~~Note: Information is presented on a continuing operations basis unless otherwise noted.~~

- 1617 -

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 7.	Management’s Discussion and Analysis of Financial Condition and Results of
	Operations

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K 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 Company’s ability to pursue its business strategy and maintain its market leadership position (see “Part I – Item 1. – Business – Business Strategy and Competitive Environment”);

the expected impact of the new regulatory capital and LCR rules (see “Part I – Item 1A. – Risk Factors” and “Current Market and Regulatory Environment and Other Developments”);

the impact of legal proceedings and regulatory matters (see “Part I – Item 3. – Legal Proceedings” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements –14. Commitments and Contingencies – Legal contingencies”);

the impact of current market conditions on the Company’s results of operations (see “Current Market and Regulatory Environment and Other Developments,” “Results of Operations – Net Interest Revenue,” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 5. Securities Available for Sale and Securities Held to Maturity”);

sources of liquidity, capital, and level of dividends (see “Part I – Item 1. – Business – Regulation,” “Liquidity and Capital Resources,” “Contractual Obligations,” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 22. Regulatory Requirements”);

target capital and debt ratios (see “Liquidity and Capital Resources” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 22. Regulatory Requirements”);

capital expenditures (see “Liquidity and Capital Resources – Capital Resources – Capital Expenditures”);

the impact of the revised underwriting criteria on the credit quality of the Company’s mortgage portfolio (see “Risk Management – Credit Risk”);

the impact of changes in management’s estimates on the Company’s results of operations (see “Critical Accounting Estimates”);

the impact of changes in the likelihood of indemnification and guarantee payment obligations on the Company’s results of operations (see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 14. Commitments and Contingencies”); and

the impact on the Company’s results of operations of recording stock option expense (see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 19. Employee Incentive, Retirement, and Deferred Compensation Plans”).

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 Annual Report on Form 10-K 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;

adverse developments in litigation or regulatory matters;

the extent of any charges associated with litigation and regulatory matters;

- 18 -

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)

amounts recovered on insurance policies;

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, including Schwab Intelligent Portfolios™;

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;

investment, structural and capital adjustments made by the Company in connection with the new LCR rule;

the amount of loans to the Company’s brokerage and banking clients;

the extent to which past performance of the Company’s mortgage portfolio is indicative of future performance;

the level of the Company’s stock repurchase activity;

the level of brokerage client cash balances and deposits from banking clients;

the availability and terms of external financing;

capital needs and management;

timing and amount of severance and other costs related to reducing the Company’s San Francisco footprint;

the Company’s ability to manage expenses;

regulatory guidance;

the level of client assets, including cash balances;

competitive pressures on rates and fees;

acquisition integration costs;

the timing and impact of changes in the Company’s level of investments in buildings, land, and leasehold improvements;

potential breaches of contractual terms for which the Company has indemnification and guarantee obligations; and

client use of the Company’s investment advisory services and other products and services.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in this Annual Report on Form 10-K, including “Item 1A – Risk Factors.”

- 19 -

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)

OVERVIEW

Management of the Company focuses on several key ~~financial~~client activity and ~~client activity~~financial metrics in evaluating the Company’s financial position and operating performance. ~~Results for the years ended December 31, 2011, 2010, and 2009 are shown in the following table:~~

Year Ended December 31,
   Growth Rate
1-Year
2010-2011 2011 2010 2009
Client Activity Metrics:

Net new client assets⁽¹⁾(in billions)
   N/M    $ 145.9    $ 26.6    $ 87.3
Client assets (in billions, at year end)
   7 % $     1,677.7    $     1,574.5    $     1,422.6
Clients’ daily average trades⁽²⁾(in thousands)
   13 % 451.1    399.7    414.8
Company Financial Metrics:

Net revenues
   10 % $ 4,691    $ 4,248    $ 4,193
Expenses excluding interest
   (5 %) 3,299    3,469    2,917


Income before taxes on income
   79 % 1,392    779    1,276
Taxes on income
   62 % (528 ) (325 ) (489 )


Net income
   90 % $ 864    $ 454    $ 787


Earnings per share–diluted
   84 % $ .70    $ .38    $ .68
Net revenue growth (decline) from prior year
   10 % 1 % (19 %)
Pre-tax profit margin
   29.7 % 18.3 % 30.4 %
Return on stockholders’ equity
   12 % 8 % 17 %
Net revenue per average full-time equivalent employee (in thousands)
   4 % $ 350    $ 337    $ 338

⁽¹⁾	Includes inflows of $56.1 billion and $7.5 billion in 2011 from a mutual fund clearing services client and the acquisition of optionsXpress, respectively. Includes net outflows of $51.5 billion in 2010 related to the planned deconversion of a mutual fund clearing services client.

