SCHWAB CHARLES CORP

7. Bank Loans and Related Allowance for Credit Losses

The composition of bank loans and delinquency analysis by portfolio segment and class of financing receivable is as follows:

(1)First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $112 million and $100 million at December 31, 2024 and 2023, respectively.

(2)At December 31, 2024 and 2023,42% and 43%, respectively, of the First Mortgage and HELOC portfolios were concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole.

(3)There wereno loans accruing interest that were contractually 90 days or more past due at December 31, 2024 or 2023.

At December 31, 2024, CSB had pledged the full balance of First Mortgages and HELOCs pursuant to a blanket lien status collateral arrangement to secure borrowing capacity on a secured credit facility with the FHLB (see Note 13).

Changes in the allowance for credit losses on bank loans were as follows:

As discussed in Note 2, the Company charges off any unsecured PAL balances no later than 90 days past due. As of December 31, 2024, substantially all PALs are also subject to the collateral maintenance practical expedient under ASC 326 Financial Instruments — Credit Losses. All PALs were fully collateralized by securities with fair values in excess of borrowings as of December 31, 2024 and 2023, and no allowance for credit losses for PALs as of those dates was required.

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The U.S. economy continued to face tight monetary policy and geopolitical unrest. Amid slower hiring and moderating inflation, the Federal Reserve lowered the federal funds target overnight rate by 100 basis points in the second half of 2024. Management’s macroeconomic outlook reflects sustained current benchmark lending rates, with unemployment remaining relatively flat and modest home price appreciation. Though higher mortgage rates are softening demand and reducing borrower affordability, we expect constrained housing supply to keep home prices relatively stable. Furthermore, credit quality metrics in the Company’s bank loans portfolio remain very strong and have improved in recent quarters. As a result of these factors, we decreased projected loss rates at December 31, 2024, as compared to December 31, 2023.

Bank loan-related nonperforming assets consisted of nonaccrual loans of $35 million and $15 million at December 31, 2024 and 2023, respectively. Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02, “Financial Instruments — Credit Losses: Troubled Debt Restructurings and Vintage Disclosures” on January 1, 2023. At both December 31, 2024 and 2023, loan modifications to borrowers experiencing financial difficulty were not material.

Credit Quality

In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following:

•Year of origination;

•Borrower FICO scores at origination (Origination FICO);

•Updated borrower FICO scores (Updated FICO);

•Loan-to-value (LTV) ratios at origination (Origination LTV); and

•Estimated Current LTV ratios (Estimated Current LTV).

Borrowers’ FICO scores are provided by an independent third-party credit reporting service and are generally updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index.

The credit quality indicators of the Company’s First Mortgages and HELOCs are detailed below:

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(1)Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.

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(1)Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.

At December 31, 2024, $23.0 billion of First Mortgage loans had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates forthree toten years and interest rates that typically adjust everysix totwelve months pursuant to the terms of the loan thereafter. Approximately 26% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 80% of the balance of these interest-only loans are not scheduled to reset forthree or more years.

At December 31, 2024 and 2023, Schwab had $171 million and $157 million, respectively, of accrued interest on bank loans, which is excluded from the amortized cost basis of bank loans and included in other assets on the consolidated balance sheets.

The HELOC product has a 30-year loan term with an initial draw period often years from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a 20-year amortizing loan. The interest rate during the initial draw period and the 20-year amortizing period is a floating rate based on the prime rate plus a margin.

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The following table presents when current outstanding HELOCs will convert to amortizing loans:

(1) Includes $11 million of HELOCs converted to amortizing loans during the year ended December 31, 2024.

At December 31, 2024, $336 million of the HELOC portfolio was secured by second liens on the associated properties. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At December 31, 2024, the borrowers on approximately 61% of HELOC loan balances outstanding only paid the minimum amount due.