Interactive Brokers Group, Inc. (IBKR) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Interactive Brokers Group First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference, Director of Investor Relations, Ms. Nancy Stuebe. Ms. Stuebe, you may begin.

Thank you, operator, and welcome everyone to our first quarter earnings call. Our earnings were released today after the market closed and are also available on our website. Our speakers today are Thomas Peterffy, our Chairman and CEO; and Paul Brody, our Group CFO. As a reminder, today's call may include forward-looking statements, which represent the Company's beliefs regarding future events, which by their nature are not certain and are outside of the Company's control. Our actual results and financial condition may differ possibly materially from what is indicated in these forward-looking statements. We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC. I'd now like to turn the call over to Thomas Peterffy. Thomas?

Good afternoon and thank you for attention today. Even though I know it is hard to follow the accent and in every occasion, it takes a long time for us to correct the record. Therefore to make this process easier on you, started this quarter, we are going to do something new. My script, which is very lots of joint effort between myself and our able representative for investor relations Nancy Stuebe, I am asking Nancy, to read the script. As in the past, I'll remain on the call and attempt to answer any questions addressed to me. Nancy?

Good afternoon and thank you for joining us for our first quarter 2018 earnings conference call. This quarter saw the long awaited return of volatility to world markets. We have said for several quarters that our strategy has been to grow our business in all segments to get as many accounts on our platform as possible, so we could take advantage of volatility when it returned. And this quarter it did. The VIX volatility index rose to an average of 17.2 this quarter, up from 11.7 last year. Volume in our brokerage business rose 48% in options and 53% in futures over last year. This compares with overall options clearing corporation volume growth of 33%. Our stock share volume rose 28%. The strength and scale of our platform which we designed to handle trading volumes many multiples of what we have currently help us take advantage of this activity. This also explains why while many of our peers had service interruptions during the busiest times in February, our customers had no such issues on our platform. Our cleared DARTs rose to a record 876.000 this quarter, up 44% over last year. DARTs per account were also up to the highest levels in two years. Yes, the market started moving again. The absolute numbers reminded us that the 87 that only crashes. A percentage wise of course, these daily changes in market prices are much closer to the long term norm than anything unusual. Towards the latter part of 2017, the higher the market climbed even though we thought this was a well justified move in view of the prospects for economic revival and the lower the volatility in the VIX trended, the more concerned we became about a sudden potential explosion of volatility. As opposed to other folks, we tend to expect sudden large moves when things become very calm and always in the opposite direction from what is currently taking place. This is also a good time to try to cajole people to rein in positions because they are liquidating large winners rather than large losers. For this reason, we increased margin requirements above exchange minimum and increase the exposure fees we charge to those accounts but carry short volatility positions that under certain scenarios would suffer losses substantially above the amount of equity in those accounts. We calculate these exposures continuously and we provide our customers that means to view them as a steady hypothetical position with the trades that they could potentially enter into to diminish such exposures and thereby reduce or eliminate the exposure fees. We also provide a mechanism to study various what if scenarios. By imposing the so-called exposure fee, our goal is not to collect the fees but rather to incentivize our customers to minimize their and indirectly our exposure to potential market moves. The strategy paid off for us during the first quarter, our customer's losses were smaller than they otherwise would have been and in spite of our large margin loans, our losses were limited to $3 million across 15 accounts due to the wild market gyrations. As expected, with the high volatility, volume spiked up. In February, our DARTs exceeded one million per day which is the new record for us. On last quarter's call, we said the big question for 2018 would be if we can keep our accounts and customer equity growing at the rate we did in the fourth quarter. So far, the answer appears to be yes. Our accounts grew 27% to 517,000 and customer equity grew 33% to 129 billion. And Interactive Brokers growth comes from signing of new customers in addition to existing customers adding additional assets and not from acquiring other brokers. We attract new customers for several reasons, our superior technology, our low cost, the interest we pay to our customers on their cash and positive word of mouth. We are also introducing new products and services such as Ibot [ph], which is our resident order desk robot to whom you can ask questions and give orders. We believe all this will increase the ease and attraction of our customer interface and the number and kinds of transactions customers can do on our platform. You can see our business' scalability in our margins. Compared to last year's first quarter, our reported pretax income for