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Q3 2012 - About Schwab

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					                               UNITED STATES
                   SECURITIES AND EXCHANGE COMMISSION
                                                                  Washington, D.C. 20549

                                                                      FORM 10-Q
                           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                               OF THE SECURITIES EXCHANGE ACT OF 1934
                                               For the quarterly period ended September 30, 2012
                                                              Commission File Number: 1-9700


        THE CHARLES SCHWAB CORPORATION                      (Exact name of registrant as specified in its charter)

                                 Delaware                                                                                     94-3025021
                            (State or other jurisdiction                                                             (I.R.S. Employer Identification No.)
                        of incorporation or organization)

                                                      211 Main Street, San Francisco, CA 94105
                                                            (Address of principal executive offices and zip code)

                                      Registrant’s telephone number, including area code: (415) 667-7000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes        No              ⌧
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes       No                           ⌧
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.

Large accelerated filer   ⌧                                                                                          Accelerated filer
Non-accelerated filer         (Do not check if a smaller reporting company)                                          Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes                                            No   ⌧
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

                                               1,275,098,321 shares of $.01 par value Common Stock
                                                         Outstanding on October 24, 2012
                                        THE CHARLES SCHWAB CORPORATION
                                              Quarterly Report on Form 10-Q
                                         For the Quarter Ended September 30, 2012
                                                             Index

                                                                                                     Page

Part I - Financial Information
  Item 1.   Condensed Consolidated Financial Statements (Unaudited):
            Statements of Income                                                                            1
            Statements of Comprehensive Income                                                              2
            Balance Sheets                                                                                  3
            Statements of Cash Flows                                                                        4
            Notes                                                                                    5 – 26
  Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   27 – 51
  Item 3.   Quantitative and Qualitative Disclosures About Market Risk                              52 – 53
  Item 4.   Controls and Procedures                                                                     53
Part II - Other Information
  Item 1.   Legal Proceedings                                                                           54
  Item 1A. Risk Factors                                                                                 54
  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds                                 54
  Item 3.   Defaults Upon Senior Securities                                                             54
  Item 4.   Mine Safety Disclosures                                                                     55
  Item 5.   Other Information                                                                           55
  Item 6.   Exhibits                                                                                    56
Signature                                                                                               58
Part I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

                                                     THE CHARLES SCHWAB CORPORATION
                                                Condensed Consolidated Statements of Income
                                                    (In millions, except per share amounts)
                                                                   (Unaudited)
                                                                                              Three Months Ended     Nine Months Ended
                                                                                                 September 30,          September 30,
                                                                                               2012        2011       2012        2011
Net Revenues
  Asset management and administration fees                                                   $    524    $    466    $1,504       $ 1,470
        Interest revenue                                                                          478         487        1,447        1,464
        Interest expense                                                                          (39)        (44)        (116)        (134)
      Net interest revenue                                                                        439         443        1,331        1,330
      Trading revenue                                                                             204         248         666          694
      Other                                                                                        42          45         209          119
      Provision for loan losses                                                                   (10)         (8)        (14)         (13)
      Net impairment losses on securities (1)                                                      (3)        (13)        (28)         (22)
      Total net revenues                                                                         1,196       1,181       3,668        3,578
Expenses Excluding Interest
   Compensation and benefits                                                                      442         423     1,353        1,290
   Professional services                                                                           98         104       287          288
   Occupancy and equipment                                                                         77          78       233          222
   Advertising and market development                                                              49          48       173          159
   Communications                                                                                  53          56       166          166
   Depreciation and amortization                                                                   50          39       146          107
   Class action litigation and regulatory reserve                                                  —           —         —             7
   Other                                                                                           66          73       204          199
      Total expenses excluding interest                                                           835         821     2,562        2,438
Income before taxes on income                                                                     361         360     1,106        1,140
Taxes on income                                                                                   114         140       389          439
Net Income                                                                                        247         220       717          701
Preferred stock dividends                                                                           9          —         23           —
Net Income Available to Common Stockholders                                                  $    238    $    220    $ 694        $ 701

Weighted-Average Common Shares Outstanding — Diluted                                             1,275       1,229       1,274        1,216
Earnings Per Common Share — Basic                                                            $     .19   $     .18   $     .54    $     .58
Earnings Per Common Share — Diluted                                                          $     .19   $     .18   $     .54    $     .57

(1)
        Net impairment losses on securities include total other-than-temporary impairment losses of $1 million and $2 million, net of
        $(2) million and $(11) million recognized in other comprehensive income, for the three months ended September 30, 2012 and
        2011, respectively. Net impairment losses on securities include total other-than-temporary impairment losses of $15 million and
        $13 million, net of $(13) million and $(9) million recognized in other comprehensive income, for the nine months ended
        September 30, 2012 and 2011, respectively.

See Notes to Condensed Consolidated Financial Statements.
                                                                   -1-
                                               THE CHARLES SCHWAB CORPORATION
                                 Condensed Consolidated Statements of Comprehensive Income
                                                        (In millions)
                                                        (Unaudited)
                                                                                 Three Months Ended       Nine Months Ended
                                                                                    September 30,            September 30,
                                                                                 2012          2011        2012         2011
Net Income                                                                      $ 247        $ 220    $      717      $ 701
Other comprehensive income:
  Change in net unrealized gain on securities available for sale:
      Net unrealized gain                                                         250            4        458            41
      Reclassification of impairment charges included in earnings                   3           13         28            22
      Other reclassifications included in earnings                                 —            —          (1)            1
      Income tax effect                                                           (95)          (6)      (181)          (24)
Total other comprehensive income                                                  158           11        304            40
Comprehensive Income                                                            $ 405        $ 231    $ 1,021         $ 741

See Notes to Condensed Consolidated Financial Statements.
                                                                -2-
                                              THE CHARLES SCHWAB CORPORATION
                                           Condensed Consolidated Balance Sheets
                                        (In millions, except per share and share amounts)
                                                           (Unaudited)
                                                                                                  September 30,   December 31,
                                                                                                      2012            2011
Assets
   Cash and cash equivalents                                                                      $     8,523     $     8,679
   Cash and investments segregated and on deposit for regulatory purposes (including resale
     agreements of $17,843 at September 30, 2012 and $17,899 at December 31, 2011)                     25,041          26,034
   Receivables from brokers, dealers, and clearing organizations                                          607             230
   Receivables from brokerage clients — net                                                            11,914          11,072
   Other securities owned — at fair value                                                                 513             593
   Securities available for sale                                                                       42,448          33,965
   Securities held to maturity (fair value — $16,229 at September 30, 2012 and $15,539 at
     December 31, 2011)                                                                              15,612          15,108
   Loans to banking clients — net                                                                    10,102           9,812
   Loans held for sale                                                                                   —               70
   Equipment, office facilities, and property — net                                                     672             685
   Goodwill                                                                                           1,159           1,161
   Intangible assets — net                                                                              292             326
   Other assets                                                                                         775             818
             Total assets                                                                         $ 117,658       $ 108,553
Liabilities and Stockholders’ Equity
   Deposits from banking clients                                                                  $    68,756     $    60,854
   Payables to brokers, dealers, and clearing organizations                                             1,445           1,098
   Payables to brokerage clients                                                                       34,761          35,489
   Accrued expenses and other liabilities                                                               1,455           1,397
   Long-term debt                                                                                       1,776           2,001
          Total liabilities                                                                           108,193         100,839
   Stockholders’ equity:
      Preferred stock — $.01 par value per share; aggregate liquidation preference of $885 at
        September 30, 2012 and $0 at December 31, 2011                                                    864              —
      Common stock — 3 billion shares authorized; $.01 par value per share; 1,487,543,446
        shares issued                                                                                      15              15
      Additional paid-in capital                                                                        3,890           3,826
      Retained earnings                                                                                 8,442           7,978
      Treasury stock, at cost — 212,554,662 shares at September 30, 2012 and 216,378,623 shares
        at December 31, 2011                                                                         (4,058)         (4,113)
      Accumulated other comprehensive income                                                            312               8
          Total stockholders’ equity                                                                  9,465           7,714
             Total liabilities and stockholders’ equity                                           $ 117,658       $ 108,553

See Notes to Condensed Consolidated Financial Statements.
                                                              -3-
                                                 THE CHARLES SCHWAB CORPORATION
                                        Condensed Consolidated Statements of Cash Flows
                                                         (In millions)
                                                          (Unaudited)
                                                                                                           Nine Months Ended
                                                                                                             September 30,
                                                                                                          2012           2011
Cash Flows from Operating Activities
  Net income                                                                                          $     717       $     701
     Adjustments to reconcile net income to net cash provided by operating activities:
        Provision for loan losses                                                                            14               13
        Net impairment losses on securities                                                                  28               22
        Stock-based compensation                                                                             79               73
        Depreciation and amortization                                                                       146              107
        Premium amortization, net, on securities available for sale and securities held to maturity         163               62
        Other                                                                                                 4               (3)
     Originations of loans held for sale                                                                   (441)          (1,139)
     Proceeds from sales of loans held for sale                                                             513            1,251
     Net change in:
        Cash and investments segregated and on deposit for regulatory purposes                              880           (3,187)
        Receivables from brokers, dealers, and clearing organizations                                      (376)            (111)
        Receivables from brokerage clients                                                                 (844)             333
        Other securities owned                                                                               80              (86)
        Other assets                                                                                         19               32
        Payables to brokers, dealers, and clearing organizations                                             84             (242)
        Payables to brokerage clients                                                                      (619)           4,513
        Accrued expenses and other liabilities                                                              (74)            (327)
           Net cash provided by operating activities                                                        373            2,012
Cash Flows from Investing Activities
     Purchases of securities available for sale                                                        (19,889)        (10,800)
     Proceeds from sales of securities available for sale                                                1,524             450
     Principal payments on securities available for sale                                                10,546           5,639
     Purchases of securities held to maturity                                                           (4,620)           (866)
     Principal payments on securities held to maturity                                                   4,012           2,795
     Net increase in loans to banking clients                                                             (318)           (997)
     Purchase of equipment, office facilities, and property                                               (107)           (137)
     Cash acquired in business acquisition, net of cash paid                                                —               84
     Other investing activities                                                                             10              11
           Net cash used for investing activities                                                       (8,842)         (3,821)
Cash Flows from Financing Activities
     Net change in deposits from banking clients                                                        7,902           3,488
     Repayment of long-term debt                                                                         (207)           (115)
     Premium paid on debt exchange                                                                        (19)             —
     Net proceeds from preferred stock offerings                                                          863              —
     Dividends paid                                                                                      (252)           (218)
     Proceeds from stock options exercised and other                                                       26              89
     Other financing activities                                                                            —               10
           Net cash provided by financing activities                                                    8,313           3,254
(Decrease) Increase in Cash and Cash Equivalents                                                         (156)          1,445
Cash and Cash Equivalents at Beginning of Period                                                        8,679           4,931
Cash and Cash Equivalents at End of Period                                                            $ 8,523         $ 6,376

Supplemental Cash Flow Information
  Cash paid during the period for:
     Interest                                                                                         $     118       $     127
     Income taxes                                                                                     $     379       $     416
  Non-cash investing activities:
     Common stock issued and equity awards assumed for business acquisition (See note “3 - Business
    Acquisition” for acquisition of optionsXpress Holdings, Inc.)         $    —    $   714
    Securities purchased during the period but settled after period end   $   263   $   203
  Non-cash financing activity:
    Exchange of Senior Notes (See note “6 - Borrowings”)                  $   256   $   —

See Notes to Condensed Consolidated Financial Statements.
                                                                -4-
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
1.   Introduction and Basis of Presentation
The Charles Schwab Corporation (CSC) is a savings and loan holding company engaged, through its subsidiaries, in securities
brokerage, banking, and related financial services. Charles Schwab & Co., Inc. (Schwab) is a securities broker-dealer with over 300
domestic branch offices in 45 states, as well as a branch in each of the Commonwealth of Puerto Rico and London, U.K. In addition,
Schwab serves clients in Hong Kong through one of CSC’s subsidiaries. Other subsidiaries include Charles Schwab Bank (Schwab
Bank), a federal savings bank, and Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s
proprietary mutual funds, which are referred to as the Schwab Funds®, and for Schwab’s exchange-traded funds, which are referred to
as the Schwab ETFs™.

The accompanying unaudited condensed consolidated financial statements include CSC and its majority-owned subsidiaries
(collectively referred to as the Company). Intercompany balances and transactions have been eliminated. These condensed
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States, which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying
financial statements. Certain estimates relate to other-than-temporary impairment of securities available for sale and securities held to
maturity, valuation of goodwill, allowance for loan losses, and legal reserves. Actual results may differ from those estimates. These
condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair
presentation of the results for the periods presented. These adjustments are of a normal recurring nature. Certain prior period amounts
have been reclassified to conform to the 2012 presentation. The Company’s results for any interim period are not necessarily
indicative of results for a full year or any other interim period. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2011.

2.   New Accounting Standard
Adoption of New Accounting Standard
Testing Goodwill for Impairment: In September 2011, the Financial Accounting Standards Board issued new guidance allowing
companies to consider qualitative factors before performing a quantitative assessment when determining whether goodwill is
impaired, which was effective for goodwill impairment tests performed after January 1, 2012. Specifically, there is no longer a
requirement to perform the two-step goodwill impairment test unless the entity determines that based on qualitative factors, it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. The adoption of this new guidance did not have a
material impact on the Company’s financial position, results of operations, earnings per common share (EPS), or cash flows.

3.   Business Acquisition
On September 1, 2011, the Company completed its acquisition of all of the outstanding common shares of optionsXpress Holdings,
Inc. (optionsXpress) for total consideration of $714 million. optionsXpress is an online brokerage firm primarily focused on equity
option securities and futures. The optionsXpress® brokerage platform provides active investors and traders trading tools, analytics and
education to execute a variety of investment strategies. The combination of optionsXpress and Schwab offers active investors an
additional level of service and platform capabilities.
Under the terms of the merger agreement, optionsXpress stockholders received 1.02 shares of the Company’s common stock for each
share of optionsXpress stock. As a result, the Company issued 59 million shares of the Company’s common stock valued at
$710 million, based on the closing price of the Company’s common stock on September 1, 2011. The Company also assumed
optionsXpress’ stock-based compensation awards valued at $4 million. In allocating the purchase price based on estimated fair values
of assets and liabilities assumed as of the acquisition date, the Company recorded $511 million of goodwill and $285 million of
intangible assets. The results of optionsXpress’ operations have been included in the Company’s condensed consolidated statements
of income from the date of acquisition. optionsXpress’ net revenues were
                                                                   -5-
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
$42 million and its net loss was not material for the third quarter of 2012. optionsXpress’ net revenues were $143 million and its net
income was $7 million for the first nine months of 2012.
The following table presents pro forma financial information as if optionsXpress had been acquired prior to January 1, 2011. Pro
forma net income for the third quarter and first nine months of 2011 were adjusted to exclude $10 million and $12 million, after tax,
respectively, of acquisition related costs incurred by the Company in 2011. Additionally, pro forma net income below excludes
$15 million, before tax, of acquisition related costs because these costs were incurred by optionsXpress prior to the acquisition date.
Pro forma net income also reflects the impact of amortizing purchase accounting adjustments relating to intangible assets, net of tax,
of $6 million and $17 million in the third quarter and first nine months of 2011, respectively.
                                                                                           Three Months Ended            Nine Months Ended
                                                                                            September 30, 2011           September 30, 2011
Net revenues                                                                               $           1,222             $          3,744
Net income                                                                                 $             231             $            726
Basic EPS                                                                                  $             .18             $            .57
Diluted EPS                                                                                $             .18             $            .57
The pro forma financial information above is presented for illustrative purposes only and is not necessarily indicative of the results
that actually would have occurred had the acquisition been completed prior to January 1, 2011, nor is it indicative of the results of
operations for future periods.

4.    Securities Available for Sale and Securities Held to Maturity
The amortized cost, gross unrealized gains and losses, and fair value of securities available for sale and securities held to maturity are
as follows:
                                                                                                      Gross         Gross
                                                                                       Amortized    Unrealized    Unrealized      Fair
September 30, 2012                                                                       Cost         Gains        Losses         Value
Securities available for sale:
U.S. agency residential mortgage-backed securities                                   $ 23,298 $            480 $           6 $ 23,772
Non-agency residential mortgage-backed securities                                         856                3            77      782
Corporate debt securities                                                               5,555               56             1    5,610
Certificates of deposit                                                                 5,524               14             2    5,536
Commercial paper                                                                          449               —             —       449
U.S. agency notes                                                                         350               —             —       350
Asset-backed and other securities                                                       5,916               35             2    5,949
  Total securities available for sale                                                $ 41,948 $            588 $          88 $ 42,448
Securities held to maturity:
U.S. agency residential mortgage-backed securities                                   $ 15,450 $            618 $          1 $ 16,067
Other securities                                                                          162               —             —      162
  Total securities held to maturity                                                  $ 15,612 $            618 $          1 $ 16,229

                                                                   -6-
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
                                                                                                        Gross              Gross
                                                                                     Amortized        Unrealized         Unrealized                  Fair
December 31, 2011                                                                      Cost             Gains             Losses                     Value
Securities available for sale:
U.S. agency residential mortgage-backed securities                                   $ 20,666         $       269        $         14        $ 20,921
Non-agency residential mortgage-backed securities                                       1,130                  —                  223             907
Corporate debt securities                                                               3,592                   5                  26           3,571
Certificates of deposit                                                                 3,623                   2                   3           3,622
Commercial paper                                                                          225                  —                   —              225
U.S. agency notes                                                                       1,795                   5                  —            1,800
Asset-backed and other securities                                                       2,919                   7                   7           2,919
  Total securities available for sale                                                $ 33,950         $       288        $        273        $ 33,965
Securities held to maturity:
U.S. agency residential mortgage-backed securities                                   $ 14,770         $       430        $         2         $ 15,198
Other securities                                                                          338                   3                  —              341
  Total securities held to maturity                                                  $ 15,108         $       433        $         2         $ 15,539

A summary of securities with unrealized losses, aggregated by category and period of continuous unrealized loss, is as follows:
                                                                     Less than                    12 months
                                                                    12 months                      or longer                             Total
                                                               Fair         Unrealized       Fair         Unrealized             Fair            Unrealized
September 30, 2012                                             Value           Losses        Value           Losses              Value            Losses
Securities available for sale:
U.S. agency residential mortgage-backed securities         $    —          $       —     $   346          $          6       $   346             $        6
Non-agency residential mortgage-backed securities               —                  —         606                    77           606                     77
Corporate debt securities                                      776                 1          —                     —            776                      1
Certificates of deposit                                        698                 2          —                     —            698                      2
Asset-backed and other securities                               —                  —         923                     2           923                      2
  Total                                                    $ 1,474         $       3     $ 1,875          $         85       $ 3,349             $       88
Securities held to maturity:
U.S. agency residential mortgage-backed securities         $   249         $        1    $    —           $         —        $   249             $        1
  Total                                                    $   249         $        1    $    —           $         —        $   249             $        1
Total securities with unrealized losses (1)                $ 1,723         $        4    $ 1,875          $         85       $ 3,598             $       89
(1)
      The number of investment positions with unrealized losses totaled 128 for securities available for sale and 7 for securities held
      to maturity.
                                                                    -7-
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
                                                                     Less than                  12 months
                                                                     12 months                   or longer                   Total
                                                               Fair         Unrealized     Fair         Unrealized   Fair         Unrealized
December 31, 2011                                              Value           Losses      Value           Losses    Value         Losses
Securities available for sale:
U.S. agency residential mortgage-backed securities         $  5,551 $               14 $        — $            — $ 5,551 $               14
Non-agency residential mortgage-backed securities               121                  8         746            215      867              223
Corporate debt securities                                     1,888                 26          —              —     1,888               26
Certificates of deposit                                       2,158                  3          —              —     2,158                3
Asset-backed and other securities                             1,376                  6         152              1    1,528                7
  Total                                                    $ 11,094 $               57 $       898 $          216 $ 11,992 $            273
Securities held to maturity:
U.S. agency residential mortgage-backed securities         $    384 $                2 $        — $            — $     384 $              2
  Total                                                    $    384 $                2 $        — $            — $     384 $              2
Total securities with unrealized losses (1)                $ 11,478 $               59 $       898 $          216 $ 12,376 $            275
(1)
      The number of investment positions with unrealized losses totaled 296 for securities available for sale and 3 for securities held
      to maturity.
Unrealized losses in securities available for sale of $88 million as of September 30, 2012, were concentrated in non-agency residential
mortgage-backed securities. Included in non-agency residential mortgage-backed securities are securities collateralized by loans that
are considered to be “Prime” (defined as loans to borrowers with a Fair Isaac Corporation credit score of 620 or higher at origination),
and “Alt-A” (defined as Prime loans with reduced documentation at origination). At September 30, 2012, the amortized cost and fair
value of Alt-A residential mortgage-backed securities were $326 million and $280 million, respectively.
Certain Alt-A and Prime residential mortgage-backed securities experienced continued credit deterioration in the first nine months of
2012, including increased payment delinquency rates and losses on foreclosures of underlying mortgages. In addition, the Company
increased the projected default rates for modified loans in the first quarter of 2012. Based on the Company’s cash flow projections,
management determined that it does not expect to recover all of the amortized cost of these securities and therefore determined that
these securities were other-than-temporarily impaired (OTTI). The Company employs a buy and hold strategy relative to its
mortgage-related securities, and does not intend to sell these securities and will not be required to sell these securities before
anticipated recovery of the unrealized losses on these securities. Further, the Company has adequate liquidity at September 30, 2012,
with cash and cash equivalents totaling $8.5 billion, a loan-to-deposit ratio of 15%, adequate access to short-term borrowing facilities
and regulatory capital ratios in excess of “well capitalized” levels. Because the Company does not intend to sell these securities and it
is not “more likely than not” that the Company will be required to sell these securities, the Company recognized an impairment
charge equal to the securities’ expected credit losses of $3 million and $28 million during the third quarter and first nine months of
2012, respectively. The expected credit losses were measured as the difference between the present value of expected cash flows and
the amortized cost of the securities. Further deterioration in the performance of the underlying loans in the Company’s residential
mortgage-backed securities portfolio could result in the recognition of additional impairment charges.

Actual credit losses on the Company’s residential mortgage-backed securities were not material during the third quarters or first nine
months of 2012 or 2011.
                                                                    -8-
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
The following table is a rollforward of the amount of credit losses recognized in earnings for OTTI securities held by the Company
during the period for which a portion of the impairment was recognized in other comprehensive income:
                                                                                                       Three Months Ended             Nine Months Ended
                                                                                                          September 30,                 September 30,
                                                                                                        2012        2011              2012         2011
Balance at beginning of period                                                                        $    152         $   105       $ 127       $      96
Credit losses recognized into current period earnings on debt securities for which an
 other-than-temporary impairment was not previously recognized                                                  1              2            6           4
Credit losses recognized into current period earnings on debt securities for which an
 other-than-temporary impairment was previously recognized                                                   2              11          22          18
Balance at end of period                                                                              $    155         $   118       $ 155       $ 118

The maturities of securities available for sale and securities held to maturity at September 30, 2012, are as follows:
                                                                                  After 1 year         After 5 years
                                                                     Within         through              through                After
                                                                     1 year          5 years             10 years              10 years         Total
Securities available for sale:
U.S. agency residential mortgage-backed securities (1)           $         —      $         2         $         4,031      $       19,739   $    23,772
Non-agency residential mortgage-backed securities (1)                      —               —                        8                 774           782
Corporate debt securities                                               1,015           4,595                      —                   —          5,610
Certificates of deposit                                                 4,030           1,506                      —                   —          5,536
Commercial paper                                                          449              —                       —                   —            449
U.S. agency notes                                                          —              100                     250                  —            350
Asset-backed and other securities                                          —              474                     440               5,035         5,949
      Total fair value                                           $      5,494     $     6,677         $         4,729      $       25,548   $    42,448
      Total amortized cost                                       $      5,484     $     6,617         $         4,565      $       25,282   $    41,948
Securities held to maturity:
U.S. agency residential mortgage-backed securities (1)           $            —   $        —          $         7,049      $        9,018   $    16,067
Other securities                                                              —           162                      —                   —            162
      Total fair value                                           $            —   $       162         $         7,049      $        9,018   $    16,229
      Total amortized cost                                       $            —   $       162         $         6,678      $        8,772   $    15,612
(1)
      Residential mortgage-backed securities have been allocated over maturity groupings based on final contractual maturities.
      Actual maturities will differ from final contractual maturities because borrowers on a certain portion of loans underlying these
      securities have the right to prepay their obligations.

Proceeds and gross realized gains (losses) from sales of securities available for sale are as follows:
                                                                                                     Three Months Ended               Nine Months Ended
                                                                                                        September 30,                    September 30,
                                                                                                      2012          2011               2012         2011
Proceeds                                                                                         $        201       $ —              $ 1,524      $ 450
Gross realized gains                                                                             $         —        $ —              $     2      $ 1
Gross realized losses                                                                            $         —        $ —              $    —       $ —
                                                                     -9-
                                          THE CHARLES SCHWAB CORPORATION
                                      Notes to Condensed Consolidated Financial Statements
                               (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                             (Unaudited)
5.    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,
                                                                                                                2012                2011
Residential real estate mortgages                                                                           $     5,982         $     5,596
Home equity lines of credit                                                                                       3,346               3,509
Personal loans secured by securities                                                                                807                 742
Other                                                                                                                24                  19
   Total loans to banking clients (1)                                                                            10,159               9,866
Allowance for loan losses                                                                                           (57)                (54)
   Total loans to banking clients – net                                                                     $    10,102         $     9,812
(1)
      All 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 evaluation 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 to ensure
that the allowance for loan losses is maintained at an appropriate level.

The methodology to establish an allowance for loan losses utilizes statistical models that estimate prepayments, defaults, and probable
losses for the loan segments based on predicted behavior of individual loans within the segments. The methodology considers the
effects of borrower behavior and a variety of factors including, but not limited to, interest rates, housing price movements as
measured by a housing price index, economic conditions, estimated defaults and foreclosures measured by historical and expected
delinquencies, changes in prepayment speeds, loan-to-value (LTV) ratios, past loss experience, estimates of future loss severities,
borrower credit risk measured by Fair Isaac Corporation (FICO) scores, and the adequacy of collateral. The methodology also
evaluates concentrations in the loan segments, including loan products, year of origination, geographical distribution of collateral, and
the portion of borrowers who have other client relationships with the Company.

Probable losses are forecast using a loan-level simulation of the delinquency status of the loans over the term of the loans. The
simulation starts with the current relevant risk indicators, including the current delinquent status of each loan, the estimated current
LTV ratio of each loan, the term and structure of each loan, current key interest rates including U.S. Treasury and LIBOR rates, and
borrower FICO scores. The more significant variables included in the simulation include delinquency roll rates, loss severity, housing
prices, and interest rates. Delinquency roll rates (i.e., the rates at which loans transition through delinquency stages and ultimately
result in a loss) are estimated from the Company’s historical loss experience adjusted for current trends and market information.
Further, the delinquency roll rates within the loan-level simulation discussed above are calibrated to match a moving average of the
delinquency roll rates actually experienced in the respective first lien residential real estate mortgage loan (First Mortgage) and home
equity line of credit (HELOC) portfolios. Loss severity estimates are based on the Company’s historical loss experience and market
trends. Housing price trends are derived from historical home price indices and econometric forecasts of future home values. Factors
affecting the home price index include: housing inventory, unemployment, interest rates, and inflation expectations. Interest rate
projections are based on the current term structure of interest rates and historical volatilities to project various possible future interest
rate paths. As a result, the current state of house prices, including the decrease in general house prices experienced over the last
several years, as well as the current state of delinquencies unique to the Company’s First Mortgage and HELOC portfolios, are
considered in the allowance for loan loss methodology.
This methodology results in a loss factor that is applied to the outstanding balances to determine the allowance for loan loss for each
loan segment.
                                                                   - 10 -
                                        THE CHARLES SCHWAB CORPORATION
                                    Notes to Condensed Consolidated Financial Statements
                             (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                           (Unaudited)
Changes in the allowance for loan losses were as follows:

Three Months Ended                                              September 30, 2012                                     September 30, 2011
                                                 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      $          17      $           51     $        34      $          16      $           50
Charge-offs                                               (2)                (3)                 (5)             (2)                (3)                 (5)
Recoveries                                                 1                 —                    1              —                  —                   —
Provision for loan losses                                  2                  8                  10               6                  2                   8
Balance at end of period                        $         35      $          22      $           57     $        38      $          15      $           53

Nine Months Ended                                               September 30, 2012                                     September 30, 2011
                                                 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      $          14      $            54    $        38      $          15      $            53
Charge-offs                                               (6)                (7)                 (13)            (8)                (6)                 (14)
Recoveries                                                 2                 —                     2             —                   1                    1
Provision for loan losses                                 (1)                15                   14              8                  5                   13
Balance at end of period                        $         35      $          22      $            57    $        38      $          15      $            53

Included in the loan portfolio are nonaccrual loans totaling $46 million and $52 million at September 30, 2012 and December 31,
2011, respectively. There were no loans accruing interest that were contractually 90 days or more past due at September 30, 2012 or
December 31, 2011. 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 2012 or 2011.
Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $50 million and $56 million at
September 30, 2012 and December 31, 2011, respectively. 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, 2012 or December 31, 2011.