⁽²⁾	~~Beginning in 2010, amounts include all commission-free trades, including the Company’s Mutual Fund OneSource~~^® ~~funds and ETFs, and other proprietary products. Prior period amounts have been recast to reflect this change.~~

~~N/M~~

~~Not meaningful.~~

~~Net new client assets is defined as the total inflows of client cash and securities to the firm less client outflows.~~ Management believes that ~~this metric depicts how well the Company’s products and services appeal to new and existing clients in a given operating environment.~~

Client assets is the market value of all client assets custodied at the Company. Management considers client assets to be indicative of the Company’s appeal in the marketplace. Additionally, fluctuations in certain components of client assets (e.g., Mutual Fund OneSource funds) directly impact asset management and administration fees.

~~Clients’ daily average trades is an indicator of client engagement with securities markets and the most prominent driver of trading revenue.~~

~~Management believes that earnings per share,~~ net revenue growth, pre-tax profit margin, earnings per common share, and return on common stockholders’ equity provide broad indicators of the Company’s overall financial health, operating efficiency, and ability to generate acceptable returns within the context of a given operating environment.

~~Net revenue per~~ Expenses excluding interest as a percentage of average ~~full-time equivalent employee~~client assets is considered by management to be ~~the Company’s broadest~~a measure of ~~productivity.~~operating efficiency. Results for the years ended December 31, 2014, 2013, and 2012 are:


	Growth Rate
	1-Year
Year Ended December 31,	2013-2014				2014			2013			2012
Client Metrics:
Net new client assets (1) (in billions)		N/M		$	124.8		$	41.6		$	139.7
Client assets (2) (in billions, at year end)		10	%	$	2,463.6		$	2,249.4		$	1,951.6
New brokerage accounts (3) (in thousands)		1	%		972			960			900
Active brokerage accounts (4) (in thousands, at year end)		3	%		9,386			9,093			8,787
Assets receiving ongoing advisory services (5)
(in billions, at year end)		12	%	$	1,228.1		$	1,101.4		$	915.2
Client cash as a percentage of client assets (6)
(at year end)					12.3	%		13.1	%		14.7	%
Company Financial Metrics:
Net revenues		11	%	$	6,058		$	5,435		$	4,883
Expenses excluding interest		6	%		3,943			3,730			3,433
Income before taxes on income		24	%		2,115			1,705			1,450
Taxes on income		25	%		794			634			522
Net income		23	%	$	1,321		$	1,071		$	928
Preferred stock dividends		(2)	%		60			61			45
Net income available to common stockholders		25	%	$	1,261		$	1,010		$	883
Earnings per common share – diluted		22	%	$	.95		$	.78		$	.69
Net revenue growth from prior year					11	%		11	%		4	%
Pre-tax profit margin					34.9	%		31.4	%		29.7	%
Return on average common stockholders’ equity (7)					12	%		11	%		11	%
Expenses excluding interest as a percentage of
average client assets					0.17	%		0.18	%		0.19	%

(1)	Net new client assets is defined as the total inflows of client cash and securities to the firm less client outflows. Management believes that this metric, along with core net new assets, depicts how well the Company’s products and services appeal to new and existing clients. Core net new assets totaled $124.8 billion, $140.8 billion, and $112.4 billion in 2014, 2013, and 2012, respectively. See below for items excluded from core net new assets.
(2)	Client assets represent the market value of all client assets custodied at the Company. Management considers client assets to be indicative of the Company’s appeal in the marketplace. Additionally, fluctuations in certain components of client assets (e.g., Mutual Fund OneSource® funds) directly impact asset management and administration fees.
(3)	New brokerage accounts include all brokerage accounts opened during the period, as well as any accounts added via acquisition. This metric measures the Company’s effectiveness in attracting new clients and building stronger relationships with existing clients.
(4)	Active brokerage accounts include accounts with balances or activity within the preceding eight months. This metric is an indicator of the Company’s success in both attracting and retaining clients.
(5)	Assets receiving ongoing advisory services include relationships under the guidance of independent advisors and assets enrolled in one of the Company’s retail or other advisory solutions. This metric depicts how well the Company’s advisory products and services appeal to new and existing clients.
(6)	Client cash as a percentage of client assets includes Schwab One®, certain cash equivalents, deposits from banking clients and money market fund balances, as a percentage of client assets. This measure is an indicator of clients’ engagement in the fixed income and equity markets.
(7)	Calculated as net income available to common stockholders divided by average common stockholders’ equity.