brokerage this quarter was 291 million, up 57% raising our pretext margin and brokerage from 59% to 63%. The factors driving brokerage were commissions of 220 million or 43% and net interest income of 210 million or 56%. Interest rates rose again in March. For those of you who pay attention to what interest due on the cash in your brokerage account and should Interactive Brokers now pays 1.19% on customer cash in U.S. dollars. That is interest on the cash sitting in your brokerage accounts that you can access immediately not cash you have to move to another account or cash you have to use to buy a money market fund and spend several hours days to free up in case you want to buy a stock. Net interest income rose on increased assets and higher average benchmark rates. In addition to credit balances moving higher, our customers' average margin loans for the quarter reached a high over 29 billion as a customers capitalized on our low margin rates. By paying the highest rates, we know of on customer cash and charging the lowest rates we know of for margin loans, we are attracting more takers on both sides. Finally, our total equity reached $6.7 billion dollars in the first quarter, our highest to date. As we grow larger, our equity capital helps us attract larger customers. We saw growth in all five of the client types that we service. I will now go over our five client segments. We saw particular strength once again in our introducing broker segment, which at first quarter account growth of 64%, quoted client growth of 69% and commission growth of 48%. Operating and regulatory costs of running a brokerage firm go up every year as regulation grows worldwide. Smaller and midsized brokers eventually reach a point where it is difficult if not impossible to justify maintaining their own technology, so they come to us to white label our platform which gives them the benefit of Interactive Brokers low cost while also giving our customers access to our state-of-the-art technology. The introducing brokers charged our lowest commission rates which they can then mark up. Every account no matter what the size is charged on the same commission's schedule. A benefit for us is that many of these accounts are below IBKR's $100,000 equity threshold for interest payments and we can therefore capture that net interest revenue, while providing the lowest commissions and best execution. The introducing broker handles the customer service for and manages the relationship with its clients. We provide the execution and back office, the trading, reporting, clearing, custody and regulatory tasks. The symbiotic relationship works well for both sides, there is something for everybody. We continue to see good growth in the hedge fund customer segment. For the first quarter, we saw 15% hedge fund account growth, 40% customer equity growth and 30% commission growth. As our word of mouth grows, more potential hedge fund clients try Interactive Brokers and see the quality of our platform and the strength of our balance sheet, because hedge funds like a trade in volatility commission growth was particularly strong in the quarter for this segment. Individual customers which make up 51% of our accounts, 39% of our client equity, and 49% of our commissions had account growth of 18% for the quarter, our client quite grew 31% and commissions were up 15%. The more active trading environment means that commissions for the segment finally started to keep pace with account growth. Proprietary trading firms are 3% percent of our account, 10% of client equity and 17% percent of commissions. For the quarter, this group grew by 10% on accounts, 6% in customer equity and 18% in commissions. Like hedge funds, prop trading firms are sensitive to volatility and trade more when volatility rises. Our final category is financial advisors. They are 17% of our accounts, 23% of our customer equity and 17% of our commissions. This group grew accounts by 16%, customer equity by 24% and commissions by 15%. As with the case with individual customers, a better trading environment meant the commissions kept up with account growth. Also Greenwich Compliance our in-house team that assist advisors with the legal and regulatory process of setting up their own RIA business has been very helpful for the segment's growth. Greenwich Compliance is our group of legal experts that taken RIA through state or SEC registration, get them set up in business and onto our platform. By leveraging our expertise and ability to provide services and technology, RIA can focus on their business and their starter phase and on through their operational phase. In addition to the constant improvement of our trading platform, you will see us continue to introduce new initiatives that the FDIC insured bank sweeps program and then Interactive Brokers that had Master Card in the fourth quarter of 2017. We will also offer a bill pay function and payroll direct deposit both of which are being rolled out shortly. These features are designed to give our customers the most flexibility in their Interactive Brokers account and not coincidentally to give them a little reason to leave our platform. There are many of you on this call who are investors in our company but not customers. We prefer investors who are customers with whom we are happy to share our success. Our success depends on feedback from and working with our users. We believe that we may not be the right investment for those who are not willing to use our platform, we ask that you join us, seriously explore and experiment with what we provide and give your suggestions to help us get even better. With that I will turn the call over to our CFO, Paul Brody, who will go through the numbers for the quarter.

