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Will Reduction in High-Cost Funding Balance Aid Schwab's 2025 NIR?
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Key Takeaways
Schwab cut supplemental funding balances 70% to $27.7B, lifting NIR in early 2025.
NIR rose 25.9% y/y to $5.53B in the first half of 2025.
Management sees 2025 NIM between 2.65% and 2.75%, up from 2.59% in H1.
The Charles Schwab Corporation’s (SCHW - Free Report) efforts to repay high-cost bank supplemental funding balances have resulted in an improvement in net interest revenues (NIR) of late. By June 2025-end, the supplemental funding balance was down 70% to $27.7 billion from the peak of $97.1 billion recorded in May 2023.
Lower interest expenses from the reduction in funding balances, along with growth in bank lending and higher cash and investments segregated, aided SCHW’s NIR in the first six months of this year, which increased 25.9% year over year to $5.53 billion.
Likewise, SCHW’s net interest margin (NIM) increased to 2.59% in the first half of 2025 from 2.03% in the prior-year period.
While Schwab’s NIR declined in 2023 and 2024, the metric is expected to improve in 2025, given the continued fall in supplemental funding balance and relatively higher interest rates. Per our estimates, Schwab’s NIR will witness a year-over-year increase of 24.7% in 2025.
Similarly, NIM will expand further by year-end. Management projects NIM to be 2.65%-2.75% by 2025-end, with fourth-quarter NIM expanding toward 2.80%. We estimate NIM of 2.68% for 2025.
Net Interest Revenue Trend of Schwab’s Peers
Robinhood Markets, Inc.’s (HOOD - Free Report) NIR increased 19.4% year over year in 2024 and 119% in 2023. In the first six months of 2025, Robinhood’s NIR increased 20% year over year to $647 million.
The rise was driven by growth in interest-earning assets and securities lending activity, partially offset by lower short-term interest rates.
Similarly, Interactive Brokers’ (IBKR - Free Report) net interest income increased 12.7% year over year in 2024 and 67.5% in 2023. In the first half of 2025, Interactive Brokers’ net interest income increased 5.9% to $1.63 billion. The rise was driven by higher average customer credit balances and securities lending activity.
Shares of Schwab have rallied 31.2% so far this year compared with the industry’s growth of 20.7%. Robinhood’s share price has skyrocketed 207.6% and Interactive Brokers’ stock has gained 49.2% in the same time frame.
Image Source: Zacks Investment Research
From a valuation standpoint, SCHW trades at a forward price-to-earnings (P/E) ratio of 19.10, well above the industry average of 14.43.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Schwab’s 2025 and 2026 earnings indicates year-over-year growth of 41.2% and 17.7%, respectively. Over the past 30 days, earnings estimates for both years have been revised upward.
Image: Bigstock
Will Reduction in High-Cost Funding Balance Aid Schwab's 2025 NIR?
Key Takeaways
The Charles Schwab Corporation’s (SCHW - Free Report) efforts to repay high-cost bank supplemental funding balances have resulted in an improvement in net interest revenues (NIR) of late. By June 2025-end, the supplemental funding balance was down 70% to $27.7 billion from the peak of $97.1 billion recorded in May 2023.
Lower interest expenses from the reduction in funding balances, along with growth in bank lending and higher cash and investments segregated, aided SCHW’s NIR in the first six months of this year, which increased 25.9% year over year to $5.53 billion.
Likewise, SCHW’s net interest margin (NIM) increased to 2.59% in the first half of 2025 from 2.03% in the prior-year period.
While Schwab’s NIR declined in 2023 and 2024, the metric is expected to improve in 2025, given the continued fall in supplemental funding balance and relatively higher interest rates. Per our estimates, Schwab’s NIR will witness a year-over-year increase of 24.7% in 2025.
Similarly, NIM will expand further by year-end. Management projects NIM to be 2.65%-2.75% by 2025-end, with fourth-quarter NIM expanding toward 2.80%. We estimate NIM of 2.68% for 2025.
Net Interest Revenue Trend of Schwab’s Peers
Robinhood Markets, Inc.’s (HOOD - Free Report) NIR increased 19.4% year over year in 2024 and 119% in 2023. In the first six months of 2025, Robinhood’s NIR increased 20% year over year to $647 million.
The rise was driven by growth in interest-earning assets and securities lending activity, partially offset by lower short-term interest rates.
Similarly, Interactive Brokers’ (IBKR - Free Report) net interest income increased 12.7% year over year in 2024 and 67.5% in 2023. In the first half of 2025, Interactive Brokers’ net interest income increased 5.9% to $1.63 billion. The rise was driven by higher average customer credit balances and securities lending activity.
SCHW’s Price Performance, Valuation & Estimate Analysis
Shares of Schwab have rallied 31.2% so far this year compared with the industry’s growth of 20.7%. Robinhood’s share price has skyrocketed 207.6% and Interactive Brokers’ stock has gained 49.2% in the same time frame.
Image Source: Zacks Investment Research
From a valuation standpoint, SCHW trades at a forward price-to-earnings (P/E) ratio of 19.10, well above the industry average of 14.43.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Schwab’s 2025 and 2026 earnings indicates year-over-year growth of 41.2% and 17.7%, respectively. Over the past 30 days, earnings estimates for both years have been revised upward.
Image Source: Zacks Investment Research
Currently, Schwab sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.