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Bank Loans and Related Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
Bank Loans and Related Allowance for Credit Losses 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:
September 30, 2023Current30-59 days
past due		60-89 days
past due
>90 days past
due and other
nonaccrual loans (3)
Total past due
and other
nonaccrual loans		Total
loans		Allowance
for credit
losses		Total
bank
loans – net
Residential real estate:
First Mortgages (1,2)
$26,022 $25 $1 $8 $34 $26,056 $47 $26,009 
HELOCs (1,2)
487 1 — 5 6 493 2 491 
Total residential real estate26,509 26 1 13 40 26,549 49 26,500 
Pledged asset lines13,525 10 2 1 13 13,538 — 13,538 
Other294 — — — — 294 5 289 
Total bank loans$40,328 $36 $3 $14 $53 $40,381 $54 $40,327 
December 31, 2022        
Residential real estate:
First Mortgages (1,2)
$25,157 $25 $2 $14 $41 $25,198 $66 $25,132 
HELOCs (1,2)
590 2 — 5 7 597 4 593 
Total residential real estate25,747 27 2 19 48 25,795 70 25,725 
Pledged asset lines14,584 4 — 4 8 14,592 — 14,592 
Other191 — — — — 191 3 188 
Total bank loans$40,522 $31 $2 $23 $56 $40,578 $73 $40,505 
(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $100 million and $98 million at September 30, 2023 and December 31, 2022, respectively.
(2) At both September 30, 2023 and December 31, 2022, 43% 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 were no loans accruing interest that were contractually 90 days or more past due at September 30, 2023 or December 31, 2022.

At September 30, 2023, 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 8).

Changes in the allowance for credit losses on bank loans were as follows:
Three Months Ended
September 30, 2023First MortgagesHELOCsTotal residential real estatePledged asset linesOtherTotal
Balance at beginning of period$68 $3 $71 $— $4 $75 
Charge-offs— — — — — — 
Recoveries— — — — — — 
Provision for credit losses(21)(1)(22)— 1 (21)
Balance at end of period$47 $2 $49 $— $5 $54 
September 30, 2022
Balance at beginning of period$31 $3 $34 $— $3 $37 
Charge-offs— — — (4)— (4)
Recoveries— 1 1 — — 1 
Provision for credit losses11 — 11 4 — 15 
Balance at end of period$42 $4 $46 $— $3 $49 
Nine Months Ended
September 30, 2023First MortgagesHELOCsTotal residential real estatePledged asset linesOtherTotal
Balance at beginning of period$66 $4 $70 $— $3 $73 
Charge-offs— — — — — — 
Recoveries— — — — — — 
Provision for credit losses(19)(2)(21)— 2 (19)
Balance at end of period$47 $2 $49 $— $5 $54 
September 30, 2022
Balance at beginning of period$13 $2 $15 $— $3 $18 
Charge-offs— — — (4)— (4)
Recoveries— 1 1 — — 1 
Provision for credit losses29 1 30 4 — 34 
Balance at end of period$42 $4 $46 $— $3 $49 

Consistent with Schwab’s loan charge-off policy for pledged asset lines (PALs) as disclosed in Item 8 – Note 2 of the 2022 Form 10-K, the Company charges off any unsecured balances no later than 90-days past due. 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 September 30, 2023 and December 31, 2022. Therefore, no allowance for credit losses for PALs as of those dates was required.

The U.S. economy continues to be challenged by elevated inflation, tightening monetary policy, and geopolitical unrest. Despite these challenges, management’s macroeconomic outlook reflects a near term continuation of higher interest rates with only a slight increase in unemployment and modest home price depreciation. While higher mortgage rates are softening demand and reducing borrower affordability, constrained housing supply will keep home prices relatively stable. Furthermore, credit quality metrics in the Company’s bank loans portfolio have improved in recent years and remain very strong. As a result of these factors, we decreased projected loss rates at September 30, 2023, as compared to December 31, 2022.

A summary of bank loan-related nonperforming assets is as follows:
September 30, 2023December 31, 2022
Nonaccrual loans (1)
$14 $23 
Other real estate owned (2)
— 2 
Total nonperforming assets$14 $25 
(1) Nonaccrual loans include nonaccrual troubled debt restructurings recorded prior to the adoption of ASU 2022-02.
(2) Included in other assets on the condensed consolidated balance sheets.

