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 $131 million and $112 million at December 31, 2025 and 2024, respectively.

(2)At December 31, 2025 and 2024,41% and 42%, 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, 2025 or 2024. Bank-loan related nonperforming assets consisted of the nonaccrual loans presented here and loan modifications to borrowers experiencing financial difficulty were not material at both December 31, 2025 and 2024.

At December 31, 2025, 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, 2025, substantially all PALs are also subject to the collateral maintenance practical expedient under ASC 326

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Financial Instruments — Credit Losses. All PALs were fully collateralized by securities with fair values in excess of borrowings as of December 31, 2025 and 2024, and no allowance for credit losses for PALs as of those dates was required.

The U.S. economy saw lower hiring, minor home price declines, and a modest inflation gain at the end of the fourth quarter of 2025, while continuing to face moderately restrictive monetary policy and geopolitical unrest amid a backdrop of elevated uncertainty relating to economic impacts of emerging trade policy. Management’s macroeconomic outlook reflects sustained current benchmark lending rates, with a softening labor market and slight near-term home price depreciation. Though higher mortgage rates are easing demand and reducing borrower affordability, we expect constrained housing supply to keep home prices relatively stable. As a result of these factors, we modestly increased projected loss rates at December 31, 2025, as compared to December 31, 2024, even as credit quality metrics in the Company’s bank loans portfolio continue to be strong.

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);

•Refreshed borrower FICO scores (Refreshed FICO);

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

•Estimated Refreshed LTV ratios (Estimated Refreshed LTV).

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

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

(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, 2025, $26.2 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 23% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 66% of the balance of these interest-only loans are not scheduled to reset forthree or more years.

At December 31, 2025 and 2024, Schwab had $223 million and $171 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 $13 million of HELOCs converted to amortizing loans during the year ended December 31, 2025.

At December 31, 2025, $329 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, 2025, the borrowers on approximately 61% of HELOC loan balances outstanding only paid the minimum amount due.