N/M Not meaningful.

- 20 -

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)

Core net new client assets is defined as net new client assets before significant one-time flows. Management considers this to be a useful metric when comparing period-to-period client asset flows. The following one-time flows were excluded from core net new assets.

2013 excludes outflows of $74.5 billion relating to the planned transfer of a mutual fund clearing services client. The Company also reduced its reported total for overall client assets by $24.7 billion in 2013 to reflect the estimated impact of the consolidation of its retirement plan recordkeeping technology platforms and subsequent resignation from certain retirement plan clients.

2012 excludes inflows of $27.7 billion from mutual fund clearing services clients and $900 million from the acquisition of ThomasPartners, Inc., and outflows of $1.3 billion from the closure and/or sale of certain subsidiaries of optionsXpress.

The Company’s major sources of net revenues are asset management and administration fees, net interest revenue, and trading revenue. The Company generates asset management and administration fees through its proprietary and third-party

~~- 17 -~~

~~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)~~

mutual fund offerings, as well as fee-based advisory solutions. Net interest revenue is the difference between interest earned on interest-earning assets and interest paid on funding ~~sources.~~sources, the majority of which is derived from client cash balances. Asset management and administration fees and net interest revenueare impacted by securities valuations, interest rates, the amount and mix of interest-earning assets and interest-bearing funding sources, the Company’s ability to attract new clients, and client activity levels. The Company generates trading revenue through commissions earned for executing trades for clients and principal transaction revenue primarily from trading activity in client fixed income securities. Trading revenue is impacted by trading volumes, the volatility of prices in the equity and fixed income markets, and commission rates.

~~2011 Compared to 2010~~

~~Economic and~~2014 Compared to 2013

The Company operated in an environment of mixed market conditions ~~were challenging throughout 2011, marked by volatility in~~during 2014 compared to 2013, as the ~~equity markets, lower market valuations, and further declines in interest rates. The~~Nasdaq Composite Index, Standard ~~and~~& Poor’s 500 ~~Index, Nasdaq Composite~~ Index, and Dow Jones Industrial Average ~~decreased on average 6%~~showed periods of volatility before ending the year up 13%, 5%11%, and 4%8%, ~~respectively, between the first and second halves of the year.~~respectively. The federal funds target rate remained unchanged ~~during the year~~ at a range of zero to 0.25% ~~and~~during 2014. The average 10-year Treasury yield increased by 20 basis points to 2.53% during 2014 compared to 2013, while the yield ended the year down 86 basis points to 2.17%. In the same period, the average three-month Treasury Bill ~~and 10-year Treasury yields declined~~yield decreased by ~~11 and 141~~3 basis points to ~~0.01% and 1.88%, respectively.~~0.02%.

The Company’s key client activity metrics in 2011 were stable in the midst of a weakened economic and market environment. Net new client assets totaled $145.9 billion in 2011. Core net new client assets, which exclude significant one-time flows, totaled $82.3 billion in 2011 up from $78.1 billion in 2010.steady focus on serving investor needs through its full-service investing model continued to drive growth during 2014. Total client assets ended the year at ~~$1.68~~$2.46 trillion, up 7%10% from ~~2010.~~2013, reflecting net new client assets of $124.8 billion and a rising equity market environment. In addition, ~~clients’ daily average trades were 451,100,~~the Company added almost 1 million new brokerage accounts to its client base during 2014. Active brokerage accounts reached 9.4 million in 2014, up ~~13%~~3% from ~~2010.~~2013.

~~Net~~As a result of the Company’s strong key client activity metrics, the Company achieved a pre-tax profit margin of 34.9% in 2014. Overall, net income increased by 23% in 2014 from 2013 and the return on average common stockholders’ equity was 12% in 2014.

Overall, net revenues increased by ~~10%~~11% in ~~2011~~2014 from ~~2010~~2013, primarily due to increases in ~~all~~net interest revenue, asset management and administration fees, and other revenue – net. Net interest revenue increased primarily due to higher balances of interest-earning assets, including margin loans and the Company’s investment portfolio (securities available for sale and securities held to maturity), and the effect higher average interest rates on securities held to maturity had on the Company’s average net interest margin. Asset management and administration fees increased due to fees from mutual fund services, advice solutions, and other asset management and administration services. Other revenue – net increased primarily due to a net insurance settlement of $45 million, net litigation proceeds of $28 million related to the Company’s non-agency residential mortgage-backed securities portfolio, and increases in order flow revenue.

