income taxes increased 41%, to $756 million in 2016, compared to 2015, due to higher net interest income and the non-recurrence of unsecured customer losses caused by the sudden move in the value of the Swiss franc in January 2015, as further described below. Net revenues increased 13% to $1,239 million on higher net interest income and net mark-to-market gains on our U.S. government securities portfolio, partially offset by slightly lower commissions and execution fees revenue.

Net interest income increased 25% from 2015. Other income increased 62% over the same period, driven by net mark-to-market gains on investments in U.S. government securities. Commissions and execution fees revenue decreased 1% from 2015 on lower customer volumes in options and stocks, which decreased 11% and 10%, respectively, from 2015. Pretax profit margin was 61% in 2016, up from 49% in 2015.

Customer accounts grew 16% to 385 thousand and customer equity increased 27% over 2015 to $85.5 billion. Total DARTs1 for cleared and execution-only customers increased 2% to 660 thousand from 2015. Cleared DARTs were 609 thousand, 3% higher than in 2015.

Market Making

Market Making segment income before income taxes decreased 66% to $44 million in 2016, compared to 2015, due to lower trading volumes and decreases in volatility and in the actual-to-implied volatility ratio. Pretax profit margin decreased to 23% in 2016 from 44% in 2015.

Sudden Move in the Value of the Swiss Franc

On January 15, 2015, due to the sudden, large move in the value of the Swiss franc that followed an unprecedented action by the Swiss National Bank, which removed a previously instituted and repeatedly reconfirmed cap of the exchange rate relative to the Euro, several of our customers who held currency futures and spot positions suffered losses in excess of their deposits with us. We took immediate action to hedge our exposure to the foreign currency receivables from these customers. During 2015, we incurred losses, net of hedging activity and debt collection efforts, of $119 million. We continue to actively pursue collection of these debts. The ultimate effect of this incident on our results will depend upon the outcome of our debt collection efforts.

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 15 major currencies in which we hold our equity. In 2016, our currency diversification strategy decreased our comprehensive earnings by $65 million, as the U.S. dollar value of the GLOBAL decreased by approximately 0.93%. 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”).

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

Conference Call Information:

Interactive Brokers Group will hold a conference call with investors today, January 17, 2017, at 4:30 p.m. ET to discuss its annual 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 AccountSM 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 extremely low cost relative to the financial services industry. We strive to provide our customers with advantageous execution prices and trading, risk and portfolio management tools, research facilities and investment products, all at unusually low prices, positioning them to achieve superior returns compared to our competitors.

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 2014 64,530 206,759 18,055 289,344 1,155 2015 65,937 2% 242,846 17% 18,769 4% 327,553 13% 1,305 2016 64,038 -3% 259,932 7% 16,515 -12% 340,485 4% 1,354   4Q2015 16,985 60,848 4,863 82,696 1,313 4Q2016 15,253 -10% 63,074 4% 3,933 -19% 82,260 -1% 1,316   3Q2016 15,474 61,181 3,736 80,391 1,256 4Q2016 15,253 -1% 63,074 3% 3,933 5% 82,260 2% 1,316   CONTRACT AND SHARE VOLUMES:             (in 000's, except %)

 

TOTAL

Options % Futures* % Stocks %

Period

(contracts) Change (contracts) Change (shares) Change 2014 631,265 123,048 153,613,174 2015 634,388 0% 140,668 14% 172,742,520 12% 2016 572,834 -10% 143,287 2% 155,439,227 -10%   4Q2015 156,125 33,436 35,150,818 4Q2016 141,695 -9% 34,173 2% 41,805,268 19%   3Q2016 138,767 32,521 38,515,753 4Q2016 141,695 2% 34,173 5% 41,805,268 9%  

 

MARKET MAKING

Options % Futures* % Stocks %

Period

(contracts) Change (contracts) Change (shares) Change 2014 344,741 15,668 12,025,822 2015 335,406 -3% 14,975 -4% 15,376,076 28% 2016 307,377 -8% 14,205 -5% 13,082,887 -15%   4Q2015 82,106 4,047 3,677,274 4Q2016 73,843 -10% 3,481 -14% 2,249,744 -39%   3Q2016 74,966 3,338 2,874,332 4Q2016 73,843 -1% 3,481 4% 2,249,744 -22%  