Thank you, Nancy. Welcome everyone to the call. As usual, I'll first review our summary results and then give segment highlights including some additional color and then winding down of our market maker before opening up to questions. First quarter operating results reflected a solid performance in brokerage but by gains in net interest income and commission revenue, these were supplemented by currency translation gains and a continued low level of trading gains produced in the market making segment. Operating metrics reflected a stronger trading environment with greater volatility as measured by the average VIX, volatility rose 47% from the year ago quarter to 17.2% this quarter. Higher volatility typically gives rise to more trading opportunities for our customers worldwide and with the added tailwind from new account growth, our quarterly total DARTs were up 43% year-over-year and our clear DARTs per count rose 14% and our average net revenue per cleared account grew 19%. We continue to see straight this quarter in asset gathering and margin balances and brokerage as I will describe further in my comments on that segment's performance. First quarter reported net revenues for the company rose 41% against the lukewarm low volatility quarter last year. Pretax income was up 60% for a pretax margin of 65%. Excluding extraordinary items like our treasury marks, currency translation effects and market maker exit costs from last year, consolidated net revenues were up to 51% versus last year, while pretax income rose 85% for a pretax margin of 62%. And for the brokerage segment excluding treasury marks, pretax income was up 58% for pretax margin of 63% percent. Discussing the main factors, stronger market environment firstly, the average VIX as I said rose 47% year-over-year and volatility rose steadily beginning in February after a year's long period of historically low readings. Generally higher VIX enhances trading volume and therefore brokerage revenues. Next, the U.S. dollar weakened versus other major currencies. As a result, the currency basket in which we keep our equity, which we call the global rose 0.7% against the dollar for the quarter, resulting in a gain of $46 million. This includes a gain of $38 reported reported in other income and a gain of 8 million in other comprehensive income or OCI. We estimate the total impact to comprehensive earnings per share from the global to be a gain of $0.09 for the quarter with $0.07 reported as other income and $0.02 as OCI. Finally, short to medium term interest rates rose again in the quarter as the Federal Reserve continued to raise its target rate with another 25 basis point increase. As a result of our short duration portfolio which we managed to reduce our yield curve exposure, we recorded a modest mark-to-market loss of $3 million on our holdings of U.S. treasuries. Although we plan to hold these securities to maturity, we must as brokers unlike banks, mark them to market in our financial reporting. I'll summarize the quarter's revenues, adjustments and pretax results as follows. Reported net revenues for the quarter were $527 million dollars, deducting the 38 million gain on our currency strategy and adding back the 3 million loss from marking our Treasury portfolio market, results in adjusted net revenue of $492 million for the quarter. That's an increase of 51% from adjusted net revenues of 326 million in the year ago quarter. Reported pretax income was $340 million and adjusted for these factors, pretax income was $305 million. That's an increase of 84% over adjusted pretax income of $165 million in the year ago quarter. Pretax margin in the latest quarter was 65% as reported and 62% as adjusted. Turning to the income statement line items, commissions and execution fees were $220 million, up 43%, driven by increased volume across product types. Net interest income was $117 million, up 52%, brokerage produced 210 million, market making 6 million and corporate the remainder. While the December Federal Reserve rate hike helped us this quarter, the benefit of the March hike will be reflected in our numbers going forward. Trading gains were $13 million, up from $2 million in the year ago quarter. The increased volatility has helped small remaining market making operations. Other income which as I described earlier includes the effects of our currency diversification strategy and also Treasury portfolio marks was a gain of $77 million about even with the prior year quarter. Non-interest expenses were $187 million for the quarter, up 16% from the same quarter last year. The Rise in expenses reflects higher execution and clearing costs on strong trading volume as well as higher compensation and benefits and G&A expenses. AT March 31, 2018, our total headcount stood at 1,252, an increase of 3% over the year ago quarter. As the modest increase shows, we have been moderating the pace of hiring while transferring some employees mostly software developers from market making to brokerage operations. We continue to build our customer service and legal and