Expenses excluding interest increased by 6% in 2014 from 2013 primarily due to an increase in compensation and benefits expense as a result of a charge of $68 million for estimated future severance benefits resulting from changes in the Company’s geographic footprint and an increase in professional services expense.

- 21 -

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)

2013 Compared to 2012

Valuations in the broad equity markets improved during 2013 compared to 2012, as the Nasdaq Composite Index, Standard & Poor’s 500 Index, and Dow Jones Industrial Average increased 38%, 30%, and 26%, respectively. While the federal funds target rate remained unchanged at a range of zero to 0.25%, the average 10-year Treasury yield increased by 55 basis points to 2.33% during 2013 compared to 2012. In the same period however, the average three-month Treasury Bill yield decreased by 3 basis points to 0.05%.

The Company continued to experience growth in its client base during 2013 – core net new client assets totaled $140.8 billion, up 25% from $112.4 billion in 2012. Total client assets ended the year at a record $2.25 trillion, up 15% from 2012. In addition, the Company added almost 1 million new brokerage accounts during 2013, and active brokerage accounts reached 9.1 million, up 3% from 2012.

As a result of the Company’s strong key client activity metrics, the Company achieved a pre-tax profit margin of 31.4% in 2013. Overall, net income increased by 15% in 2013 from 2012 and the return on average common stockholders’ equity was 11% in 2013.

Along with the growth in its client base, enrollments in client advisory solutions and stability in the economic environment helped the Company achieve increases in all three major ~~sources of~~revenue lines in 2013 compared to 2012. Overall, net ~~revenues.~~revenues increased by 11% in 2013 from 2012, primarily due to increases in asset management and administration fees, net interest revenue, and trading revenue, partially offset by a decrease in other revenue – net. Asset management and administration fees increased primarily due to ~~an increase~~increases in ~~revenue from the Company’s~~mutual fund service fees and advice solutions ~~and continued asset inflows, partially offset by money market mutual fund fee waivers, which increased to $568 million in 2011 from $433 million in 2010.~~fees. Net interest revenue increased primarily due to higher ~~average~~ balances of interest-earning assets ~~during the year,~~and higher interest rates on new fixed-rate investments. This increase was partially offset by the effect lower average short-term interest rates and the maturity of ~~lower~~short-term interest-earning assets had on the Company’s average net interest ~~rate spreads resulting from higher amortization of premiums relating to residential mortgage-backed securities caused by higher mortgage prepayments in 2011.~~margin. Trading revenue increased primarily due to higher daily average revenue trades and two additional trading days during the ~~addition~~year. Other revenue – net decreased primarily due to a non-recurring gain of ~~optionsXpress, which was acquired~~$70 million relating to a confidential resolution of a vendor dispute in ~~September 2011.~~2012.

~~While total expenses~~Expenses excluding interest ~~were lower~~increased by 5%9% in ~~2011 compared~~2013 from 2012 primarily due to ~~2010, the Company experienced~~ increases in compensation and benefits, professional services, ~~occupancy and equipment, and~~ advertising and market development, ~~expenses~~and other expense. Compensation and benefits expense increased in ~~aggregate of $266 million in 2011 compared~~2013 from 2012 primarily due to ~~2010. Significant charges in 2010 included class action litigation and regulatory reserves~~higher incentive compensation relating to the ~~Schwab YieldPlus Fund~~^®~~, losses recognized for Schwab money market mutual funds, and a charge relating to the termination of the Company’s Invest First~~^® ~~and WorldPoints~~~~(a)~~ ~~Visa~~(b~~) credit card program for a total of $482 million.~~

As a result of the Company’s ongoing investment in clients and sustained expense discipline, the Company achieved a pre-tax profit margin of 29.7% and return on stockholders’ equity of 12% in 2011.

~~2010 Compared to 2009~~

The equity markets improved during 2010 and remained well above their prior year lows. The Nasdaq Composite Index, the Standard & Poor’s 500 Index, and the Dow Jones Industrial Average increased 17%, 13%, and 11%, respectively. The low interest rate environment continued throughout the year as the federal funds target rate remained unchanged during the year at a range of zero to 0.25%.

