3.Loans to Banking Clients and Related Allowance for Loan Losses

The composition of loans to banking clients by loan segment is as follows:


	June 30,		December 31,
	2013		2012
Residential real estate mortgages	$	7,470	$	6,507
Home equity lines of credit		3,125		3,287
Personal loans secured by securities		1,166		963
Other		28		25
Total loans to banking clients ⁽¹⁾		11,789		10,782
Allowance for loan losses		(57)		(56)
Total loans to banking clients – net	$	11,732	$	10,726

⁽¹⁾	All loans are evaluated for impairment by loan segment.

The Company has commitments to extend credit related to unused home equity lines of credit (HELOCs), personal loans secured by securities, and other lines of credit, which totaled $5.5 billion and $5.4 billion at June 30, 2013, and December 31, 2012, respectively.

Changes in the allowance for loan losses were as follows:


Three Months Ended	June 30, 2013						June 30, 2012
	Residential						Residential
	real estate		Home equity				real estate		Home equity
	mortgages		lines of credit			Total	mortgages		lines of credit			Total
Balance at beginning of period	$	40	$	19	$	59	$	37	$	13	$	50
Charge-offs		(1)		(1)		(2)		(1)		(2)		(3)
Recoveries		-		1		1		-		-		-
Provision for loan losses		1		(2)		(1)		(2)		6		4
Balance at end of period	$	40	$	17	$	57	$	34	$	17	$	51


Six Months Ended	June 30, 2013						June 30, 2012
	Residential						Residential
	real estate		Home equity				real estate		Home equity
	mortgages		lines of credit			Total	mortgages		lines of credit			Total
Balance at beginning of period	$	36	$	20	$	56	$	40	$	14	$	54
Charge-offs		(3)		(3)		(6)		(4)		(4)		(8)
Recoveries		1		1		2		1		-		1
Provision for loan losses		6		(1)		5		(3)		7		4
Balance at end of period	$	40	$	17	$	57	$	34	$	17	$	51

Included in the loan portfolio are nonaccrual loans totaling $43 million and $48 million at June 30, 2013 and December 31, 2012, respectively. There were no loans accruing interest that were contractually 90 days or more past due at June 30, 2013 or December 31, 2012. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $46 million and $54 million at June 30, 2013 and December 31, 2012, respectively. Troubled debt restructurings were not material at June 30, 2013 or December 31, 2012.

In 2012, Schwab Bank launched a co-branded loan origination program for Schwab Bank clients (the Program) with Quicken Loans, Inc. (Quicken^® Loans^®). Pursuant to the Program, Quicken Loans originates and services first lien residential real estate mortgage loans (First Mortgages) and HELOCs for Schwab Bank clients. Under the Program, Schwab Bank purchases certain First Mortgages and HELOCs that are originated by Quicken Loans. Schwab Bank sets the underwriting guidelines and pricing for all loans it intends to purchase for its portfolio. Schwab Bank purchased First Mortgages of $928 million and $515 million during the second quarters of 2013 and 2012, respectively, and $2.2 billion and $586 million during the first halves of 2013 and 2012, respectively. The First Mortgages purchased under the Program are included in the First mortgages loan class in the tables below.

The delinquency analysis by loan class is as follows:


							>90 days past
			30-59 days		60-89 days		due and other		Total		Total
June 30, 2013	Current		past due		past due		nonaccrual loans		past due		loans
Residential real estate mortgages:
First mortgages	$	7,259	$	14	$	1	$	27	$	42	$	7,301
Purchased first mortgages		162		2		-		5		7		169
Home equity lines of credit		3,108		4		3		10		17		3,125
Personal loans secured by securities		1,165		-		-		1		1		1,166
Other		28		-		-		-		-		28
Total loans to banking clients	$	11,722	$	20	$	4	$	43	$	67	$	11,789


							>90 days past
			30-59 days		60-89 days		due and other		Total		Total
December 31, 2012	Current		past due		past due		nonaccrual loans		past due		loans
Residential real estate mortgages:
First mortgages	$	6,291	$	22	$	2	$	33	$	57	$	6,348
Purchased first mortgages		154		1		-		4		5		159
Home equity lines of credit		3,269		5		2		11		18		3,287
Personal loans secured by securities		963		-		-		-		-		963
Other		22		3		-		-		3		25
Total loans to banking clients	$	10,699	$	31	$	4	$	48	$	83	$	10,782

In addition to monitoring delinquency, the Company monitors the credit quality of residential real estate mortgages and HELOCs by stratifying the portfolios by the year of origination, borrower FICO scores at origination (Origination FICO), updated borrower FICO scores (Updated FICO), LTV ratios at origination (Origination LTV), and estimated current LTV ratios (Estimated Current LTV), as presented in the following tables. Borrowers’ FICO scores are provided by an independent third party credit reporting service and were last updated in June 2013. The Origination LTV and Estimated Current LTV ratios 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 estimated by reference to a home price appreciation index.