compliance capabilities. Compensation and benefits expenses somewhat outpaced the increase in headcount this quarter reflecting primarily accruals for higher bonuses. Comprehensive diluted earnings per share were $0.65 for the quarter as compared to $0.40 for the first quarter of 2017. On a non-comprehensive basis which excludes OCI, diluted earnings per share and net income were $0.63 for the quarter as compared to $0.34 for the same period of 2017. Excluding the impact of non-core items, comprehensive diluted are things were $0.57 for the current quarter versus $27 for the year ago quarter on the same basis. Now to help investors better understand our earnings, the split between the public shareholders and the non-controlling interest is as follows. Starting with income before income taxes of $340 dollars, we deduct $10 million for income taxes paid by our operating companies which are predominantly foreign taxes. That leaves us with 330 million of which 82.6 or that $273 million reported on our income statement is attributable to the non-controlling interest. 17.4% remainder or $57 million is available to the public company stockholders. GAAP accounting prevents us from putting this 57 million number on our income statement because the public company results are reported after taxes. After we expense the remaining taxes of $11 million dollars owed on that 57 million, the public company's net income is the $46 million reported on our income statement. The total income tax expense of 21 million consists of this 11 million plus the 10 million paid by the operating companies. Turning to the balance sheet, it remains highly liquid with low leverage. As a general practice, we hold an amount of cash on hand that provides us with little buffer, should we need immediately available funds for any reason. We are extremely well capitalized from a regulatory standpoint and continue to deploy our capital in a growing brokerage business. We elect to hold excess capital to take advantage of opportunities as well as to convey the strength and depth of our balance sheet. We continue to carry no long term debt. And our consolidated equity capital at March 31, 2018 reached $6.7 billion dollars of which approximately 5.1 billion was held in brokerage, 1.3 billion in market making and the remainder in the corporate segment. As the market makers wound down, capital is being used to support our brokerage business. In both the brokers financial credibility facilitates customer orders and products such as the ADRs and ETFs and also allows us to take advantage of greater customer financing opportunities. In addition, we are evaluating our policy of funding quarterly dividend from the subsidiaries that have accumulated market making earnings over the years and we expect to begin sourcing these funds from accumulated brokerage earnings over the coming quarters. Turning to the segments beginning with electronic brokerage, this quarter we saw a rise in trading volume largely driven by increased volatility, which had long been absent in the world and especially U.S. markets. Customer trade volume grew 28% in stocks, 48% in options and 52% in futures. Foreign exchange dollar volume was also up. Commission revenue rose 43% on a product mix that featured smaller average trade sizes in stocks and futures and larger in options and Forex. This mix resulted in an overall average cleared commission per DART of $4.04 for the quarter, up 1% from the year ago quarter. Customer equity grew to 129.2 billion, up 33% from last year at 4% sequentially, the source of its growth continues to be a strong inflow of new accounts and customer assets. We continue to have success in attracting increasingly larger customers including hedge funds as well as financial advisors and introducing brokers that while large overall manage groups of smaller accounts, in particular large introducing brokers who bring their business to us on either an omnibus or fully disclosed basis continue to sign up with greater frequency. Our average account equity rose 5% year-on-year to $250,000. In addition to the larger accounts that we attract with financing in short self-support, we hope to persuade customers of all sizes deposit more of their cash with us by offering an expanded suite of cash management tools such as our Interactive Brokers debit Master Card, our FDIC insured bank deposit sweep program will pay and payroll direct deposit services and our strong mobile offerings. Margin debits around 40% year-over-year reaching $29.3 billion. Our compelling margin rate, lending rates especially in a rising interest rate environment along with customers' appetite for increased risk in our expanded prime broker financing increases in margin lending across large and small accounts. Customer credit balances continued their steady growth rising 7% over the year ago quarter. Net interest income rose to 210 million, up 56% from the first quarter of 0.17 and our net interest margin widened to 1.55% from 1.12% in the year ago quarter. The Federal Reserve for increases in the