Interactive Brokers Group Inc

The table below presents our consolidated results of operations for the periods indicated. The period-to-period comparisons below of financial results are not necessarily indicative of future results.

The table below presents our consolidated results of operations as a percent of our total net revenues for the periods indicated.

Year Ended December 31, 2024 (“current year”) compared to the Year Ended December 31, 2023 (“prior year”)

Net Revenues

Total net revenues, for the current year, increased $845 million, or 19%, compared to the prior year, to $5,185 million. The increase in net revenues was due to higher net interest income, commissions, other fees and services, and other income.

Commissions

We earn commissions from our cleared customers for whom we act as an executing and clearing broker and also from our non-cleared customers for whom we act as an execution-only broker. Our commission structure allows customers to choose between (1) an all-inclusive fixed, or “bundled”, rate; (2) a tiered, or “unbundled”, rate that offers lower commissions for high volume customers where we pass through regulatory and exchange fees; and (3) our IBKR Lite SM offering, which provides commission-free trades on U.S. exchange-listed stocks and ETFs. IBKR Lite SM trades generate payments from market makers and others to whom we route these orders, which are reported in commissions. Our commissions are geographically diversified. In 2024, 2023, and 2022 we generated 38%, 37% and 37%, respectively, of commissions from operations conducted by our subsidiaries outside the U.S.

Commissions for the current year increased $337 million, or 25%, compared to the prior year, to $1,697 million, driven by higher customer trading volumes in options, stocks and futures. Total customer options and futures contract and stock share volumes increased 32%, 4% and 22%, respectively, from the prior year. Total DARTs for cleared and execution-only customers, for the current year, increased 36% to 2.6 million, compared to 1.9 million for the prior year. Average commission per commissionable order for cleared customers, for the current year, decreased 9% to $2.86, compared to $3.14 for the prior year, due to smaller order sizes across all products, lower average commissions per order in stocks, options and forex, and greater capture of exchange liquidity rebates passed through to customers.

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Other Fees and Services

We earn fee income on services provided to customers, which includes market data fees, risk exposure fees, payments for order flow from exchange-mandated programs, FDIC sweep fees, and other fees and services charged to customers.

Other fees and services, for the current year increased $83 million, or 42%, compared to the prior year, to $280 million, driven by a $54 million increase in risk exposure fees as customers exhibited more risk-on behavior, a $14 million increase in payments for order flow from exchange-mandated programs driven by higher customer trading volume, and a $9 million increase in FDIC sweep fees due to higher customer balances and benchmark interest rates.

Other Income (Loss)

Other income consists of foreign exchange gains (losses) from our currency diversification strategy, gains (losses) from principal transactions, gains (losses) from our equity method and other investments, and other revenue not directly attributable to our core business offerings. A discussion of our approach to managing foreign currency exposure is contained in Part II, Item 7A of this Annual Report on Form 10-K entitled “Quantitative and Qualitative Disclosures about Market Risk.”

Other income, for the current year, increased $71 million, compared to the prior year, to a gain of $60 million. This increase was mainly comprised of $65 million related to our currency diversification strategy; $48 million from our principal trading and investment activities; and $23 million related to million related to our strategic investment in Up Fintech Holding Limited (“Tiger Brokers”); partially offset by a $48 million loss on positions taken over as customer accommodation due to a technical issue at the New York Stock Exchange that occurred on the morning of June 3, 2024, as previously disclosed; and $16 million related to the remeasurement of our Tax Receivable Agreement liability, payable to Holdings, which went from a gain of $7 million in the prior year to a loss of $9 million in the current year, primarily due to changes in the Company’s effective tax rates.

Interest Income and Interest Expense

We earn interest on margin lending to customers that is secured by marketable securities and currency balances these customers hold with us; from our investments in U.S. and foreign government securities; from borrowing and lending securities; on deposits (in positive interest rate currencies) with banks; and on certain customers’ cash balances in negative rate currencies. We pay interest on customer cash balances (in sufficiently positive interest rate currencies); for borrowing and lending securities; on deposits (in negative interest rate currencies) with banks; and on our borrowings.

Net interest income (interest income less interest expense), for the current year, increased $354 million, or 13%, compared to the prior year, to $3,148 million. The increase in net interest income was driven by higher customer margin loans and customer credit balances, and higher benchmark interest rates.

Net interest income on customer balances, for the current year, increased $497 million, compared to the prior year, driven by a $12.3 billion increase in average customer margin loans, a $9.8 billion increase in average customer credit balances, and an increase in the average federal funds effective rate to 5.14% from 5.02% in the prior year and. See the “Business Environment” section above in this Item 7 for a further discussion about the change in interest rates in the current year.