	Residential real estate mortgages
	First		Purchased				Home equity
June 30, 2013	mortgages		first mortgages		Total		lines of credit
Year of origination
Pre-2009	$	756	$	56	$	812	$	2,172
2009		238		4		242		292
2010		644		9		653		215
2011		912		42		954		175
2012		2,731		27		2,758		172
2013		2,020		31		2,051		99
Total	$	7,301	$	169	$	7,470	$	3,125
Origination FICO
<620	$	10	$	2	$	12	$	-
620 – 679		99		15		114		21
680 – 739		1,285		34		1,319		599
>740		5,907		118		6,025		2,505
Total	$	7,301	$	169	$	7,470	$	3,125
Updated FICO
<620	$	50	$	5	$	55	$	44
620 – 679		192		11		203		111
680 – 739		1,020		32		1,052		488
>740		6,039		121		6,160		2,482
Total	$	7,301	$	169	$	7,470	$	3,125
Origination LTV
<70%	$	4,900	$	114	$	5,014	$	2,101
>70% – <90%		2,385		49		2,434		999
>90% – <100%		16		6		22		25
Total	$	7,301	$	169	$	7,470	$	3,125


							Percent of Loans
							that are 90+ Days
							Past Due and
			Weighted				Less than 90 Days
			Average		Utilization		Past Due but on
June 30, 2013	Balance		Updated FICO		Rate ⁽¹⁾		Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
<70%	$	5,830		773	N/A		0.04	%
>70% – <90%		1,355		763	N/A		0.27	%
>90% – <100%		119		744	N/A		0.88	%
>100%		166		733	N/A		7.72	%
Total	$	7,470		770	N/A		0.27	%
Home equity lines of credit:
Estimated Current LTV
<70%	$	1,945		772	36	%	0.10	%
>70% – <90%		783		764	48	%	0.24	%
>90% – <100%		173		754	56	%	0.45	%
>100%		224		747	59	%	0.95	%
Total	$	3,125		767	40	%	0.22	%

⁽¹⁾	The Utilization Rate is calculated using the outstanding HELOC balance divided by the associated total line of credit.

N/A Not applicable.


	Residential real estate mortgages
	First		Purchased				Home equity
December 31, 2012	mortgages		first mortgages		Total		lines of credit
Year of origination
Pre-2009	$	867	$	62	$	929	$	2,338
2009		305		6		311		338
2010		909		12		921		249
2011		1,270		53		1,323		198
2012		2,997		26		3,023		164
Total	$	6,348	$	159	$	6,507	$	3,287
Origination FICO
<620	$	10	$	1	$	11	$	-
620 – 679		98		16		114		23
680 – 739		1,141		40		1,181		633
>740		5,099		102		5,201		2,631
Total	$	6,348	$	159	$	6,507	$	3,287
Updated FICO
<620	$	54	$	6	$	60	$	49
620 – 679		191		13		204		117
680 – 739		940		34		974		510
>740		5,163		106		5,269		2,611
Total	$	6,348	$	159	$	6,507	$	3,287
Origination LTV
<70%	$	4,189	$	97	$	4,286	$	2,225
>70% – <90%		2,142		54		2,196		1,036
>90% – <100%		17		8		25		26
Total	$	6,348	$	159	$	6,507	$	3,287


							Percent of Loans
							that are 90+ Days
							Past Due and
			Weighted				Less than 90 Days
			Average		Utilization		Past Due but on
December 31, 2012	Balance		Updated FICO		Rate ⁽¹⁾		Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
<70%	$	4,162		772	N/A		0.05	%
>70% – <90%		1,841		764	N/A		0.22	%
>90% – <100%		168		750	N/A		0.51	%
>100%		336		741	N/A		5.34	%
Total	$	6,507		768	N/A		0.38	%
Home equity lines of credit:
Estimated Current LTV
<70%	$	1,559		773	36	%	0.14	%
>70% – <90%		1,020		766	46	%	0.18	%
>90% – <100%		267		759	54	%	0.44	%
>100%		441		753	59	%	1.06	%
Total	$	3,287		767	42	%	0.31	%

⁽¹⁾	The Utilization Rate is calculated using the outstanding HELOC balance divided by the associated total line of credit.

N/A Not applicable.

The Company monitors the credit quality of personal loans secured by securities by reviewing the fair value of collateral to ensure adequate collateralization of at least 100% of the principal amount of the loans. All of these personal loans were fully collateralized by securities with fair values in excess of borrowings at June 30, 2013 and December 31, 2012.