Fed funds target rate since March of 2017 together with increased customer balances generated more net interest income on cash balances. Our continued success asset gathering should lead to larger revenue contributions from interest sensitive assets going forward. Our bank fleet program introduced last year has seen increased acceptance though it's not yet contributing meaningfully to interest margin. And finally, our stock yield enhancement program where we share revenues from leading out fully paid securities with our customers continues to expand providing an additional source of interest revenue on securities assets. Margin lending and our segregated cash management for the largest contributors to the improvement in net interest margin. Given the opportunities presented by the market, our new product introductions and a growing customer asset base, we continue to believe we are well positioned to maximize their net interest income. In this environment, expectations over further rate increases are baked into the yields on instruments in which we invest. Isolated from these expectations and based on current balances, we estimate that an unanticipated single rise in overnight interest rates of 25 basis points were produced an additional $9 million in net interest income over the immediately following four quarters and $15 million as a yearly run rate, which includes reinvestment of all current holdings at higher rates. Further increases in rates would be reflected to a lesser degree in our net interest margin. We would realize part of net increase in the interest we are in our segregated cash and our margin lending offset somewhat by the interest we pay to our customers which is paid to benchmark rate less a narrow spread. Fixed expenses in brokerage of $1.3 million, up 30% over a year ago quarter. The primary component of this increase was higher general administrative costs driven by the expected transfer of staff from market making and increased legal and compliance expenses and reserves. Customer bad debt expense was $3 million higher than in prior quarters, but a reflection of the success of our robust risk management systems and limiting customer defaults during highly volatile periods. Our risk committee continued to enhance our scenario based risk models in order to reduce exposures to world events. Pretax income from electronic brokerage was $291 million, up 57% from the prior year quarter for a 63% percent pretax margin. Excluding Treasury marks, core pretax income was $294 million, up 58% from the prior year quarter on the same basis. I'll give a few brief remarks here about the market making business, as we have wound the majority of it down. This segment today consists of the customer facilitation business we will retain in products such as the ETFs and single stock futures as well as a few profitable international markets that we will continue to operate and evaluate for a period of time. Starting from these operations have and are expected to continue to defray the $25 million dollars of exit costs we incurred in 2017. As expected, market making trade volume generally declined year-over-year, options and futures contract volumes fell 75% and 63% respectively while stock share volume was up. That stock volume reflects an increase in market activity in Hong Kong and our ongoing customer facilitation activities. Trading in from market making for the first quarter were $30 million, up from 2 million in the low volatility quarter last year and about even with the $14 million reported for the fourth quarter. Pretax income was $9 million in the quarter, up from a pretax loss of $22 million in the year ago quarter. And on the cost side, execution clearing fees expenses were down 62% on lower trading volumes, fixed expenses decreased $7 million dollars down 59% from New York go quarter as the majority of market making employees who are staying with us have been transferred to brokerage. As we have said, we expect our brokerage operations to absorb approximately $40 million of expenses or about $0.08 per share annually going forward. The added cost consists primarily of personnel uncertain technology infrastructure. On a run rate basis, the brokerage business has now absorbed about 95% of that $40 million annual amount and we expect migration of these expenses to continue over the coming quarters until the full amount has absorbed some time in 2018. Finally, the earnings reported for the corporate segment reflect the effects of our currency diversification strategy. Our overall equity has measured in U.S. dollars, increased as U.S. dollar weakened against most other major currencies. We estimate the overall gain from our strategy of carrying our equity in proportion to the global to be about $46 million for the first quarter of 2018 as I described earlier because $8 million of the global gain is reported as other comprehensive income. This leads a gain of $38 million to be included in reported earnings. And I'd like to turn the call back over to the moderator and we can take some questions.