In the first quarter of 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 loans for Schwab Bank
clients and Schwab Bank sets the underwriting standards and pricing for those loans it intends to purchase for its portfolio. These
underwriting standards are the same standards that Schwab Bank applied previously to its originated loans. The First Mortgage
portion of the Program launched in March 2012 and is included in the originated and purchased first mortgages loan class as of
September 30, 2012, in the tables below. The HELOC portion of the Program was launched in May 2012. Under the Program,
Schwab Bank purchases all HELOC loans to Schwab Bank clients that are originated by Quicken Loans.
                                                                    - 11 -
                                        THE CHARLES SCHWAB CORPORATION
                                    Notes to Condensed Consolidated Financial Statements
                             (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                           (Unaudited)
The delinquency aging analysis by loan class is as follows:
                                                                          30-59 days   60-89 days   Greater than        Total         Total
September 30, 2012                                       Current           past due     past due      90 days          past due       loans
Residential real estate mortgages:
   Originated and purchased first mortgages          $  5,751         $           30   $      3     $        33    $         66   $  5,817
   Other purchased first mortgages                        160                      1          —               4               5        165
Home equity lines of credit                             3,326                      8          3               9              20      3,346
Personal loans secured by securities                      807                     —           —              —               —         807
Other                                                      24                     —           —              —               —          24
   Total loans to banking clients                    $ 10,068         $           39   $      6     $        46    $         91   $ 10,159

December 31, 2011
Residential real estate mortgages:
   Originated 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 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 September 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.
                                                                    - 12 -
                                 THE CHARLES SCHWAB CORPORATION
                             Notes to Condensed Consolidated Financial Statements
                      (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                    (Unaudited)
                                                                   Residential real estate mortgages
                                                    Originated and
                                                       purchased          Other purchased                               Home equity
September 30, 2012                                  first mortgages        first mortgages             Total           lines of credit
Year of origination
   Pre-2008                                         $          489         $            57        $          546   $            1,220
   2008                                                        430                       6                   436                1,180
  2009                                                         354                       6                   360                  362
   2010                                                      1,128                      14                 1,142                  270
  2011                                                       1,606                      62                 1,668                  214
   2012                                                      1,810                      20                 1,830                  100
      Total                                         $        5,817         $           165        $        5,982   $            3,346
Origination FICO
   < 620                                            $           10         $             1        $           11   $               —
   620 - 679                                                    96                      18                   114                   24
  680 - 739                                                  1,061                      40                 1,101                  643
   ≥740                                                      4,650                     106                 4,756                2,679
      Total                                         $        5,817         $           165        $        5,982   $            3,346
Updated FICO
   < 620                                            $           56         $             6        $           62   $               47
   620 - 679                                                   163                      11                   174                  111
  680 - 739                                                    862                      39                   901                  505
   ≥740                                                      4,736                     109                 4,845                2,683
      Total                                         $        5,817         $           165        $        5,982   $            3,346
Origination LTV
   ≤70%                                             $        3,807         $           103        $        3,910   $            2,263
   >70% - ≤90%                                               1,994                      55                 2,049                1,056
  >90% - ≤100%                                                  16                       7                    23                   27
      Total                                         $        5,817         $           165        $        5,982   $            3,346

                                                        - 13 -
                                        THE CHARLES SCHWAB CORPORATION
                                    Notes to Condensed Consolidated Financial Statements
                             (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                           (Unaudited)
                                                                                                                                         Percent of Loans
                                                                                                                                        that are 90+ Days
                                                                                                                                          Past Due and
                                                                                  Weighted                                              Less than 90 Days
                                                                                  Average                   Utilization                  Past Due but on
September 30, 2012                                     Balance                  Updated FICO                 Rate (1)                   Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
   ≤70%                                            $         4,024                         774                      N/A                              0.26%
   >70% - ≤90%                                               1,557                         764                      N/A                              0.41%
   >90% - ≤100%                                                171                         748                      N/A                              1.31%
   >100%                                                       230                         748                      N/A                              1.96%
     Total                                         $         5,982                         769                      N/A                              0.39%
Home equity lines of credit:
Estimated Current LTV
   ≤70%                                            $         1,704                         775                            37%                        0.07%
   >70% - ≤90%                                               1,013                         767                            47%                        0.33%
   >90% - ≤100%                                                265                         762                            54%                        0.40%
   >100%                                                       364                         754                            61%                        0.83%
     Total                                         $         3,346                         769                            42%                        0.26%
(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
                                                                             Originated            Purchased                                   Home equity
December 31, 2011                                                         first mortgages       first mortgages            Total              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
  ≥740                                                                            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
  ≥740                                                                            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

                                                                 - 14 -
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
                                                                                                                             Percent of Loans
                                                                                                                            that are 90+ Days
                                                                                                                              Past Due and
                                                                               Weighted                                     Less than 90 Days
                                                                               Average              Utilization              Past Due but on
December 31, 2011                                        Balance             Updated FICO            Rate (1)               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 September 30, 2012 and December 31, 2011.

6.    Borrowings
Long-term debt including unamortized debt discounts and premiums, where applicable, consists of the following:
                                                                                                            September 30,         December 31,
                                                                                                                2012                  2011
Senior Notes                                                                                                $       1,432         $     1,450
Senior Medium-Term Notes, Series A                                                                                    249                 249
Finance lease obligation                                                                                               95                 100
Junior Subordinated Notes                                                                                              —                  202
   Total long-term debt                                                                                     $       1,776         $     2,001

In August 2012, CSC completed an exchange offer with certain eligible holders of its 4.950% Senior Notes due 2014 (Old Senior
Notes), whereby Old Senior Notes in an aggregate principal amount of $256 million were exchanged for the same aggregate principal
amount of 3.225% Senior Notes due 2022 (New Senior Notes) and cash consideration of $19 million. The New Senior Notes have a
fixed interest rate of 3.225% with interest payable semiannually. Pursuant to an exchange and registration rights agreement
(Registration Rights Agreement), on October 30, 2012, CSC filed an exchange registration statement with the SEC to allow the
holders of the New Senior Notes to exchange such New Senior Notes for an equal principal amount of notes with substantially
identical terms, except that they will generally be freely transferable under the Securities Act of 1933. In addition, CSC has agreed
pursuant to the Registration Rights Agreement, under certain circumstances, to file a shelf registration statement with the SEC to
cover resales of the New Senior Notes.
CSC and Schwab Capital Trust I, a statutory trust formed under the laws of the State of Delaware (Trust), previously closed a public
offering of $300 million of the Trust’s fixed-to-floating rate trust preferred securities. The proceeds from the sale of
                                                                   - 15 -
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
the trust preferred securities were invested by the Trust in fixed-to-floating rate Junior Subordinated Notes issued by CSC, of which
$202 million remained outstanding at August 30, 2012. On August 31, 2012, CSC redeemed all of the outstanding fixed-to-floating
rate trust preferred securities issued by the Trust for $207 million. The trust preferred securities were redeemed, along with the
common securities issued by the Trust and held by CSC, as a result of the concurrent redemption in whole by CSC of the Junior
Subordinated Notes held by the Trust which underlay the trust preferred securities. The redemption price represented 100% of the
liquidation amount of each trust preferred security, plus accumulated and unpaid distributions up to and including the redemption
date.

Annual maturities on long-term debt outstanding at September 30, 2012, are as follows:

2012                                                                                                                          $     1
2013                                                                                                                                6
2014                                                                                                                              500
2015                                                                                                                                7
2016                                                                                                                                7
Thereafter                                                                                                                      1,275
Total maturities                                                                                                                1,796
Unamortized discount, net                                                                                                         (20)
  Total long-term debt                                                                                                        $ 1,776

7.   Commitments and Contingencies
The Company has clients that sell (i.e., write) listed option contracts that are cleared by various clearing houses. The clearing houses
establish margin requirements on these transactions. The Company partially satisfies the margin requirements by arranging unsecured
standby letter of credit agreements (LOCs), in favor of the clearing houses, which are issued by multiple banks. At September 30,
2012, the aggregate face amount of these LOCs totaled $325 million. In connection with its securities lending activities, Schwab is
required to provide collateral to certain brokerage clients. Schwab satisfies the collateral requirements by arranging LOCs in favor of
these brokerage clients, which are issued by multiple banks. At September 30, 2012, the aggregate face amount of these LOCs totaled
$99 million. There were no funds drawn under any of these LOCs at September 30, 2012.
The Company also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which
require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy
its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability
under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, the potential
requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized
for these guarantees.

Legal contingencies: The Company is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class
actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of
inquiries, investigations, and proceedings by regulatory and other governmental agencies. In addition, the Company is responding to
certain litigation claims brought against former subsidiaries pursuant to indemnities it has provided to purchasers of those entities.

The Company believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages
claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other
relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below are
certain matters in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be
of significant interest to stockholders. With respect to all other pending matters, based on current information and consultation with
counsel, it does not appear that the outcome of any such matter could be material to the financial condition, operating results or cash
flows of the Company. However, predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring
significant judgment and evaluation of various factors,
                                                                 - 16 -
                                          THE CHARLES SCHWAB CORPORATION
                                      Notes to Condensed Consolidated Financial Statements
                               (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                             (Unaudited)
including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar
cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g.,
motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential
damages; potential opportunities for settlement and the status of any settlement discussions; and potential insurance coverage and
indemnification. Often, as in the case of the Auction Rate Securities Regulatory Inquiries and Total Bond Market Fund Litigation
matters described below, it is not possible to reasonably estimate potential liability, if any, or a range of potential liability until the
matter is closer to resolution - pending, for example, further proceedings, the outcome of key motions or appeals, or discussions
among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of
threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further
disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available.
Auction Rate Securities Regulatory Inquiries: Schwab has been responding to industry wide inquiries from federal and state
regulators regarding sales of auction rate securities to clients who were unable to sell their holdings when the normal auction process
for those securities froze unexpectedly in February 2008. On August 17, 2009, a civil complaint was filed against Schwab in New
York state court by the Attorney General of the State of New York (NYAG) alleging material misrepresentations and omissions by
Schwab regarding the risks of auction rate securities, and seeking restitution, disgorgement, penalties and other relief, including
repurchase of securities held in client accounts. As reflected in a statement issued August 17, 2009, Schwab has responded that the
allegations are without merit, and has been contesting all charges. By order dated October 24, 2011, the court granted Schwab’s
motion to dismiss the complaint with prejudice. The NYAG has appealed to the Appellate Division, where the case is currently
pending.

Total Bond Market Fund Litigation: On August 28, 2008, a class action lawsuit was filed in the U.S. District Court for the Northern
District of California on behalf of investors in the Schwab Total Bond Market Fund™ (Northstar lawsuit). The lawsuit, which alleges
violations of state law and federal securities law in connection with the fund’s investment policy, names Schwab Investments
(registrant and issuer of the fund’s shares) and CSIM as defendants. Allegations include that the fund improperly deviated from its
stated investment objectives by investing in collateralized mortgage obligations (CMOs) and investing more than 25% of fund assets
in CMOs and mortgage-backed securities without obtaining a shareholder vote. Plaintiffs seek unspecified compensatory and
rescission damages, unspecified equitable and injunctive relief, costs and attorneys’ fees. Plaintiffs’ federal securities law claim and
certain of plaintiffs’ state law claims were dismissed in proceedings before the court and following a successful petition by defendants
to the Ninth Circuit Court of Appeals. On August 8, 2011, the court dismissed plaintiffs’ remaining claims with prejudice. Plaintiffs
have again appealed to the Ninth Circuit, where the case is currently pending.

optionsXpress Regulatory Matters: optionsXpress entities and individual employees have been responding to certain pending
regulatory matters which predate the Company’s acquisition of optionsXpress. On April 16, 2012, optionsXpress, Inc. was charged by
the Securities and Exchange Commission (SEC) in an administrative proceeding alleging violations of the firm’s close-out obligations
under SEC Regulation SHO (short sale delivery rules) in connection with certain customer trading activity. Trial in the administrative
proceeding commenced September 5, 2012. The Company disputes the allegations and is contesting the charges. Separately, on
April 19, 2012, the SEC instituted an administrative proceeding alleging violations of the broker-dealer registration requirements by
an unregistered optionsXpress entity. On September 5, 2012, the administrative law judge hearing the case ruled on summary
disposition that applicable registration requirements were violated. Certain other issues, including relief, remain to be determined at
trial. The Company continues to dispute the allegations and is contesting the charges. The Company recorded a contingent liability
associated with the two separate matters, which was not material at September 30, 2012.

8.   Fair Values of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value measurement accounting guidance describes the fair value hierarchy
for disclosing assets and liabilities measured at fair value based on the inputs used to value them. The fair value hierarchy maximizes
the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs
                                                                    - 17 -
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
are based on market pricing data obtained from sources independent of the Company. A quoted price in an active market provides the
most reliable evidence of fair value and is generally used to measure fair value whenever available. Unobservable inputs reflect
management’s judgment about the assumptions market participants would use in pricing the asset or liability. Where inputs used to
measure fair value of an asset or liability are from different levels of the hierarchy, the asset or liability is categorized based on the
lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input
requires judgment. The fair value hierarchy includes three levels based on the objectivity of the inputs as follows:
      •    Level 1 inputs are quoted prices in active markets as of the measurement date for identical assets or liabilities that the
           Company has the ability to access. The Company did not transfer any assets or liabilities between Level 1 and Level 2
           during the first nine months of 2012, or the year ended December 31, 2011.
      •    Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
           directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs
           other than quoted prices that are observable for the asset or liability, such as interest rates, benchmark yields, issuer
           spreads, new issue data, and collateral performance.
      •    Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market
           activity for the asset or liability. The Company did not have any financial assets or liabilities utilizing Level 3 inputs as of
           September 30, 2012 or December 31, 2011.

Assets and Liabilities Recorded at Fair Value
The Company’s assets recorded at fair value include certain cash equivalents, investments segregated and on deposit for regulatory
purposes, other securities owned, and securities available for sale. The Company uses the market and income approaches to determine
the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of
assets. When utilizing market data with a bid-ask spread, the Company uses the price within the bid-ask spread that best represents
fair value. When quoted prices do not exist, the Company uses prices obtained from independent third-party pricing services to
measure the fair value of investment assets. The Company generally obtains prices from at least three independent pricing sources for
assets recorded at fair value and may obtain up to five prices on assets with higher risk of limited observable information, such as
non-agency residential mortgage-backed securities. The Company’s primary independent pricing service provides prices based on
observable trades and discounted cash flows that incorporate observable information such as yields for similar types of securities (a
benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. The
Company compares the prices obtained from its primary independent pricing service to the prices obtained from the additional
independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. The
Company does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the
definition of fair value and result in a material difference in the recorded amounts. At September 30, 2012 and December 31, 2011,
the Company did not adjust prices received from the primary independent third-party pricing service. Liabilities recorded at fair value
were not material, and therefore are not included in the following tables.
                                                                   - 18 -
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
The following tables present the fair value hierarchy for assets measured at fair value:
                                                       Quoted Prices
                                                     in Active Markets         Significant          Significant
                                                        for Identical       Other Observable       Unobservable
                                                           Assets                Inputs               Inputs          Balance at
September 30, 2012                                        (Level 1)             (Level 2)            (Level 3)        Fair Value
Cash equivalents:
    Money market funds                               $           218        $           —      $              —   $            218
    Commercial paper                                              —                    866                    —                866
       Total cash equivalents                                    218                   866                    —              1,084
Investments segregated and on deposit for
  regulatory purposes:
    Certificates of deposit                                        —                 2,675                    —              2,675
    Corporate debt securities                                      —                   535                    —                535
       Total investments segregated and on
         deposit for regulatory purposes                           —                 3,210                    —              3,210
Other securities owned:
    Schwab Funds® money market funds                             244                     —                    —                    244
    Equity and bond mutual funds                                 183                     —                    —                    183
    State and municipal debt obligations                          —                      55                   —                     55
    Equity, U.S. Government and corporate
     debt, and other securities                                    1                     30                   —                     31
       Total other securities owned                              428                     85                   —                    513
Securities available for sale:
    U.S. agency residential mortgage-backed
     securities                                                    —                23,772                    —             23,772
    Non-agency residential mortgage-backed
     securities                                                   —                    782                    —                782
    Corporate debt securities                                     —                  5,610                    —              5,610
    Certificates of deposit                                       —                  5,536                    —              5,536
    Commercial paper                                              —                    449                    —                449
    U.S. agency notes                                             —                    350                    —                350
    Asset-backed and other securities                             —                  5,949                    —              5,949
       Total securities available for sale                        —                 42,448                    —             42,448
    Total                                            $           646        $       46,609     $              —   $         47,255

                                                                   - 19 -
                                          THE CHARLES SCHWAB CORPORATION
                                      Notes to Condensed Consolidated Financial Statements
                               (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                             (Unaudited)
                                                         Quoted Prices
                                                       in Active Markets        Significant             Significant
                                                          for Identical      Other Observable          Unobservable
                                                             Assets               Inputs                  Inputs              Balance at
December 31, 2011                                           (Level 1)            (Level 2)               (Level 3)            Fair Value
Cash equivalents:
    Money market funds                                 $             8       $           —         $              —       $                  8
    Commercial paper                                                 —                  814                       —                        814
       Total cash equivalents                                        8                  814                       —                        822
Investments segregated and on deposit for
  regulatory purposes:
    Certificates of deposit                                          —                2,374                       —                   2,374
    Corporate debt securities                                        —                  767                       —                     767
    U.S. Government securities                                       —                  650                       —                     650
       Total investments segregated and on
        deposit for regulatory purposes                              —                3,791                       —                   3,791
Other securities owned:
    Schwab Funds® money market funds                               332                    —                       —                        332
    Equity and bond mutual funds                                   183                    —                       —                        183
    State and municipal debt obligations                            —                     46                      —                         46
    Equity, U.S. Government and corporate
     debt, and other securities                                     12                    20                      —                         32
       Total other securities owned                                527                    66                      —                        593
Securities available for sale:
    U.S. agency residential mortgage-backed
     securities                                                      —               20,921                       —                 20,921
    Non-agency residential mortgage-backed
     securities                                                     —                   907                       —                    907
    Corporate debt securities                                       —                 3,571                       —                  3,571
    Certificates of deposit                                         —                 3,622                       —                  3,622
    Commercial paper                                                —                   225                       —                    225
    U.S. agency notes                                               —                 1,800                       —                  1,800
    Asset-backed and other securities                               —                 2,919                       —                  2,919
       Total securities available for sale                          —                33,965                       —                 33,965
    Total                                              $           535       $       38,636        $              —       $         39,171

Financial Instruments Not Recorded at Fair Value
Descriptions of the valuation methodologies and assumptions used to estimate the fair value of financial instruments not recorded at fair
value are described below. There were no significant changes in these methodologies or assumptions during the first nine months of
2012.
Cash and cash equivalents, receivables from/payables to brokers, dealers, and clearing organizations, and receivables from/payables to
brokerage clients are short-term in nature and accordingly are recorded at amounts that approximate fair value. Cash and cash
equivalents include cash and highly liquid investments with original maturities of three months or less. Receivables from/payables to
brokers, dealers, and clearing organizations, and receivables from/payables to brokerage clients are recorded at or near transaction price
and historically have been settled or converted to cash at approximately that value.
Cash and investments segregated and on deposit for regulatory purposes include cash and securities purchased under resale agreements.
Securities purchased under resale agreements are recorded at par value plus accrued interest. Securities purchased under resale
agreements are short-term in nature and are backed by collateral that both exceeds the carrying value of the resale agreement and is
highly liquid in nature. Accordingly, the carrying value approximates fair value.
Securities held to maturity include U.S. agency residential mortgage-backed securities and other securities. Securities held to maturity
are recorded at amortized cost. The fair value of these securities is obtained using an independent third-party pricing service similar to
investment assets recorded at fair value as discussed above.
                                                                    - 20 -
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
Loans to banking clients primarily include adjustable rate residential first-mortgage and HELOC loans. Loans to banking clients are
recorded at carrying value net of an allowance for loan losses. The fair value of the Company’s loans to banking clients is estimated
based on prices obtained from independent third-party pricing services for mortgage-backed securities collateralized by similar types
of loans. The Company may adjust the independent third-party prices to account for differences between comparable mortgage-
backed securities and loans to banking clients.

Loans held for sale at December 31, 2011, included fixed-rate and adjustable-rate residential first-mortgage loans intended for sale.
Loans held for sale were recorded at the lower of cost or fair value. The fair value of the Company’s loans held for sale was estimated
using quoted market prices for securities backed by similar types of loans.
Other assets – Financial instruments included in other assets primarily consist of cost method investments and Federal Home Loan
Bank (FHLB) stock, whose carrying values approximate their fair values. FHLB stock is recorded at par, which approximates fair
value.
Deposits from banking clients – The Company considers the fair value of deposits with no stated maturity, such as deposits from
banking clients, to be equal to the amount payable on demand as of the balance sheet date.

Accrued expenses and other liabilities – Financial instruments included in accrued expenses and other liabilities consist of drafts
payable and certain amounts due under contractual obligations which are short-term in nature and accordingly are recorded at
amounts that approximate fair value.

Long-term debt includes Senior Notes, Senior Medium-Term Notes, Series A, and a finance lease obligation. The fair values of the
Senior Notes and Senior Medium-Term Notes, Series A, are estimated using indicative non-binding quotes from independent brokers.
The Company validates indicative prices for its debt through comparison to other independent non-binding quotes. The finance lease
obligation is recorded at carrying value, which approximates fair value. Long-term debt at December 31, 2011, included Junior
Subordinated Notes, which were estimated using indicative non-binding quotes from independent brokers.

Firm commitments to extend credit – The Company extends credit to banking clients through HELOC and personal loans secured by
securities. The Company considers the fair value of these unused commitments to be not material because the interest rates earned on
these balances are based on market interest rate indices and reset monthly. Future utilization of HELOC and personal loan
commitments will earn a then-current market interest rate. The Company does not charge a fee to maintain a HELOC or personal
loan.
                                                                 - 21 -
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
The following table presents the fair value hierarchy for financial instruments not recorded at fair value at September 30, 2012:
                                                                   Quoted Prices
                                                                 in Active Markets      Significant       Significant
                                                                    for Identical    Other Observable    Unobservable
                                                  Carrying             Assets             Inputs            Inputs              Balance at
                                                  Amount              (Level 1)          (Level 2)         (Level 3)            Fair Value
Assets:
Cash and cash equivalents                    $           7,439 $               — $             7,439 $                — $               7,439
Cash and investments segregated and on
 deposit for regulatory purposes                       21,824                  —             21,824                   —                21,824
Receivables from brokers, dealers, and
 clearing organizations                                   607                  —                607                   —                   607
Receivables from brokerage clients – net               11,909                  —             11,909                   —                11,909
Securities held to maturity:
   U.S. agency residential mortgage-
    backed securities                                  15,450                  —             16,067                   —                16,067
   Other securities                                       162                  —                162                   —                   162
      Total securities held to maturity                15,612                  —             16,229                   —                16,229
Loans to banking clients – net:
   Residential real estate mortgages                    5,947                  —              6,028                   —                 6,028
   Home equity lines of credit                          3,324                  —              3,315                   —                 3,315
   Personal loans secured by securities                   807                  —                807                   —                   807
   Other                                                   24                  —                 24                   —                    24
      Total loans to banking clients – net             10,102                  —             10,174                   —                10,174
Other assets                                               64                  —                 64                   —                    64
      Total                                  $         67,557 $                — $           68,246 $                 — $              68,246
Liabilities:
Deposits from banking clients                $         68,756 $                — $           68,756 $                 — $              68,756
Payables to brokers, dealers, and clearing
 organizations                                          1,445                  —              1,445                   —                 1,445
Payables to brokerage clients                          34,761                  —             34,761                   —                34,761
Accrued expenses and other liabilities                    546                  —                546                   —                   546
Long-term debt                                          1,776                  —              1,717                   —                 1,717
      Total                                  $        107,284 $                — $          107,225 $                 — $             107,225

The following table presents the Company’s fair value estimates for financial instruments not recorded at fair value at December 31,
2011. The table excludes short-term financial assets and liabilities, for which carrying amounts approximate fair value, and financial
instruments recorded at fair value.
                                                                                                                    Carrying          Fair
                                                                                                                    Amount            Value
Financial Assets:
Securities held to maturity                                                                                     $ 15,108          $ 15,539
Loans to banking clients – net                                                                                  $ 9,812           $ 9,671
Loans held for sale                                                                                             $     70          $     73
Financial Liabilities:
Long-term debt                                                                                                  $       2,001     $     2,159
                                                                 - 22 -
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
9.   Preferred Stock
The Company was authorized to issue 9,940,000 shares of preferred stock, $0.01 par value, at both September 30, 2012 and
December 31, 2011. There were no shares of preferred stock issued and outstanding at December 31, 2011. The Company’s preferred
stock issued and outstanding as of September 30, 2012, are as follows:
                                                                 Shares
                                                               Issued and          Liquidation
                                                              Outstanding          Preference          Liquidation          Carrying
                                                             (In thousands)         Per Share          Preference            Value
Series A                                                               400     $          1,000    $            400     $              394
Series B                                                               485     $          1,000                 485                    470
Total Preferred Stock                                                  885                         $            885     $              864

In June 2012, the Company issued and sold 19,400,000 depositary shares, each representing a 1/40th ownership interest in a share of
6.00% non-cumulative perpetual preferred stock, Series B, equivalent to $25 per depositary share (Series B Preferred Stock). Net
proceeds received from the sale were $469 million. The Series B Preferred Stock has no stated maturity and has a fixed dividend rate
of 6.00%. Dividends, if declared, will be payable quarterly in arrears. Under the terms of the Series B Preferred Stock, the Company’s
ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire its common stock or any preferred
stock ranking on parity with or junior to the Series B Preferred Stock, is subject to restrictions in the event that the Company does not
declare and either pay or set aside a sum sufficient for payment of dividends on the Series B Preferred Stock for the immediately
preceding dividend period. The Series B Preferred Stock is redeemable at the Company’s option, in whole or in part, on any dividend
payment date on or after September 1, 2017, or, in whole but not in part, within 90 days following a regulatory capital treatment event
as defined in its Certificate of Designations.

In January 2012, the Company issued and sold 400,000 shares of fixed-to-floating rate non-cumulative perpetual preferred stock,
Series A (Series A Preferred Stock). Net proceeds received from the sale were $394 million. The Series A Preferred Stock has no
stated maturity and has a fixed dividend rate of 7.000% until February 2022 and a floating rate equal to three-month LIBOR plus
4.820% thereafter. During the fixed rate period, dividends, if declared, will be payable semi-annually in arrears. During the floating
rate period, dividends, if declared, will be payable quarterly in arrears. Dividends will not be cumulative. Under the terms of the
Series A Preferred Stock, the Company’s ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or
acquire its common stock or any preferred stock ranking on parity with or junior to the Series A Preferred Stock, is subject to
restrictions in the event that the Company does not declare and either pay or set aside a sum sufficient for payment of dividends on
the Series A Preferred Stock for the immediately preceding dividend period. The Series A Preferred Stock is redeemable at the
Company’s option, in whole or in part, on any dividend payment date on or after February 1, 2022, or, in whole but not in part, within
90 days following a regulatory capital treatment event as defined in its Certificate of Designations.
                                                                  - 23 -
                                          THE CHARLES SCHWAB CORPORATION
                                      Notes to Condensed Consolidated Financial Statements
                               (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                             (Unaudited)
10. Accumulated Other Comprehensive Income
Accumulated other comprehensive income (loss) represents cumulative gains and losses that are not reflected in earnings.
Accumulated other comprehensive income balances were:
                                                                                                                              Total
                                                     Net unrealized gain                                                 accumulated other
                                                on securities available for sale         Other                         comprehensive income
Balance at December 31, 2010                    $                           17     $                    (1)       $                            16
  Other net changes                                                         39                           1                                     40
Balance at September 30, 2011                   $                           56     $                    —         $                            56
Balance at December 31, 2011                    $                           10     $                    (2)       $                             8
  Other net changes                                                        303                           1                                    304
Balance at September 30, 2012                   $                          313     $                    (1)       $                           312

11. Earnings Per Common Share
Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares
outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator
is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares
had been issued. Dilutive potential common shares include the effect of outstanding stock options and unvested restricted stock
awards and units. EPS under the basic and diluted computations is as follows:
                                                                                                 Three Months Ended         Nine Months Ended
                                                                                                    September 30,             September 30,
                                                                                                  2012         2011         2012         2011
Net income                                                                                       $  247       $  220      $ 717        $ 701
Preferred stock dividends                                                                            (9)          —          (23)          —
Net income available to common stockholders (1)                                                  $ 238        $ 220       $ 694        $ 701
Weighted-average common shares outstanding — basic                                                1,274        1,228       1,273        1,213
Common stock equivalent shares related to stock incentive plans                                       1            1           1            3
Weighted-average common shares outstanding — diluted (2)                                          1,275        1,229       1,274        1,216
Basic EPS                                                                                        $ .19        $ .18       $ .54        $ .58
Diluted EPS                                                                                      $ .19        $ .18       $ .54        $ .57
(1)
      Net income available to participating securities (unvested restricted shares) was not material for the third quarters or first nine
      months of 2012 or 2011.
(2)
      Antidilutive stock options and restricted stock awards excluded from the calculation of diluted EPS totaled 59 million and
      50 million shares for the third quarters of 2012 and 2011, respectively, and 61 million and 48 million shares for the first nine
      months of 2012 and 2011, respectively.