The Company’s sustained investment in expanding and improving product and service capabilities for its clients was reflected in the strength of its key client activity metrics in 2010 – net new client assets totaled $78.1 billion, excluding

^(a)

~~WorldPoints is a registered trademark of FIA Card Services, N.A.~~

⁽^b)

~~Visa is a registered trademark of Visa International Service Association.~~

~~- 18 -~~

~~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)~~

~~outflows related~~transition to a single mutual fund clearing client who completed a planned transfer to an internal platform during the year, and total client assets ended 2010 at $1.57 trillion, up 11% from 2009. Client trading activity slowed during the year as clients’ daily average trades decreased 4% from 2009 to 399,700.

Net revenues were relatively flat in 2010 from 2009. The Company, however, experienced a change in the mix of its revenue sources as the increase in net interest revenue was offset by decreases in trading revenue, asset management and administration fees, and other revenue. Net interest revenuenew payout schedule for field incentive plans, increased due to higher average balances of interest-earning assets, partially offset by a decrease in the average yield earned. Trading revenue decreased due to lower average revenue per revenue trade resulting from improved online trade pricing for clients, which was implemented in January 2010, and slightly lower daily average revenue trades in 2010. While the low interest rate environment caused over $200 million of additional money market mutual fund fee waivers from the prior year, the decrease in asset management and administration fees was limited to 3% due to higher average asset valuations and continued asset inflows. Other revenue was lower in comparison to 2009 primarily due to a gain of $31 million on the repurchase of a portion of the Company’s long-term debt in 2009.

Expenses excluding interest were higher by 19% in 2010 compared to 2009 primarily due to the recognition of certain significant charges in 2010. The Company recognized class action litigation and regulatory reserves of $320 million relating to the Schwab YieldPlus Fund. Additionally, the Company decided to cover the net remaining losses recognized by Schwab money market mutual fundsindividual sales performance compensation as a result of ~~their investments in a single structured~~field sales volume, increased and accelerated health savings account (HSA) contributions, equity incentive plan changes to vesting for retirement-eligible employees, and increased funding for the corporate bonus plan commensurate with achieving higher earnings per common share. Advertising and market development expense increased primarily due to investment ~~vehicle that defaulted in 2008 and recorded a charge of $132 million in 2010. Also, as a result of challenging credit card industry economics, the Company ended its sponsorship in its Invest First~~^® ~~and WorldPoints~~^(a) ~~Visa~~^(b⁾ ~~credit cards and recorded a charge of $30 million. The Company’s ongoing expense discipline helped limit the growth in all other expense categories~~ in the ~~aggregate to 3% over the prior year.~~Company’s new advertising and branding initiative, Own your tomorrow™.

CURRENT MARKET AND REGULATORY ENVIRONMENT AND OTHER DEVELOPMENTS

~~Business Acquisitions~~

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.

On November 9, 2010, the Company acquired substantially all of the assets of Windward for $106 million in common stock and $44 million in cash. Windward was an investment advisory firm that managed diversified investment portfolios comprised primarily of ETFs.

For more information on the acquisitions of optionsXpress and Windward, see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 3. Business Acquisitions.”

~~Subsequent Event~~

On January 26, 2012, the Company issued and sold 400,000 shares of fixed-to-floating rate non-cumulative perpetual preferred stock, Series A, $0.01 par value, with a liquidation preference of $1,000 per share (Series A Preferred Stock). The Series A Preferred Stock has a fixed dividend rate of 7% until 2022 and a floating rate thereafter. Net proceeds received from the sale were $394 million and are being used for general corporate purposes, including, without limitation, to support the Company’s balance sheet growth and the potential migration of certain client cash balances to deposit accounts at Schwab Bank.

^(a)

~~WorldPoints is a registered trademark of FIA Card Services, N.A.~~

⁽^b)

~~Visa is a registered trademark of Visa International Service Association.~~

~~- 19 -~~

~~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)~~

~~CURRENT MARKET AND REGULATORY ENVIRONMENT~~

~~The economic and market environment was challenging throughout 2011. Further declines in interest rates continue to constrain growth in the Company’s net revenues.~~

While the federal funds target rate was unchanged at a range of zero to 0.25% in 2011, the Federal Reserve took action during the middle of the year to lower longer term interest rates. Further declines in interest rates in 2011 have accelerated the prepayment activity in the Company’s portfolios of residential mortgage-backed securities, which resulted in higher premium amortization. To the extent short-term interest rates remain at ~~these~~current 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 short-term interest rate environment also affects asset management and administration fees. The Company continues to waive a portion of its management fees, as 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, which it began in the first quarter of 2009, so that the funds can continue providing a positive return to clients.~~ These and certain other Schwab-sponsored 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 stated management fees on those funds. To the extent this occurs, ~~the Company may continue to waive fees and such waivers could increase from the fourth quarter 2011 level, which would negatively affect~~ asset management and administration ~~fees.~~fees may continue to be negatively affected.