Thank you. [Operator Instructions] And our first question comes from Richard Repetto with Sandler O'Neill. Your line is now open.

Yeah, good evening Thomas, Good evening, Paul. And the first thing I want to say is I enjoy listening to you Thomas, I'm going to ask questions to you.

Okay. Thank you.

Anyway so the first question for you to obvious is congrats on the brokerage grown tremendously both trading and interest. And I'm just trying to get a feel for how it looks I know really believe it perhaps happen in April, but you know you've got high volatility or volatile is still comparable to 1Q, but you see volumes a lot lower as far as industry volumes going. I'm just trying to see, just get a feel you know given what's the overall you know more of an impact of volatility or the lower volume so far?

You see correctly, people that used to the higher volatility, they adjust their positions accordingly, and trading subsides, so what we see is what you see industry wide.

Okay. And then the other thing was on the overall environment with a much with higher volatility in 1Q and you've gone through the different customer segments. Did anything jump out at you as different as, did the higher volatility give more opportunities in certain customer segments than others or was it would be pretty hard to decide for or any comments or that you might have on?

You know it's obvious that the people who are engaged in volatility selling to substantially exact their positions and that activity did not come back to the extent that it was there before. So that is basically the big change that has happened.

Got it. Okay. And a very last thing I will ask Paul a question, the constant on taxes, so when you actually look at your tax rate for IBG, Inc. it look like it was a little bit below the 22.5 sort of like 19% in the low 19%, is that, are you not that it's a big amount overall to the bottom line but is this, is that a better number than ninety 19% range than the 22.5% you talked about before?

Right, so the way to think about it's the 22 in change that we talked about is kind of a statutory rate absent any other factors if we set standard amount of income flowing through, they get taxes of our public company. So the effective rate this quarter was in the high 19%, little bit under 20 actually. And that comes about because in any particular quarter we may be able to take advantage of some foreign tax credits in depends where the income is earned, it might be certain deductions, R&B you know whatever they are that do very quarter-to-quarter. Those factors tend to reduce that statutory rate to something lower this time, they really do a little bit under 20%.

Got it. Thank you. Thanks Thomas, thanks Paul.

Thank you, Rich.

Thank you. And our next question comes from Kyle Voigt with KBW. Your line is now open.

Hi, good evening. Just first question on the introducing brokers segment, is the 64% account growth, so looks really strong, just wondering if you could talk to the pipeline here in terms of potential brokers looking to outsource their technology to IB maybe compared to a year ago? And then the second part of that question Thomas, I just wondering if the way to help us frame the potential runway that's left in that segment specifically in terms of you know framing the aggregate size of these smaller brokerage, you think that could look to partner with IB?

I do not see this revenue stream as, it will be even exhausted because new brokerage firms all the time especially since our platform is that it takes very little effort to enter into the business. So I think that this line of business we will continue to expand for a very long time. As far as the pipeline, yes it takes some existing brokerage firm especially they are larger, a long time to make up their minds and once they do make up their minds and decide to come over it takes them three to six months to get their pipes together. So, we do have several ones that we are waiting to on board and that's all I can tell you about it.

Okay, fair enough. Then second question on the duration of the securities, I think from the beginning of 2106 through the middle of 2017, you kind of significantly shorten the duration of the securities book, from this quarter, we have a looks likes they are in the back of 2017 specifically in the fourth quarter, you began to re-extend that duration slightly. I was wondering if you could help us understand how we should think about ID's investment decisions in terms of that duration of the next maybe 12 months?

You're talking about Treasury specifically, yes?

Yeah, yes.

So, yes, we have to we have to maintain acquisition in treasury bills because the future of exchange the CME will take original marginal in the form of cash or Treasury bills. And so to that extent we have about $4 billion in treasuries that we tend to rollover wherever they come due for about two year period. So that the weighted maturity of that is about the year forward, otherwise we keep our customers funds in repose and the repose are within three months.

Okay. So the increase in the U.S. government securities from 3.5 billion to 4.5 billion in the fourth quarter that wasn't mostly to do with, it could be level at a future exchanges or was that an investment decision to?

We actively manage these positions.

Yeah, okay, all right, fair enough. Last one for me is just really on the other income, I think we back out the FX impact in the treasury marks and the other income line, the kind of core other income numbers be growing quite strongly, just wondering if you could help us understand what's driving that growth?

Well it's, you have heard we talked a little bit about the exposure charge to who in certain scenarios appear to both actually lose more money than they had with us and we tried to describe them to try to rein in their positions. We ask them to and if they don't want to recharge the fee and that amounted to I believe $8 million for the quarter.