12. Regulatory Requirements
CSC is a savings and loan holding company and Schwab Bank, CSC’s depository institution subsidiary, is a federal savings bank.
CSC is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve) and
Schwab Bank is subject to supervision and regulation by the Office of the Comptroller of the Currency. CSC is currently not subject
to specific statutory capital requirements, however CSC is required to serve as a source of strength for Schwab Bank. Under the
“Dodd-Frank Wall Street Reform and Consumer Protection Act”, CSC will be subject to new
                                                                        - 24 -
                                         THE CHARLES SCHWAB CORPORATION
                                     Notes to Condensed Consolidated Financial Statements
                              (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                            (Unaudited)
minimum leverage and minimum risk-based capital ratio requirements that will be set by the Federal Reserve that are at least as
stringent as the requirements generally applicable to insured depository institutions as of July 21, 2011.
Schwab Bank is required to maintain minimum capital levels as specified in federal banking laws and regulations. Failure to meet the
minimum levels could result in certain mandatory, and possibly additional discretionary actions by the regulators that, if undertaken,
could have a direct material effect on Schwab Bank. At September 30, 2012, CSC and Schwab Bank met the capital level
requirements.
The regulatory capital and ratios for Schwab Bank at September 30, 2012, are as follows:
                                                                                                  Minimum Capital               Minimum to be
                                                                        Actual                      Requirement                 Well Capitalized
                                                                   Amount      Ratio             Amount      Ratio            Amount         Ratio
Tier 1 Risk-Based Capital                                     $      5,584           21.7%   $     1,031        4.0% $ 1,547                    6.0%
Total Risk-Based Capital                                      $      5,639           21.9%   $     2,062        8.0% $ 2,578                   10.0%
Tier 1 Leverage                                               $      5,584            7.5%   $     2,993        4.0% $ 3,741                    5.0%
Tangible Equity                                               $      5,584            7.5%   $     1,496        2.0%    N/A
N/A Not applicable.

Based on its regulatory capital ratios at September 30, 2012, Schwab Bank is considered well capitalized (the highest category)
pursuant to banking regulatory guidelines. There are no conditions or events since September 30, 2012, that management believes
have changed Schwab Bank’s capital category.

CSC’s principal U.S. broker-dealers are Schwab and optionsXpress, Inc. optionsXpress, Inc. is a wholly-owned subsidiary of
optionsXpress. Schwab and optionsXpress, Inc. are both subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the
Uniform Net Capital Rule). Schwab and optionsXpress, Inc. compute net capital under the alternative method permitted by the
Uniform Net Capital Rule. This method requires the maintenance of minimum net capital, as defined, of the greater of 2% of
aggregate debit balances arising from client transactions or a minimum dollar requirement ($250,000 for Schwab), which is based on
the type of business conducted by the broker-dealer. Under the alternative method, a broker-dealer may not repay subordinated
borrowings, pay cash dividends, or make any unsecured advances or loans to its parent company or employees if such payment would
result in a net capital amount of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.
optionsXpress, Inc. is also subject to Commodity Futures Trading Commission Regulation 1.17 (Reg. 1.17) under the Commodity
Exchange Act, which also requires the maintenance of minimum net capital. optionsXpress, Inc., as a futures commission merchant,
is required to maintain minimum net capital equal to the greater of its net capital requirement under Reg. 1.17 ($1 million), or the sum
of 8% of the total risk margin requirements for all positions carried in client accounts and 8% of the total risk margin requirements for
all positions carried in non-client accounts (as defined in Reg. 1.17).
Net capital and net capital requirements for Schwab and optionsXpress, Inc. at September 30, 2012, are as follows:
                                                                                                                                         Net Capital
                                                                                                                     Net Capital         in Excess of
                                                      % of                    Minimum            2% of               in Excess of           5% of
                                                    Aggregate                 Net Capital      Aggregate              Required            Aggregate
                                  Net Capital     Debit Balances               Required      Debit Balances          Net Capital        Debit Balances
Schwab                        $          1,371                10%        $           0.250   $          272     $            1,099      $        692
optionsXpress, Inc.           $             78                33%        $               1   $            5     $               73      $         66
                                                                     - 25 -
                                              THE CHARLES SCHWAB CORPORATION
                                          Notes to Condensed Consolidated Financial Statements
                                   (Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
                                                                 (Unaudited)
13. Segment Information
The Company structures its operating segments according to its clients and the services provided to those clients. The Company’s two
reportable segments are Investor Services and Institutional Services.

The Company evaluates the performance of its segments on a pre-tax basis, excluding items such as significant nonrecurring gains,
impairment charges on non-financial assets, discontinued operations, extraordinary items, and significant restructuring and other
charges. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to
segments. There are no revenues from transactions with other segments within the Company.

Financial information for the Company’s reportable segments is presented in the following table:

                                                          Investor Services     Institutional Services       Unallocated              Total
Three Months Ended September 30,                          2012        2011       2012           2011      2012         2011    2012           2011
Net Revenues:
Asset management and administration fees                $ 285 $ 254 $              238       $    212 $       1 $         —   $ 524 $ 466
Net interest revenue                                      367   377                 72             66        —            —      439    443
Trading revenue                                           136   166                 69             82        (1)          —      204    248
Other                                                      22    25                 20             19        —            1       42     45
Provision for loan losses                                  (9)   (7)                (1)            (1)       —            —      (10)    (8)
Net impairment losses on securities                        (2)  (12)                (1)            (1)       —            —       (3)   (13)
   Total net revenues                                     799   803                397            377        —            1    1,196  1,181
Expenses Excluding Interest                               571   561                264            259        —            1      835    821
Income before taxes on income                           $ 228 $ 242 $              133       $    118 $      — $          —   $ 361 $ 360
Taxes on income                                                                                                                  114    140
Net Income                                                                                                                    $ 247 $ 220

                                                          Investor Services     Institutional Services       Unallocated              Total
Nine Months Ended September 30,                           2012        2011       2012           2011      2012         2011    2012           2011
Net Revenues:
Asset management and administration fees                $ 816 $ 805 $ 688                    $  665 $        — $          — $1,504 $1,470
Net interest revenue                                     1,117  1,137    214                    193          —            —    1,331  1,330
Trading revenue                                            446    462    221                    232          (1)          —      666    694
Other (1)                                                   76     61     61                     57          72            1     209    119
Provision for loan losses                                  (12)   (11)    (2)                    (2)         —            —      (14)   (13)
Net impairment losses on securities                        (24)   (20)    (4)                    (2)         —            —      (28)   (22)
   Total net revenues                                    2,419  2,434  1,178                  1,143          71            1   3,668  3,578
Expenses Excluding Interest                              1,764  1,662    798                    777          —            (1) 2,562   2,438
Income before taxes on income                           $ 655 $ 772 $ 380                    $ 366 $         71 $          2 $1,106 $1,140
Taxes on income                                                                                                                  389    439
Net Income                                                                                                                    $ 717 $ 701
(1)
      Unallocated amount includes a pre-tax gain of $70 million relating to a confidential resolution of a vendor dispute in the second
      quarter of 2012.
                                                                       - 26 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)

Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Management of The Charles Schwab Corporation (CSC) and its subsidiaries (collectively referred to as the Company) focuses on
several key client activity and financial metrics in evaluating the Company’s financial position and operating performance. Results for
the third quarters and first nine months of 2012 and 2011 are:
                                                      Three Months Ended                                  Nine Months Ended
                                                          September 30,               Percent               September 30,            Percent
                                                     2012               2011          Change             2012           2011         Change
Client Activity Metrics:
Net new client assets (1) (in billions)          $    20.4         $    86.0               (76%) $ 75.3             $ 124.4               (39%)
Client assets (in billions, at quarter end)      $ 1,890.4         $ 1,576.4                20%
Clients’ daily average trades (2) (in thousands)     402.4             475.4               (15%)   438.0                448.3              (2%)
Company Financial Metrics:
Net revenues                                     $     1,196   $           1,181             1% $ 3,668   $ 3,578                           3%
Expenses excluding interest                              835                 821             2%   2,562     2,438                           5%
Income before taxes on income                            361                 360            —     1,106     1,140                          (3%)
Taxes on income                                          114                 140           (19%)    389       439                         (11%)
Net income                                       $       247   $             220            12% $   717   $   701                           2%
Earnings per common share – diluted              $        .19  $              .18            6% $    .54  $    .57                         (5%)
Net revenue growth from prior year                          1%                 11%                     3%       15%
Pre-tax profit margin                                   30.2%               30.5%                  30.2%     31.9%
Return on average common
  stockholders’equity (annualized) (3)                    11%                   12%                          11%               13%
Annualized net revenue per average full-time
  equivalent employee (in thousands)             $       352       $            350             1%   $      354     $     361              (2%)
(1)
      Includes outflows of $1.3 billion as a result of the closure and/or sale of certain subsidiaries of optionsXpress Holdings, Inc. in
      the third quarter of 2012. Includes inflows of $12.0 billion from a mutual fund clearing services client in the first quarter of
      2012. Includes inflows of $60.9 billion from mutual fund clearing services clients and $7.5 billion from the acquisition of
      optionsXpress Holdings, Inc. in the third quarter of 2011.
(2)
      Amounts include revenue trades from commissions or principal mark-ups (i.e., fixed income), trades by clients in asset-based
      pricing relationships, and all commission-free trades, including the Company’s Mutual Fund OneSource® funds and Exchange-
      Traded Funds, and other proprietary products.
(3)
      Return on average common stockholders’ equity is calculated using net income available to common stockholders divided by
      average common stockholders’ equity.

The broad equity markets improved during the third quarter of 2012 compared to the third quarter of 2011, as the Nasdaq Composite
Index, Standard & Poor’s 500 Index, and Dow Jones Industrial Average increased 29%, 27%, and 23%, respectively. While the
federal funds target rate remained unchanged at a range of zero to 0.25%, the average three-month Treasury Bill yield increased by 8
basis points to 0.09% during the third quarter of 2012 compared to the third quarter of 2011. At the same time, the average 10-year
Treasury yield decreased by 78 basis points to 1.62%.

Clients remained engaged in the third quarter of 2012 despite the challenging economic and market environment that continued
during the period. Net new client assets before significant one-time flows totaled $21.7 billion in the third quarter of 2012, up 23%
from the third quarter of 2011. Total client assets ended the quarter at a record $1.89 trillion, up 20% from the third quarter of 2011.
Clients’ daily average trades were 402,400 in the third quarter of 2012, down 15% on a year-over-year basis.

For the third quarter of 2012, net revenues remained relatively flat compared to the third quarter of 2011 as the increase in asset
management and administration fees was largely offset by a decrease in trading revenue. Asset management and administration fees
increased primarily due to increases in mutual fund service fees and advice solutions fees. Trading
                                                                       - 27 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
revenue decreased primarily due to lower daily average revenue trades. Net interest revenue was relatively flat, reflecting higher
balances of interest-earning assets offset by the effect of lower interest rate spreads during the third quarter of 2012 due to the
continued low interest rate environment.
For the first nine months of 2012, net revenues increased by 3% compared to the first nine months of 2011 primarily due to increases
in asset management and administration fees and other revenue, partially offset by a decrease in trading revenue. Asset management
and administration fees increased due to increases in advice solutions fees and other asset management and administration fees, offset
by a decrease in mutual fund service fees. Other revenue increased primarily due to a pre-tax gain of $70 million relating to a
confidential resolution of a vendor dispute in the second quarter of 2012. Trading revenue decreased primarily due to lower daily
average revenue trades, partially offset by the inclusion of optionsXpress’ option, future, and equity trades from its acquisition in
September 2011. Net interest revenue was flat as higher average balances of interest-earning assets were offset by lower interest rate
spreads during the first nine months of 2012 due to the continued pressure on market interest rates.

Expenses excluding interest increased by 2% and 5% in the third quarter and first nine months of 2012 compared to the same periods
in 2011, respectively, primarily due to the inclusion of optionsXpress. Taxes on income in the third quarter of 2012 include a non-
recurring state tax benefit of $20 million. Overall, net income increased by 12% and 2% in the third quarter and first nine months of
2012 compared to the same periods in 2011, respectively.

In comparison to the second quarter of 2012, the broad equity markets increased in the third quarter of 2012 as the Nasdaq Composite
Index, Standard & Poor’s 500 Index, and Dow Jones Industrial Average increased 6%, 6%, and 4%, respectively, while the average
three-month Treasury Bill yield remained relatively flat at 0.09%. The average 10-year Treasury yield decreased by 19 basis points to
1.62% from the second quarter of 2012. Despite the challenging economic environment, the Company’s growing client base and
ongoing expense discipline helped maintain a pre-tax profit margin of 30.2% in the third quarter of 2012. Net income in the third
quarter and second quarter of 2012 include the non-recurring state tax benefit of $20 million and pre-tax gain of $70 million (after-tax
of $44 million), respectively, discussed above.

CURRENT MARKET AND REGULATORY ENVIRONMENT AND OTHER DEVELOPMENTS
The broad equity markets and short-term interest rates showed improvement from 2011, however the low interest rate environment
continues to constrain growth in the Company’s net revenues.
As discussed above, interest rates remained at low levels during the third quarter of 2012. To the extent rates remain at these low
levels, the Company’s net interest revenue will continue to be constrained, even as growth in average balances helps to increase such
revenue. The low interest rate environment also affects asset management and administration fees. While net money market mutual
fund fees improved in the third quarter of 2012 from the second quarter of 2012 primarily due to sustained improvement in short-term
interest rates, the overall yields on certain Schwab-sponsored money market mutual funds have remained at levels at or below the
management fees on those funds. The Company continues to waive a portion of its management fees so that the funds can maintain a
positive return to clients. These and other money market mutual funds may not be able to replace maturing securities with securities
of equal or higher yields. As a result, the yields on such funds may remain around or decline from their current levels, and therefore
below the management fees on those funds. To the extent this occurs, asset management and administration fees may be negatively
affected.
The Company recorded net impairment losses of $3 million and $28 million related to certain non-agency residential mortgage-
backed securities in the third quarter and first nine months of 2012, respectively, due to further credit deterioration of the securities’
underlying loans. Net impairment losses in the first nine months of 2012 were also due to an increase in projected default rates for
modified loans in the first quarter of 2012. Further deterioration in the performance of the underlying loans in the Company’s
residential mortgage-backed securities portfolio could result in the recognition of additional impairment charges.
The “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the Dodd-Frank Act) was signed into law in July 2010. Among
other things, the legislation transferred the supervision and regulation of CSC from the Office of Thrift Supervision (OTS) to the
Board of Governors of the Federal Reserve System (the Federal Reserve) and supervision and
                                                                   - 28 -
                                     THE CHARLES SCHWAB CORPORATION
                   Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                 (Tabular Amounts in Millions, Except Ratios, or as Noted)
regulation of Schwab Bank from the OTS to the Office of the Comptroller of the Currency (OCC); both transfers were effective
July 21, 2011. The Federal Reserve recently issued notices of proposed rulemaking (NPRs) to meet certain requirements of the Dodd-
Frank Act and to align current capital rules with the BASEL III capital standards. The NPRs would subject all savings and loan
holding companies, including CSC, to consolidated capital requirements. In addition, the NPRs would establish more restrictive
capital definitions, higher risk-weightings for certain asset classes, higher minimum capital ratios and capital buffers. The NPRs
would be phased in under an extended timeframe, beginning January 2013. The comment period for the NPRs ended on October 22,
2012 and the NPRs are subject to further modification. CSC is currently evaluating the impact of the NPRs but does not expect them
to have a material impact on the Company’s business, financial condition, and results of operations.

The Company is pursuing lawsuits in state court in San Francisco for rescission and damages against issuers, underwriters, and
dealers of individual non-agency residential mortgage-backed securities on which the Company has experienced realized and
unrealized losses. The lawsuits allege that offering documents for the securities contained material untrue and misleading statements
about the securities and the underwriting standards and credit quality of the underlying loans. On January 27, 2012, and July 24, 2012,
the court denied defendants’ motions to dismiss the claims with respect to all but 3 of the 51 securities, and discovery is proceeding.
                                                                - 29 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
RESULTS OF OPERATIONS
The following discussion presents an analysis of the Company’s results of operations for the third quarter and first nine months of
2012 compared to the same periods in 2011.

Net Revenues
The Company’s major sources of net revenues are asset management and administration fees, net interest revenue, and trading
revenue. Asset management and administration fees increased and net interest revenue was relatively flat, while trading revenue
decreased in the third quarter and first nine months of 2012 compared to the same periods in 2011, respectively.

Three Months Ended September 30,                                                            2012                             2011
                                                                                                     % of                             % of
                                                                 Percent                           Total Net                        Total Net
                                                                 Change            Amount          Revenues         Amount          Revenues
Asset management and administration fees
  Schwab money market funds before fee waivers                         —       $       221                      $       220
  Fee waivers                                                         (15%)           (136)                            (160)
  Schwab money market funds after fee waivers                          42%              85                7%             60                 5%
  Equity and bond funds                                                10%              32                3%             29                 2%
  Mutual Fund OneSource®                                                2%             171               14%            168                14%
      Total mutual funds                                               12%             288               24%            257                21%
  Advice solutions                                                     15%             148               12%            129                11%
  Other                                                                10%              88                8%             80                 7%
Asset management and administration fees                               12%             524               44%            466                39%
Net interest revenue
  Interest revenue                                                     (2%)           478                40%           487                 41%
  Interest expense                                                    (11%)           (39)               (3%)          (44)                (3%)
Net interest revenue                                                   (1%)           439                37%           443                 38%
Trading revenue
   Commissions                                                        (18%)           190                16%           233                 20%
   Principal transactions                                              (7%)            14                 1%            15                  1%
Trading revenue                                                       (18%)           204                17%           248                 21%
Other                                                                  (7%)         42                    3%         45                    4%
Provision for loan losses                                              25%         (10)                  (1%)        (8)                  (1%)
Net impairment losses on securities                                   (77%)         (3)                  —          (13)                  (1%)
Total net revenues                                                      1%     $ 1,196                  100%    $ 1,181                  100%

                                                                 - 30 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
Nine Months Ended September 30,                                                             2012                             2011
                                                                                                     % of                             % of
                                                                Percent                            Total Net                        Total Net
                                                                Change             Amount          Revenues         Amount          Revenues
Asset management and administration fees
  Schwab money market funds before fee waivers                        4%       $       663                      $       639
  Fee waivers                                                        11%              (445)                            (400)
  Schwab money market funds after fee waivers                        (9%)              218                6%            239                7%
  Equity and bond funds                                               7%                95                2%             89                2%
  Mutual Fund OneSource®                                             (4%)              501               14%            520               15%
      Total mutual funds                                             (4%)              814               22%            848               24%
  Advice solutions                                                    9%               427               12%            392               11%
  Other                                                              14%               263                7%            230                6%
Asset management and administration fees                              2%             1,504               41%          1,470               41%
Net interest revenue
  Interest revenue                                                   (1%)            1,447               39%          1,464               41%
  Interest expense                                                  (13%)             (116)              (3%)          (134)              (4%)
Net interest revenue                                                 —               1,331               36%          1,330               37%
Trading revenue
   Commissions                                                       (4%)             624                17%           647                18%
   Principal transactions                                           (11%)              42                 1%            47                 1%
Trading revenue                                                      (4%)             666                18%           694                19%
Other                                                                76%           209                    6%        119                    4%
Provision for loan losses                                             8%           (14)                  —          (13)                  —
Net impairment losses on securities                                  27%           (28)                  (1%)       (22)                  (1%)
Total net revenues                                                    3%       $ 3,668                  100%    $ 3,578                  100%

Asset Management and Administration Fees
Asset management and administration fees include mutual fund service fees and fees for other asset-based financial services provided
to individual and institutional clients. The Company earns mutual fund service fees for shareholder services, administration, and
investment management provided to its proprietary funds, and recordkeeping and shareholder services provided to third-party funds.
These fees are based upon the daily balances of client assets invested in these funds. The Company also earns asset management fees
for advice solutions, which include advisory and managed account services that are based on the daily balances of client assets subject
to the specific fee for service. The fair values of client assets included in proprietary and third-party mutual funds are based on quoted
market prices and other observable market data. Other asset management and administration fees include various asset based fees,
such as trust fees, 401k record keeping fees, and mutual fund clearing and other service fees. Asset management and administration
fees may vary with changes in the balances of client assets due to market fluctuations and client activity. For discussion of the impact
of current market conditions on asset management and administration fees, see “Current Market and Regulatory Environment and
Other Developments.”

Asset management and administration fees increased by $58 million, or 12%, in the third quarter of 2012 compared to the third
quarter of 2011 primarily due to increases in mutual fund service fees and advice solutions fees. Asset management and
administration fees increased by $34 million, or 2%, in the first nine months of 2012 compared to the first nine months of 2011 due to
increases in advice solutions fees and other asset management and administration fees, offset by a decrease in mutual fund service
fees.

Mutual fund service fees increased by $31 million, or 12%, in the third quarter of 2012 compared to the third quarter of 2011
primarily due to an increase in net money market mutual fund fees as a result of improved short-term rates. Mutual fund
                                                                  - 31 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
service fees decreased by $34 million, or 4%, in the first nine months of 2012 compared to the first nine months of 2011 primarily due
to a decrease in net money market mutual fund fees as a result of lower yields on fund assets and a decrease in Mutual Fund
OneSource fees.
Advice solutions fees increased by $19 million, or 15%, and $35 million, or 9%, in the third quarter and first nine months of 2012
compared to the same periods in 2011, respectively, primarily due to growth in client assets enrolled in retail advisory and managed
account programs, which includes Windhaven®.

Other asset management and administration fees increased by $8 million, or 10%, and $33 million, or 14%, in the third quarter and
first nine months of 2012 compared to the same periods in 2011 primarily due to an increase in third-party mutual fund service fees.

Net Interest Revenue
Net interest revenue is the difference between interest earned on interest-earning assets and interest paid on funding sources. Net
interest revenue is affected by changes in the volume and mix of these assets and liabilities, as well as by fluctuations in interest rates
and portfolio management strategies. The Company’s investment strategy is structured to produce an increase in net interest revenue
when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall (i.e., interest-earning assets
generally reprice more quickly than interest-bearing liabilities). When interest rates fall, the Company may attempt to mitigate some
of this negative impact by extending the maturities of assets in investment portfolios to lock in asset yields, and by lowering rates paid
to clients on interest-bearing liabilities. Since the Company establishes the rates paid on certain brokerage client cash balances and
deposits from banking clients, as well as the rates charged on receivables from brokerage clients, and also controls the composition of
its investment securities, it has some ability to manage its net interest spread. The current low interest rate environment limits the
extent to which the Company can reduce interest expense paid on funding sources. However, the spread is influenced by external
factors such as the interest rate environment and competition. For discussion of the impact of current market conditions on net interest
revenue, see “Current Market and Regulatory Environment and Other Developments.”
In clearing its clients’ trades, Charles Schwab & Co., Inc. (Schwab) and optionsXpress, Inc. hold cash balances payable to clients. In
most cases, Schwab and optionsXpress, Inc. pay their clients interest on cash balances awaiting investment, and in turn invest these
funds and earn interest revenue. Receivables from brokerage clients consist primarily of margin loans to brokerage clients. Margin
loans are loans made to clients on a secured basis to purchase securities. Pursuant to applicable regulations, client cash balances that
are not used for margin lending are generally segregated into investment accounts that are maintained for the exclusive benefit of
clients, which are recorded in cash and investments segregated on the Company’s condensed consolidated balance sheet.

Schwab Bank maintains investment portfolios for liquidity as well as to invest funds from deposits in excess of loans to banking
clients and liquidity limits. Schwab Bank’s securities available for sale include residential mortgage-backed securities, certificates of
deposit, corporate debt securities, U.S. agency notes, and asset-backed and other securities. Schwab Bank’s securities held to maturity
include residential mortgage-backed and other securities. Schwab Bank lends funds to banking clients primarily in the form of
mortgage loans and home equity lines of credit (HELOCs). These loans are largely funded by interest-bearing deposits from banking
clients.

The Company’s interest-earning assets are financed primarily by brokerage client cash balances and deposits from banking clients.
Non-interest-bearing funding sources include non-interest-bearing brokerage client cash balances and proceeds from stock-lending
activities, as well as stockholders’ equity.
                                                                  - 32 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
The following tables present net interest revenue information corresponding to interest-earning assets and funding sources on the
condensed consolidated balance sheet:

Three Months Ended September 30,                                    2012                                         2011
                                                                  Interest          Average                    Interest   Average
                                                       Average    Revenue/           Yield/      Average       Revenue/    Yield/
                                                       Balance    Expense            Rate        Balance       Expense     Rate
Interest-earning assets:
Cash and cash equivalents                          $     7,942   $          4           0.20% $ 6,025      $          3        0.20%
Cash and investments segregated                         23,516             12           0.20%   26,597                7        0.10%
Broker-related receivables (1)                             414             —              —        300               —         0.03%
Receivables from brokerage clients                      10,956            112           4.07%   10,749              117        4.32%
Securities available for sale (2)                       40,701            146           1.43%   27,947              116        1.65%
Securities held to maturity                             15,311             95           2.47%   15,469              128        3.28%
Loans to banking clients                                10,014             77           3.06%    9,646               79        3.25%
Loans held for sale (1)                                      1             —            4.06%       49                1        4.27%
   Total interest-earning assets                       108,855            446           1.63%   96,782              451        1.85%
Other interest revenue                                                     32                                        36
Total interest-earning assets                      $ 108,855     $        478           1.74%   $ 96,782   $        487        2.00%

Funding sources:
Deposits from banking clients                      $ 67,027      $        11            0.07% $ 53,247     $         16        0.12%
Payables to brokerage clients                         28,435               1            0.01%   30,962                1        0.01%
Long-term debt                                         1,923              27            5.59%    2,003               27        5.35%
  Total interest-bearing liabilities                  97,385              39            0.16%   86,212               44        0.20%
Non-interest-bearing funding sources                  11,470                                    10,570
Total funding sources                              $ 108,855     $         39           0.14% $ 96,782     $         44        0.18%
Net interest revenue                                             $        439           1.60%              $        443        1.82%
(1)
      Interest revenue was less than $500,000 in the period or periods presented.
(2)
      Amounts have been calculated based on amortized cost.
                                                                 - 33 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
Nine Months Ended September 30,                                      2012                                         2011
                                                                   Interest     Average                         Interest     Average
                                                     Average       Revenue/      Yield/         Average         Revenue/      Yield/
                                                     Balance       Expense       Rate           Balance         Expense       Rate
Interest-earning assets:
Cash and cash equivalents                        $     6,741   $          12         0.24% $ 5,496          $           9         0.22%
Cash and investments segregated                       25,259              33         0.17%   25,120                    30         0.16%
Broker-related receivables (1)                           345              —          0.02%      346                    —          0.05%
Receivables from brokerage clients                    10,750             333         4.14%   10,784                   356         4.41%
Securities available for sale (2)                     38,443             443         1.54%   26,373                   332         1.68%
Securities held to maturity                           15,175             302         2.66%   16,313                   413         3.38%
Loans to banking clients                               9,921             233         3.14%    9,343                   231         3.31%
Loans held for sale                                       24               1         4.12%       63                     2         4.11%
   Total interest-earning assets                     106,658           1,357         1.70%   93,838                 1,373         1.96%
Other interest revenue                                                    90                                           91
Total interest-earning assets                    $ 106,658     $       1,447         1.81%    $ 93,838      $       1,464         2.08%

Funding sources:
Deposits from banking clients                    $ 63,577      $          31         0.07% $ 51,649         $          49         0.13%
Payables to brokerage clients                      29,651                  2         0.01%   29,288                     2         0.01%
Long-term debt                                      1,974                 81         5.48%    2,004                    81         5.40%
  Total interest-bearing liabilities               95,202                114         0.16%   82,941                   132         0.21%
Non-interest-bearing funding sources               11,456                                    10,897
Other interest expense                                                     2                                            2
Total funding sources                            $ 106,658     $         116         0.14% $ 93,838         $         134         0.19%
Net interest revenue                                           $       1,331         1.67%                  $       1,330         1.89%
(1)
      Interest revenue was less than $500,000 in the period or periods presented.
(2)
      Amounts have been calculated based on amortized cost.
Net interest revenue was relatively flat in the third quarter and first nine months of 2012 compared to the same periods in 2011,
reflecting higher average balances of interest-earning assets, primarily securities available for sale, offset by lower interest rate
spreads due to the continued pressure on market interest rates. The growth in the average balance of deposits from banking clients
funded the increase in the balance of securities available for sale.

