Will Reduction in High-Cost Funding Balance Aid Schwab's 2025 NIR?

Core Viewpoint - The Charles Schwab Corporation (SCHW) has significantly reduced its high-cost supplemental funding balances, leading to improved net interest revenues (NIR) and net interest margin (NIM) in 2025 [1][2][3]. Group 1: Financial Performance - By the end of June 2025, SCHW's supplemental funding balance decreased by 70% to $27.7 billion from a peak of $97.1 billion in May 2023 [1]. - In the first half of 2025, SCHW's NIR increased by 25.9% year over year to $5.53 billion, aided by lower interest expenses and growth in bank lending [2]. - The NIM for SCHW rose to 2.59% in the first half of 2025, up from 2.03% in the same period the previous year [2]. Group 2: Future Projections - SCHW's NIR is projected to increase by 24.7% year over year in 2025, driven by the continued reduction in supplemental funding balances and higher interest rates [3]. - Management anticipates NIM to be between 2.65% and 2.75% by the end of 2025, with expectations for fourth-quarter NIM to approach 2.80% [3]. Group 3: Peer Comparison - Robinhood Markets, Inc. (HOOD) reported a 19.4% increase in NIR year over year in 2024 and a 119% increase in 2023, with a 20% rise in the first half of 2025 to $647 million [4]. - Interactive Brokers (IBKR) saw a 12.7% increase in net interest income year over year in 2024 and a 67.5% increase in 2023, with a 5.9% rise to $1.63 billion in the first half of 2025 [5]. Group 4: Stock Performance and Valuation - SCHW's shares have increased by 31.2% this year, outperforming the industry growth of 20.7% [6]. - SCHW trades at a forward price-to-earnings (P/E) ratio of 19.10, which is significantly higher than the industry average of 14.43 [8]. - The Zacks Consensus Estimate indicates earnings growth of 41.2% for 2025 and 17.7% for 2026, with upward revisions in earnings estimates over the past 30 days [9].