 

BROKERAGE TOTAL

Options % Futures* % Stocks %

Period

(contracts) Change (contracts) Change (shares) Change 2014 286,524 107,380 141,587,352 2015 298,982 4% 125,693 17% 157,366,444 11% 2016 265,457 -11% 129,082 3% 142,356,340 -10%   4Q2015 74,019 29,389 31,473,544 4Q2016 67,852 -8% 30,692 4% 39,555,524 26%   3Q2016 63,801 29,183 35,641,421 4Q2016 67,852 6% 30,692 5% 39,555,524 11%   * 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

2014 225,662 106,074 137,153,132 2015 244,356 8% 124,206 17% 153,443,988 12% 2016 227,413 -7% 128,021 3% 138,523,932 -10%   4Q2015 59,934 29,030 30,405,179 4Q2016 59,354 -1% 30,452 5% 38,598,113 27%   3Q2016 55,579 28,986 34,817,202 4Q2016 59,354 7% 30,452 5% 38,598,113 11%   * Includes options on futures     BROKERAGE STATISTICS       (in 000's, except % and where noted)   Year over Year

4Q2016

4Q2015

% Change

Total Accounts 385 331 16% Customer Equity (in billions)* $ 85.5 $ 67.4 27%   Cleared DARTs 591 582 2% Total Customer DARTs 640 641 0%     Cleared Customers (in $'s, except DART per account) Commission per DART $ 4.01 $ 3.81 5% DART per Avg. Account (Annualized) 394 447 -12% Net Revenue per Avg. Account (Annualized) $ 3,205 $ 3,239 -1%   Consecutive Quarters

4Q2016

3Q2016

% Change

Total Accounts 385 370 4% Customer Equity (in billions)* $ 85.5 $ 82.7 3%   Cleared DARTs 591 564 5% Total Customer DARTs 640 609 5%     Cleared Customers (in $'s, except DART per account) Commission per DART $ 4.01 $ 3.91 3% DART per Avg. Account (Annualized) 394 390 1% Net Revenue per Avg. Account (Annualized) $ 3,205 $ 3,191 0%   * Excludes non-customers.    

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(UNAUDITED)

      Three Months Twelve Months Ended December 31, Ended December 31, 2016   2015 2016   2015

(in millions)

  Electronic Brokerage Net revenues $ 294 $ 219 $ 1,239 $ 1,097 Non-interest expenses   126     106     483     561     Income before income taxes $ 168   $ 113   $ 756   $ 536     Pre-tax profit margin 57 % 52 % 61 % 49 %   Market Making Net revenues $ 45 $ 69 $ 190 $ 298 Non-interest expenses   33     42     146     168     Income before income taxes $ 12   $ 27   $ 44   $ 130     Pre-tax profit margin 27 % 39 % 23 % 44 %   Corporate (1) Net revenues $ (146 ) $ (17 ) $ (33 ) $ (206 ) Non-interest expenses   6     (4 )   6     2     Loss before income taxes $ (152 ) $ (13 ) $ (39 ) $ (208 )     Total Net revenues $ 193 $ 271 $ 1,396 $ 1,189 Non-interest expenses   165     144     635     731     Income before income taxes $ 28   $ 127   $ 761   $ 458     Pre-tax profit margin 15 % 47 % 55 % 39 %   (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, 2016 2015 2016 2015 (in millions, except share and per share data)   Revenues: Trading gains $ 39 $ 53 $ 163 $ 269 Commissions and execution fees 150 144 612 617 Interest income 160 136 606 492 Other income (loss)   (134 )   (44 )   94     (122 )   Total revenues 215 289 1,475 1,256   Interest expense   22     18     79     67     Total net revenues   193     271     1,396     1,189     Non-interest expenses: Execution and clearing 61 54 244 231 Employee compensation and benefits 68 56 242 227 Occupancy, depreciation and amortization 13 11 51 44 Communications 7 6 30 25 General and administrative 16 16 62 58 Customer bad debt   -     1     6     146     Total non-interest expenses   165     144     635     731     Income before income taxes 28 127 761 458   Income tax expense   7     6     62     43     Net income 21 121 699 415   Net income attributable to noncontrolling interests   17     104     615     366     Net income available for common stockholders $ 4   $ 17   $ 84   $ 49     Earnings per share: Basic $ 0.07   $ 0.26   $ 1.28   $ 0.80   Diluted $ 0.07   $ 0.25   $ 1.25   $ 0.78     Weighted average common shares outstanding: Basic 67,983,085 63,685,671 66,013,247 61,043,071 Diluted 68,967,280 64,951,936 67,299,413 62,509,796   Comprehensive income: Net income available for common stockholders $ 4 $ 17 $ 84 $ 49 Other comprehensive income: Cumulative translation adjustment, before income taxes (7 ) (5 ) (4 ) (10 ) Income taxes related to items of other comprehensive income -     -     -     -   Other comprehensive loss, net of tax   (7 )   (5 )   (4 )   (10 ) Comprehensive income (loss) available for common stockholders $ (3 ) $ 12   $ 80   $ 39     Comprehensive income attributable to noncontrolling interests:

 

Net income attributable to noncontrolling interests

$ 17 $ 104 $ 615 $ 366

 

Other comprehensive loss - cumulative translation adjustment

(40 )   (24 )   (21 )   (53 ) Comprehensive income (loss) attributable to noncontrolling interests $ (23 ) $ 80   $ 594   $ 313      

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

        December 31,

2016

December 31,

2015

(in millions)   Assets Cash and cash equivalents $ 1,925 $ 1,601 Cash and securities - segregated for regulatory purposes 24,017 21,309 Securities borrowed 3,629 3,924 Securities purchased under agreements to resell 111 195 Financial instruments owned, at fair value 4,037 3,420 Receivables from customers, net of allowance for doubtful accounts 19,409 17,050 Receivables from brokers, dealers and clearing organizations 1,040 692 Other assets   505   543   Total assets $ 54,673 $ 48,734   Liabilities and equity   Liabilities Short-term borrowings $ 74 $ - Securities loaned 4,293 2,894 Financial instruments sold but not yet purchased, at fair value 2,145 2,617 Other payables: Customers 41,731 37,084 Brokers, dealers and clearing organizations 239 423 Other payables   371   372   42,341   37,879   Total liabilities   48,853   43,390   Equity Stockholders' equity 974 863 Noncontrolling interests   4,846   4,481 Total equity   5,820   5,344   Total liabilities and equity $ 54,673 $ 48,734       December 31, 2016 December 31, 2015 Ownership of IBG LLC Membership Interests

Interests

%

Interests

%

  IBG, Inc. 67,989,967 16.6% 63,991,705 15.7% Noncontrolling interests (IBG Holdings LLC) 341,444,304 83.4% 343,040,504 84.3%   Total IBG LLC membership interests 409,434,271 100.0% 407,032,209 100.0%    

INTERACTIVE BROKERS GROUP, INC. AND SUBSIDIARIES

EARNINGS PER SHARE ON COMPREHENSIVE INCOME

(UNAUDITED)

            Three Months Twelve Months Ended December 31, Ended December 31, 2016 2015 2016 2015 (in millions, except share and per share data)     Comprehensive income (loss) available for common stockholders, net of tax $ (3) $ 12 $ 80 $ 39   Comprehensive earnings (loss) per share: Basic $ (0.05) $ 0.18 $ 1.21 $ 0.64 Diluted $ (0.05) $ 0.18 $ 1.19 $ 0.62     Weighted average common shares outstanding: Basic 67,983,085 63,685,671 66,013,247 61,043,071 Diluted 68,967,280 64,951,936 67,299,413 62,509,796

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