Trading Revenue
Trading revenue includes commission and principal transaction revenues. Commission revenue is affected by the number of revenue
trades executed and the average revenue earned per revenue trade. Principal transaction revenue is primarily comprised of revenue
from client fixed income securities trading activity. To accommodate clients’ fixed income trading activity, the Company maintains
positions in fixed income securities, including state and municipal debt obligations, U.S. Government, corporate debt, and other
securities. The difference between the price at which the Company buys and sells securities to and from its clients and other broker-
dealers is recognized as principal transaction revenue. Principal transaction revenue also includes unrealized gains and losses on these
securities positions. Factors that influence principal transaction revenue include the volume of client trades and market price
volatility.
                                                                   - 34 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
Trading revenue decreased by $44 million, or 18%, and $28 million, or 4%, in the third quarter and first nine months of 2012
compared to the same periods in 2011, respectively, primarily due to lower daily average revenue trades. Daily average revenue
trades decreased in the third quarter and first nine months of 2012 primarily due to a lower volume of equity and mutual fund trades,
partially offset by a higher volume of option and future trades as a result of the inclusion of optionsXpress. Average revenue earned
per revenue trade remained relatively flat in the third quarter and first nine months of 2012 compared to the same periods in 2011.
                                                         Three Months Ended                         Nine Months Ended
                                                            September 30,          Percent            September 30,          Percent
                                                         2012           2011       Change          2012           2011       Change
Daily average revenue trades (in thousands) (1)         261.5         323.1            (19%)  288.3             302.7              (5%)
Number of trading days                                   62.5          64.0             (2%)  187.5             189.0              (1%)
Average revenue earned per revenue trade              $ 12.44       $ 12.04              3% $ 12.31           $ 12.13               1%
(1)
      Includes all client trades that generate trading revenue (i.e., commission revenue or revenue from fixed income securities
      trading).

Other Revenue
Other revenue includes nonrecurring gains, software fees from the Company’s portfolio management services, education services,
exchange processing fees, gains on sales of mortgage loans, and other service fees. Other revenue increased by $90 million, or 76%,
in the first nine months of 2012 from the first nine months of 2011 primarily due to a pre-tax gain of $70 million relating to a
confidential resolution of a vendor dispute in the second quarter of 2012. The increase was also due to the inclusion of revenues
relating to education services and other fees from the optionsXpress acquisition.

Net Impairment Losses on Securities
Net impairment losses in the Company’s non-agency residential mortgage-backed securities portfolio were $3 million and $28 million
in the third quarter and first nine months of 2012, respectively. Net impairment losses on securities were $13 million and $22 million
in the third quarter and first nine months of 2011, respectively. These charges were higher in the first nine months of 2012 primarily
due to further credit deterioration of the securities’ underlying loans and an increase in projected default rates for modified loans in
the first quarter of 2012. For further discussion, see “Item 1 – Condensed Consolidated Financial Statements (Unaudited) – Notes – 4.
Securities Available for Sale and Securities Held to Maturity.”
                                                                  - 35 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
Expenses Excluding Interest
As shown in the table below, expenses excluding interest increased in the third quarter and first nine months of 2012 compared to the
same periods in 2011, which was primarily due to the inclusion of optionsXpress.
                                                     Three Months Ended                         Nine Months Ended
                                                        September 30,            Percent           September 30,             Percent
                                                     2012           2011         Change        2012             2011         Change
Compensation and benefits                        $      442     $      423              4% $    1,353       $    1,290              5%
Professional services                                    98            104             (6%)       287              288             —
Occupancy and equipment                                  77             78             (1%)       233              222              5%
Advertising and market development                       49             48              2%        173              159              9%
Communications                                           53             56             (5%)       166              166             —
Depreciation and amortization                            50             39             28%        146              107             36%
Class action litigation and regulatory reserve           —              —              —           —                 7           N/M
Other                                                    66             73            (10%)       204              199              3%
   Total expenses excluding interest             $      835     $      821              2% $    2,562       $    2,438              5%

Expenses as a percentage of total net
 revenues:
   Total expenses excluding interest                     70%               70%                      70%                68%
   Advertising and market development                     4%                4%                       5%                 4%
N/M Not meaningful.

Compensation and Benefits
Compensation and benefits expense includes salaries and wages, incentive compensation, and related employee benefits and taxes.
Incentive compensation includes variable compensation, discretionary bonuses, and stock-based compensation. Variable
compensation includes payments to certain individuals based on their sales performance. Discretionary bonuses are based on the
Company’s overall performance as measured by earnings per common share, and therefore will fluctuate with this measure. Stock-
based compensation primarily includes employee and board of director stock options, restricted stock units, and restricted stock
awards.
                                                                    - 36 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
Compensation and benefits expense increased by $19 million, or 4%, and $63 million, or 5%, in the third quarter and first nine
months of 2012 compared to the same periods in 2011 primarily due to increases in salaries and wages and employee benefits and
other expense. The following table shows a comparison of certain compensation and benefits components and employee data:
                                                              Three Months Ended                       Nine Months Ended
                                                                 September 30,        Percent             September 30,       Percent
                                                               2012         2011      Change           2012          2011     Change
Salaries and wages                                           $ 255        $ 247             3%     $   785        $   745           5%
Incentive compensation                                         119          114             4%         350            338           4%
Employee benefits and other                                     68           62            10%         218            207           5%
    Total compensation and benefits expense                  $ 442        $ 423             4%     $ 1,353        $ 1,290           5%
Compensation and benefits expense as a percentage of
  total net revenues:
    Salaries and wages                                            21%         21%                         21%           21%
    Incentive compensation                                        10%         10%                         10%            9%
    Employee benefits and other                                    6%          5%                          6%            6%
    Total compensation and benefits expense                       37%         36%                         37%           36%
Full-time equivalent employees (in thousands) (1)
    At quarter end                                              13.6        13.9           (2%)
    Average                                                     13.6        13.5            1%          13.8          13.2          5%
(1)
      Includes full-time, part-time and temporary employees, and persons employed on a contract basis, and excludes employees of
      outsourced service providers.

Salaries and wages increased in the third quarter and first nine months of 2012 compared to the same periods in 2011 primarily due to
an increase in full-time employees, partially due to the addition of full-time employees from the optionsXpress acquisition. Employee
benefits and other expense increased in the third quarter and first nine months of 2012 compared to the same periods in 2011
primarily due to increases in the Company’s deferred compensation plan expense as a result of improvement in the broad equity
markets and payroll taxes as a result of the increase in full-time employees.

Expenses Excluding Compensation and Benefits
Occupancy and equipment expense increased in the first nine months of 2012 compared to the first nine months of 2011 primarily due
to an increase in software maintenance expense relating to the Company’s information technology systems.

Advertising and market development expense increased in the first nine months of 2012 compared to the first nine months of 2011
primarily due to the inclusion of optionsXpress’ expenses, including electronic media and customer seminars, and the Company’s
higher spending on customer promotions.

Depreciation and amortization expense increased in the third quarter and first nine months of 2012 compared to the same periods in
2011 primarily due to amortization of intangible assets relating to the optionsXpress acquisition.

Taxes on Income
The Company’s effective income tax rate on income before taxes was 31.6% and 38.9% for the third quarters of 2012 and 2011,
respectively. The Company’s effective income tax rate on income before taxes was 35.2% and 38.5% for the first nine months of
2012 and 2011, respectively. The decrease in the third quarter of 2012 was primarily due to the recognition of a non-recurring state
tax benefit of $20 million. The decrease in the first nine months of 2012 was primarily due to the non-recurring state tax benefit and
the impact of a lower effective state income tax rate.
                                                                 - 37 -
                                       THE CHARLES SCHWAB CORPORATION
                     Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                   (Tabular Amounts in Millions, Except Ratios, or as Noted)
Segment Information
The Company provides financial services to individuals and institutional clients through two segments – Investor Services and
Institutional Services. The Investor Services segment provides retail brokerage and banking services to individual investors. The
Institutional Services segment provides custodial, trading, and support services to independent investment advisors. The Institutional
Services segment also provides retirement plan services, specialty brokerage services, and mutual fund clearing services, and supports
the availability of Schwab proprietary mutual funds and collective trust funds on third-party platforms. Banking revenues and
expenses are allocated to the Company’s two segments based on which segment services the client. The Company evaluates the
performance of its segments on a pre-tax basis, excluding items such as significant nonrecurring gains, impairment charges on non-
financial assets, discontinued operations, extraordinary items, and significant restructuring and other charges.

Financial information for the Company’s reportable segments is presented in the following tables:
                                                                          Investor Services                        Institutional Services
                                                                Percent                                  Percent
Three Months Ended September 30,                                Change            2012        2011       Change             2012            2011
Net Revenues:
Asset management and administration fees                             12% $          285 $       254           12% $            238 $          212
Net interest revenue                                                 (3%)           367         377            9%               72             66
Trading revenue                                                     (18%)           136         166          (16%)              69             82
Other                                                               (12%)            22          25            5%               20             19
Provision for loan losses                                            29%             (9)         (7)          —                 (1)            (1)
Net impairment losses on securities                                 (83%)            (2)        (12)          —                 (1)            (1)
   Total net revenues                                                —              799         803            5%              397            377
Expenses Excluding Interest                                           2%            571         561            2%              264            259
Income before taxes on income                                        (6%) $         228 $       242           13% $            133 $          118

                                                                            Unallocated                                    Total
                                                                Percent                                  Percent
Three Months Ended September 30,                                Change            2012        2011       Change             2012            2011
Net Revenues:
Asset management and administration fees                          N/M         $       1 $            —        12% $ 524 $ 466
Net interest revenue                                              N/M                —               —        (1%)    439    443
Trading revenue                                                   N/M                (1)             —       (18%)    204    248
Other                                                             N/M                —               1        (7%)     42     45
Provision for loan losses                                         N/M                —               —        25%     (10)    (8)
Net impairment losses on securities                               N/M                —               —       (77%)     (3)   (13)
   Total net revenues                                             N/M                —               1         1%   1,196  1,181
Expenses Excluding Interest                                       N/M                —               1         2%     835    821
Income before taxes on income                                     N/M         $      — $             —        —    $ 361 $ 360
Taxes on income                                                                                              (19%)    114    140
Net Income                                                                                                    12% $ 247 $ 220

N/M Not meaningful.
                                                                - 38 -
                                       THE CHARLES SCHWAB CORPORATION
                     Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                   (Tabular Amounts in Millions, Except Ratios, or as Noted)
                                                                          Investor Services                          Institutional Services
                                                                Percent                                    Percent
Nine Months Ended September 30,                                 Change            2012            2011     Change               2012          2011
Net Revenues:
Asset management and administration fees                              1%      $  816          $  805            3%         $  688         $  665
Net interest revenue                                                 (2%)      1,117           1,137           11%            214            193
Trading revenue                                                      (3%)        446             462           (5%)           221            232
Other                                                                25%          76              61            7%             61             57
Provision for loan losses                                             9%         (12)            (11)          —               (2)            (2)
Net impairment losses on securities                                  20%         (24)            (20)         100%             (4)            (2)
   Total net revenues                                                (1%)      2,419           2,434            3%          1,178          1,143
Expenses Excluding Interest                                           6%       1,764           1,662            3%            798            777
Income before taxes on income                                       (15%)     $ 655           $ 772             4%         $ 380          $ 366

                                                                            Unallocated                                        Total
                                                                Percent                                    Percent
Nine Months Ended September 30,                                 Change            2012            2011     Change               2012          2011
Net Revenues:
Asset management and administration fees                          N/M         $      — $             —           2%        $ 1,504        $ 1,470
Net interest revenue                                              N/M                —               —          —            1,331          1,330
Trading revenue                                                   N/M                (1)             —          (4%)           666            694
Other                                                             N/M                72               1         76%            209            119
Provision for loan losses                                         N/M                —               —           8%            (14)           (13)
Net impairment losses on securities                               N/M                —               —          27%            (28)           (22)
   Total net revenues                                             N/M                71               1          3%          3,668          3,578
Expenses Excluding Interest                                       N/M                —               (1)         5%          2,562          2,438
Income before taxes on income                                     N/M         $      71 $             2         (3%)       $ 1,106        $ 1,140
Taxes on income                                                                                                (11%)           389            439
Net Income                                                                                                       2%        $ 717          $ 701

N/M Not meaningful.

Investor Services
Net revenues were flat in the third quarter of 2012 compared to the third quarter of 2011 as the increase in asset management and
administration fees was largely offset by a decrease in trading revenue. Asset management and administration fees increased
primarily due to increases in mutual fund service fees, including net money market mutual fund fees, and revenue from the
Company’s advice solution fees relating to Windhaven. Trading revenue decreased primarily due to lower daily average revenue
trades. Expenses excluding interest increased by $10 million, or 2%, in the third quarter of 2012 compared to the third quarter of 2011
primarily due to the inclusion of optionsXpress’ compensation and benefits and depreciation and amortization expenses.

Net revenues were relatively flat in the first nine months of 2012 compared to the first nine months of 2011 as the decreases in net
interest revenue and trading revenue were largely offset by increases in asset management and administration fees and other revenue.
Net interest revenue decreased primarily due to the effect of lower interest rate spreads due to the continued pressure on market
interest rates. Trading revenue decreased primarily due to lower daily average revenue trades. Asset management and administration
fees increased primarily due to an increase in revenue from the Company’s advice solution fees relating to Windhaven, partially offset
by a decrease in net money market mutual fund fees. Other revenue increased primarily due to the inclusion of revenues relating to
education services and other fees from optionsXpress. Expenses excluding interest increased by $102 million, or 6%, primarily due to
the inclusion of optionsXpress’ compensation and benefits, advertising and market development, and depreciation and amortization
expenses.
                                                                - 39 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
Institutional Services
Net revenues increased by $20 million, or 5%, and $35 million, or 3%, in the third quarter and first nine months of 2012 compared to
the same periods in 2011, respectively, primarily due to increases in asset management and administration fees and net interest
revenue, partially offset by a decrease in trading revenue. Asset management and administration fees increased primarily due to an
increase in third-party mutual fund service fees. Net interest revenue increased primarily due to higher average balances of interest-
earning assets, partially offset by the effect of lower interest rate spreads due to the continued low interest rate environment. Trading
revenue decreased primarily due to lower daily average revenue trades. Expenses excluding interest increased by $21 million, or 3%
in the first nine months of 2012 compared to the first nine months of 2011 primarily due to increases in compensation and benefits
and occupancy and equipment expenses.

Unallocated
Other revenue in the first nine months of 2012 includes a pre-tax gain of $70 million relating to a confidential resolution of a vendor
dispute in the second quarter of 2012.

LIQUIDITY AND CAPITAL RESOURCES
CSC conducts substantially all of its business through its wholly-owned subsidiaries. The Company’s capital structure is designed to
provide each subsidiary with capital and liquidity to meet its operational needs and regulatory requirements.
CSC is a savings and loan holding company and Schwab Bank, CSC’s depository institution, is a federal savings bank. CSC is subject
to supervision and regulation by the Federal Reserve and Schwab Bank is subject to supervision and regulation by the OCC.

Liquidity
CSC
While CSC is not currently subject to specific statutory capital requirements, CSC is required to serve as a source of strength for
Schwab Bank and must have the ability to provide financial assistance if Schwab Bank experiences financial distress. To manage
capital adequacy, the Company currently utilizes a target Tier 1 Leverage Ratio, as defined by the Federal Reserve, of at least 6%. At
September 30, 2012, CSC’s Tier 1 Leverage Ratio was 6.9%.

CSC’s liquidity needs are generally met through cash generated by its subsidiaries, as well as cash provided by external financing.
CSC has a universal automatic shelf registration statement (Shelf Registration Statement) on file with the SEC which enables CSC to
issue debt, equity and other securities. CSC maintains excess liquidity in the form of overnight cash deposits and short-term
investments to cover daily funding needs and to support growth in the Company’s business. Generally, CSC does not hold liquidity at
its subsidiaries in excess of amounts deemed sufficient to support the subsidiaries’ operations, including any regulatory capital
requirements. Schwab, Schwab Bank, and optionsXpress, Inc. are subject to regulatory requirements that may restrict them from
certain transactions with CSC, as further discussed below. Management believes that funds generated by the operations of CSC’s
subsidiaries will continue to be the primary funding source in meeting CSC’s liquidity needs, providing adequate liquidity to meet
Schwab Bank’s capital guidelines, and maintaining Schwab and optionsXpress, Inc.’s net capital.
In August 2012, CSC completed an exchange offer with certain eligible holders of its 4.950% Senior Notes due 2014 (Old Senior
Notes), whereby Old Senior Notes in an aggregate principal amount of $256 million were exchanged for the same aggregate principal
amount of 3.225% Senior Notes due 2022 (New Senior Notes) and cash consideration of $19 million. For further discussion of this
debt exchange, see “Item 1 – Condensed Consolidated Financial Statements (Unaudited) – Notes – 6. Borrowings.”
On August 31, 2012, CSC redeemed all of the fixed-to-floating rate trust preferred securities issued by Schwab Capital Trust (Trust)
of which $202 million in principal was outstanding for $207 million, which included accumulated and unpaid distributions up to and
including the redemption date. The trust preferred securities were redeemed, along with the common securities issued by the Trust
and held by CSC, as a result of the concurrent redemption in whole by CSC of the Junior
                                                                  - 40 -
                                       THE CHARLES SCHWAB CORPORATION
                     Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                   (Tabular Amounts in Millions, Except Ratios, or as Noted)
Subordinated Notes held by the Trust which underlay the trust preferred securities. For further discussion of this redemption, see
“Item 1 – Condensed Consolidated Financial Statements (Unaudited) – Notes – 6. Borrowings.”

In June and January 2012 the Company completed equity offerings of 485,000 and 400,000 shares of its preferred stock, Series B and
Series A, respectively, under the Shelf Registration Statement. CSC’s preferred stock is rated Baa2 by Moody’s Investors Service
(Moody’s), BBB+ by Standard & Poor’s Ratings Group (Standard & Poor’s), and BB+ by Fitch Ratings, Ltd (Fitch). For further
discussion of these equity offerings, see “Item 1 – Condensed Consolidated Financial Statements (Unaudited) – Notes – 9. Preferred
Stock.”
CSC has liquidity needs that arise from the funding of cash dividends, acquisitions, and investments, as well as its Senior Notes and
Senior Medium-Term Notes, Series A (Medium-Term Notes). The following are details of CSC’s long-term debt:
                                                             Par                                                          Standard
September 30, 2012                                       Outstanding        Maturity        Interest Rate       Moody’s   & Poor’s   Fitch
Senior Notes                                             $   1,450        2014 - 2022 3.225% to 4.950% fixed      A2         A        A
Medium-Term Notes                                        $     250           2017          6.375% fixed           A2         A        A

CSC has authorization from its Board of Directors to issue unsecured commercial paper notes (Commercial Paper Notes) not to
exceed $1.5 billion. Management has set a current limit for the commercial paper program of $800 million. The maturities of the
Commercial Paper Notes may vary, but are not to exceed 270 days from the date of issue. The commercial paper is not redeemable
prior to maturity and cannot be voluntarily prepaid. The proceeds of the commercial paper program are to be used for general
corporate purposes. There were no borrowings of Commercial Paper Notes outstanding at September 30, 2012. CSC’s ratings for
these short-term borrowings are P1 by Moody’s, A1 by Standard & Poor’s, and F1 by Fitch.

CSC maintains an $800 million committed, unsecured credit facility with a group of 11 banks, which is scheduled to expire in
June 2013. This facility replaced a similar facility that expired in June 2012 and was unused during the first nine months of 2012. The
funds under this facility are available for general corporate purposes. The financial covenants under this facility require Schwab to
maintain a minimum net capital ratio, as defined, Schwab Bank to be well capitalized, as defined, and CSC to maintain a minimum
level of stockholders’ equity. At September 30, 2012, the minimum level of stockholders’ equity required under this facility was
$5.7 billion (CSC’s stockholders’ equity at September 30, 2012, was $9.5 billion). Management believes that these restrictions will
not have a material effect on CSC’s ability to meet foreseeable dividend or funding requirements.
CSC also has direct access to $670 million of the $820 million uncommitted, unsecured bank credit lines discussed below, that are
primarily utilized by Schwab to manage short-term liquidity. These lines were not used by CSC during the first nine months of 2012.

In addition, Schwab provides CSC with a $1.0 billion credit facility, maturing December 2014. There were no funds drawn under this
facility at September 30, 2012.

Schwab
Schwab is subject to regulatory requirements that are intended to ensure the general financial soundness and liquidity of broker-
dealers. These regulations prohibit Schwab from repaying subordinated borrowings from CSC, paying cash dividends, or making
unsecured advances or loans to its parent company or employees if such payment would result in a net capital amount of less than 5%
of aggregate debit balances or less than 120% of its minimum dollar requirement of $250,000. At September 30, 2012, Schwab’s net
capital was $1.4 billion (10% of aggregate debit balances), which was $1.1 billion in excess of its minimum required net capital and
$692 million in excess of 5% of aggregate debit balances.

Schwab is also subject to Rule 15c3-3 under the Securities Exchange Act of 1934 and other applicable regulations that require it to
maintain cash or qualified securities in a segregated reserve account for the exclusive benefit of clients. These funds are included in
cash and investments segregated and on deposit for regulatory purposes in the Company’s condensed consolidated balance sheets and
are not available as a general source of liquidity.
                                                                 - 41 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
Most of Schwab’s assets are readily convertible to cash, consisting primarily of short-term (i.e., less than 150 days) investment-grade,
interest-earning investments (the majority of which are segregated for the exclusive benefit of clients pursuant to regulatory
requirements), receivables from brokerage clients, and receivables from brokers, dealers, and clearing organizations. Client margin
loans are demand loan obligations secured by readily marketable securities. Receivables from and payables to brokers, dealers, and
clearing organizations primarily represent current open transactions, which usually settle, or can be closed out, within a few business
days.

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client
accounts, which were $32.8 billion and $33.5 billion at September 30, 2012 and December 31, 2011, respectively. Management
believes that brokerage client cash balances and operating earnings will continue to be the primary sources of liquidity for Schwab.
Schwab has a finance lease obligation related to an office building and land under a 20-year lease. The remaining finance lease
obligation of $95 million at September 30, 2012, is being reduced by a portion of the lease payments over the remaining lease term of
12 years.
To manage short-term liquidity, Schwab maintains uncommitted, unsecured bank credit lines with a group of six banks totaling
$820 million at September 30, 2012. The need for short-term borrowings arises primarily from timing differences between cash flow
requirements, scheduled liquidation of interest-earning investments, and movements of cash to meet regulatory brokerage client cash
segregation requirements. Schwab used such borrowings for three days during the first nine months of 2012, with average daily
amounts borrowed of $62 million. There were no borrowings outstanding under these lines at September 30, 2012.
To partially satisfy the margin requirement of client option transactions with the Options Clearing Corporation (OCC), Schwab has
unsecured standby letter of credit agreements (LOCs) with six banks in favor of the OCC aggregating $325 million at September 30,
2012. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. Schwab
satisfies the collateral requirements by arranging LOCs, in favor of these brokerage clients, which are issued by multiple banks. At
September 30, 2012, the aggregate face amount of these LOCs totaled $99 million. There were no funds drawn under any of these
LOCs during the first nine months of 2012.

To manage Schwab’s regulatory capital requirement, CSC provides Schwab with a $1.4 billion subordinated revolving credit facility,
which is scheduled to expire in March 2014. The amount outstanding under this facility at September 30, 2012, was $315 million.
Borrowings under this subordinated lending arrangement qualify as regulatory capital for Schwab.

In addition, CSC provides Schwab with a $2.5 billion credit facility, which is scheduled to expire in December 2014. Borrowings
under this facility do not qualify as regulatory capital for Schwab. There were no funds drawn under this facility at September 30,
2012.

Schwab Bank
Schwab Bank is subject to regulatory requirements that restrict and govern the terms of affiliate transactions, such as extensions of
credit and repayment of loans between Schwab Bank and CSC or CSC’s other subsidiaries. In addition, Schwab Bank is required to
provide notice to and may be required to obtain approval of the OCC and the Federal Reserve to declare dividends to CSC.
                                                                 - 42 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
Schwab Bank is required to maintain capital levels as specified in federal banking laws and regulations. Failure to meet the minimum
levels could result in certain mandatory, and possibly additional discretionary actions by the regulators that, if undertaken, could have
a direct material effect on Schwab Bank. Based on its regulatory capital ratios at September 30, 2012, Schwab Bank is considered
well capitalized. Schwab Bank’s regulatory capital and ratios at September 30, 2012, are as follows:
                                                                                                Minimum Capital         Minimum to be
                                                                     Actual                       Requirement          Well Capitalized
                                                            Amount             Ratio          Amount       Ratio     Amount         Ratio
Tier 1 Risk-Based Capital                               $     5,584               21.7%   $     1,031          4.0% $ 1,547             6.0%
Total Risk-Based Capital                                $     5,639               21.9%   $     2,062          8.0% $ 2,578            10.0%
Tier 1 Leverage                                         $     5,584                7.5%   $     2,993          4.0% $ 3,741             5.0%
Tangible Equity                                         $     5,584                7.5%   $     1,496          2.0%    N/A
N/A Not applicable.
Management lowered its target Tier 1 Leverage Ratio for Schwab Bank from at least 7.5% to at least 6.25% in the third quarter of
2012. This change reflects Schwab Bank’s approach to lending and investing, which results in a lower risk profile relative to the
industry and risk-based capital ratios significantly in excess of well capitalized levels. This allows greater flexibility in managing
capital resources to either support Schwab Bank’s balance sheet growth or return capital to CSC. Schwab Bank’s current liquidity
needs are generally met through deposits from banking clients and equity capital.

The excess cash held in certain Schwab brokerage client accounts is swept into deposit accounts at Schwab Bank. At September 30,
2012, these balances totaled $48.5 billion.
Schwab Bank has access to traditional funding sources such as deposits, federal funds purchased, and repurchase agreements.
Additionally, Schwab Bank has access to short-term funding through the Federal Reserve Bank (FRB) discount window. Amounts
available under the FRB discount window are dependent on the fair value of certain of Schwab Bank’s securities available for sale
and/or securities held to maturity that are pledged as collateral. Schwab Bank maintains policies and procedures necessary to access
this funding and tests discount window borrowing procedures annually. At September 30, 2012, $2.8 billion was available under this
arrangement. There were no funds drawn under this arrangement during the first nine months of 2012.

Schwab Bank maintains a credit facility with the Federal Home Loan Bank System. Amounts available under this facility are
dependent on the amount of Schwab Bank’s residential real estate mortgages and HELOCs that are pledged as collateral. At
September 30, 2012, $4.9 billion was available under this facility. There were no funds drawn under this facility during the first nine
months of 2012.

CSC provides Schwab Bank with a $100 million short-term credit facility, which is scheduled to expire in December 2014.
Borrowings under this facility do not qualify as regulatory capital for Schwab Bank. There were no funds drawn under this facility
during the first nine months of 2012.

optionsXpress
optionsXpress, Inc., a wholly-owned subsidiary of optionsXpress, is a registered broker-dealer and is subject to regulatory
requirements that are intended to ensure the general financial soundness and liquidity of broker-dealers. These regulations prohibit
optionsXpress, Inc. from paying cash dividends or making unsecured advances or loans to its parent company or employees if such
payment would result in a net capital amount of less than 5% of aggregate debit balances or less than 120% of its minimum dollar
requirement of $250,000. At September 30, 2012, optionsXpress, Inc.’s net capital was $78 million (33% of aggregate debit
balances), which was $73 million in excess of its minimum required net capital and $66 million in excess of 5% of aggregate debit
balances.
optionsXpress, Inc. is also subject to Commodity Futures Trading Commission Regulation 1.17 (Reg. 1.17) under the Commodity
Exchange Act, which also requires the maintenance of minimum net capital. optionsXpress, Inc. as a futures
                                                                      - 43 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
commission merchant, is required to maintain minimum net capital equal to the greater of its net capital requirement under Reg. 1.17
($1 million), or the sum of 8% of the total risk margin requirements for all positions carried in customer accounts and 8% of the total
risk margin requirements for all positions carried in non-customer accounts (as defined in Reg. 1.17).
Additionally, optionsXpress, Inc. is subject to Rule 15c3-3 under the Securities Exchange Act of 1934 and other applicable
regulations that require it to maintain cash or qualified securities in a segregated reserve account for the exclusive benefit of clients.
These funds are included in cash and investments segregated and on deposit for regulatory purposes in the Company’s condensed
consolidated balance sheets and are not available as a general source of liquidity.
Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client
accounts, which were $1.2 billion at September 30, 2012. Management believes that brokerage client cash balances and operating
earnings will continue to be the primary sources of liquidity for optionsXpress, Inc.

