Interactive Brokers’ Margin Loans Drive Interest-Income Rebound
Net interest income rose 23% to $1.057 billion as margin lending expanded.
Interactive Brokers Group (IBKR), the electronic brokerage and market-making company, reported net interest income of $1.057 billion in the second quarter, up 23% YoY and 17% QoQ. The increase reversed the sequential decline recorded in the first quarter, when net interest income fell to $904 million from $966 million in the fourth quarter.
Balance growth drove the rebound while spreads narrowed. Average customer margin loans rose 59% YoY to $96.6 billion, lifting margin-loan net interest income 39% to $988 million. Net interest margin compressed 14 bps to 1.93% as yields declined on segregated cash and securities, margin loans and customer credit balances.
The lending expansion accelerated late in the quarter. Period-end customer margin loans rose 67% YoY and 26% QoQ to $108.5 billion, reversing their first-quarter pullback. Customer credits increased 27% YoY and 8% QoQ to $182.4 billion, providing a larger funding base for interest-earning assets.
Trading activity supplied a second source of growth. Commission revenue increased 30% YoY and 10% QoQ to $673 million as customer options and stock volumes rose 17% and 14%, respectively. Other fees and services climbed 40% YoY to $87 million, helped by higher payment-for-order-flow, risk-exposure and market-data fees.
Higher activity also raised operating costs. Execution, clearing and distribution expense increased 34% QoQ to $142 million, including a $19 million rise in regulatory fees following the April increase in the SEC Section 31 transaction-fee rate. Total non-interest expense rose 17% YoY to $440 million, while the pretax margin improved 2 percentage points YoY to 77% and held unchanged from the first quarter.
Customer bad debt increased to $10 million from $1 million a year earlier, adding to the expense increase as margin balances expanded. Average customer credit balances grew 32% YoY to $171.7 billion, while the associated interest expense rose 12% to $956 million as balance growth outweighed lower rates paid.
Total equity increased to $22.3 billion from $21.3 billion in the first quarter and $20.5 billion in the fourth quarter. Interactive Brokers maintained its quarterly dividend at $0.0875 a share after raising it from $0.08 in the first quarter.
The $108.5 billion period-end margin-loan balance left the brokerage entering the third quarter with substantially more interest-earning volume, while the 14-bps YoY decline in net interest margin kept the revenue outlook dependent on continued customer-asset growth.