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,			September 30,
	September 30, 2011			December 31, 2010
Residential real estate mortgages	$	5,505		$	4,695
Home equity lines of credit		3,527			3,500
Personal loans secured by securities		701			562
Other		20			21

Total loans to banking clients ⁽¹⁾		9,753			8,778
Allowance for loan losses		(53	)		(53	)

Total loans to banking clients – net	$	9,700		$	8,725

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

Changes in the allowance for loan losses were as follows:

		00000000			00000000			00000000		00000000		00000000			00000000
	September 30, 2011
Three Months Ended	Residential real estate mortgages			Home equity lines of credit			Personal loans secured by securities		Other		Total			September 30, 2010
Balance at beginning of period	$	34		$	16		$	—	$	—	$	50		$	51
Charge-offs		(2	)		(3	)		—		—		(5	)		(4	)
Recoveries		—			—			—		—		—			—
Provision for loan losses		6			2			—		—		8			3

Balance at end of period	$	38		$	15		$	—	$	—	$	53		$	50


	September 30, 2011
Nine Months Ended	Residential real estate mortgages			Home equity lines of credit			Personal loans secured by securities		Other		Total			September 30, 2010
Balance at beginning of period	$	38		$	15		$	—	$	—	$	53		$	45
Charge-offs		(8	)		(6	)		—		—		(14	)		(14	)
Recoveries		—			1			—		—		1			1
Provision for loan losses		8			5			—		—		13			18

Balance at end of period	$	38		$	15		$	—	$	—	$	53		$	50

Included in the loan portfolio are nonaccrual loans totaling $48 million and $51 million at September 30, 2011 and December 31, 2010, respectively. There were no loans accruing interest that were contractually 90 days or more past due at September 30, 2011 or December 31, 2010. The amount of interest revenue that would have been earned on nonaccrual loans, versus actual interest revenue recognized on these loans, was not material to the Company’s results of operations in

the first nine months of 2011 or 2010. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $54 million at September 30, 2011 and December 31, 2010. The Company considers loan modifications in which it makes an economic concession to a borrower experiencing financial difficulty to be a troubled debt restructuring. Troubled debt restructurings were not material at September 30, 2011 or December 31, 2010.

The delinquency aging analysis by loan class is as follows:

		$0000000		$0000000		$0000000		$0000000		$0000000		$0000000
September 30, 2011	Current		30-59 days past due		60-89 days past due		Greater than 90 days		Total past due		Total loans
Residential real estate mortgages:
Originated first mortgages	$	5,305	$	13	$	4	$	33	$	50	$	5,355
Purchased first mortgages		145		1		—		4		5		150
Home equity lines of credit		3,515		4		2		6		12		3,527
Personal loans secured by securities		694		2		—		5		7		701
Other		20		—		—		—		—		20

Total loans to banking clients	$	9,679	$	20	$	6	$	48	$	74	$	9,753


December 31, 2010
Residential real estate mortgages:
Originated first mortgages	$	4,527	$	18	$	5	$	38	$	61	$	4,588
Purchased first mortgages		100		2		1		4		7		107
Home equity lines of credit		3,489		5		2		4		11		3,500
Personal loans secured by securities		557		—		—		5		5		562
Other		21		—		—		—		—		21

Total loans to banking clients	$	8,694	$	25	$	8	$	51	$	84	$	8,778

In addition to monitoring the delinquency characteristics as presented in the aging analysis above, the Company monitors the credit quality of residential real estate mortgages and home equity lines of credit (HELOCs) by stratifying the portfolios by the year of origination, borrower Fair Issac & Company (FICO) scores at origination, updated FICO scores, and loan-to-value ratios at origination (Origination 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 2011. 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 borrowing amounts at September 30, 2011 and December 31, 2010.

		$00000000		$00000000		$00000000		$00000000
	Residential rea1 estate mortgages
September 30, 2011	Originated first mortgages		Purchased first mortgages		Total		Home equity lines of credit
Year of origination
Pre-2007	$	303	$	53	$	356	$	1,091
2007		303		8		311		236
2008		574		7		581		1,285
2009		644		11		655		430
2010		1,957		19		1,976		315
2011		1,574		52		1,626		170

Total	$	5,355	$	150	$	5,505	$	3,527

Origination FICO
< 620	$	10	$	2	$	12	$	—
620 - 679		115		19		134		24
680 - 739		1,030		42		1,072		672
³ 740		4,200		87		4,287		2,831

Total	$	5,355	$	150	$	5,505	$	3,527

Updated FICO
< 620	$	59	$	8	$	67	$	48
620 - 679		158		10		168		100
680 - 739		798		38		836		493
³ 740		4,340		94		4,434		2,886

Total	$	5,355	$	150	$	5,505	$	3,527

Origination LTV ⁽¹⁾
£ 70%	$	3,435	$	83	$	3,518	$	2,387
71% - 89%		1,893		59		1,952		1,099
³ 90%		27		8		35		41

Total	$	5,355	$	150	$	5,505	$	3,527

⁽¹⁾	The computation of the Origination LTV ratio for a HELOC includes any first lien mortgage outstanding on the same property at the time of origination. At September 30, 2011, $756 million of $3.5 billion in HELOCs were in a first lien position.

		$00000000		$00000000		$00000000		$00000000
	Residential rea1 estate mortgages
December 31, 2010	Originated first mortgages		Purchased first mortgages		Total		Home equity lines of credit
Year of origination
Pre-2007	$	352	$	58	$	410	$	1,132
2007		384		9		393		245
2008		728		8		736		1,345
2009		884		12		896		466
2010		2,240		20		2,260		312

Total	$	4,588	$	107	$	4,695	$	3,500

Origination FICO
< 620	$	9	$	2	$	11	$	—
620 - 679		115		15		130		26
680 - 739		907		33		940		677
³ 740		3,557		57		3,614		2,797

Total	$	4,588	$	107	$	4,695	$	3,500

Updated FICO
< 620	$	63	$	9	$	72	$	49
620 - 679		147		8		155		99
680 - 739		730		29		759		499
³ 740		3,648		61		3,709		2,853

Total	$	4,588	$	107	$	4,695	$	3,500

Origination LTV ⁽¹⁾
£ 70%	$	2,911	$	55	$	2,966	$	2,375
71% - 89%		1,659		51		1,710		1,092
³ 90%		18		1		19		33

Total	$	4,588	$	107	$	4,695	$	3,500

⁽¹⁾	The computation of the Origination LTV ratio for a HELOC includes any first lien mortgage outstanding on the same property at the time of origination. At December 31, 2010, $742 million of $3.5 billion in HELOCs were in a first lien position.