Schwab's Funding Costs Fall, Driving Record Revenue and Margin
Charles Schwab's net interest margin expanded 62 basis points to 2.74% in 2025 as funding costs fell to 0.88%, powering record net revenues of $23,921 million.
Charles Schwab (SCHW), the brokerage-and-banking platform for retail and registered investment advisers, expanded its net interest margin 62 basis points to 2.74% in 2025 from 2.12% in 2024, a move driven almost entirely by the liability side of its balance sheet. Total funding cost fell to 0.88% from 1.49% while asset yield held nearly steady at roughly 3.60%, meaning the margin gain came from what Schwab pays depositors and lenders rather than from what it earns on assets. That funding relief flowed straight to the income statement: full-year net interest revenue rose 29% to $11,750 million from $9,144 million, even as gross interest revenue was roughly flat. The fourth quarter carried the same signature, with NIM up 57 basis points year over year to 2.90%, extending a trajectory that had already produced a 25-basis-point sequential gain in the fourth quarter of 2024.
The funding-cost improvement traces to a shift underway inside Schwab's balance sheet. Bank deposits kept shrinking, averaging $255.7 billion in the fourth quarter versus $259.1 billion a year earlier and continuing a decline from $290.0 billion at year-end 2023, as clients moved cash into sweep, money-market, and equity/ETF vehicles. But that cash did not leave the platform: client transactional sweep balances climbed $28.1 billion sequentially to $453.7 billion at December 2025, following a $34.6 billion increase to $418.6 billion a year earlier, so deposit-like funding kept building even as formal deposits fell. That growth let Schwab keep retiring expensive wholesale borrowing — Bank Supplemental Funding dropped $9.7 billion to $5.1 billion by year-end, extending a decline from $49.9 billion at the end of 2024 and roughly halving from its peak — which explains most of the margin expansion story.
Lending and margin activity grew alongside the funding cleanup. Bank loan balances reached $58.0 billion at December month-end, up 28% year over year, in what management called another record year for originations. Margin loans rose 34% to $112.3 billion at year-end 2025, matching the prior year's 34% gain from $62.6 billion, indicating two consecutive years of accelerating client leverage and engagement rather than a one-time rebound.
Revenue growth extended well beyond net interest income. Net revenues hit a record $23,921 million, up 22% from $19,606 million in 2024 — a sharp reacceleration from the 4% growth 2024 had posted over 2023's $18,837 million. Asset management and administration fees rose 14% for the year to $6,506 million from $5,716 million, building on 2024's 20% increase, while full-year trading revenue climbed 20% to $3,921 million from $3,264 million, with fourth-quarter trading revenue up 22% year over year on continued client engagement. Core net new assets, Schwab's measure of organic client growth, reached $519.4 billion for the year, up 42% from $366.9 billion in 2024 and lifting the organic growth rate to 5.1% from 4.3%. Within that, Managed Investing Solutions net inflows grew 36% for the year after 2024's inflows had been inflated roughly 35% by converted Ameritrade clients — a sign the wealth-management engine is now generating organic momentum rather than riding an integration bump.
Expenses moved the other direction from 2024. GAAP expenses grew 5% (6% on an adjusted basis) in 2025 on higher volume-related costs and incremental compensation, reversing 2024's roughly 4% decline that had been driven by lower regulatory fees and cost discipline. Even with that cost growth, profitability improved: GAAP return on average common equity rose to 21% annualized from 15%, and return on tangible common equity rose to 38% from 35%.
Capital return expanded sharply alongside the balance-sheet cleanup. Schwab repurchased $7.3 billion of common stock in 2025 and returned $11.8 billion in total capital across all forms, including $2.7 billion, or 29.2 million shares, in the fourth quarter alone — a materially larger program than 2024, when the company was still working through Bank Supplemental Funding paydown rather than returning capital at scale. Preliminary Tier 1 Leverage eased to 9.3% from 9.9% as the balance sheet grew, though Adjusted Tier 1 Leverage ticked up to 7.1% from 6.8%, indicating capacity remained even as loan and margin books expanded.
With wholesale borrowing largely wound down and sweep balances still climbing, the funding-cost tailwind that drove 2025's margin expansion looks more structural than cyclical, leaving Schwab's next leg of growth increasingly dependent on whether loan originations, trading activity, and net new asset gathering can sustain their current pace without a repeat of the leverage relief that carried this year's results.