CSC provides optionsXpress, Inc. with a $100 million credit facility, which is scheduled to expire in December 2014. The amount
outstanding under this facility at September 30, 2012, was $60 million. Borrowings under this facility do not qualify as regulatory
capital for optionsXpress, Inc.

optionsXpress has a term loan with CSC, of which $95 million was outstanding at September 30, 2012, and it matures in December
2014.

Capital Resources
The Company monitors both the relative composition and absolute level of its capital structure. Management is focused on limiting
the Company’s use of capital and currently targets a long-term debt to total financial capital ratio not to exceed 30%. The Company’s
total financial capital (long-term debt plus stockholders’ equity) at September 30, 2012, was $11.2 billion, up $1.5 billion, or 16%,
from December 31, 2011.
At September 30, 2012, the Company had long-term debt of $1.8 billion, or 16% of total financial capital, that bears interest at a
weighted-average rate of 4.73%. At December 31, 2011, the Company had long-term debt of $2.0 billion, or 21% of total financial
capital. In August 2012, CSC completed an exchange offer with certain eligible holders of its Old Senior Notes, whereby Old Senior
Notes in an aggregate principal amount of $256 million were exchanged for the same aggregate principal amount of New Senior
Notes and cash consideration of $19 million. On August 31, 2012, CSC redeemed all of the fixed-to-floating rate trust preferred
securities issued by the Trust of which $202 million in principal was outstanding for $207 million, which included accumulated and
unpaid distributions up to and including the redemption date. The trust preferred securities were redeemed, along with the common
securities issued by the Trust and held by CSC, as a result of the concurrent redemption in whole by CSC of the Junior Subordinated
Notes held by the Trust which underlay the trust preferred securities. In addition, the Company repaid $5 million of other long-term
debt in the first nine months of 2012.

The Company’s cash position (reported as cash and cash equivalents on its condensed consolidated balance sheets) and cash flows are
affected by changes in brokerage client cash balances and the associated amounts required to be segregated under regulatory
guidelines. Timing differences between cash and investments actually segregated on a given date and the amount required to be
segregated for that date may arise in the ordinary course of business, and are addressed by the Company in accordance with
applicable regulations. Other factors which affect the Company’s cash position and cash flows include investment activity in
securities, levels of capital expenditures, acquisition and divestiture activity, banking client deposit activity, brokerage and banking
client loan activity, financing activity in long-term debt, payments of dividends, and repurchases and issuances of CSC’s preferred
and common stock. The combination of these factors can cause significant fluctuations in the cash position during specific time
periods.

Equity Offerings
In June 2012, the Company issued and sold 485,000 shares of 6.00% non-cumulative perpetual preferred stock, Series B, with a
liquidation preference of $1,000 per share for net proceeds of $469 million (Series B Preferred Stock). In January 2012, the Company
issued and sold 400,000 shares of fixed-to-floating rate (currently fixed at 7.000%) non-cumulative perpetual preferred stock,
Series A, with a liquidation preference of $1,000 per share for net proceeds of $394 million
                                                                   - 44 -
                                     THE CHARLES SCHWAB CORPORATION
                   Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                 (Tabular Amounts in Millions, Except Ratios, or as Noted)
(Series A Preferred Stock). Net proceeds received from these sales are being used for general corporate purposes, which may include,
without limitation, extending credit to, or funding investments in, the Company’s subsidiaries, and the possible refinancing of
outstanding indebtedness. For further discussion of these equity offerings, see “Item 1 – Condensed Consolidated Financial
Statements (Unaudited) – Notes – 9. Preferred Stock.”

Capital Expenditures
The Company’s capital expenditures were $98 million and $135 million in the first nine months of 2012 and 2011, respectively.
Capital expenditures in the first nine months of 2012 and 2011 were primarily for capitalized costs for developing internal-use
software, software and equipment relating to the Company’s information technology systems, and leasehold improvements.
Capitalized costs for developing internal-use software were $45 million and $40 million in the first nine months of 2012 and 2011,
respectively.

As discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, management anticipated that
2012 capital expenditures would be 30% lower than 2011 spending. Due primarily to increased spending on capitalized costs for
developing internal-use software and software relating to the Company’s information technology systems, management currently
anticipates that full-year 2012 capital expenditures will be approximately 20% lower than 2011 levels.

Dividends
CSC paid common stock cash dividends of $231 million ($0.18 per share) and $218 million ($0.18 per share) in the first nine months
of 2012 and 2011, respectively.
CSC paid Series A Preferred Stock cash dividends of $14 million ($36.17 per share) and Series B Preferred Stock cash dividends of
$7 million ($14.17 per share) in the first nine months of 2012. Under the respective terms of the Series A Preferred Stock and Series
B Preferred Stock, the Company’s ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire
its common stock or any preferred stock ranking on parity with or junior to the relevant series of preferred stock, is subject to
restrictions in the event that the Company does not declare and either pay or set aside a sum sufficient for payment of dividends on
the relevant series of preferred stock for the immediately preceding dividend period. For further discussion of the Series A and
Series B Preferred Stock offerings, see “Item 1 – Condensed Consolidated Financial Statements (Unaudited) – Notes – 9. Preferred
Stock.”

Share Repurchases
There were no repurchases of CSC’s common stock in the first nine months of 2012 or 2011. As of September 30, 2012, CSC had
remaining authority from the Board of Directors to repurchase up to $596 million of its common stock, which does not have an
expiration date.

Business Acquisition
On September 1, 2011, the Company completed its acquisition of all of the outstanding common shares of optionsXpress, an online
brokerage firm primarily focused on equity option securities and futures, for total consideration of $714 million. Under the terms of
the merger agreement, optionsXpress stockholders received 1.02 shares of the Company’s common stock for each share of
optionsXpress stock. As a result, the Company issued 59 million shares of the Company’s common stock valued at $710 million,
based on the closing price of the Company’s common stock on September 1, 2011. The Company also assumed optionsXpress’ stock-
based compensation awards valued at $4 million.

Off-Balance Sheet Arrangements
The Company enters into various off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of its
clients. These arrangements include firm commitments to extend credit. Additionally, the Company enters into guarantees and other
similar arrangements as part of transactions in the ordinary course of business. For discussion on the Company’s off-balance sheet
arrangements, see “Part II – Item 7 – Management’s Discussion and Analysis of Financial
                                                                - 45 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
Condition and Results of Operations – Liquidity and Capital Resources” in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2011, and “Item 1 – Condensed Consolidated Financial Statements (Unaudited) – Notes – 7. Commitments and
Contingencies.”

RISK MANAGEMENT
The Company’s business activities expose it to a variety of risks, including technology, operations, credit, market, liquidity, legal, and
reputational. Identification and management of these risks are essential to the success and financial soundness of the Company.

For a discussion on risks that the Company faces and the policies and procedures for risk identification, assessment, and management,
see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2011. For updated information on the Company’s credit
risk and concentration risk exposures, see below. See “Item 3 – Quantitative and Qualitative Disclosures About Market Risk” for
additional information relating to market risk.

Risk is inherent in the Company’s business. Consequently, despite the Company’s efforts to identify areas of risk and implement risk
management policies and procedures, there can be no assurance that the Company will not suffer unexpected losses due to operating
or other risks.

Credit Risk Exposures
The Company’s credit risk exposure related to loans to banking clients is actively managed through individual and portfolio reviews
performed by management. Management regularly reviews asset quality, including concentrations, delinquencies, nonaccrual loans,
charge-offs, and recoveries. All are factors in the determination of an appropriate allowance for loan losses, which is reviewed
quarterly by management. The Company’s mortgage loan portfolios primarily include first lien residential real estate mortgage loans
(First Mortgage) of $6.0 billion and HELOCs of $3.3 billion at September 30, 2012.
The Company’s First Mortgage portfolio underwriting requirements are generally consistent with the underwriting requirements in
the secondary market for loan portfolios. The Company’s guidelines include maximum loan-to-value (LTV) ratios, cash out limits,
and minimum Fair Isaac Corporation (FICO) credit scores. The specific guidelines are dependent on the individual characteristics of a
loan (for example, whether the property is a primary or secondary residence, whether the loan is for investment property, whether the
loan is for an initial purchase of a home or refinance of an existing home, and whether the loan is conforming or jumbo). These credit
underwriting standards have limited the exposure to the types of loans that experienced high foreclosures and loss rates elsewhere in
the industry in recent years. There have been no significant changes to the LTV ratio or FICO credit score guidelines related to the
Company’s First Mortgage or HELOC portfolios during the first nine months of 2012. At September 30, 2012, the weighted-average
originated LTV ratios were 60% and 59% for the First Mortgage and HELOC portfolios, respectively. 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, 2012, 22% of HELOCs ($735 million of the HELOC portfolio) were in a first lien position. The weighted-average
originated FICO credit scores were 767 and 768 for the First Mortgage and HELOC portfolios, respectively.
The Company does not offer loans that allow for negative amortization and does not originate or purchase subprime loans (generally
defined as extensions of credit to borrowers with a FICO credit score of less than 620 at origination), unless the borrower has
compensating credit factors. At September 30, 2012, approximately 1% of both the First Mortgage and HELOC portfolios consisted
of loans to borrowers with FICO credit scores of less than 620.
The Company monitors the estimated current LTV ratios of its First Mortgage and HELOC portfolios on an ongoing basis. At
September 30, 2012, the weighted-average estimated current LTV ratios were 60% and 69% for the First Mortgage and HELOC
portfolios, respectively. The computation of the estimated current LTV ratio for a HELOC includes any first lien mortgage
outstanding on the same property at the time of the HELOC’s origination. The Company estimates the current LTV ratio for each loan
by reference to a home price appreciation index. The Company also monitors updated borrower
                                                                  - 46 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
FICO scores, delinquency trends, and verified liquid assets held by individual borrowers. At September 30, 2012, the weighted-
average updated FICO scores were 769 for both the First Mortgage and HELOC portfolios.

A portion of the Company’s HELOC portfolio is secured by second liens on the associated properties. Second lien mortgage loans
possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. At September 30, 2012,
78% of the HELOCs ($2.6 billion of the HELOC portfolio) were in a second lien position. In addition to the credit monitoring
activities described above, the Company also monitors credit risk on second lien HELOC loans by reviewing the delinquency status
of the first lien loan on the associated property, when such status is available. The portion of the Company’s second lien HELOC
portfolio for which the Company either holds the first lien or has the ability to monitor the delinquency status of the related first
mortgage was $626 million, or 19%, of the HELOC portfolio at September 30, 2012. Additionally, at September 30, 2012,
approximately 35% of the HELOC borrowers that had a balance only paid the minimum amount due.

For more information on the Company’s credit quality indicators relating to its First Mortgage and HELOC portfolios, including
delinquency characteristics, borrower FICO scores at origination, updated borrower FICO scores, LTV ratios at origination, and
estimated current LTV ratios, see “Item 1 – Condensed Consolidated Financial Statements (Unaudited) – Notes – 5. Loans to Banking
Clients and Related Allowance for Loan Losses.”

The following table presents certain of the Company’s loan quality metrics as a percentage of total outstanding loans:
                                                                                                    September 30,          December 31,
                                                                                                        2012                   2011
Loan delinquencies (1)                                                                                      0.90%                 0.81%
Nonaccrual loans                                                                                            0.45%                 0.53%
Allowance for loan losses                                                                                   0.56%                 0.55%
(1)
      Loan delinquencies are defined as loans that are 30 days or more past due.
The Company has exposure to credit risk associated with its securities available for sale and securities held to maturity portfolios,
whose fair values totaled $42.4 billion and $16.2 billion at September 30, 2012, respectively. These portfolios include U.S. agency
and non-agency residential mortgage-backed securities, corporate debt securities, certificates of deposit, commercial paper, U.S.
agency notes, and asset-backed and other securities. U.S. agency residential mortgage-backed securities do not have explicit credit
ratings, however, management considers these to be of the highest credit quality and rating given the guarantee of principal and
interest by the U.S. government-sponsored enterprises. Included in non-agency residential mortgage-backed securities are securities
collateralized by loans that are considered to be “Prime” (defined by the Company as loans to borrowers with a FICO credit score of
620 or higher at origination), and “Alt-A” (defined by the Company as Prime loans with reduced documentation at origination).

Residential mortgage-backed securities, particularly Alt-A securities, experienced continued credit deterioration in the first nine
months of 2012, including increased payment delinquency rates and losses on foreclosures of underlying mortgages. For a discussion
of the impact of current market conditions on residential mortgage-backed securities, see “Current Market and Regulatory
Environment and Other Developments.” At September 30, 2012, the amortized cost of non-agency residential mortgage-backed
securities represented 2% of the total residential mortgage-backed securities portfolio. These securities were originated between 2003
and 2007. At September 30, 2012, all of the corporate debt securities and non-mortgage asset-backed securities were rated investment
grade (defined as a rating equivalent to a Moody’s rating of “Baa” or higher, or a Standard & Poor’s rating of “BBB-” or higher).

Concentration Risk Exposures
The Company has exposure to concentration risk when holding large positions in financial instruments collateralized by assets with
similar economic characteristics or in securities of a single issuer or industry.

The fair value of the Company’s investments in residential mortgage-backed securities totaled $40.6 billion at September 30, 2012.
Of these, $39.8 billion were issued by U.S. agencies and $782 million were issued by private entities (non-agency
                                                                  - 47 -
                                        THE CHARLES SCHWAB CORPORATION
                      Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                    (Tabular Amounts in Millions, Except Ratios, or as Noted)
securities). The U.S. agency securities are included in securities available for sale and securities held to maturity and the non-agency
securities are included in securities available for sale. Included in non-agency residential mortgage-backed securities are securities
collateralized by Alt-A loans. At September 30, 2012, the amortized cost and fair value of Alt-A mortgage-backed securities were
$326 million and $280 million, respectively.
The Company’s investments in corporate debt securities and commercial paper totaled $7.6 billion at September 30, 2012, with the
majority issued by institutions in the financial services industry. These securities are included in securities available for sale,
securities held to maturity, cash and investments segregated and on deposit for regulatory purposes, cash and cash equivalents, and
other securities owned in the Company’s condensed consolidated balance sheets. At September 30, 2012, the Company held
$535 million of corporate debt securities issued by financial institutions and guaranteed under the FDIC Temporary Liquidity
Guarantee Program.

The Company’s loans to banking clients include $5.5 billion of adjustable rate first lien residential real estate mortgage loans at
September 30, 2012. The Company’s adjustable rate mortgages have initial fixed interest rates for three to ten years and interest rates
that adjust annually thereafter. Approximately 55% of these mortgages consisted of loans with interest-only payment terms. The
interest rates on approximately 65% of these interest-only loans are not scheduled to reset for three or more years. The Company’s
mortgage loans do not include interest terms described as temporary introductory rates below current market rates. At September 30,
2012, 44% of the residential real estate mortgages and 50% of the HELOC balances were secured by properties which are located in
California.

The Company’s HELOC product has a 30-year loan term with an initial draw period of 10 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, 2012                                                                                                               Balance
Within 1 year                                                                                                                    $   49
> 1 year – 3 years                                                                                                                  645
> 3 years – 5 years                                                                                                                 464
> 5 years                                                                                                                         2,188
   Total                                                                                                                         $3,346

As of September 30, 2012, all of the Company’s HELOC loans are within the 10-year initial draw period, and as such, none of the
HELOCs have converted to an amortizing loan.

The Company also has exposure to concentration risk from its margin and securities lending activities collateralized by securities of a
single issuer or industry.
The Company has indirect exposure to U.S. Government and agency securities held as collateral to secure its resale agreements. The
Company’s primary credit exposure on these resale transactions is with its counterparty. The Company would have exposure to the
U.S. Government and agency securities only in the event of the counterparty’s default on the resale agreements. The fair value of U.S.
Government and agency securities held as collateral for resale agreements totaled $18.2 billion at September 30, 2012.

European Holdings
The Company has exposure to non-sovereign financial institutions in Europe. The following table shows the amortized cost and fair
values of cash equivalents, cash and investments segregated and on deposit for regulatory purposes, securities available for sale, and
securities held to maturity by each country in Europe in which the issuer or counterparty is domiciled. The Company has no direct
exposure to sovereign governments in Europe. The Company does not have unfunded commitments to counterparties in Europe, nor
does it have exposure as a result of credit default protection purchased or sold separately as of September 30, 2012.
                                                                  - 48 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
                                                                         Fair Value as of September 30, 2012
                                                                                                                              United
                                     Denmark (1)   France   Germany      Netherlands   Norway       Sweden     Switzerland   Kingdom   Total
Cash equivalents:
Time deposits                        $       — $      408 $     144 $            — $        300 $        — $           — $      300 $ 1,152
Commercial paper                             —        100        —               —           —           —             —         —      100
Cash and investments segregated
 and on deposit for regulatory
 purposes:
Trust deposits                               —         —         62              —           —           —             —         —         62
Securities available for sale:
Certificates of deposit                     —         100       300            100          100         702          802       1,000   3,104
Corporate debt securities                  213         —         —             193           —          100           —          326     832
Commercial paper                            —          —         —              —            —           —            —          299     299
Securities held to maturity:
Corporate debt securities                   —          —         —              —            —           —           100      —      100
Total fair value                     $     213 $      608 $     506 $          293 $        400 $       802 $        902 $ 1,925 $ 5,649
Total amortized cost                 $     212 $      608 $     506 $          292 $        400 $       800 $        900 $ 1,922 $ 5,640
Maturities:
Overnight                            $      — $       408 $     206 $           — $         300 $        — $          — $ 300 $        1,214
1 day – < 6 months                          —         200       300             70          100         200           76   1,200       2,146
6 months – < 1 year                        213         —         —              —            —          301          551     223       1,288
1 year – 2 years                            —          —         —             223           —          301          175      99         798
> 2 years                                   —          —         —              —            —           —           100     103         203
Total fair value                     $     213 $      608 $     506 $          293 $        400 $       802 $        902 $ 1,925 $     5,649
(1)
      The exposures in Denmark are also backed by the full faith and credit of the Denmark government.

In addition to the direct holdings of European companies listed above, the Company also has indirect exposure to Europe through its
investments in Schwab sponsored money market funds (collectively, the Funds) resulting from clearing activities. At September 30,
2012, the Company had $244 million in investments in these Funds. Certain of the Funds’ positions include certificates of deposits,
time deposits, commercial paper and corporate debt securities issued by counterparties in Europe.

CRITICAL ACCOUNTING ESTIMATES
Certain of the Company’s accounting policies that involve a higher degree of judgment and complexity are discussed in “Part II –
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates”
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. There have been no changes to these critical
accounting estimates during the first nine months of 2012.

As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, the Company’s annual goodwill
impairment testing date is April 1. In testing for a potential impairment of goodwill on April 1, 2012, management estimated the fair
value of each of the Company’s reporting units (generally defined as the Company’s businesses for which financial information is
available and reviewed regularly by management) and compared this value to the carrying value of the reporting unit. The estimated
fair value of each reporting unit exceeded its carrying value, and therefore management concluded that goodwill was not impaired.
                                                                - 49 -
                                               THE CHARLES SCHWAB CORPORATION
                             Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                           (Tabular Amounts in Millions, Except Ratios, or as Noted)
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words
such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “appear,” “aim,” “target,” “could,” and other similar
expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are
forward-looking statements.
These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are necessarily estimates
based on the best judgment of the Company’s senior management. These statements relate to, among other things:
       •    the impact of current market conditions on the Company’s results of operations (see “Item 1 – Condensed Consolidated Financial
            Statements (Unaudited) – Notes – 4. Securities Available for Sale and Securities Held to Maturity” and “Current Market and
            Regulatory Environment and Other Developments”);
       •    the expected impact of the Federal Reserve’s NPRs (see “Current Market and Regulatory Environment and Other Developments”);
       •    the impact of changes in the likelihood of guarantee payment obligations on the Company’s results of operations (see “Item 1 –
            Condensed Consolidated Financial Statements (Unaudited) – Notes – 7. Commitments and Contingencies”);
       •    the impact of legal proceedings and regulatory matters (see “Item 1 – Condensed Consolidated Financial Statements (Unaudited) –
            Notes – 7. Commitments and Contingencies” and “Part II – Other Information – Item 1 – Legal Proceedings”);
       •    target capital ratios (see “Item 1 – Condensed Consolidated Financial Statements (Unaudited) – Notes – 12. Regulatory Requirements”
            and “Liquidity and Capital Resources”);
       •    sources of liquidity, capital, and level of dividends (see “Liquidity and Capital Resources”); and
       •    capital expenditures (see “Liquidity and Capital Resources – Capital Resources”).

Achievement of the expressed beliefs, objectives, and expectations described in these statements is subject to certain risks and uncertainties that
could cause actual results to differ materially from the expressed beliefs, objectives, and expectations. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents
incorporated by reference, as of the date of those documents.

Important factors that may cause actual results to differ include, but are not limited to:
       •    changes in general economic and financial market conditions;
       •    changes in revenues and profit margin due to changes in interest rates;
       •    the Company’s ability to attract and retain clients and grow client assets and relationships;
       •    the Company’s ability to develop and launch new products, services and capabilities in a timely and successful manner;
       •    fluctuations in client asset values due to changes in equity valuations;
       •    the Company’s ability to monetize client assets;
       •    the performance or valuation of securities available for sale and securities held to maturity;
       •    trading activity;
       •    the level of interest rates, including yields available on money market mutual fund eligible instruments;
       •    the adverse impact of financial reform legislation and related regulations;
       •    potential breaches of contractual terms for which the Company has guarantee obligations;
       •    adverse developments in litigation or regulatory matters;
       •    amounts recovered on insurance policies;
       •    the extent of any charges associated with litigation and regulatory matters;
       •    the amount of loans to the Company’s brokerage and banking clients;
       •    the level of the Company’s stock repurchase activity;
       •    capital needs;
       •    level of expenses;
       •    acquisition integration costs;
                                                                          - 50 -
                                      THE CHARLES SCHWAB CORPORATION
                    Management’s Discussion and Analysis of Financial Condition and Results of Operations
                                  (Tabular Amounts in Millions, Except Ratios, or as Noted)
      •    the level of brokerage client cash balances and deposits from banking clients;
      •    the availability and terms of external financing; and
      •    timing and impact of changes in the Company’s level of investments in software.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in “Part I –Item 1A –
Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and “Part II – Other
Information – Item 1A – Risk Factors.”
                                                                   - 51 -
                                            THE CHARLES SCHWAB CORPORATION
Item 3.     Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential for changes in revenue or the value of financial instruments held by the Company as a result of
fluctuations in interest rates, equity prices or market conditions.

For the Company’s market risk related to interest rates, a sensitivity analysis, referred to as a net interest revenue simulation model, is
shown below. The Company is exposed to interest rate risk primarily from changes in market interest rates on its interest-earning
assets relative to changes in the costs of its funding sources that finance these assets.

Net interest revenue is affected by various factors, such as the distribution and composition of interest-earning assets and interest-
bearing liabilities, the spread between yields earned on interest-earning assets and rates paid on interest-bearing liabilities, which may
reprice at different times or by different amounts, and the spread between short and long-term interest rates. Interest-earning assets
include residential real estate loans and mortgage-backed securities. These assets are sensitive to changes in interest rates and to
changes to prepayment levels, which tend to increase in a declining rate environment.

To mitigate the risk of loss, the Company has established policies and procedures which include setting guidelines on the amount of
net interest revenue at risk, and monitoring the net interest margin and average maturity of its interest-earning assets and funding
sources. To remain within these guidelines, the Company manages the maturity, repricing, and cash flow characteristics of the
investment portfolios. Because the Company establishes the rates paid on certain brokerage client cash balances and deposits from
banking clients, the rates charged on margin loans, and controls the composition of its investment securities, it has some ability to
manage its net interest spread, depending on competitive factors and market conditions.

The Company is also subject to market risk as a result of fluctuations in equity prices. The Company’s direct holdings of equity
securities and its associated exposure to equity prices are not material. The Company is indirectly exposed to equity market
fluctuations in connection with securities collateralizing margin loans to brokerage customers, and customer securities loaned out as
part of the Company’s securities lending activities. Equity market valuations may also affect the level of brokerage client trading
activity, margin borrowing, and overall client engagement with the Company. Additionally, the Company earns mutual fund service
fees and asset management fees based upon daily balances of certain client assets. Fluctuations in these client asset balances caused
by changes in equity valuations directly impact the amount of fee revenue earned by the Company.
Financial instruments held by the Company are also subject to liquidity risk – that is, the risk that valuations will be negatively
affected by changes in demand and the underlying market for a financial instrument. Recent conditions in the credit markets have
significantly reduced market liquidity in a wide range of financial instruments, including the types of instruments held by the
Company, and fair value can differ significantly from the value implied by the credit quality and actual performance of the
instrument’s underlying cash flows.
Financial instruments held by the Company are also subject to valuation risk as a result of changes in valuations of the underlying
collateral, such as housing prices in the case of residential real estate loans and mortgage-backed securities.
For discussion of the impact of current market conditions on asset management and administration fees, net interest revenue, and
securities available for sale, see “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Current Market and Regulatory Environment and Other Developments.”

The Company’s market risk related to financial instruments held for trading and forward sale and interest rate lock commitments
related to its loans held for sale portfolio is not material.

Net Interest Revenue Simulation
The Company uses net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates.
The simulation model (the model) includes all interest-sensitive assets and liabilities. Key variables in the model include the repricing
of financial instruments, prepayment, reinvestment, and product pricing assumptions. The Company uses constant balances and
market rates in the model assumptions in order to minimize the number of variables
                                                                  - 52 -
                                            THE CHARLES SCHWAB CORPORATION
and to better isolate risks. The simulations involve assumptions that are inherently uncertain and, as a result, cannot precisely estimate
net interest revenue or predict the impact of changes in interest rates on net interest revenue. Actual results may differ from simulated
results due to balance growth or decline and the timing, magnitude, and frequency of interest rate changes, as well as changes in
market conditions and management strategies, including changes in asset and liability mix.

As represented by the simulations presented below, the Company’s investment strategy is structured to produce an increase in net
interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall (i.e., interest-
earning assets generally reprice more quickly than interest-bearing liabilities).

The simulations in the following table assume that the asset and liability structure of the consolidated balance sheet would not be
changed as a result of the simulated changes in interest rates. As the Company actively manages its consolidated balance sheet and
interest rate exposure, in all likelihood the Company would take steps to manage any additional interest rate exposure that could result
from changes in the interest rate environment. The following table shows the results of a gradual 100 basis point increase or decrease
in market interest rates relative to the Company’s current market rates forecast on simulated net interest revenue over the next
12 months beginning September 30, 2012 and December 31, 2011.
                                                                                                  September 30,             December 31,
                                                                                                      2012                      2011
Increase of 100 basis points                                                                              20.7%                    19.1%
Decrease of 100 basis points                                                                              (9.7%)                   (8.1%)

The sensitivities shown in the simulation reflect the fact that short-term interest rates in the first nine months of 2012 remained at
historically low levels, including the federal funds target rate, which was unchanged at a range of zero to 0.25%. The current low
interest rate environment limits the extent to which the Company can reduce interest expense paid on funding sources in a declining
interest rate scenario. A decline in interest rates could therefore negatively impact the yield on the Company’s investment portfolio to
a greater degree than any offsetting reduction in interest expense, further compressing net interest margin. Any increases in short-term
interest rates result in a greater impact as yields on interest-earning assets are expected to rise faster than the cost of funding sources.

Item 4.     Controls and Procedures
Evaluation of disclosure controls and procedures: The management of the Company, with the participation of the Company’s Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2012. Based on this evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and
procedures were effective as of September 30, 2012.

Changes in internal control over financial reporting: No change in the Company’s internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) was identified during the quarter ended September 30, 2012,
that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
                                                                   - 53 -
                                           THE CHARLES SCHWAB CORPORATION
PART II - OTHER INFORMATION

Item 1.     Legal Proceedings
For a discussion of legal proceedings, see “Part I – Financial Information – Item 1 – Condensed Consolidated Financial Statements
(Unaudited) – Notes – 7. Commitments and Contingencies.”

