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

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


	September 30,		December 31,
	2014		2013
Residential real estate mortgages	$	8,075	$	8,006
Home equity lines of credit		2,982		3,041
Personal loans secured by securities		2,033		1,384
Other		30		36
Total loans to banking clients (1)		13,120		12,467
Allowance for loan losses		(40)		(48)
Total loans to banking clients – net	$	13,080	$	12,419

(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 $6.3 billion and $5.7 billion at September 30, 2014 and December 31, 2013, respectively. All of the personal loans were fully collateralized by securities with fair values in excess of borrowings at September 30, 2014 and December 31, 2013.

Schwab Bank provides 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 $371 million and $862 million during the third quarters of 2014 and 2013, respectively, and $989 million and $3.1 billion during the first nine months of 2014 and 2013, respectively. Schwab Bank purchased HELOCs with commitments of $167 million and $248 million during the third quarters of 2014 and 2013, respectively, and $514 million and $687 million during the first nine months of 2014 and 2013, respectively. The First Mortgages purchased under the Program are included in the first mortgages loan class in the tables below.

Credit Quality

Changes in the allowance for loan losses were as follows:


Three Months Ended	September 30, 2014							September 30, 2013
	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	$	28		$	13	$	41	$	40		$	17	$	57
Charge-offs		-			-		-		(1)			(1)		(2)
Recoveries		-			-		-		1			-		1
Provision for loan losses		-			(1)		(1)		(6)			2		(4)
Balance at end of period	$	28		$	12	$	40	$	34		$	18	$	52



Nine Months Ended	September 30, 2014							September 30, 2013
	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	$	34		$	14	$	48	$	36		$	20	$	56
Charge-offs		(1)			(2)		(3)		(4)			(4)		(8)
Recoveries		1			1		2		2			1		3
Provision for loan losses		(6)			(1)		(7)		-			1		1
Balance at end of period	$	28		$	12	$	40	$	34		$	18	$	52

The delinquency and nonaccrual analysis by loan class is as follows:


									>90 days past			Total past due
			30-59 days			60-89 days			due and other			and other			Total
September 30, 2014	Current		past due			past due			nonaccrual loans			nonaccrual loans			loans
Residential real estate mortgages:
First mortgages	$	7,884		$	5		$	3		$	24		$	32	$	7,916
Purchased first mortgages		154			1			-			4			5		159
Home equity lines of credit		2,967			3			1			11			15		2,982
Personal loans secured by securities		2,031			2			-			-			2		2,033
Other		30			-			-			-			-		30
Total loans to banking clients	$	13,066		$	11		$	4		$	39		$	54	$	13,120


									>90 days past			Total past due
			30-59 days			60-89 days			due and other			and other			Total
December 31, 2013	Current		past due			past due			nonaccrual loans			nonaccrual loans			loans
Residential real estate mortgages:
First mortgages	$	7,808		$	3		$	4		$	30		$	37	$	7,845
Purchased first mortgages		154			1			-			6			7		161
Home equity lines of credit		3,025			2			2			12			16		3,041
Personal loans secured by securities		1,384			-			-			-			-		1,384
Other		36			-			-			-			-		36
Total loans to banking clients	$	12,407		$	6		$	6		$	48		$	60	$	12,467

There were no loans accruing interest that were contractually 90 days or more past due at September 30, 2014 or December 31, 2013. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $46 million and $53 million at September 30, 2014 and December 31, 2013, respectively. Troubled debt restructurings were not material at September 30, 2014 or December 31, 2013.

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), loan-to-value (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 September 2014. 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
September 30, 2014	mortgages			first mortgages			Total		lines of credit
Year of origination
Pre-2010		$	731		$	49	$	780		$	2,131
2010			392			7		399			175
2011			588			33		621			143
2012			2,167			25		2,192			150
2013			3,109			34		3,143			248
2014			929			11		940			135
Total		$	7,916		$	159	$	8,075		$	2,982
Origination FICO
<620		$	10		$	1	$	11		$	-
620 – 679			88			11		99			18
680 – 739			1,336			31		1,367			557
>740			6,482			116		6,598			2,407
Total		$	7,916		$	159	$	8,075		$	2,982
Updated FICO
<620		$	46		$	4	$	50		$	37
620 – 679			175			7		182			104
680 – 739			1,022			26		1,048			444
>740			6,673			122		6,795			2,397
Total		$	7,916		$	159	$	8,075		$	2,982
Origination LTV
<70%		$	5,401		$	111	$	5,512		$	1,996
>70% – <90%			2,501			44		2,545			964
>90% – <100%			14			4		18			22
Total		$	7,916		$	159	$	8,075		$	2,982


			Weighted				Percent of Loans
			Average		Utilization		that are on
September 30, 2014	Balance		Updated FICO		Rate (1)		Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
<70%	$	7,138		776	N/A			0.08	%
>70% – <90%		829		764	N/A			0.58	%
>90% – <100%		52		737	N/A			1.79	%
>100%		56		724	N/A			13.21	%
Total	$	8,075		774	N/A			0.23	%
Home equity lines of credit:
Estimated Current LTV
<70%	$	2,346		773	37	%		0.05	%
>70% – <90%		499		762	49	%		0.49	%
>90% – <100%		74		750	62	%		1.24	%
>100%		63		740	64	%		2.02	%
Total	$	2,982		770	39	%		0.19	%

(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, 2013	mortgages			first mortgages			Total		lines of credit
Year of origination
Pre-2010		$	859		$	55	$	914		$	2,304
2010			503			7		510			191
2011			733			38		771			155
2012			2,403			26		2,429			162
2013			3,347			35		3,382			229
Total		$	7,845		$	161	$	8,006		$	3,041
Origination FICO
<620		$	10		$	1	$	11		$	-
620 – 679			96			14		110			20
680 – 739			1,352			32		1,384			576
>740			6,387			114		6,501			2,445
Total		$	7,845		$	161	$	8,006		$	3,041
Updated FICO
<620		$	50		$	5	$	55		$	42
620 – 679			209			10		219			106
680 – 739			1,012			29		1,041			453
>740			6,574			117		6,691			2,440
Total		$	7,845		$	161	$	8,006		$	3,041
Origination LTV
<70%		$	5,306		$	110	$	5,416		$	2,040
>70% – <90%			2,523			45		2,568			977
>90% – <100%			16			6		22			24
Total		$	7,845		$	161	$	8,006		$	3,041


			Weighted				Percent of Loans
			Average		Utilization		that are on
December 31, 2013	Balance		Updated FICO		Rate (1)		Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
<70%	$	6,649		775	N/A			0.05	%
>70% – <90%		1,181		763	N/A			0.34	%
>90% – <100%		86		732	N/A			4.77	%
>100%		90		730	N/A			10.50	%
Total	$	8,006		772	N/A			0.26	%
Home equity lines of credit:
Estimated Current LTV
<70%	$	2,127		773	36	%		0.13	%
>70% – <90%		664		762	48	%		0.22	%
>90% – <100%		127		752	59	%		1.22	%
>100%		123		743	63	%		1.34	%
Total	$	3,041		769	39	%		0.24	%

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

N/A Not applicable.