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 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 bank loan portfolio are detailed below:
First Mortgages Amortized Cost Basis by Origination Year
September 30, 202320232022202120202019pre-2019Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCs
Origination FICO
<620$— $3 $1 $— $— $1 $5 $— $— $— 
620 – 6793 27 30 20 2 13 95 — 1 1 
680 – 739243 795 1,177 400 108 206 2,929 53 39 92 
≥7401,951 5,336 10,563 3,618 760 799 23,027 264 136 400 
Total$2,197 $6,161 $11,771 $4,038 $870 $1,019 $26,056 $317 $176 $493 
Origination LTV
≤70%$1,481 $4,561 $10,197 $3,357 $703 $759 $21,058 $282 $123 $405 
>70% – ≤90%716 1,600 1,574 681 167 258 4,996 35 52 87 
>90% – ≤100%— — — — — 2 2 — 1 1 
Total$2,197 $6,161 $11,771 $4,038 $870 $1,019 $26,056 $317 $176 $493 
Updated FICO
<620$4 $10 $11 $6 $2 $12 $45 $2 $5 $7 
620 – 67926 68 91 30 11 35 261 6 8 14 
680 – 739259 585 961 329 62 118 2,314 45 30 75 
≥7401,908 5,498 10,708 3,673 795 854 23,436 264 133 397 
Total$2,197 $6,161 $11,771 $4,038 $870 $1,019 $26,056 $317 $176 $493 
Estimated Current LTV (1)
≤70%$1,517 $4,858 $11,511 $4,026 $868 $1,018 $23,798 $315 $175 $490 
>70% – ≤90%680 1,283 257 12 2 1 2,235 2 1 3 
>90% – ≤100%— 19 3 — — — 22 — — — 
>100%— 1 — — — — 1 — — — 
Total$2,197 $6,161 $11,771 $4,038 $870 $1,019 $26,056 $317 $176 $493 
Gross charge-offs$— $— $— $— $— $— $— $— $— $— 
Percent of Loans on
  Nonaccrual Status		0.01 %0.03 %0.02 %0.01 %0.01 %0.33 %0.03 %0.28 %2.03 %1.01 %
(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.
First Mortgages Amortized Cost Basis by Origination Year
December 31, 20222022202120202019pre-2019Total First MortgagesRevolving HELOCs amortized cost basisHELOCs converted to term loansTotal HELOCs
Origination FICO
<620$3 $1 $— $— $1 $5 $— $— $— 
620 – 67928 31 21 2 15 97 — 2 2 
680 – 739820 1,224 430 116 243 2,833 59 47 106 
≥7405,593 11,037 3,819 811 1,003 22,263 323 166 489 
Total$6,444 $12,293 $4,270 $929 $1,262 $25,198 $382 $215 $597 
Origination LTV
≤70%$4,771 $10,641 $3,549 $749 $940 $20,650 $332 $153 $485 
>70% – ≤90%1,673 1,652 721 180 320 4,546 50 61 111 
>90% – ≤100%— — — — 2 2 — 1 1 
Total$6,444 $12,293 $4,270 $929 $1,262 $25,198 $382 $215 $597 
Updated FICO
<620$11 $12 $7 $2 $13 $45 $2 $5 $7 
620 – 67987 127 42 10 43 309 6 10 16 
680 – 739711 1,079 378 89 161 2,418 52 35 87 
≥7405,635 11,075 3,843 828 1,045 22,426 322 165 487 
Total$6,444 $12,293 $4,270 $929 $1,262 $25,198 $382 $215 $597 
Estimated Current LTV (1)
≤70%$4,574 $11,751 $4,255 $928 $1,257 $22,765 $380 $214 $594 
>70% – ≤90%1,845 542 15 1 5 2,408 2 1 3 
>90% – ≤100%25 — — — — 25 — — — 
>100%— — — — — — — — — 
Total$6,444 $12,293 $4,270 $929 $1,262 $25,198 $382 $215 $597 
Percent of Loans on
  Nonaccrual Status		0.02 %0.03 %0.09 %0.02 %0.43 %0.06 %0.34 %1.90 %0.84 %
(1) Represents the LTV for the full line of credit (drawn and undrawn) for revolving HELOCs.

At September 30, 2023, First Mortgage loans of $21.4 billion had adjustable interest rates. Substantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately 27% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 88% of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates.

At September 30, 2023 and December 31, 2022, Schwab had $152 million and $134 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 condensed consolidated balance sheets.

The HELOC product has a 30-year loan term with an initial draw period of ten 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.
The following table presents when current outstanding HELOCs will convert to amortizing loans:
September 30, 2023Balance
Converted to an amortizing loan by period end (1)
$176 
Within 1 year23 
> 1 year – 3 years39 
> 3 years – 5 years51 
> 5 years204 
Total$493 
(1) Includes $6 million and $15 million of HELOCs converted to amortizing loans during the three and nine months ended September 30, 2023, respectively.

At September 30, 2023, $389 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 September 30, 2023, the borrowers on approximately 59% of HELOC loan balances outstanding only paid the minimum amount due.