Item 1A.    Risk Factors
During the first nine months of 2012, there have been no material changes to the risk factors in “Part I – Item 1A – Risk Factors” in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the third
quarter of 2012:
                                                                                                 Total Number           Approximate
                                                                                              of Shares Purchased      Dollar Value of
                                              Total Number                                     as Part of Publicly    Shares that May
                                                 of Shares                    Average              Announced          Yet be Purchased
                                                Purchased                    Price Paid            Program (1)       Under the Program
Month                                         (in thousands)                 per Share           (in thousands)         (in millions)
July:
   Share repurchase program (1)                                —      $                  —                    —      $            596
   Employee transactions (2)                                   6      $               12.87                  N/A                  N/A
August:
   Share repurchase program (1)                                —      $                  —                    —      $            596
   Employee transactions (2)                                   6      $               13.08                  N/A                  N/A
September:
   Share repurchase program (1)                                —      $                  —                    —      $            596
   Employee transactions (2)                                   7      $               13.99                  N/A                  N/A
Total:
   Share repurchase program (1)                                —      $                  —                    —      $            596
   Employee transactions (2)                                   19     $               13.34                  N/A                  N/A

N/A Not applicable.
(1)
      There were no share repurchases under the Share Repurchase Program during the third quarter. Repurchases under this program
      would occur under two authorizations by CSC’s Board of Directors, each covering up to $500 million of common stock that
      were publicly announced by the Company on April 25, 2007, and March 13, 2008. The remaining authorizations do not have an
      expiration date.
(2)
      Includes restricted shares withheld (under the terms of grants under employee stock incentive plans) to offset tax withholding
      obligations that occur upon vesting and release of restricted shares. The Company may receive shares delivered or attested to
      pay the exercise price and/or to satisfy tax withholding obligations by employees who exercise stock options (granted under
      employee stock incentive plans), which are commonly referred to as stock swap exercises.

Item 3.     Defaults Upon Senior Securities
None.
                                                                    - 54 -
                                     THE CHARLES SCHWAB CORPORATION
Item 4.    Mine Safety Disclosures
Not applicable.

Item 5.    Other Information
None.
                                                  - 55 -
                                          THE CHARLES SCHWAB CORPORATION
Item 6.     Exhibits
The following exhibits are filed as part of this Quarterly Report on Form 10-Q.
 Exhibit
 Number      Exhibit

  4.25       Third Supplemental Indenture, dated as of August 27, 2012, between the Company and The Bank of New York
             Mellon Trust Company, N.A., filed as Exhibit 4.25 to the Registrant’s Form 8-K dated August 27, 2012, and
             incorporated herein by reference.
  4.26       Form of QIB Global Note for the Company’s 3.225% Senior Notes due 2022, filed as Exhibit 4.26 to the
             Registrant’s Form 8-K dated August 27, 2012, and incorporated herein by reference.
  4.27       Form of Regulation S Global Note for the Company’s 3.225% Senior Notes due 2022, filed as Exhibit 4.27 to the
             Registrant’s Form 8-K dated August 27, 2012, and incorporated herein by reference.
  4.28       Exchange and Registration Rights Agreement, dated August 27, 2012, by and among the Company and Citigroup
             Global Markets Inc., Goldman Sachs & Co. and Wells Fargo Securities, LLC, filed as Exhibit 4.28 to the
             Registrant’s Form 8-K dated August 27, 2012, and incorporated herein by reference.
 10.298      Directed Employee Benefit Trust Agreement under the SchwabPlan Retirement Savings and Investment Plan
             dated August 17, 2007.                                                                                          (1)
 12.1        Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock
             Dividends.
 31.1        Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley
             Act of 2002.
 31.2        Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley
             Act of 2002.
 32.1        Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley
             Act of 2002.                                                                                                    (2)
 32.2        Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley
             Act of 2002.                                                                                                    (2)
101.INS      XBRL Instance Document                                                                                          (3)
101.SCH      XBRL Taxonomy Extension Schema                                                                                  (3)
101.CAL      XBRL Taxonomy Extension Calculation                                                                             (3)
101.DEF      XBRL Extension Definition                                                                                       (3)
101.LAB      XBRL Taxonomy Extension Label                                                                                   (3)
101.PRE      XBRL Taxonomy Extension Presentation                                                                            (3)
                                                                - 56 -
                                        THE CHARLES SCHWAB CORPORATION
Exhibit
Number          Exhibit

(1) Management contract or compensatory plan.
(2) Furnished as an exhibit to this Quarterly Report on Form 10-Q.
(3) Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 are the
    following materials formatted in XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of
    Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance
    Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial
    Statements.
                                                             - 57 -
                                           THE CHARLES SCHWAB CORPORATION
                                                            SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

                                                                          THE CHARLES SCHWAB CORPORATION
                                                                                                (Registrant)


Date: November 6, 2012                                                              /s/ Joseph R. Martinetto
                                                                                    Joseph R. Martinetto
                                                                                    Executive Vice President and Chief Financial
                                                                                    Officer
                                                                 - 58 -
                                                                                                            Exhibit 10.298

Directed Employee Benefit Trust Agreement
This TRUST AGREEMENT (the “Agreement”) is entered into by and between the company identified on the Execution
Page (the “Company”) and THE CHARLES SCHWAB TRUST COMPANY (the “Trustee”). The Agreement relates to the
trust portion of the retirement plan (the “Plan”) and trust identified on the Execution Page which has been established by
the Company for the benefit of its employees and to the account established by the Trustee under this Agreement to hold
the account assets transferred by the Company to the Trustee (the “Account”), if any. This Agreement is effective on the
date it is accepted by the Trustee.

PURPOSE OF TRUST FUND

The Company adopted the Plan for the exclusive purpose of providing benefits to certain of its employees and their
beneficiaries and defraying reasonable expenses of administering the Plan. The Plan provides that, from time to time,
cash and other assets may be paid to the Trustee by the Company to be held and administered as a trust for the uses
and purposes of the Plan. The Company intends that the Plan will qualify under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the “Code”), and that the Trust will constitute a part of the Plan, as a tax-exempt entity within
the meaning of Code Section 501(a).

The Company and the Trustee enter into this Agreement whereby the Company appoints Trustee as the trustee of the
cash, marketable securities, and other property acceptable to the Trustee (as described in Article 2.5) which may be
contributed by Company from time to time to the Trust Fund. The Trustee will have no duties or responsibilities with
respect to any property other than cash, marketable securities, and other property accepted by the Trustee. The Charles
Schwab Trust Company agrees to act as the Trustee of the Trust according to the terms and conditions of this
Agreement.

The parties agree that the Trustee will (i) establish an account to hold the trust assets transferred by the Company to the
Trustee hereunder (the “Trust Fund” or “Trust”), (ii) provide safekeeping and custody of and administer trust assets held
in such Trust Fund, and (iii) perform the functions and duties assigned to it under this Agreement subject to the
Company’s directions. The Trustee will act only at the direction of the Company or a party authorized to act on the
Company’s behalf. The Trustee has no authority to take any discretionary action and does not exercise discretionary
authority or control with respect to Plan assets. The Company warrants and represents that all directions provided to the
Trustee will be in conformity with the terms of the applicable Plan and related documents governing the establishment
and operation of the Trust Fund, including, this Agreement (“collectively, the “Plan Documents”), and acknowledges and
agrees that the Trustee shall have no liability or responsibility in this regard.

The Company warrants and represents that the transfer of custody of the Trust Fund to the Trustee hereunder and the
maintenance of custody by Trustee is authorized by the Plan Documents. Furthermore, the Company warrants and
represents that any such Plan Documents are in full force and effect and have not been revoked, modified or amended in
any way that would cause the representations made in this Agreement to be inaccurate or incorrect. The Company
confirms that it is authorized to enter into this Agreement and to carry out all of its duties as described in this Agreement.

The Trustee is subject to the Company’s directions given in accordance with this Agreement. The Company’s directions
may be given by (i) resolution of the Company, (ii) one or more individuals designated by the Company to act on the
Company’s behalf, or (iii) any other person authorized in writing by the Company or such designated individual(s). The
Company will notify the Trustee of the identity of any person(s) authorized to act on its behalf from time to time and will
timely notify the Trustee of any person who ceases to be authorized to act and any person who becomes authorized to
act. The Trustee will be entitled to rely in good faith on directions received from such authorized person(s) until notified by
the Company to the contrary, and the Company acknowledges and agrees that the Trustee shall have no liability or
responsibility in this regard.
                                                                                                                  Page 2 of 24


ARTICLE 1
CONTRIBUTIONS AND DISTRIBUTIONS
1.1 Plan Administrator Directions. The Company will be the Plan Administrator. The Company, by action of its
governing body (the Board of Directors for a corporation, the partnership for a partnership, collectively the “Governing
Body”) will have the right to appoint and empower any other person(s) or entity to serve as Plan Administrator, or to serve
on the Plan administrative committee (collectively the “Administrator”) on its behalf. The Company appointing the
Administrator will inform the Trustee of the appointment by providing it with a copy of the appropriate resolution from the
Company’s Governing Body. The Company will notify Trustee of the name(s) of the Administrator as of the date of this
Agreement and will inform Trustee of any subsequent change. In the absence of such notification, the Company will be
the Administrator. The Administrator will be the Plan’s named fiduciary unless the Company designates other persons
who are authorized to act as or on behalf of the Plan as named fiduciary and so informs the Trustee in writing.

The Administrator may delegate to any other person or persons any of the Administrator’s rights, powers or
responsibilities with respect to the operation and administration of the Trust Fund. The Company or the Administrator will
identify in a written notice to the Trustee the identity of the person(s) authorized to give directions to the Trustee on behalf
of the Administrator. Such notice will contain specimens of the authorized signatures and will indicate the number of
authorized persons required to effect Trustee action. The Trustee will be entitled to rely upon such written notice as
evidence of the identity and authority of the persons appointed. Unless otherwise set forth in this Agreement, for
purposes of this Agreement, any reference to the Administrator will include the delegates of the Administrator.

The Company will provide the Trustee with copies of all Plan or other documents required by the Trustee at or before the
time this Agreement is executed by the Company and will provide the Trustee all other documents amending or
supplementing the Plan promptly upon their adoption. The Company or the Plan Administrator, as applicable, will provide
the Trustee with copies of all agreements with all agents, including any investment managers, appointed by the Company
(each an “Investment Manager”) or the Plan Administrator and all other documents amending or supplementing such
agreements.

Directions from the Administrator to the Trustee will be in writing and signed by the Administrator or persons authorized
by the Administrator or may be made by any other method acceptable to the Trustee, including direction by facsimile
transmission, electronically, including e-mail, the Internet, intranet systems and automated telephonic response systems
to the extent permitted by law, the terms of the Plan as communicated by the Administrator to the Trustee (upon which
communication the Trustee shall entitled to rely, without duty or inquiry or investigation), the Trustee and the terms of this
Agreement, under procedures agreed to by the Trustee and the Administrator.

1.2 Contributions. The Company will deliver contributions or transfers required by the Trust Agreement to the Trustee for
inclusion in the Trust Fund. All contributions or transfers will be received by the Trustee in cash or in other property
acceptable to the Trustee (as described in Article 2.5). The Trust Fund will consist of the contributions and transfers
received by the Trustee, together with the income on and increment in such assets. The Trustee will manage and
administer the Trust Fund without distinction between principal and income.

The Trustee has no responsibility to (i) monitor or enforce contributions required or permitted by the Plan Documents,
(ii) compute the required amount of such contributions, (iii) determine whether the Trust Fund is sufficient to provide
benefits described in the Plan Documents, or (iv) determine whether contributions actually made comply with the Plan
Documents, the governing Plan documents, or, for any Account established on behalf of a Trust Fund subject to the
Employee Retirement Income Security Act of 1974 (“ERISA”) (an “ERISA Account”), the Internal Revenue Code of 1986,
as amended (the “Code”) or the regulations promulgated thereunder. Contributions normally will be made by wire transfer
of cash or by check, or in the form of property acceptable to the Trustee.
                                                                                                               Page 3 of 24


1.3 Rollover Contributions. At the written direction of the Administrator, the Trustee will accept a rollover contribution to
the Trust Fund on behalf of an employee eligible to make such a contribution. Such contributions will consist of cash or
other property otherwise accepted by the Trustee. The Administrator will be solely responsible for determining:

      (a)   Where applicable, that such contributions constitute eligible rollover contributions within the meaning of
Code Section 402(c)(4) or 408(d)(3);
       (b) Whether the employee making the contribution is eligible to do so because he or she is either a participant
or an eligible employee who is about to become a participant; and

       (c) Where applicable, that the contribution was distributed from an employee benefit plan qualified under Code
Section 401(a), a Code Section 403(b) plan, a governmental deferred compensation plan under Code Section 457, from
an individual retirement account or annuity described in Code Section 408, or from any other plan from which it is
appropriate to accept rollover contributions.
The Trustee will accept such contributions from the Administrator or, at the direction of the Administrator, in a trustee-to-
trustee transfer directly from the trustee of the employee benefit Plan from which the distribution is made.

1.4 Collection of Income and Principal. The Trustee will collect the income when paid on Trust Assets and principal of
Trust Assets when paid on maturity, redemption, sale or otherwise and invest it in accordance with Articles 2 and 3. The
Trustee will make reasonable efforts to diligently collect income and principal of which the Trustee has received actual
notice in accordance with normal industry practices. The Trustee will be under no duty to take any action to effect
collection of any amounts with respect to which payment is in default, or if payment is refused after due demand. The
Trustee will notify the Company or the investment manager appointed in accordance with Article 2.4 (an “Investment
Manager”) of any default or refusal to pay.

1.5 Payments and Distributions. At the written direction of the Administrator, the Trustee will from time to time make
distributions or transfers from the Trust as specified in such written directions, including distributions for the payment of
reasonable Plan expenses. The Trustee will have no liability for making any distribution or transfer directed by the
Administrator and will be under no duty to inquire whether directions from the Administrator conform to Plan provisions,
the Code, ERISA or regulations promulgated thereunder.

The Administrator will furnish to the Trustee all information necessary to enable the Trustee to withhold from each
distribution the amount necessary to pay Federal and state income taxes due. If the Administrator fails to provide
adequate tax withholding information, the Trustee will have no obligation to withhold any amount to cover the payment of
such taxes. However, the Trustee may, in its sole discretion, and to the extent required under applicable law, withhold
from any distribution to any payee such sum as the Trustee may reasonably estimate is necessary to cover required
Federal and state taxes which are, or may be, assessed with regard to the amount distributable to such payee. Upon the
discharge or settlement of such tax liability the Trustee will pay the balance of such sum, if any, to such payee.
If the Administrator directs that any payment or payments be made or discontinued contingent upon future events, it will
be the responsibility of the Administrator to notify the Trustee in writing that such event has occurred, that such payments
should be made or discontinued, and that any payments made by the Trustee prior to the date of such notification will, as
to the Trustee, be proper payments.

Payments by the Trustee will be delivered or mailed to addresses supplied by the Administrator, or if the Administrator
does not provide an address, to the recipient in care of the Administrator. The Trustee’s obligation to make such
payments will be satisfied upon such delivery or mailing. The Trustee will have no obligation to determine the identity of
persons entitled to benefits or their mailing addresses.
                                                                                                                Page 4 of 24


If the payment made to a participant or beneficiary is returned to the Trustee, or if the payment is not perfected within
such time limits as the Trustee in its sole discretion may determine from time to time, the Trustee will inform the
Administrator or its authorized agent acting on its behalf. It will be the responsibility of the Administrator or such
authorized agent acting on its behalf to instruct the Trustee on the proper disposition of the payment under the terms of
the Plan, and the Trustee will have no obligation to take any further action with respect to such payment absent such
instructions.

1.6 Participant Loans and Qualified Domestic Relations Orders. If the Plan authorizes loans to Plan participants, the
Trustee will issue such loans from the Trust at the direction of the Administrator. The Administrator will issue directions to
Trustee in accordance with the terms of the loan policy drafted by the Administrator. The Plan’s loan policy is contained in
a separate agreement established under the terms of the Plan. Likewise, Trustee will make payments pursuant to
domestic relations orders only at the direction of the Administrator. Administrator will be responsible for establishing
written procedures to evaluate and administer the payment of benefits under domestic relations orders as required under
the Code and ERISA.

The following provisions apply with respect to any participant loans (“Loans”) made from the Plan and domestic relations
orders (“DROs”) received by the Plan.

       (a)   Loans will be made pursuant to a request furnished to the Trustee by the Administrator.
         (b) The Trustee will have no responsibility for reviewing any documentation concerning Loans, including without
limitation the loan policy, any promissory notes, federal truth-in-lending disclosure forms and spousal consent forms
(collectively “Loan Documents”) for compliance with applicable state and Federal laws. The Trustee will have no
responsibility for holding any Loan Documents. Administrator will be solely responsible for reviewing and maintaining all
Loan Documents.

         (c) The Administrator will perform all accounting required for all Loans, including the establishment thereof and
all renewals and payments thereon. The Administrator will promptly transmit any payments on Loans to the Trustee and
will transmit to the Trustee such information as is necessary for the Trustee to properly account for all such payments. In
the event of the failure of a participant to make any timely repayment on a Loan, the Administrator will instruct the Trustee
with respect to all matters surrounding such failure, including without limitation whether to declare the loan in default and
whether to treat the loan as a deemed distribution for purposes of tax reporting. The Trustee will not have any
responsibility to declare a Loan in default absent any instructions to do so from the Administrator.

       (d)    The Trustee will establish a single master loan record on its books and records to represent the Plan’s
Loans. The Trustee will process disbursements, renewals and payments on its books and records on an aggregate (not a
per participant) basis against this master loan record.

       (e) The Administrator will be solely responsible for determining whether any Domestic Relations Orders (DRO)
received by the Plan constitutes a “qualified domestic relations order” within the meaning of Code Section 414(p)
(“QDRO”). The Trustee will not have any responsibility to make such determination.
       (f)   When the Trustee receives a direction from the Administrator to make any payment to an alternate
beneficiary under a DRO, the Trustee will be entitled to treat such direction as having been made following a
determination by the Administrator (pursuant to its written procedures) that the DRO constitutes a QDRO.

       (g) The Trustee will have no administrative obligations with regard to Loans or DROs other than as specifically
provided herein.

1.7 Trustee’s Reliance on Administrator’s Directions. The Trustee may rely upon directions from the Administrator in
making payments from the Trust Fund, including payments pursuant to a domestic relations order determined by the
Administrator to be qualified within the meaning of Code Section
                                                                                                                  Page 5 of 24


414(p), or payments made to satisfy taxes due. The Trustee will have no liability for payments made, or for failure to
make payments, or for discontinuing payments, on the direction of the Administrator. The Trustee will have no liability for
failure to make payments from the Trust in the absence of proper written directions from the Administrator.

The Trustee may request instructions from the Administrator and will have no duty to act or liability for failure to act if such
instructions are not forthcoming from the Administrator. If requested instructions are not received within a reasonable
time, the Trustee may, but is under no duty to act in its own discretion to carry out the provisions of this Agreement.

1.8 Disputed Payments. If any controversy or disagreement arises regarding any payment from the Trust Fund or the
person(s) to whom payment or delivery of any asset should be made by the Trustee, the Trustee may retain the assets
involved without liability pending settlement of the controversy or disagreement and/or require that such controversy or
disagreement be adjudicated pursuant to arbitration as provided in Article 9.5. The Trustee will not be liable for the
payment of any interest or income on such assets that it retains pursuant to the instruction of an arbitrator. The Trustee
may consult its legal counsel or legal counsel of the Company and will be protected to the extent permitted by law in
acting upon advice of counsel.

ARTICLE 2
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION

2.1 Administrator Direction of Investments. Except as provided in Articles 2.3 and 2.4 below, the Administrator will
have complete authority over and responsibility for the management, disposition, and investment of Trust assets. The
Trustee will comply with proper written directions of the Administrator concerning those assets. The Administrator will not
issue any direction to the Trustee that would violate the terms of the Plan and Trust, or be prohibited by the provisions of
ERISA, the Internal Revenue Code, and/or any other applicable law, rules and regulations, including but not limited to the
provisions of Section 404 and 406(b) of ERISA and the regulations promulgated thereunder and will provide the Trustee
with supportive documentation to such effect upon reasonable request. Except as required by ERISA or otherwise
provided in this Agreement the Trustee will have no duty or responsibility to review, initiate action, or make
recommendations regarding Trust assets and will retain assets until directed in writing by the Administrator to dispose of
them.

2.2 Funding Policy. Except to the extent that the Administrator: (i) determines that its authority and responsibility is
limited by Section 404(c) of ERISA or (ii) has properly delegated its authority and responsibility to a third party, the
Administrator will be responsible for establishing and carrying out a funding policy and method for the Plan, as specified
in Section 402(b)(1) of ERISA, consistent with the objectives of the Plan and the requirements of ERISA and taking into
consideration the Plan’s short-term and long-term financial needs. The Administrator acknowledges and agrees that it
shall be its responsibility and liability, and not that of the Trustee, to determine whether or not it is responsible for
establishing and carrying out a funding policy and method in light of the application of (i) or (ii) above.
The Trustee will not be responsible for establishing the Plan’s funding policy or for ensuring adherence to the policy, nor
will the Trustee be responsible for the proper diversification of the Trust Fund. Except to the extent that the Administrator:
(i) determines that its authority and responsibility is limited by Section 404(c) of ERISA or (ii) has properly delegated its
authority and responsibility to a third party, the Administrator will be responsible for the Plan’s funding policy, for the
diversification of Trust Fund assets, and for the Trust Fund’s compliance with statutory limitations on the amount of
investment in securities or other property of the Company, or its affiliated companies.

2.3 Participant Direction of Investments. If permissible under the Plan, each participant and/or beneficiary may have
investment power over the account maintained for him or her, and may direct the investment and reinvestment of assets
of the account among the options authorized by the Administrator. Such direction shall be furnished to the Trustee in
writing under procedures agreed to by the Trustee and the Administrator. To the extent provided under ERISA section
404(c), the Trustee shall not be liable for
                                                                                                                Page 6 of 24


any loss, or by reason of any breach, which results from such participant’s or beneficiary’s exercise of control. If a
participant who has investment authority under the terms of the Plan fails to provide such directions, the Administrator
shall direct the investment of the participant’s accounts. The Administrator shall maintain records showing the interest of
each participant and/or beneficiary in the Trust Fund unless the Trustee enters into an agreement with the Company to
keep separate accounts for each such participant and/or beneficiary. The Trustee shall have no duty or responsibility to
review or make recommendations regarding investments made at the direction of the Administrator or participant and
shall be required to act only upon receipt of proper written directions. A participant or beneficiary shall not have authority
to direct the investment of assets in his or her account in a loan to any participant, including himself or herself, or
“collectibles” within the meaning of Code section 408(m)(2).

For Plans that permit a participant to direct the investment of his or her account assets, the Trustee will, upon written
instructions from the Administrator, establish on behalf of a participant or beneficiary a Schwab Personal Choice
Retirement Account™ (“PCRA Account”) at Charles Schwab & Co., Inc. (the “Broker/Dealer”). Such Account will be used
to segregate the non-core assets representing the value of an individual participant’s or beneficiary’s account(s) under
the Plan. The participant or beneficiary will be allowed to manage the investment of the assets in his or her PCRA
Account and will be solely responsible for any loss resulting from his or her exercise of control over the assets segregated
into his or her PCRA Account.

2.4 Investment Manager Direction of Investments. The Administrator may appoint one or more investment managers
within the meaning of Section 3(38) of ERISA (each, an “Investment Manager”) to direct, control or manage the
investment of all or a portion of the Trust assets, as provided in Sections 3(38) and 403(a)(2) of ERISA, such assets to be
held either in an account directly held by the Trustee or in a managed account portfolio established by the Trustee, at the
direction of the Administrator, and held by a sub-custodian or broker-dealer (each, a “Sub-Custodian”) appointed by the
Trustee in its sole discretion. The Administrator may remove an Investment Manager and may appoint a replacement
Investment Manager. The Administrator will promptly notify the Trustee in writing of the appointment or removal of each
Investment Manager and/or of the establishment of a managed account portfolio. The Trustee acknowledges that it will
have responsibility for notifying any applicable Sub-Custodian of the revocation of the investment responsibility held by an
Investment Manager, the appointment of a successor Investment Manager, and/or the termination of a managed account
portfolio. Any notification from the Administrator confirming the appointment of an Investment Manager or the
establishment of a managed account portfolio to be held by a Sub-Custodian will include a designation of those assets
and/or managed account portfolios over which the Investment Manager will exercise control.

The Administrator will cause the Investment Manager to acknowledge to the Trustee in writing that the Investment
Manager is registered as an investment advisor under the Investment Advisors Act of 1940 with respect to the
performance of its duties in connection with the Plan and is an investment manager as that term is defined by the
Section 3(38) of ERISA and, as such, is a fiduciary with respect to the Plan. If the foregoing conditions are met, the
Investment Manager will have the power to manage, acquire, or dispose of any Trust assets, or any account portfolio
holding any Trust assets, designated as subject to such Investment Manager’s control. The Trustee will not be liable for
acts or omissions of the Investment Manager, or be under any obligation to invest or otherwise manage any asset of the
Trust, or any account portfolio holding any asset of the Trust, that is subject to the management of such Investment
Manager.

The Trustee and/or any Sub-Custodian will act only upon receipt of proper written directions from the duly appointed
Investment Manager or by any other method acceptable to the Trustee. The Trustee will have no liability to review or
question any such directions.

The Company acknowledges and agrees that the establishment of a managed account portfolio to be held by a Sub-
Custodian appointed by the Trustee as described herein is subject to additional fees as set forth in Article 6.2,
SchwabPlan® Services Agreement (by and between Charles Schwab & Co., Inc. and Schwab Retirement Plan Services,
Inc., effective October 1, 1998, as amended from time to time) and the applicable fee schedules defined therein.
                                                                                                              Page 7 of 24


2.5 Acceptable Investments. Depending on the Trustee’s ability to support and administer the asset, the Trustee’s
powers and duties over the asset, the type of account, the business risk, and other factors, the Trustee will accept (which
acceptance shall not be unreasonably withheld) assets for acquisition or holding in the Trust, including in a participant’s
PCRA Account as described under Article 2.3. The Administrator directing such investments (the “Directing Party”) shall
be solely responsible for determining whether the investment is appropriate, prudent and permissible under ERISA, the
Internal Revenue Code, and any other applicable law, rules, and regulations, whether the investment is permissible under
the terms of the Plan Documents, the economic viability of the underwriter, and diversification of Trust Fund assets. The
Trustee does not (i) exercise investment management powers over the Trust Fund, or (ii) determine whether a particular
investment decision made by the Administrator fits the investment objectives of the Trust Fund or is otherwise appropriate
for the Trust Fund.

Subject to the foregoing subjective criteria, and to other policies and procedures that may be issued by the Trustee from
time to time, the following types of assets are ordinarily acceptable in the Trust Fund:

    (a)   Cash

    (b)   Publicly traded stock listed on a U.S. stock exchange or regularly quoted over-the-counter

    (c)   Publicly traded bonds listed on a U.S. bond exchange or regularly quoted over-the-counter

    (d)   Mutual funds available through the Charles Schwab & Co., Inc. Mutual Fund Marketplace
     (e) Registered limited partnership interests, REITs and similar investments listed on a U.S. stock exchange or
regularly quoted over-the-counter

     (f)   Commercial paper, bankers acceptances eligible for rediscounting at the Federal Reserve, repurchase and
reverse repurchase agreements and other “money market” instruments for which trading and custodial facilities are
readily available

    (g)   U.S. Government and U.S. Government Agency issues

    (h)   Municipal securities whose bid and asked values are readily available
      (i) Federally insured savings accounts, Certificates of Deposit and Bank Investment Contracts. The Directing Party
is responsible for determining Federal insurance coverage and limits and for diversifying Trust Fund assets in accordance
with those limits.

    (j)  American Depository Receipts, Eurobonds and similar instruments listed on a U.S. exchange or regularly
quoted domestically over-the-counter for which trading and custodial facilities are readily available.

     (k) Life insurance, annuities, and Guaranteed Investment Contracts issued by insurance companies licensed to do
business in one or more states in the U.S.

     (l)   The securities of The Charles Schwab Corporation, its affiliates and subsidiaries. These securities may be
subject to legal and regulatory prohibitions or restrictions and are not permitted to be held in PCRA Accounts.

Notwithstanding the above, the Company understands that in certain circumstances a particular investment may be
determined by the Trustee to be unacceptable, even though it would be acceptable in other instances.

Subject to the Trustee’s administrative capabilities and its sole determination of the business risk involved in holding the
particular asset in question, a direction to invest the Trust Fund (including a participant’s PCRA Account) in the following
types of assets may be acceptable:
                                                                                                              Page 8 of 24


    (a)   Unregistered Limited Partnerships
    (b)    Other unregistered securities, closely held stock and other securities for which there is no readily available
market

    (c)   Loans secured by First Deeds of Trust
    (d)   Other secured loans
    (e)   Foreign securities for which trading and custodial facilities are readily available.

    (f)   Covered put and call options (if held in self-directed brokerage accounts and authorized by the Administrator)
Certain of the above types of assets are not publicly traded, and original and/or current cost basis and periodic valuations
may not be readily available. For such assets (each a “Non-Standard Asset”) accepted by the Trustee for acquisition or
holding in the Trust Fund, including in a PCRA Account, the Company acknowledges and agrees:

     (a) To consult with competent tax, accounting, and/or legal counsel with respect to the requirements applicable to
periodic valuations of such assets and to comply with such requirements, in particular as these impact the Company’s
provision of directions to the Trustee with respect to such valuations.