The Company measures return on interest-earning assets using net interest margin (“NIM”). NIM is computed by dividing the annualized net interest income by the average interest-earning assets for the period. Interest-earning assets consist of cash and securities segregated for regulatory purposes (including U.S. government securities andsecurities purchased under agreements to resell), customer margin loans, securities borrowed, other interest-earning assets (solely firm assets) and customer cash balances swept into FDIC-insured banks as part of our Insured Bank Deposit Sweep Program. Interest-bearing liabilities consist of customer credit balances, securities loaned, and other interest-bearing liabilities.

Yields are generally a reflection of benchmark interest rates in each currency in which the Company and its customers hold cash balances. Because a meaningful portion of customer cash and margin loans are denominated in currencies other than the U.S. dollar, changes in U.S. benchmark interest rates do not impact the total amount of segregated cash and securities, customer margin loans and customer credit balances. Furthermore, because interest, when benchmark rates are at sufficiently high levels, is paid only on eligible cash credit balances (i.e., balances over $10 thousand or equivalent, in securities accounts with over $100 thousand in equity, and in smaller accounts at reduced rates), changes in benchmark interest rates are not passed through to the total amount of customer credit balances. Finally, the Company’s policies with respect to currencies with near zero or negative interest rates impact the overall yields on segregated cash and customer credit balances as effective interest rates in those currencies move above or below zero.

We earn income on securities loaned and borrowed to support customer long and short stock holdings in margin accounts.

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A securities lending transaction generates (1) net interest earned on lending a security, which is based on supply and demand for that security, and (2) interest earned on the cash collateral deposited for the loan of that security, which is based on benchmark interest rates. Interest on this collateral is reported as net interest on segregated cash, since cash collateral from securities lending is held in specially-designated bank accounts for the benefit of customers, in accordance with U.S. customer protection rules. Generally, as benchmark interest rates rise, while the overall revenue generated from a securities lending transaction may not change, the portion derived from interest earned on the cash collateral, which is classified as net interest income on “Segregated cash and securities, net” increases, while the portion classified as “Securities borrowed and loaned, net” decreases.

In the current year, average securities borrowed balances increased 11%, to $5.9 billion, and average securities loaned balances increased 44%, to $13.7 billion, compared to the prior year. Net interest earned from securities lending is affected by the level of demand for securities positions held by our customers that investors are looking to sell short. During the current year, net interest earned from securities lending transactions decreased $184 million, or 67%, compared to the prior year, driven by lower demand for selling stocks short, as the stock market rose steadily in the current year, and by fewer so-called “hard to borrow” stocks industry wide. However, as noted above, the rise in benchmark interest rates has shifted a portion of the interest reported as generated by lending securities to interest income on segregated cash (see further explanation above). It should be noted that securities lending transactions entered into to support customer activity may produce interest income (expense) that is offset by interest expense (income) related to customer balances.

We estimate that if the interest earned and paid on cash collateral related to our securities lending transactions were included under “Securities borrowed and loaned, net” in the table below, the total net interest income related to our securities lending activities would have been $699 million in the current year, compared to $718 million in the prior year. Such additional interest attributed to our securities lending activities would be reclassified from net interest income on “Segregated cash and securities, net” and “Customer credit balances, net” in the table below, so it would have no effect on our overall net interest income or net interest margin.

Our Stock Yield Enhancement Program provides an opportunity for customers with fully-paid stock to allow us to lend it out. We pay customers a rebate on the cash collateral generally equal to 50% of a market-based rate for lending the shares. We place cash and/or U.S. Treasury securities as collateral securing the loans in the customer’s account, which is held in segregated accounts, or at an affiliate acting as collateral agent for the benefit of our customer.

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The table below presents net interest income information corresponding to interest-earning assets and interest-bearing liabilities for the periods indicated.

(1)Represents the average amount of customer cash swept into FDIC-insured banks as part of our Insured Bank Deposit Sweep Program. This item is not recorded in the Company’s consolidated statements of financial condition. Income derived from program deposits is reported in other net interest income in the table above.

(2)Interest income and interest expense on customer margin loans and customer credit balances, respectively, are calculated on daily cash balances within each customer’s account on a net basis, which may result in an offset of balances across multiple account segments (e.g., between securities and commodities segments).

(3)Includes income from financial instruments that has the same characteristics as interest, but is reported in other fees and services and other income in the Company’s consolidated statements of comprehensive income. For the years ended December 31, 2024, 2023, and 2022, $28 million, $19 million and $10 million were reported in other fees and services, respectively. For the years ended December 31, 2024, 2023, and 2022, $47 million, $7 million and $4 million were reported in other income, respectively.