Okay, alright, thank you very much.

Thank you. And our next question comes from Doug Mewhirter with SunTrust. Your line is now open.

Hi, good evening. Question about your introducing a broker business which is growing quite nicely. Give me an idea of the new customers, IB customers either banks or brokerage affiliates of banks that or brokers that you signed, let's say average accounts per brokerage client that you signed up, just kind of idea of how big a bite you take every time you sign up one of these IB clients?

By account, you mean how many accounts they have?

Correct, they will be moved over to your platform when you sign the agreement.

You know on average that have a few thousand.

A few thousand, okay, that's helpful. And Paul, on the expenses, you alluded to some you know bonus accruals, which you know certainly would be well deserved with your performance, can you give me an idea of maybe how much that was above the trend this quarter or what the dollar amount absolute dollar amount was?

I can tell you that I mean what you're after I guess is trying to make a better run rate and the run rate is closer to visit quarter than the last year's quarter because of some additional accruals. I can also tell you that there was some adjusting the fourth quarter because it was. That number was a little lower than normal because we did the best we could including bonuses towards the end of the year with all that was going out with market making and moving employees and you know a lot of unknowns. So we were slightly over accrued going into the fourth quarter, so that if you're comparing on a sequential basis that number was slightly depressed. Other than that I can tell you what we're close to run rate probably a little bit over because of you know period-to-period due you have certain adjustments that are always going in.

Okay, thanks, that's helpful. And my last question…

I just made clear that a bit, on that restate brokers who have few thousands but we have two large ones, a lot of them has over 40,000 and the other one has nearly 20,000, otherwise they have few thousands.

Great. That's very helpful. Thank you. My last question Thomas, could you characterize how the growth rate in either accounts or equity or however you want to define it was different between international versus United State based clients or segments?

Obviously, in Asia, it's highest and Europe is the second highest and the United States is the lowest.

Okay. And if that makes sense given the definite increase in activity over in Asia and your franchise there and especially Hong Kong. That's all my questions. Thank you very much.

Thank you. And our next question comes from Mac Sykes with Gabelli & Co. Your line is now open.

Good evening. Thank you for taking my questions. This is two. First, I would just highlight again what a terrific job you done with growth, but given the last quarter in terms of volatility, are there any areas where you may want to increase resources more dramatically to support that growth in terms of client, support, data centers et cetera?

Well, we are in quite a few resources are into Asia. Yeah, that's where we grow in fastest, yes.

Okay. And then the margin balance costs are at the rates around 1.9%to 2% last quarter, and it's been a while since we've seen materially higher rates, is there a point where that level of cost to the consumer may slow down or demand for margin balances?

Can you rephrase the question please?

So if I take out a margin bounce you know the cost is almost 2% at this point, is there actual level of rates where there will be fresher to reduce margin balances just simply because of the cost?

Well it's hard for me to tell because I've never been in this business at the time and margin been interested or very high. But you see I think that most of that we get, we get from the other brokers and as long as our margin loans are so much less expensive than our bookers margin loans, I think that we do not have to worry about that.

Thank you.

Thank you and our next question comes from Conor Fitzgerald with Goldman Sachs. Your line is now open.

Hi, good afternoon. I just want to ask one on deposit costs which I think we're up 6 basis points quarter-over-quarter meaning path finding roughly 25, first the 25 basis points we saw funds rise to two questions on that, could you give us a little more color of how much of your deposits are tied to U.S. dollar and then of the deposits that are tied to the U.S. dollar can you help us understand what the path the rate on future Fed increases should be on those balances?

Well it's mostly U.S. dollars are roughly around 90% and that's through rates are one for one for roughly 95% of the money.

Okay. Thanks, that's helpful. I guess my question is if it's one form passed through on the majority of your deposits just trying to understand why that cost would be only up 6 basis points quarter-over-quarter and just the reason I'm asking is to try to think about that go forward how sustainable the lower cost the rates are?

That's a tough question I well when was the rate increase, the rate increase shows mid December. Paul, you have any idea why that would be the case?