     (b) To provide the Trustee with directions with respect to the use of original and/or current cost basis with respect
to each Non-Standard Asset, whenever such direction is requested by the Trustee or its affiliate, including but not limited
to the time of transfer of such assets to the Trust.

    (c)   To provide the Trustee with appropriate directions regarding the valuation of each Non-Standard asset in
accordance with Article 4.3 herein.

     (d) In the event that unrelated business taxable income (“UBTI”) is generated with respect to any Non-Standard
Asset, to provide full and accurate information with respect to such UBTI as is necessary for the reporting of such UBTI.
Should any applicable UBTI information not be provided to the Trustee, the Company acknowledges that the Trustee
shall not have any responsibility or liability for, and shall not make any federal tax reports or filings that require, the
reporting or inclusion of this information.

     (e) To the extent that any legal documents required to effectuate the acquisition or holding of any Non-Standard
Asset requires execution by a third party, including but not limited to a participant or beneficiary, the Company agrees to
provide such properly executed documents to the Trustee upon request within a reasonable timeframe prior to the
transaction.

The Company understands that the Trustee reserves the right to refuse to purchase or hold any particular issue or asset
described herein, including Non-Standard Assets. The Company acknowledges and agrees that the purchase and
holding of any such assets may be subject to additional fees as set forth in the SchwabPlan® Services Agreement. In
addition, notwithstanding any general indemnity given elsewhere, the Trustee reserves the right to seek specific
indemnity from the Company or other appropriate parties where the Trustee determines in its sole discretion that the
acquisition or holding of a particular asset or class of asset involves unusual business risk.

2.6 Unacceptable Investments.

The following assets are unacceptable in the Trust Fund:
    (a)   General partnerships or undivided interests in real property
                                                                                                               Page 9 of 24


    (b)   Tangible personal property (e.g., precious metals, gems, works of art, stamps, coins, furniture and other
household items, motor vehicles, etc.)

     (c)   Real estate

     (d)   Foreign currency and bank accounts
     (e)   Short sales
     (f)   Commodity futures and forward contracts

     (g)   Oil, gas and mineral interests
     (h)   Intangible personal property (e.g., patents and rights)
     (i)   Unsecured loans

2.7 Limitation on Liability. The Trustee will not be liable in any way for any loss resulting from a cause over which it
does not have direct control and with respect to which it cannot make reasonable arrangements to mitigate, including, but
not limited to, any failure of electronic or mechanical equipment or communication lines, telephone or other interconnect
problems or unauthorized access, strikes or other labor disputes, acts of God, fire, war or civil strife.

2.8 Indemnification. Trustee will not be liable for any act or failure to act carried out in good faith reliance on any
representation of the Administrator. Except in the event that the Trustee has breached its duties under this Agreement
due to its negligence or willful misconduct, the Company and to the extent permitted under ERISA, the Plan, will
indemnify and hold harmless the Trust Fund, the Trustee, and its officers, employees, affiliates and agents from and
against all liabilities, losses, expenses, and claims (including reasonable attorney’s fees and costs of defense) arising out
of:

     (a)    Any action or inaction by the Trustee in accordance with the written directions (or the absence of such
directions) from the Company, the Administrator, the third party administrator (the Plan’s “Recordkeeper”), an Investment
Manager, a participant, beneficiary, or alternate payee under a QDRO pursuant to Article 1.6 and any person authorized
to act on behalf of one or more of them (a “Directing Party”);

     (b)    Any action or inaction by the Trustee that results from the Trustee’s good faith reliance on the action or
inaction of a Directing Party, including any such action related to directions to invest Trust assets or otherwise deal with
Plan assets;

     (c)   With respect to a direction to invest in Non-Standard Assets:
         (i) The Trustee’s inability to invest, re-invest, liquidate or collect income received with respect to such Non-
     Standard Assets;

          (ii) The Trustee’s use of any cost basis, unit or share, UBTI, and/or valuation information provided to it in
     accordance with its acceptance of such Non-Standard Assets or the Company’s directions to the Trustee regarding
     such information, including, but not limited to: (1) use of a prior annual valuation amount where a subsequent
     valuation amount has not yet been obtained or for which directions from the Company have not yet been provided to
     the Trustee; (2) the Company provision of an improper or incorrect valuation amount to the Trustee, (3) the failure of
     the Company to provide a valuation direction to the Trustee;
                                                                                                             Page 10 of 24


         (iii) The investment, reinvestment, reporting, disclosure, liquidation and distribution under the Plan of and with
     respect to participant and beneficiary contributions and benefits based on such cost basis, unit or share, UBTI,
     and/or valuation information.

    (d) The Trustee’s execution of it duties under this Agreement in good faith, except in the event of the Trustee’s
breach of its duties under this Agreement due to its own negligence or willful misconduct;

     (e)   The acts or omissions to act with respect to the Plan or Trust by a Directing Party;

     (f)   Any violation by a Directing Party of the provisions of ERISA or the regulations thereunder;
    (g)    Any violation by a Directing Party of the terms of the Plan Documents, instruments, investment policies or
guidelines (“Plan Documents”); or

     (h)   Any breach of the representations and warranties of Article 2.9 of this Agreement.

For purposes of this Article, “affiliate” will mean any member of a controlled group of corporations or a group of trades or
businesses under common control, within the meaning of Section 414(b) and (c) of the Code of which the Trustee is a
member.

Expenses incurred by the Trustee that it believes are subject to indemnification under this Agreement will be paid by the
Company upon the Trustee’s request, provided that the Company may delay payment of any amount in dispute until such
dispute is resolved according to the provisions of Article 9.5 of the Agreement. Such resolution may include the award of
interest on unpaid amounts determined to be payable to the Trustee under this Article.

If the Trust ceases to be a tax-exempt trust under Section 401 and Section 501 of the Code, the Company will indemnify
the Trustee for any Federal or state taxes which the Trustee is required to pay as a result of any distribution made at the
direction of the Administrator and the Company will be subrogated to the right of the Trustee to proceed against any
person or decedent’s estate benefiting from such tax payment.

Each party must notify the other promptly in the event that a claim has been made and/or suit has been brought which
could give rise to rights under this Article.

All indemnities provided herein will survive termination of this Agreement.
2.9 Representations and Warranties

The Company represents and warrants as follows:
     (a) there are no Plan Documents that limit the investments of the Plan, the powers of the Trustee, or the ability to
pay expenses out of the Plan that have not been provided to the Trustee and in the event any Plan Document is modified
to impose such a limitation, the modified Plan Document will be provided by the Company to the Trustee within fifteen
days of the adoption of the modification;

     (b) no direction will be issued by the Company or the Administrator to the Trustee in violation of the terms of the
Plan Documents, this Agreement, or ERISA or the regulations thereunder;

     (c)   it maintains and follows procedures for identifying prohibited transactions as defined under ERISA and
applicable ERISA exemptive relief;

     (d) no direction will be issued by the Company or the Administrator to the Trustee that will result in a non-exempt
prohibited transaction under ERISA or the Code;

     (e) it will provide the Trustee with appropriate direction in the event the Company discloses material non-public
information concerning the Company to the Trustee; and
                                                                                                                 Page 11 of 24


      (f) there are no existing SEC Form 8-K filings that disclose material information regarding the Company’s financial
condition or operation that would call into question the Company’s ability to continue as a going concern, bankruptcy
filings or formal civil or criminal charges filed against the Company or its officers or directors by federal or state regulators
other than those that have been disclosed to the Trustee by the Company, and in the event any such filing is made, the
Company will provide the Trustee with a copy of such filing within fifteen days.

ARTICLE 3
TRUST INVESTMENTS AND TRUSTEE POWERS

3.1 Powers of the Trustee. The Trustee will not have any discretion or authority with regard to the investment of the
Trust Fund, but must act solely as a directed trustee of the funds contributed to it. As a directed trustee, the Trustee is
authorized and empowered, by way of limitation, with the following powers, rights and duties, each of which the
nondiscretionary Trustee exercises solely in accordance with the written direction of the Administrator, its delegate,
properly authorized participants (as described in Article 2.3), or a properly appointed Investment Manager (as described
in Article 2.4):

      (a)    To invest any part or all of the Trust Fund in common stock, preferred stock, convertible preferred stock,
bonds, debentures, convertible debentures and bonds, mortgages, notes, time certificates of deposit, commercial paper
and other evidences of indebtedness (including those of the Trustee, The Charles Schwab Corporation (the “Public
Company”), the Broker/Dealer, their affiliates and subsidiaries, to the extent permitted under applicable laws), other
securities, annuity contracts, mutual funds (including those advised by the Trustee or its affiliate(s), to the extent
permitted by law, for which the Company hereby acknowledges that the Trustee or its affiliate(s) receives a fee), covered
calls and protective puts, U.S. Treasury notes and any other direct or indirect obligations of the United States government
or its agencies, other property of any kind (personal, real, or mixed, and tangible or intangible), collective investments (as
described in Article 3.2), insurance contracts of any type (as described in Article 3.3), limited partnerships (if provided with
documentation which the Trustee in its sole discretion deems adequate), securities issued by the Company (as described
in Article 3.4), and to make any other investments as directed.

    (b) To collect income generated by the Trust Fund investments and proceeds realized on the sale or disposition of
assets and to hold the same pending reinvestment or distribution in accordance with this Agreement;
     (c)   To register Trust Fund property in the Trustee’s own name, in the name of a nominee or in bearer form,
provided the Trustee’s records and accounts show that such property is an asset of the Trust Fund;

     (d) To deposit securities in a security depository and permit the securities so deposited to be held in the name of
the depository’s nominee, and to deposit securities issued or guaranteed by the U.S. Government or any agency or
instrumentality thereof, including securities evidenced by book entry rather than by certificate, with the U.S. Department
of the Treasury, a Federal Reserve Bank or other appropriate custodial entity, in the same account as the Trustee’s own
property, provided the Trustee’s records and accounts show that such securities are assets of the Trust Fund;

     (e)   To retain the property in the Trust;
     (f) To sell Trust assets, at either public or private sale, at such time or times and on such terms and conditions as
it may deem appropriate;

     (g) To consent to or participate in any plan for the reorganization, consolidation, or merger of any business unit,
any security of which is held in the Trust Fund, to pay calls and assessments imposed upon the owners of such securities
as condition of their participating therein, and to consent to any contract, lease, mortgage, purchase or sale of property,
by or between such business unit and any other party;
                                                                                                               Page 12 of 24


       (h)   To renew or extend the time of payment of any obligation due or becoming due;
       (i) To compromise, arbitrate (subject to the restrictions of Article 9.5), or otherwise adjust or settle claims in
favor of or against the Trust and to deliver or accept consideration in either total or partial satisfaction of any
indebtedness or other obligation, and to continue to hold property so received for the period of time that the Trustee
deems appropriate;

       (j)  To exercise or dispose of any right it may have as the holder of any security, to convert the same into
another security, to acquire any additional security or securities, to make any payments, to exchange any security, or to
do any other act with reference thereto;

       (k)   To exchange any property for other property upon such terms and conditions as the Trustee may deem
proper, and to give or receive money to effect equality in price;

       (l) To sue or defend in connection with any and all securities or property at any time received or held in the
Trust Fund and to charge against the Trust Fund all reasonable expenses, including attorney’s fees in connection
therewith;

       (m) To borrow money from any source (including the Trustee) and to execute promissory notes, mortgages or
other obligations and to pledge or mortgage any Trust assets as security, subject to applicable requirements of the Code
and ERISA;

      (n) To deposit any security with any protective or reorganization committee, and to delegate to that committee
such power and authority as the Trustee may deem proper, and to agree to pay out of the Trust Fund that portion of the
expenses and compensation of that committee as the Trustee may deem proper;

       (o) To have, respecting securities, all the rights, powers and privileges of an owner, including the power to give
proxies, pay assessments and other sums deemed by the Trustee to be necessary for the protection of the Trust Fund, to
vote any corporate stock either in person or by proxy, with or without the power of substitution;

       (p)   To appoint agents as necessary or desirable, including legal counsel who may be counsel for the Company;

       (q) To the extent permitted under applicable laws, to invest in savings accounts, certificates of deposit or other
deposits which bear a reasonable interest rate in a bank, including those of the Trustee, the Charles Schwab Bank, N.A.,
or any affiliate or subsidiary, if such bank is supervised by the United States or any state;

      (r) To hold in cash, without liability for interest, such portion of the Trust Fund which, in its discretion, will be
reasonable under the circumstances, pending investments, the payment of expenses, or the distribution of benefits;

      (s)   To lend securities from the Trust on a secured basis in accordance with a separate written agreement
between the Administrator, the Trustee, and its affiliates; and

         (t) To exercise all of the further rights, powers, options and privileges granted, provided for, or vested in trustees
generally under the laws of the State of California, so that the powers conferred upon the Trustee herein will not be in
limitation of any authority conferred by law, but will be in addition thereto.

3.2 Collective Investment Funds. The Trust Fund may be invested and reinvested, in whole or in part, in any common
or collective investment fund (the “Collective Fund” or “Fund”) maintained by the Trustee or an investment manager
exclusively for the commingling and collective investment of assets of qualified retirement plans and tax-exempt trusts in
which the Trust Fund is eligible to participate. The documents
                                                                                                               Page 13 of 24


establishing or amending these trusts are hereby incorporated by reference into this Agreement. Notwithstanding any
other provision of this Agreement, to the extent Trust Fund assets are invested in a Collective Fund, the terms of the
Fund’s governing instrument will govern the investment responsibilities and powers of the entity responsible for
management of the Collective Fund (the “Fund Manager”). The market value of the Trust Fund’s interest in any Collective
Fund will be the fair market value of the interest as determined by the Fund Manager in accordance with the Fund’s
governing instrument. For purposes of valuation of Trust Fund assets, the Trustee will be entitled to rely conclusively on
the value reported by the Fund Manager.

3.3 Insurance Contracts/Pooled Investment Vehicles. The Administrator may direct the Trustee to invest Trust Fund
assets in a pooled investment vehicle funded by contracts issued by an insurance company qualified to do business in a
state (within the meaning of ERISA Section 3(10)) including, without limitation, group annuity and guaranteed investment
contracts. Any such contract may provide for the allocation of amounts received by the insurance company to its general
account, one or more of its separate accounts (including pooled separate accounts), or both. To the extent Trust Fund
assets are allocated to a separate account of an insurance company, the Administrator will appoint the insurance
company as an investment manager as provided in Article 2.4 above. Notwithstanding any other provision of the
Agreement, the terms of the contract(s) governing the separate account(s) in which the Trust Fund is invested will govern
the investment responsibilities and powers of the insurance company and, to the extent required by law, the terms of
such contract(s) will be incorporated into the Agreement.

To the extent permitted by the Plan, the Administrator may direct the Trustee to apply for and purchase individual life
insurance or annuity contracts (the “Contracts”) from an insurance company (the “Insurer”), subject to the following
provisions:

       (a) The Administrator will be responsible for ensuring that the purchases conform to the requirements of the
Plan and any rules and policies established by the Administrator regarding the form, value, optional settlement methods
and other provisions of the Contracts. The Trustee will not be responsible for the validity or proper execution of any
Contract delivered to it, or any act of any person that renders the Contract void or voidable. The Trustee will not be
responsible if the Contract held in the Trust Fund fails to meet the requirements of the Plan, and will have no duty to
inform participants of the terms and conditions of any such Contract.

        (b) The Administrator will instruct the Insurer to notify the Administrator of all premiums becoming due under the
Contracts. The Administrator will deliver all premium notices to the Trustee, together with a direction to the Trustee to
liquidate assets and pay the premiums out of the Trust Fund. The Trustee will have no responsibility for paying the
premium unless the Administrator provides the Trustee written instructions to do so and sufficient liquid Trust assets are
available for that purpose.

        (c) The Administrator will cause the Plan to be designated as the sole owner of all Contracts. The Trustee will
exercise its powers, rights, privileges, options and other incidents of ownership with respect to the Contracts only at the
written direction of the Administrator. The Administrator will be responsible for informing the Trustee of the identity of all
beneficiaries of any Contract.

       (d)   The Company hereby instructs the Trustee to value every Contract held in the Trust at $1.00.
3.4 Employer Securities. To the extent permitted by the Plan and ERISA and subject to the applicable Federal and state
securities laws, the Administrator may direct the Trustee to invest in qualifying employer securities (“Employer Securities”)
within the meaning of ERISA Section 407(d)(4) and (5). The Administrator will have full responsibility for determining that
any such investment and the exercise of any voting rights appurtenant to Employer Securities, comply with applicable
law. Notwithstanding any other provision of the Plan or this Agreement, the Administrator will have responsibility for
determining whether such shares should be sold, exchanged, or otherwise disposed of, except as provided in Article 3.6,
3.7 and 3.8 herein.
                                                                                                               Page 14 of 24


With respect to Plans holding Employer Securities, it will be the responsibility of the Administrator, and not the Trustee, to
assure compliance with all requirements imposed under the securities laws of the United States or any state, including,
but not limited to, registration and filing requirements. The Trustee is hereby specifically indemnified and held harmless
for any loss or liability it may incur, or for any penalties that may be imposed as a result of, the Administrator’s failure to
comply with such requirements. The Trust Fund will not invest in Employer Securities unless the Administrator determines
that the securities are exempt from registration under the Federal Securities Act of 1933 (the “1933 Act”), as amended,
and are exempt from registration or qualification under the applicable state law, and of any other applicable blue sky law,
or in the alternative, that the securities have been so registered and/or qualified. The Administrator will also specify what
restrictive legend on transfer, if any, is required to be set forth on the certificates for the securities and the procedure to
be followed by the Trustee to effectuate a resale of such securities.

The Administrator will not direct that Trust assets be invested in Employer Securities, if such investment would be
prohibited by ERISA. The Administrator will only direct the investment of Trust funds into Employer Securities if: (i) those
securities are traded on an exchange permitting a readily ascertainable fair market value, (ii) the Administrator agrees to
instruct the Trustee to obtain a current valuation by a qualified independent appraiser on an annual basis, or (iii) the
Administrator agrees to obtain such a valuation and deliver it to the Trustee on an annual basis.

The Company hereby acknowledges (i) that the Administrator has the sole responsibility for all decisions to invest Trust
assets in Employer Securities, except to the extent that the Administrator has determined that its responsibility is limited
by Section 404(c) of ERISA or the Administrator has properly delegated its responsibility to a third party, (ii) that the
Trustee has no duty to question any such direction, and (iii) that the Company will indemnify and hold harmless the
Trustee from any liability to any parties, including without limitation Plan participants and beneficiaries, that may result to
the Trustee from following any such direction to invest Trust assets in Employer Securities, irrespective of whether such
direction constitutes a proper direction within the meaning of ERISA.

3.5 Securities Notification and Reporting. The Company represents and warrants that it will take all responsibility (and
hereby assumes all liability for the failure) to notify participants of any limitations on investment directions necessary or
appropriate to comply with Federal securities laws (including the Securities Exchange Act of 1934 and the 1933 Act),
including but not limited to the frequency of investment changes by certain officers and shareholder-employees pursuant
to Section 16 of the Securities Exchange Act of 1934 and, to the extent applicable, the volume of trading in Employer
Securities pursuant to Regulation M and the timing of trading and blackout periods under the Sarbanes-Oxley Act of
2002. Consequently the Trustee will have no liability to a participant, beneficiary, or the Company for carrying out
instructions relating to the acquisition or disposition of Employer Securities regardless of whether those instructions
subject such person or the Company to any liability.

The Company represents and warrants that either the percentage of the issued and outstanding class of equity security
registered under Section 12 of the Securities Exchange Act of 1934 which is Employer Securities owned by the Plan (the
“Plan Percentage”) is less than 4.5% or that the Plan and its prior trust have complied with all notice and filing
requirements imposed by Federal securities laws with regard to the securities. The Company covenants that it will:
       (a) Notify the Trustee in writing within five business days following any date as of which the Plan Percentage
equals or exceeds 4.5%;

       (b)   Monitor the Plan Percentage on a daily basis so long as the Plan Percentage is at least 4.5%;

       (c) Notify the Trustee in writing within five business days following any date as of which the Plan Percentage
equals or exceeds 5% and, if applicable, 10%; and

        (d) Provide monthly written reports to the Trustee disclosing the Plan Percentage. The foregoing monitoring and
notification requirements will cease during any month when the Plan Percentage is below
                                                                                                               Page 15 of 24


4.5% for each day of the month. The provisions of this Article 3.5 will survive the termination of this Trust Agreement.
The Company further represents and warrants that the Company will file all statements and reports required by the
Securities and Exchange Commission that are required on account of the purchase, sale or ownership of Employer
Securities by the Trust Fund, including without limitation Forms 11-K, 13-D, 13-G, and Forms 4 and 5, and that the
Trustee will have no responsibility for any such filings.

3.6 Securities Voting Rights. Except as provided in Article 3.7 and 3.8 regarding Employer Securities, the Administrator,
or any Investment Manager it appoints will exercise the voting or other rights in Trust Fund securities. Where an
Investment Manager has been authorized to acquire and dispose of all or a portion of the Trust Fund, the Investment
Manager will be responsible and liable for voting or exercising other rights in the securities subject to its management and
control.
The Trustee will deliver to the Administrator, or the person or persons identified by the Administrator, proxies and powers
of attorney and related informational material it receives, for any shares or other property held including Employer
Securities in the Trust. Subject to the provisions of Article 3.7 and 3.8 regarding Employer Securities, the Administrator
will have responsibility for voting such shares and the tendering of such shares, by proxy or in person. The Trustee may
use agents to affect such delivery to the Administrator. In no event will the Trustee be responsible for the voting or
tendering of shares of securities held in the Trust or for ascertaining or monitoring whether, or how, proxies are voted or
whether the proper number of proxies is received. The Company will indemnify and hold harmless the Trustee from any
liability to any parties, including without limitation Plan participants and beneficiaries, that may result to the Trustee from
following any such direction to vote or tender shares of securities held in the Trust (or any failure to vote or tender such
shares in the absence of such a direction), irrespective of whether such direction constitutes a proper direction within the
meaning of ERISA.

3.7 Employer Securities Voting Rights. If Employer Securities are a permissible investment option under the Plan, all
voting rights with respect to the Employer Securities held in the Trust Fund and allocated to participants’ Accounts shall
be exercised by the Trustee in such manner as may be directed by the respective participants (which term, for purposes
of this Section, shall include the beneficiary of a deceased participant and any alternate payee for whom an account has
been established with an interest in the Employer Securities). Any Employer Securities in the Trust Fund that are
allocated to Participants who fail to give directions to the Trustee and all Employer Securities otherwise unallocated, if
any, shall be voted by the Trustee in the same proportion as the shares for which voting instructions have been received,
subject to the power, responsibility and obligation of the Administrator to direct the Trustee to act with respect to the
voting of such shares in a different manner, if the Administrator determines that such action is consistent with and/or
required by its fiduciary obligations under ERISA. The Company acknowledges that it shall be the responsibility of the
Administrator, and not the Trustee, to determine whether the fiduciary responsibilities of ERISA require that a direction be
provided to the Trustee to override such proportionate voting.

In the event that no voting rights are required by law or the terms of the Plan to be passed through to participants, the
shares will be voted by the Administrator or other authorized party unless otherwise agreed to in writing. The Company
acknowledges that it shall be the responsibility of the Administrator, and not the Trustee, to determine the manner in
which such shares are to be voted consistent with the Administrator’s fiduciary obligations under ERISA.

Except as otherwise specifically provided above with respect to proportionate voting, the Company further acknowledges
that the failure of the Administrator to provide a direction to the Trustee with respect to the voting of Employer Securities
shall constitute the determination by and direction of the Administrator to the Trustee that such shares not be voted and
that the Administrator has made such determination consistent with its fiduciary obligations under ERISA.
                                                                                                                Page 16 of 24


The Company and the Administrator will indemnify and hold the Trustee harmless with respect to the Trustee’s voting or
not voting of Employer Securities as provided above. The Administrator may establish such rules and guidelines it deems
necessary to properly effect the provisions of this Section.

3.8 Employer Securities Tender Rights. If Employer Securities are a permissible investment option under the Plan, all
tender or exchange rights with respect to the Employer Securities held in the Trust Fund and allocated to participants’
Accounts shall be exercised by the Trustee in such manner as may be directed by the respective participants (which
term, for purposes of this Section, shall include the beneficiary of a deceased participant and any alternate payee for
whom an account has been established with an interest in the Employer Securities). The Administrator directs the
Trustee not to tender or exchange any Employer Securities in the Trust Fund that are allocated to Participants who fail to
give directions to the Trustee and all Employer Securities that are otherwise unallocated, if any. The Company
acknowledges that it shall be the responsibility of the Administrator, and not the Trustee, to determine whether the
fiduciary responsibilities of ERISA require that a direction be provided to the Trustee to override a participant’s election to
tender or exchange or to override the direction provided herein not to tender or exchange Employer Securities.

The Company and the Administrator will indemnify and hold the Trustee harmless with respect to the Trustee’s tendering
or exchanging or not tendering or exchanging Employer Securities as provided above. The Administrator may establish
such rules and guidelines it deems necessary to properly effect the provisions of this Section.

3.9 Products of an Affiliate. At the direction of the Administrator, the Trustee may purchase shares of regulated
investment companies (or other investment vehicles) advised by the Public Company (defined in Section 5.1 below), the
Broker/Dealer (defined in Section 5.1 below), the Trustee or any affiliate or subsidiary of any of them (“Affiliated Funds”),
except as prohibited by law or regulation.

Uninvested Trust cash may be invested in Affiliated Funds designated by the Administrator for that purpose, unless the
Administrator specifically instructs the Trustee to use another fund or account acceptable to the Trustee.

Affiliated Funds may not be purchased or held by the Trust unless the Administrator has received disclosure concerning
the Public Company’s, the Broker/Dealer’s, the Trustee’s and/or their affiliate’s and subsidiary’s relationship to the
Affiliated Funds. Such disclosure must include an explanation of any fees paid to the Public Company, the Broker/Dealer,
the Trustee and/or their affiliates and subsidiaries.

3.10 Overdrafts. Notwithstanding any other provision in this Agreement to the contrary, the Trustee will have the right,
but not the responsibility to clear, or cover overdrafts incurred by the Trust Fund. In order to fulfill its obligation to clear
Trust Fund overdrafts, the Trustee will request the Administrator to direct the Trustee to sell specific Trust assets in an
amount sufficient to cover the overdraft. If the Trustee does not receive the requested direction before the close of
business on the day of its request, Trustee will have the right but not the responsibility to sell Trust Fund assets in an
amount necessary to cover the overdraft.

In the event the Trustee determines to sell Trust Fund assets in order to cover the overdraft, the Trustee will first liquidate
any available money market funds held by the Trust Fund, and to the extent such amounts are not sufficient to cover the
overdraft, Trustee will liquidate other classes of Trust assets in the following order until sufficient funds are generated to
cover the overdraft:

         (1)   Capital preservation funds
         (2)   Bond investment funds
         (3)   Balanced investment funds
         (4)   Stock investment funds
         (5)   Equities and other securities
                                                                                                             Page 17 of 24


3.11 Multiple Trusts and Trustees. If the Plan permits the appointment of multiple trustees and the establishment of
separate trusts to hold Plan assets, the Company may appoint trustees in addition to the Trustee and establish trusts in
addition to the Trust Fund to hold Plan assets. Trustee under this Agreement will have no duty, responsibility or liability
for Plan assets held in these other trusts by other trustees, except as required by applicable law.

3.12 Pooling with Assets of Other Plans. If the Company creates or maintains for its employees or the employees of an
affiliated company one or more employee benefit plans qualified under Code Section 401(a) in addition to the Plan, the
Company may request the Trustee to hold the assets of the additional plan or plans in the Trust Fund. With the consent
of the Trustee, the assets of the one or more additional plan(s) maintained by the Company may be maintained as one
Trust, and their assets may be commingled.

The Administrator will keep records showing the interest of the Plan and each additional Plan in the Trust Fund unless the
Trustee enters into an agreement with the Company to keep separate accounts for each such Plan. The Company and
the Administrator will not permit or cause the assets of one Plan within the Trust to be used to pay benefits or
administrative expenses of any other Plan within the Trust Fund.

3.13 No Duty to Inquire. All persons dealing with the Trustee are released from inquiring into the decision or authority of
the Trustee and from seeing to the proper application of any monies paid or securities or other property delivered to the
Trustee.

3.14 No Duty to Investigate. The Trustee will bear no liability for acting upon any instruction or document believed by it
to be genuine and to be presented or signed by a party duly authorized to do so, and the Trustee will be under no duty to
make any investigation or inquiry about the correctness of such instruction or document.

3.15 Advice of Counsel. The Trustee may consult with legal counsel of its choice, including counsel for the Company,
upon any question or matter arising hereunder, and the opinion of such counsel, when relied upon by the Trustee will be
evidence the Trustee was acting in good faith and with the care and prudence required under ERISA.