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Non-Interest Expenses

Non-interest expenses, for the current year, increased $219 million, or 17%, compared to the prior year, to $1,490 million, mainly due to a $103 million increase in general and administrative expenses; a $61 million increase in execution, clearing and distribution fees; and a $47 million increase in employee compensation and benefits. As a percentage of total net revenues, non-interest expenses were 29% for both the current year and the prior year.

Execution, Clearing and Distribution Fees

Execution, clearing and distribution fees include the costs of executing and clearing trades, net of liquidity rebates received from various exchanges and market centers, as well as regulatory fees and market data fees. Execution fees are paid primarily to electronic exchanges and market centers on which we trade. Clearing fees are paid to clearing houses and clearing agents. Market data fees, which are associated with market data revenue included in other fees and services, are paid to third parties to receive streaming price quotes and related information.

Execution, clearing and distribution fees, for the current year, increased $61 million, or 16%, compared to the prior year, to $447 million, primarily driven by (1) a $55 million increase in regulatory fees due to an increase in the SEC fee rate effective May 22, 2024, a new FINRA Consolidated Audit Trail (“CAT”) fee initiated in October 2024, andhigher customer trading volumes; and (2) a $20 million increase in clearing and depository fees due tohigher customer trading volumes; partially offset by (3) a $19 million decrease in exchange fees due to greater capture of liquidity rebates from certain exchanges. As a percentage of total net revenues, execution, clearing and distribution fees were 9% for both the current year and the prior year.

Employee Compensation and Benefits

Employee compensation and benefits include salaries, bonuses and other incentive compensation plans, group insurance, contributions to benefit programs and other related employee costs.

Employee compensation and benefits expenses, for the current year, increased $47 million, or 9%, compared to the prior year, to $574 million, associated with a combination of staffing increases and inflation. The average number of employees increased 2% to 2,960 for the current year, compared to 2,892 for the prior year. We continued to add staff worldwide to support our business expansion. As we continue to grow, our focus on automation has allowed us to maintain a relatively small staff. As a percentage of total net revenues, employee compensation and benefits expenses were 11% for the current year and 12% for the prior year. Employee compensation and benefits expenses as a percentage of adjusted net revenues were 11% for the current year and 12% for the prior year.

Occupancy, Depreciation and Amortization

Occupancy expenses consist primarily of rental payments on office and data center leases and related occupancy costs, such as utilities. Depreciation and amortization expenses result from the depreciation of fixed assets, such as computing and communications hardware, as well as amortization of leasehold improvements and capitalized in-house software development.

Occupancy, depreciation and amortization expenses, for the current year, increased $2 million, or 2%, compared to the prior year, to $101 million, mainly due to higher costs related to the expansion of our physical space for both offices and data centers. As a percentage of total net revenues, occupancy, depreciation and amortization expenses were 2% for both the current year and the prior year.

Communications

Communications expenses consist primarily of the cost of voice and data telecommunications lines supporting our business, including connectivity to exchanges and market centers around the world.

Communications expenses, for the current year, decreased $2 million, or 5%, compared to the prior year, to $39 million. As a percentage of total net revenues, communications expenses were 1% for both the current year and the prior year.

General and Administrative

General and administrative expenses consist primarily of advertising; professional services expenses, such as legal and audit work; legal and regulatory matters; and other operating expenses.

General and administrative expenses, for the current year, increased $103 million, or 49%, compared to the prior year, to $314 million, primarily due to a $57 million increase related to legal and regulatory matters, a $20 million increase in advertising expenses, and a one-time charge of $12 million related to the consolidation of our European subsidiaries. As a percentage of total net revenues, general and administrative expenses were 6% for the current year and 5% for the prior year.

Customer Bad Debt

Customer bad debt expense consists primarily of losses incurred by customers in excess of their assets with us, net of amounts recovered by us. Customer bad debt expense, for the current year increased $8 million, or 114%, compared to the prior year, to $15 million.

Income Tax Expense

We pay U.S. federal, state and local income taxes on our taxable income, which is proportional to the percentage we own of IBG LLC. Also, our operating subsidiaries are subject to income tax in the respective jurisdictions in which they operate.

Income tax expense, for the current year, increased $31 million, or 12%, compared to the prior year, to $288 million, primarily due to (1) higher income before taxes at our operating subsidiaries outside the U.S. and higher income tax rates in Europe following the adoption of the minimum effective tax rate of 15% on January 1, 2024; (2) higher income before income taxes subject to U.S. income tax at IBG, Inc.; and (3) IBG, Inc.’s higher average ownership percentage of IBG LLC, which rose from 25.0% to 25.6%; partially offset by (4) an $11 million income tax benefit in the current year due to the remeasurement of deferred tax assets related to the step-up in basis arising from the acquisition of interests in IBG LLC, primarily due to changes in the Company’s effective tax rates.