Hey, Conor, repeat that last the last question coming from the December. The slight increase that is by 25% our customer interest expense only around by 6%.

And just to further clarify it is going to cost our credit balances 42 basis points this quarter just trying to understand how to think about that number tracking going forward?

Right well, there's actually a more significant portion of the credit balances I think Thomas is referring to invested cash but understand it credit balances fund debit balances and then but the they attract interest on their own to the extent that the gross amount of the credit balance. So approximately on the say 20% of the credit balances are not earning interest to the customer meaning that we are capturing any rate increases there and so if you're looking at increased expenses paid on credit balances there only paid on the remainder, right. They paid on the larger balances on equity accounts with equity more than 100,000 and on cash balances more than 10,000 et cetera. So that's not the total that 70% to 80% of the total.

Got it. That's helpful. So fair to say this quarter is..

Yeah, 80% of the total so it's Fed rate is 25, it should go up 20, right.

Right. And just fair to think about the 6 basis point increase this quarter is as a good proxy for what we could expect the future hikes?

Are you sure you right about this 6 basis points.

Just from a GAAP income perspective, Thomas, I understand the dynamics of what you're actually passing on the customers are higher just curious just want to understand from a go forward modeling perspective on that line if this will be.

I think you should use the 80%.

Got it. Okay. That's helpful, thanks. And then just last question for me on the margin balances any you had increased pricing to try and slow down some of the growth in January just wondering what you learned from that experience and if it gave you any indications of about how price sensitive some your customers are and maybe if you do have pricing power and these parts your businesses? Thanks.

So I to tell you frankly I did not follow these very closely. I expect that there are some loans we did not make but generally we are so much lower for large amount of money than but they have we do not believe that they are many other that complete leaders.

That's helpful. Thank you.

Thank you and our next question comes from Chris Harris with Wells Fargo. Your line is now open.

Yeah, guys as a as a follow-up to those last series of questions, the credit pounces they're not paying any interest to customers, why is that and at a certain type of customer certain type of account?

So we do not interest on cash in a cons where the total assets amount to less than $100,000 number one. Number two, the interest we pay on cash for other accounts we do not pay interest on the first $10,000 of cash.

Okay. Got it. And then in terms of your expenses any thoughts that you guys might want to share on the trajectory of these expenses maybe throughout the course of this year?

We are trying to expand as fast as we can and we do not expect that expense growth with a moderate.

Okay. Thank you.

Thank you. [Operator Instructions] Our next question comes from Peter Binas with Schooner Capital. Your line is now open.

Good afternoon, all and thank you for the time. Just a brief question on our Asia performance and exposure, given concerns around possible adjustment coming from debt levels in China I'm wondering how you think about the exposure of the business to that part of the world and how major correction or exchange rate correction that part of the world affects business overall?

Well these accounts are not very huge so I do not really saying that they would do substantially impacted by and healed those forces that you mention.

Meaning that they make up a smaller part of the total than I would suspect or because they are small.

They cause themselves are not ready it odd so I wouldn't think that they would be very sensitive.

Got it. And they're all in there for the most part I find or stand corrected they are dollar denominated?

Mostly, yes.

Understood. Thank you.

Thank you and our next question comes from [indiscernible]. Your line is now open.

Hi, Thomas. I have a question that typically about a minority interest and if you saw any potential to change that in the future consolidated with the public interest?

That's a question that I have basically a wider looking at so I can't answer that question right now but I do not think that from that point of view of the current public interest that would make any difference. In other words if our shares very my shares were registered but I kept on sitting down that I don't think it would make any difference for the public's shareholders.

Well currently it's hundred component correct, the….

It would remain such because closely held shares do not figure into the S&P rating.

Absolutely. Thanks for your answer, yeah it's just I don't look…

I didn't look at that. That's the answer.

Thank you.

Thank you and I'm not showing any further questions at this time. I would now like to turn the call back over to Nancy Stuebe for any closing remarks.

Thank you everyone for participating today. As a reminder, this call will be available for replay on our website you will often be posting a clean version of our transcript on our site tomorrow. Thank you, again. We will talk to you next quarter end.

Ladies and gentlemen thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a wonderful day.