ARTICLE 4
SETTLEMENT OF ACCOUNTS
4.1 Trustee Records. The Trustee will maintain accurate and detailed records of all investments, receipts,
disbursements, and other transactions related to the Trust. The records will be available for inspection and audit at all
reasonable times by the Administrator, the Company, or their authorized representatives.

4.2 Trustee Reports

      (a) Within sixty days following the close of the Plan’s fiscal year or the close of any other period as may be
agreed upon by the Trustee and the Administrator, including monthly, the Trustee will file with the Administrator a written
accounting of the Trust Fund (the “Trust Statement”) setting forth a description of all securities and other property
purchased and sold, all receipts, disbursements, and other transactions affected by it during that fiscal year or other
designated period, and listing the securities and other property held by the Trustee at the end of such fiscal year or other
designated period, together with their then fair market values.

        (b) The Administrator may approve the Trust Statement by written notice of approval delivered to the Trustee or
by failure to deliver to the Trustee express objections to the Trust Statement in writing within sixty days from the date
upon which the Trust Statement was mailed or otherwise delivered to the Administrator.
                                                                                                              Page 18 of 24


        (c) The Trust Statement will be deemed approved upon receipt by the Trustee of the Administrator’s written
approval of the Trust Statement or upon the passage of the sixty day period of time, except for any matters covered by
written objections that have been delivered to the Trustee by the Administrator and for which the Trustee has not given an
explanation or made an adjustment satisfactory to the Administrator.

       (d) If the Trust Statement is not settled as provided above, the Trustee, the Company or the Administrator will
have the right to submit such controversy or disagreement to arbitration pursuant to Article 9.5, at the expense of the
Trust Fund for a settlement of the accounting. Any determination by the arbitrator entered in such proceeding will be
conclusive on all persons interested in the Trust Fund.

4.3 Valuation. Notwithstanding any other provision of this Article 4, unless the Trustee is able to obtain the value of the
Trust Fund assets, including any Non-Standard Assets held by the Trust Fund, from readily available public sources, as
of each annual valuation date assigned by the Company, the Administrator will direct the Trustee with respect to the
current fair market value of the Trust Fund assets within the time frame requested by the Trustee, and the Trustee will, in
accordance with such valuation, account for such assets and include such information in reports pursuant to Article 4.2 of
this Agreement. In the event the Administrator fails to provide such direction, the Administrator directs the Trustee to
engage an independent appraiser that meets the requirements of Code Section 401(a)(28)(C) to determine the current
fair market value of the Trust Fund assets. Any expenses and costs with respect to such appraisal will be paid out of the
Trust Fund or, at the option of the Company, by the Company.

The Company acknowledges and agrees that in the event that any Trust Fund assets, including Non-Standard Assets,
are transferred from an account held by a prior trustee or custodian to the trust account, (whether from Charles Schwab &
Co., Inc. or an unrelated financial provider):

        (1) if such assets are valued at zero, the Trustee shall use such zero valuation for such assets for all plan
purposes until such time as the Company provides the Trustee with a replacement valuation or, at the Company’s
direction, the Trustee obtains such a replacement valuation.

        (2) if it does not provide the Trustee with a subsequent valuation direction or such subsequent valuation
direction is not timely provided by it, the Trustee shall use the last valuation direction previously provided by the Company
to the Trustee for all Plan purposes.

The Company further acknowledges and agrees that in no event will the Trustee be responsible for use of an updated
valuation amount prior to actual receipt by the Trustee of such updated valuation information. In the event that an
updated valuation amount is provided by the Company as a result of an error or inaccuracy in a prior valuation direction,
the Company shall compensate the Trustee based on its standard hourly rates for Extraordinary Services attributed to
work that must be corrected, as defined in the SchwabPlan® Services Agreement referenced in Article 6.2 herein.

The Company, and not the Trustee, will be responsible and liable for the determination of whether the valuation and the
valuation method are acceptable and have been conducted in accordance with applicable legal and regulatory
requirements. The Trustee will not be liable for an inaccurate valuation and shall have no duty of investigation or inquiry
with respect thereto, and the Company shall indemnify, release and hold the Trustee harmless for any losses, liabilities,
claims and expenses (including attorney’s fees and costs of defense) resulting from the valuation of Trust Fund assets.

ARTICLE 5
SERVICES BY AND BROKERAGE TRANSACTED THROUGH AFFILIATED ORGANIZATIONS

5.1 Services by the Affiliated Organizations. The Trustee may contract or make other arrangements for the provision
of services to the Trust Fund with any organizations affiliated with or subsidiaries of the Trustee, including the Charles
Schwab Corporation (the “Public Company”) and Charles Schwab & Co., Inc. (the “Broker/Dealer”), their respective
affiliates and subsidiaries, successors and assigns, except where such arrangements are prohibited by law or regulation.
                                                                                                              Page 19 of 24


5.2 Brokerage. The Trustee is authorized to place securities orders, settle securities trades, hold securities in custody,
and perform related activities on behalf of the Trust Fund through or by the Broker/Dealer whenever possible unless the
Company specifically directs Trustee to settle a trade directly with another broker/dealer or to settle a trade placed by the
Investment Manager for execution at another broker/dealer. Trades and related activities transacted through the Broker/
Dealer or another broker/dealer, initiated by either Trustee or the Investment Manager, are subject to fees and
commissions established by the Broker/Dealer or other broker/dealer, which may be paid from the Trust Fund or netted
from the proceeds of trades. Transactions executed by the Broker/Dealer or other broker/dealer are subject to the
applicable account agreement, trading rules and policies as modified or amended from time to time, together with the
applicable rules, regulations, customs and usage of any exchange, market, clearing house or self-regulatory organization
and applicable federal and state laws, rules and regulations. Trades may not be executed through the Broker/Dealer or
other broker/dealer unless the Company has received disclosure concerning the relationship of the Broker/Dealer or other
broker/dealer to Trustee, and fees and commissions which may be paid to the Public Company, Broker/ Dealer, Trustee,
and/or their affiliates or subsidiaries as a result of using the execution or other services of the Broker/Dealer or other
broker/dealer.

5.3 Mutual Funds and Uninvested Cash. The Administrator may direct purchases of shares of regulated investment
companies (or other investment vehicles) advised by affiliates of the Public Company, Broker/Dealer (“Schwab Funds”) or
Trustee unless such investment is forbidden by law or regulation. Uninvested cash of the Trust Fund will be invested as
selected by the Administrator unless the Company or the Investment Manager, if any, specifically instructs the use of
another fund or account, except where forbidden by law or regulation.

5.4 Disclosure of Information. The Trustee is authorized to disclose such information as is necessary to the operation
and administration of the Trust to the Public Company or any of its affiliates, and to such other persons or organizations
that the Trustee determines have a legitimate business purpose for obtaining such information.

The Trustee is authorized to disclose upon request to companies whose securities are held in the Trust Fund: (1) the
Company’s and/or the Investment Manager’s name and address (2) the holdings in the Trust Fund of securities issued by
the requesting company, and (3) with respect to Rule 22c-2 of the Investment Company Act of 1940, the taxpayer
identification number (“TIN”), if known, of any or all Plan participant(s) that purchased, redeemed, transferred or
exchanged holdings in a fund subject to Rule 22c-2 through an account maintained by the Trustee, and the amounts and
dates of each purchase, redemption, transfer or exchange, and other information that may be required by such rule.

ARTICLE 6
TAXES, EXPENSES AND COMPENSATION OF TRUSTEE

6.1 Taxes. The Trustee will notify the Administrator of any tax levied upon or assessed against the Trust Fund of which
the Trustee has knowledge. If the Trustee receives no instructions from the Administrator, the Trustee may pay the tax
from the Trust Fund. If the Administrator wishes to contest the tax assessment, it will give appropriate written instructions
to the Trustee. The Trustee will not be required to bring any legal actions or proceedings to contest the validity of any tax
assessments unless the Trustee has been indemnified to its satisfaction against loss or expense related to such actions
or proceedings, including reasonable attorney’s fees.

6.2 Trustee Compensation and Expenses. The Company shall quarterly pay the Trustee its expenses in administering
the Trust and reasonable compensation for its services as Trustee as described in the SchwabPlan® Services
Agreement, which may be amended from time to time. Trustee reserves the right to alter this rate of compensation at any
time by providing the Company with written notice of such change at least sixty days prior to its effective date.
Reasonable compensation shall include (compensation for any (i) Extraordinary Services as defined in the SchwabPlan®
Services Agreement, (ii) computations required, including with respect to the valuation of assets when current market
values are
                                                                                                              Page 20 of 24


not published, and (iii) covering of overdrafts. The Trustee shall have a lien on the Trust Fund for compensation and for
any reasonable expenses including counsel, appraisal, or accounting fees, and such amounts may be withdrawn from the
Trust Fund unless paid by the Company within thirty days after mailing of the written billing by the Trustee.

The Company acknowledges receipt of the SchwabPlan® Services Agreement and, where applicable, the Schwab
Retirement Account/Personal Choice Retirement Account® Plan Application (“Application”), or any other specific fee
schedules applicable to the Trust Fund (“Other Fee Schedules”) prior to execution of this Agreement. The Company
acknowledges and agrees that the amounts described in the SchwabPlan® Services Agreement and/or Other Fee
Schedules, whichever it has received, are approved by it and are payable to the Trustee and to the Recordkeeper, as
applicable, and that such amounts have been taken into consideration in determining the reasonableness of the amounts
payable to the Trustee and the Recordkeeper.

Reasonable compensation will include the float earned on uninvested cash, the reimbursement of expenses incurred by
the Trustee in providing Extraordinary Services, and other compensation and remuneration as defined in any Other Fee
Schedules. The Trustee reserves the right to alter this rate of compensation at any time by providing the Company or the
Recordkeeper, as applicable, with written notice of such change at least sixty days prior to its effective date.
6.3 Additional Trustee Compensation. In addition to fees set forth elsewhere, the Company acknowledges that the
Trustee may receive, as compensation for its services, any credit, interest or other earnings (collectively “Float”) on
aggregate cash balances that the Trustee has on deposit with any third-party bank or other financial institution. Such
cash balances may result from cash contributions not yet invested, cash pending trade settlements or cash pending
distributions from the Trust.

      (a) The Trustee has the authority to initiate investments on behalf of the Trust only upon receipt of instructions from
the Administrator. The Trustee calculates its cash Float investment amount each business day by netting all cash activity
and adjusting for cash reserved for investment or reinvestment and for cash reserved for distributions. The result is
further adjusted by an additional reserve amount determined by the Trustee in its sole discretion as necessary to satisfy
the Trust’s cash needs during the following day for settlement of trades and payments, which may be adjusted from time
to time.

    (b) The Trustee invests the net cash Float amount primarily in overnight and short-term investments, including
money market funds, repurchase agreements, U.S. Government notes, bankers acceptances, and similar securities. The
average maturity of the portfolio will not exceed ninety days. Thus the interest rates earned on Float approximate money
market or federal funds rates. Exact rates earned for representative periods are available upon request.

     (c)   The Trustee will comply with the following service standards.

           i. Incoming Cash: On days on which it is open for business, the Trustee will deposit into the Trust all
incoming cash consisting of wires or Automated Clearing House (“ACH”) receipts on the date of receipt. The Trustee will
process all incoming checks on the date of receipt if the Trustee receives them by the Trustee’s cash deposit cutoff
deadline as published from time to time, such deadline being 4:00 p.m. PST at the time of this Agreement. Checks
generally require two or three days to clear and be deposited into the Trust. Funds received after the cutoff times will be
processed on the next business day. The period during which Trustee earns Float on these deposits (the “Float Period”)
begins when the ACH transfer, wire or check is deposited to the Trust and ends when the cash is invested.

          ii. Outgoing Cash: On days on which it is open for business, the Trustee will process outgoing checks, wires
and ACH transfers within forty eight hours after receipt of the distribution instructions from an authorized party. Outgoing
checks are delivered to the U.S. postal service or other designated delivery services. The Float Period for distributions
issued using checks begins on the day a check is issued from the Trust and ends when the check is presented for
payment. If distributions are made using ACH transfers the Float Period begins when the ACH transfer is initiated and
ends the next
                                                                                                            Page 21 of 24


business day when the funds are deposited in the payee’s account. If distributions are made using wire transfers no Float
is earned.

            iii.  Cash Pending Trade Settlement: The Trustee will process investment directives received from the
Administrator if the Trustee receives them by the Trustee’s trade cut-off deadlines as published from time to time. At the
time of this Agreement, directives received before 10:00 a.m. PST (9:00 p.m. PST for trades processed through the
Same Day/Late Day program) are initiated on the day received. Directives received after these times are processed on
the next business day. The Float Period for such transactions ends when the trade is settled. Most mutual fund trades
settle the day after they are initiated. Most other trades settle within three days following the day they are initiated.

ARTICLE 7
RESIGNATION OR REMOVAL OF TRUSTEE

7.1 Resignation/Removal and Replacement. The Trustee may resign as trustee hereunder or may be removed by the
Company. This resignation or removal may be accomplished at any time upon the giving of sixty days written notice to
the Trustee or Company, as applicable (or less if the receiving party agrees to waive notice). Upon resignation or
removal, the Company will appoint a successor trustee who will then succeed to all the powers and duties given to the
Trustee by this Agreement. The terminating Trustee will transfer all property of the Trust Fund then held by it to such
successor trustee, in accordance with the written directions of the Administrator.

The terminating Trustee may require as a condition of making any transfer to the successor trustee that the successor
trustee present evidence that any bonding requirement under ERISA Section 412 has been met. The terminating Trustee
may also require that the Company indemnify it against any losses arising from the replacement of the Trustee.

If either party has given notice of termination as provided under this Agreement, and upon the expiration of the advance
notice period no other successor trustee has been appointed and has accepted such appointment, this provision will
serve as (i) notice of appointment of the individual members of the Company’s Governing Body to serve as Trustee and
(ii) as acceptance by the Governing Body of that appointment. The Trustee is authorized to reserve such sum of money
as it may deem advisable for payment of its fees and expenses in connection with the settlement of its accounts or other
proper Trust expenses, and any balance of such reserve remaining after the payment of such fees and expenses will be
paid to the successor trustee.

7.2 Settlement of Accounts. Within sixty days of the transfer to the successor trustee, the terminating Trustee will
provide the Company with a Trust Statement in the form and manner prescribed for the annual Trust Statement by Article
4.2. Unless the Company files written objections with the Trustee within sixty days after such Trust Statement has been
mailed or otherwise delivered, the Company will be deemed to have approved the Trust Statement.

7.3 Termination of Liability. Upon settlement of its account and transfer of the Trust Fund to the successor trustee, all
rights and privileges under the Plan and this Agreement will vest in the successor trustee and thereafter liability of the
Trustee for future action or inaction will terminate subject only to the requirement that the Trustee execute all necessary
documents to transfer the Trust Fund to the successor trustee. The Trustee will not be obligated to transfer all of the
assets of the Trust Fund until the Trustee is indemnified in a manner satisfactory to it for all fees and expenses
reasonably anticipated to be incurred through the date of transfer.

ARTICLE 8
TERMINATION OF TRUSTEE AND AMENDMENT

8.1 Termination. The Company intends that this Trust and the Plan of which it is a part will be permanently administered
for the benefit of Plan participants and beneficiaries, and to defray reasonable expenses of administering the Plan. This
Trust is irrevocable except with respect to Article 9.4; however,
                                                                                                                Page 22 of 24


the Company may terminate this Trust by resolution of its Governing Body and upon at least sixty days written notice to
the Trustee (unless such notice is waived). Upon such termination, the Trust Fund will be distributed by the Trustee as
and when directed by the Administrator in accordance with the provisions of Article 1.5 and the Plan document.

From the date of termination of the Plan and until the final distribution of Trust assets, the Trustee will continue to have all
the powers provided under this Agreement that are necessary or desirable for the orderly liquidation and distribution of
the Trust Fund. In no instance upon any termination, or discontinuance, and subsequent distribution will the Trust Fund or
any part of it be used for, or diverted to, purposes other than providing benefits to participating employees and
beneficiaries, and defraying the administrative expenses of the Plan until all Plan liabilities have been satisfied, except as
provided in Article 9.4 if the Trust fails to initially qualify for tax-exempt status.

8.2 Conditions on Final Distribution. Upon termination of the Plan and this Trust the Trustee may place conditions on
its final transfer or distribution of the Trust Fund. The Trustee may require as a condition to its final distribution of Trust
assets that it receive a copy of any approval required by law to be obtained from the Pension Benefit Guaranty
Corporation (the “PBGC”) and a determination letter from the Internal Revenue Service that the termination does not
affect the tax exempt status of the Plan and Trust. If a PBGC approval is required, the Trustee will not transfer or
distribute funds until it receives a copy of the PBGC notice of approval. The Trustee, in its sole discretion, may waive
receipt of the Internal Revenue Service determination letter and accept instead the Company’s indemnification of it
against any liability arising from such transfer or distribution, or may require the Company to post a bond sufficient to
protect the Trustee against such liability until such time as a favorable determination letter from the Internal Revenue
Service is received.

8.3 Amendment. Except as provided for in this Agreement and the SchwabPlan® Services Agreement, including in
Article 8.1, this Agreement may be amended at any time by written amendment adopted by the Company and the
Trustee, provided, that such amendment will not operate:

       (a) To cause any part of the Trust Fund to revert to or be recoverable by the Company or to be used for or
diverted to purposes other than the exclusive benefit of participants and their beneficiaries, except to the extent permitted
by law and the Plan; or

        (b) To reduce the then accrued benefits or the amounts then held for the benefit of any participant or beneficiary
of the Plan.

ARTICLE 9
MISCELLANEOUS

9.1 Construction and Severability. This Agreement will be construed and administered under the Code, ERISA and
other pertinent Federal statutes, and, to the extent not otherwise preempted, under the laws of the State of California. If
any provision is susceptible to more than one interpretation, the interpretation to be given is that which is consistent with
the trust being a qualified trust under the meaning of Section 401 and Section 501 of the Code. If any provision of the
Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions will
continue to be fully effective.

9.2 Headings. The headings in this instrument have been inserted for convenience of reference only, and are to be
ignored in any construction of the provisions of this Agreement.

9.3 Restriction on Alienation. No person entitled to any benefit under this Trust and the Plan will have any right to
assign, alienate, hypothecate, or encumber his or her interest in any benefits under this Agreement and those benefits
will not in any way be subject to claim of his or her creditors or liable to attachment, execution, or other process of law.
Any attempt at alienation will be void, and the Trustee will disregard any attempted alienation. The Trust Fund will not be
liable for or subject to the debts or torts of any participant or beneficiary, and benefits will not be considered an asset of a
participant in bankruptcy. This does not preclude the Trustee from complying with a QDRO (as provided in Article 1.6).
                                                                                                              Page 23 of 24


9.4 Failure to Obtain Qualification. It is intended that this Trust will be tax exempt under Section 501 of the Code and
that the Plan referred to herein will qualify under Section 401(a) of the Code. However, notwithstanding any other
provisions of the Trust, if the Internal Revenue Service is requested to issue to the Company a favorable written
determination or ruling with respect to the initial qualification of the Plan and exemption of the Trust from tax and such
request is denied, the Trustee will, after receiving a written direction from the Administrator, pay to each participant that
portion of the Trust Fund applicable to said participant’s voluntary contributions, if any, and provided the Plan so states,
pay to the Company any part of the Trust Fund attributable to Company contributions then remaining in the Trustee’s
possession. As a condition to such repayment, the Company must execute, acknowledge, and deliver to the Trustee its
written undertaking, in form satisfactory to the Trustee, to indemnify, defend, and hold the Trustee harmless from all
claims, actions, demands, or liabilities arising in connection with such repayment, and provided further that such
repayment will occur within one year after the date the request for qualification is denied.

9.5 Arbitration of Disputes. Any dispute under this Agreement will be resolved by submission of the issue to a member
of the American Arbitration Association who is chosen by the Company and the Trustee. If the Company and the Trustee
cannot agree on such a choice, each will nominate a member of the American Arbitration Association, and the two
nominees will then select an arbitrator. Expenses of the arbitration will be paid as decided by the arbitrator.

9.6 Entire Agreement. This Agreement and the Plan are both part of and constitute a single, integrated employee benefit
Plan and trust and will be construed together. If there is a conflict between the provisions of the Plan and this Agreement,
the provisions of this Agreement will control with respect to all rights, duties, responsibilities, obligations, powers and
authorities of the Trustee. The Trustee will not be a named fiduciary under the Plan, nor will it have any duty to inquire
into, or liability with respect to, the provisions of the Plan.

9.7 Governing Law. The Trust Fund will be administered by the Trustee in the State of California, and all questions as to
its validity will be determined in accordance with the laws of the State of California.

9.8 Recorded Conversations. The Trustee is authorized to tape record conversations between the Trustee and persons
acting on behalf of the Plan or a participant in the Plan to verify data on transactions.

9.9 Execution and Counterparts. This Agreement may be executed in several counterparts, each of which will be
deemed original and such counterparts will constitute but one instrument that may be sufficiently evidenced by any one
counterpart.

9.10 Successors and Assigns. This Agreement will inure to the benefit of, and will be binding upon, the parties and their
successors and assigns.

9.11 Gender. As used in this Agreement, the masculine gender will include the feminine and neuter genders and the
singular will include the plural and the plural the singular, as the context requires.

9.12 Extraordinary Events. The Trustee is not responsible for losses caused directly or indirectly by conditions beyond
its control, including, but not limited to, war, natural disasters, government restrictions, exchange or market rulings,
strikes, interruptions of communications or data processing services, or disruptions in orderly trading on any exchange or
market.

9.13 Notices, Change of Address. Any notice required or permitted to be given under this Agreement will be sufficient if
in writing and sent by registered mail, postage prepaid, addressed as follows:

       If to the Company, to the address provided on the Execution page.

       If to the Trustee:
                                                                                                         Page 24 of 24


                      The Charles Schwab Trust Company
                      215 Fremont Street, 6th Floor
                      San Francisco, California 94105
                      Attention: Vice President, Sales & Relationship Management
or to such other address as the Company or the Trustee may hereafter specify in writing by providing ten days prior
notice of such change to the other party. All notices, requests, demands and other communications will be in writing and
will be deemed to have been duly given on the date of service, if served personally on the party to whom notice is to be
given, or on the fifth day after mailing, if mailed and properly addressed as indicated on the Application.

IN WITNESS WHEREOF, CHARLES SCHWAB & CO., INC. and THE CHARLES SCHWAB TRUST COMPANY, have
caused this Agreement to be executed by their respective duly authorized representatives this 17th day of August, 2007.

CHARLES SCHWAB & CO., INC.                                    THE CHARLES SCHWAB TRUST COMPANY
COMPANY                                                       TRUSTEE

PLAN ADMINISTRATOR                           , for

the SCHWABPLAN RETIREMENT SAVINGS AND
INVESTMENT PLAN

Plan and Trust

By:        /s/ Jan Hier-King                                  By:       /s/ Scott A. Glave
Printed Name:         JAN HIER-KING                            Printed Name:        Scott A. Glave
Title:   EVP Human Resources                                   Title:                Vice President
Address:           101 Montgomery Street
                   MS: 120KNY30-431
                   San Francisco, CA 94104
_
                                           THE CHARLES SCHWAB CORPORATION
                                                                                                                             Exhibit 12.1
                                     Computation of Ratio of Earnings to Fixed Charges and
                                Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
                                                    (Dollar amounts in millions)
                                                            (Unaudited)
                                                                                         Three Months Ended         Nine Months Ended
                                                                                            September 30,              September 30,
                                                                                         2012          2011         2012          2011
Earnings before taxes on earnings                                                    $      361    $     360    $ 1,106        $ 1,140
Fixed charges
   Interest expense:
      Deposits from banking clients                                                          11           16         31             49
      Payables to brokerage clients                                                           1             1          2              2
      Long-term debt                                                                         27           27         81             81
      Other                                                                                  —            —            2              2
         Total                                                                               39           44        116            134
   Interest portion of rental expense                                                        17           16         51             46
      Total fixed charges (A)                                                                56           60        167            180
Earnings before taxes on earnings and fixed charges (B)                              $      417    $     420    $ 1,273        $ 1,320
Ratio of earnings to fixed charges (B) ÷ (A) (1)                                            7.4           7.0        7.6            7.3
Ratio of earnings to fixed charges, excluding deposits from banking clients
 and payables to brokerage clients interest expense (2)                                     9.2           9.4          9.3           9.8
Total fixed charges                                                                  $       56    $      60    $     167      $     180
Preferred stock dividends (3)                                                                14           —            36             —
Total fixed charges and preferred stock dividends (C)                                $       70    $      60    $     203      $     180
Ratio of earnings to fixed charges and preferred stock dividends (B) ÷ (C) (1)              6.0           7.0          6.3           7.3
Ratio of earnings to fixed charges and preferred stock dividends, excluding
 deposits from banking clients and payables to brokerage clients interest
 expense (2)                                                                                7.0           9.4          7.3           9.8
(1)
      The ratios of earnings to fixed charges and earnings to fixed charges and preferred stock dividends are calculated in accordance
      with SEC requirements. For such purposes, “earnings” consist of earnings before taxes on earnings and fixed charges. “Fixed
      charges” consist of interest expense as listed above, and one-third of rental expense, which is estimated to be representative of
      the interest factor.
(2)
      Because interest expense incurred in connection with both deposits from banking clients and payables to brokerage clients is
      completely offset by interest revenue on related investments and loans, the Company considers such interest to be an operating
      expense. Accordingly, the ratio of earnings to fixed charges, excluding deposits from banking clients and payables to brokerage
      clients interest expense, and the ratio of earnings to fixed charges and preferred stock dividends, excluding deposits from
      banking clients and payables to brokerage clients interest expense, reflect the elimination of such interest expense as a fixed
      charge.
(3)
      The preferred stock dividend amounts represent the pre-tax earnings that would be required to pay the dividends on outstanding
      preferred stock.
                                            THE CHARLES SCHWAB CORPORATION
                                                                                                                                Exhibit 31.1
                CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
                            SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Walter W. Bettinger II, certify that:
1.   I have reviewed this Quarterly Report on Form 10-Q of The Charles Schwab Corporation;
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
     necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
     with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
     material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
     presented in this report;
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
     (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
     Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
           a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
                  is being prepared;
           b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes in accordance with generally accepted accounting
                  principles;
           c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
                  this report based on such evaluation; and
           d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
                  the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
                  reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
     financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
     performing the equivalent functions):
           a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
                  report financial information; and
           b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the
                  registrant’s internal control over financial reporting.

Date: November 6, 2012                                                          /s/ Walter W. Bettinger II
                                                                                Walter W. Bettinger II
                                                                                President and Chief Executive Officer
                                            THE CHARLES SCHWAB CORPORATION
                                                                                                                                Exhibit 31.2
                CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
                            SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph R. Martinetto, certify that:
1.   I have reviewed this Quarterly Report on Form 10-Q of The Charles Schwab Corporation;
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
     necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
     with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
     material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
     presented in this report;
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
     (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
     Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
           a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
                  is being prepared;
           b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes in accordance with generally accepted accounting
                  principles;
           c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
                  this report based on such evaluation; and
           d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
                  the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
                  reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
     financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
     performing the equivalent functions):
           a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
                  report financial information; and
           b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the
                  registrant’s internal control over financial reporting.

Date: November 6, 2012                                                          /s/ Joseph R. Martinetto
                                                                                Joseph R. Martinetto
                                                                                Executive Vice President and Chief Financial Officer
                                           THE CHARLES SCHWAB CORPORATION
                                                                                                                           Exhibit 32.1
                                 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                                             AS ADOPTED PURSUANT TO
                                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Charles Schwab Corporation (the Company) on Form 10-Q for the quarter ended
September 30, 2012 (the Report), I, Walter W. Bettinger II, President and Chief Executive Officer of the Company, hereby certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
         operations of the Company for the periods presented therein.

/s/ Walter W. Bettinger II                                           Date: November 6, 2012
Walter W. Bettinger II
President and Chief Executive Officer




A signed original of this written statement required by Section 906 has been provided to The Charles Schwab Corporation and will be
retained by The Charles Schwab Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
                                           THE CHARLES SCHWAB CORPORATION
                                                                                                                           Exhibit 32.2
                                 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                                             AS ADOPTED PURSUANT TO
                                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Charles Schwab Corporation (the Company) on Form 10-Q for the quarter ended
September 30, 2012 (the Report), I, Joseph R. Martinetto, Executive Vice President and Chief Financial Officer of the Company,
hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge:
     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
         operations of the Company for the periods presented therein.

/s/ Joseph R. Martinetto                                             Date: November 6, 2012
Joseph R. Martinetto
Executive Vice President and
Chief Financial Officer




A signed original of this written statement required by Section 906 has been provided to The Charles Schwab Corporation and will be
retained by The Charles Schwab Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

				
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