The table below presents information about our income tax expense for the periods indicated.

Operating Results

Income before income taxes, for the current year, increased $626 million, or 20%, compared to the prior year, to $3,695 million. Pretax profit margin was 71% for both the current year and the prior year.

Comparing our operating results for the current year to the prior year using non-GAAP financial measures, adjusted net revenues were $5,257 million, up 20%; adjusted income before income taxes was $3,767 million, up 21%; and adjusted pre-tax profit margin was 72% for the current year and 71% for the prior year. See the “Non-GAAP Financial Measures” section below in this Item 7 for additional details.

Noncontrolling Interest

We are the sole managing member of IBG LLC and, as such, operate and control all of the business and affairs of IBG LLC and its subsidiaries and consolidate IBG LLC’s financial results into our financial statements. As of December 31, 2024, we held approximately 25.8% ownership interest in IBG LLC. Holdings holds approximately 74.2% ownership interest in IBG LLC. We reflect Holdings’ ownership as a noncontrolling interest in our consolidated statements of financial condition, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows. Our share of IBG LLC’s net income, excluding Holdings’ noncontrolling interest, for the current year was approximately 25.6%, compared to approximately 25.0% for the prior year.

Year Ended December 31, 2023 compared to the Year Ended December 31, 2022

For a discussion of changes for the year ended December 31, 2023 compared to the Year Ended December 31, 2022 refer to the Annual Report on Form 10-K filed with the SEC on February 27, 2024.

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Non-GAAP Financial Measures

We use certain non-GAAP financial measures as additional measures to enhance the understanding of our financial results. These non-GAAP financial measures include adjusted net revenues, adjusted income before income taxes, adjusted net income available for common stockholders, and adjusted diluted earnings per share (“EPS”). We believe that these non-GAAP financial measures are important measures of our financial performance because they exclude certain items that may not be indicative of our core operating results and business outlook. We believe these non-GAAP financial measures are useful to investors and analysts in evaluating the operating performance of the business.

We define adjusted net revenues as net revenues adjusted to remove the effect of our currency diversification strategy, our net mark-to-market gains (losses) on investments, and the remeasurement of our Tax Receivable Agreement (“TRA”) liability.

We define adjusted income before income taxes as income before income taxes adjusted to remove the effect of our currency diversification strategy, our net mark-to-market gains (losses) on investments, the remeasurement of our TRA liability, and unusual bad debt expense.

We define adjusted net income available to common stockholders as net income available for common stockholders adjusted to remove the after-tax effects attributable to IBG, Inc. of our currency diversification strategy, our net mark-to-market gains (losses) on investments, the remeasurement of our TRA liability, unusual bad debt expense, and the remeasurement of certain deferred tax assets.

We define adjusted diluted EPS as adjusted net income available for common stockholders divided by the diluted weighted average number of shares outstanding for the period.

Mark-to-market on investments represents the net mark-to-market gains (losses) on investments in equity securities that do not qualify for equity method accounting, which are measured at fair value; on our U.S. government and municipal securities portfolios, which are typically held to maturity; and on certain other investments, including equity securities taken over by the Company as a customer accommodation following unusual market events or technical issues. In the event an investment is sold prior to maturity, accumulated gains (losses) are realized and previously accumulated non-GAAP adjustments are reversed in the period of sale.

Remeasurement of our TRA liability represents the change in the amount payable to IBG Holdings LLC under the TRA, primarily due to changes in the Company’s effective tax rates, which is related to the remeasurement of the deferred tax assets described below. For further information refer to Note 4 – Equity and Earnings per Share under Part II, Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Unusual bad debt expense consists of a credit loss on a loan not related to margin lending.

Remeasurement of certain deferred tax assets represents the change in the unamortized balance of deferred tax assets related to the step-up in basis arising from the acquisition of interests in IBG LLC, primarily due to changes in the Company’s effective tax rates. For further information refer to Note 4 – Equity and Earnings per Share under Part II, Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

We also report compensation and benefits expenses as a percentage of adjusted net revenues, as we believe this measure is useful to investors and analysts in evaluating the growth of our workforce in relation to the growth of our core revenues.

These non-GAAP financial measures should be considered in addition to, rather than as a substitute for, measures of financial performance prepared in accordance with GAAP 1.

1 Refers to generally accepted accounting principles in the United States.

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The tables below present a reconciliation of consolidated GAAP to non-GAAP financial measures for the periods indicated.

Note: Amounts may not add due to rounding.

1 The income tax effect is estimated using the statutory income tax rates applicable to the Company.

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