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

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


December 31,	2012			2011
Residential real estate mortgages	$	6,507		$	5,596
Home equity lines of credit		3,287			3,509
Personal loans secured by securities		963			742
Other		25			19

Total loans to banking clients ⁽¹⁾		10,782			9,866
Allowance for loan losses		(56	)		(54	)

Total loans to banking clients – net	$	10,726		$	9,812

⁽¹⁾	Loans are evaluated for impairment by loan segment.

The Company records an allowance for loan losses through a charge to earnings based on management’s estimate of probable losses in the existing portfolio. Management reviews the allowance for loan losses quarterly, taking into consideration current economic conditions, the composition of the existing loan portfolio, past loss experience, and risks inherent in the portfolio, as described in note “2 – Summary of Significant Accounting Policies.”

Changes in the allowance for loan losses were as follows:


Year Ended	December 31, 2012									December 31, 2011
	Residential real estate mortgages			Home equity lines of credit			Total			Residential real estate mortgages			Home equity lines of credit			Total			December 31, 2010
Balance at beginning of period	$	40		$	14		$	54		$	38		$	15		$	53		$	45
Charge-offs		(7	)		(9	)		(16	)		(11	)		(8	)		(19	)		(20	)
Recoveries		2			—			2			1			1			2			1
Provision for loan losses		1			15			16			12			6			18			27

Balance at end of period	$	36		$	20		$	56		$	40		$	14		$	54		$	53

Included in the loan portfolio are nonaccrual loans totaling $48 million and $52 million at December 31, 2012 and 2011, respectively. There were no loans accruing interest that were contractually 90 days or more past due at December 31, 2012 or 2011. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $54 million and $56 million at December 31, 2012 and 2011, respectively.

As of December 31, 2012, Schwab Bank no longer originates First Mortgage loans or HELOCs. 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 Mortgage loans and HELOCs for Schwab Bank clients. Under the Program, Schwab Bank purchases certain First Mortgage loans 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. The First Mortgage loans purchased under the Program are included in the first mortgages loan class as of December 31, 2012, in the table below.

The delinquency aging analysis by loan class is as follows:


December 31, 2012	Current		30-59 days past due		60-89 days past due		Greater than 90 days		Total past due		Total 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


December 31, 2011
Residential real estate mortgages:
First mortgages	$	5,380	$	16	$	2	$	39	$	57	$	5,437
Purchased first mortgages		152		2		—		5		7		159
Home equity lines of credit		3,494		5		2		8		15		3,509
Personal loans secured by securities		741		1		—		—		1		742
Other		19		—		—		—		—		19

Total loans to banking clients	$	9,786	$	24	$	4	$	52	$	80	$	9,866

In addition to monitoring the delinquency characteristics, 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 December 2012. 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
December 31, 2012	First mortgages		Purchased first mortgages		Total			Home equity lines of credit
Year of origination
Pre-2008	$	465	$	56	$	521		$	1,187
2008		402		6		408			1,151
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
³740		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
³740		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


December 31, 2012	Balance		Weighted Average Updated FICO		Utilization Rate ⁽¹⁾			Percent of Loans that are 90+ Days Past Due and Less than 90 Days Past Due but on 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.


	Residential real estate mortgages
December 31, 2011	First mortgages		Purchased first mortgages		Total			Home equity lines of credit
Year of origination
Pre-2008	$	569	$	60	$	629		$	1,306
2008		538		8		546			1,262
2009		553		10		563			412
2010		1,757		17		1,774			311
2011		2,020		64		2,084			218

Total	$	5,437	$	159	$	5,596		$	3,509

Origination FICO
<620	$	9	$	2	$	11		$	—
620 - 679		108		19		127			24
680 - 739		1,030		43		1,073			667
³740		4,290		95		4,385			2,818

Total	$	5,437	$	159	$	5,596		$	3,509

Updated FICO
<620	$	55	$	7	$	62		$	49
620 - 679		162		11		173			112
680 - 739		831		44		875			520
³740		4,389		97		4,486			2,828

Total	$	5,437	$	159	$	5,596		$	3,509

Origination LTV
£70%	$	3,507	$	91	$	3,598		$	2,378
>70% - £90%		1,904		60		1,964			1,091
>90% - £100%		26		8		34			40

Total	$	5,437	$	159	$	5,596		$	3,509


December 31, 2011	Balance		Weighted Average Updated FICO		Utilization Rate ⁽¹⁾			Percent of Loans that are 90+ Days Past Due and Less than 90 Days Past Due but on Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
£70%	$	3,200		773		N/A			0.27	%
>70% - £90%		1,764		766		N/A			0.41	%
>90% - £100%		241		758		N/A			1.33	%
>100%		391		748		N/A			2.34	%

Total	$	5,596		768		N/A			0.50	%

Home equity lines of credit:
Estimated Current LTV
£70%	$	1,561		774		37	%		0.09	%
>70% - £90%		1,099		769		46	%		0.26	%
>90% - £100%		328		765		54	%		0.16	%
>100%		521		755		58	%		0.75	%

Total	$	3,509		769		43	%		0.25	%

⁽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 December 31, 2012 and 2011.