In July 2013, the U.S. banking agencies issued regulatory capital rules that implemented BASEL III and relevant provisions of the Dodd-Frank Act (Final Regulatory Capital Rules), which are applicable to savings and loan holding companies, such as CSC, and federal savings banks, such as Schwab Bank. The implementation of the rules began on January 1, 2015. The

- 22 -

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)

Company does not expect the Final Regulatory Capital Rules to have a material impact on the Company’s business, financial condition, and results of operations.

The ~~Company recorded net impairment charges~~Final Regulatory Capital Rules, among other things:

subject savings and loan holding companies to consolidated capital requirements;

revise the required minimum risk-based and leverage capital requirements by (1) establishing a new minimum Common Equity Tier 1 Risk-Based Capital Ratio (common equity Tier 1 capital to total risk-weighted assets) of 4.5%; (2) raising the minimum Tier 1 Risk-Based Capital Ratio from 4.0% to 6.0%; (3) maintaining the minimum Total Risk-Based Capital Ratio of 8.0%; and (4) maintaining a minimum Tier 1 Leverage Ratio (Tier 1 capital to adjusted average consolidated assets) of 4.0%;

add a requirement to maintain a minimum capital conservation buffer, composed of common equity Tier 1 capital, of 2.5% of risk-weighted assets, which means that banking organizations, on a fully phased-in basis no later than January 1, 2019, must maintain a Common Equity Tier 1 Risk-Based Capital Ratio greater than 7.0%; a Tier 1 Risk-Based Capital Ratio greater than 8.5% and a Total Risk-Based Capital Ratio greater than 10.5%; and

change the definition of capital categories for insured depository: to be considered “well-capitalized”, Schwab Bank must have a Common Equity Tier 1 Risk-Based Capital Ratio of at least 6.5%, a Tier 1 Risk-Based Capital Ratio of at least 8%, a Total Risk-Based Capital Ratio of at least 10% and a Tier 1 Leverage Ratio of at least 5%.

The new minimum regulatory capital ratios and changes to the calculation of ~~$31 million~~risk-weighted assets were effective beginning January 1, 2015. The required minimum capital conservation buffer will be phased in incrementally, starting at 0.625% on January 1, 2016 and ~~$36 million~~increasing to 1.25% on January 1, 2017, 1.875% on January 1, 2018 and 2.5% on January 1, 2019.

The Final Regulatory Capital Rules provide that the failure to maintain the minimum capital conservation buffer will result in restrictions on capital distributions and discretionary cash bonus payments to executive officers.

In September 2014, the Federal Reserve, in collaboration with the OCC and the FDIC, issued a rule implementing a quantitative liquidity requirement generally consistent with the LCR standard established by Basel III. The LCR applies to all internationally active banking organizations. The Federal Reserve also issued a modified LCR that applies to the Company. Under the modified LCR, a depository institution holding company is required to maintain high-quality liquid assets in an amount related to ~~certain non-agency residential mortgage-backed securities~~its total estimated net cash outflows over a prospective period. The modified LCR will be phased in ~~2011 and 2010, respectively, due~~beginning on January 1, 2016, with a minimum requirement of 90%, increasing to ~~credit deterioration~~100% at January 1, 2017. The Company is currently evaluating the impact of the ~~securities’ underlying loans. Further deterioration in the performance of the underlying loans in~~final rule but does not expect a material impact to the Company’s ~~residential mortgage-backed securities portfolio could result in the recognition~~business, financial condition, and results of ~~additional impairment charges.~~operations.

The Company is pursuing lawsuits in state court in San Francisco for rescission and damages against issuers, underwriters, and dealers of 51 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~~and discovery is proceeding. To date, the Company has realized $28 million in net settlement proceeds on such claims, and an initial trial date relating to ~~all but 4~~certain of the ~~51 securities, and allowed~~defendants who remain in the ~~cases to proceed to discovery.~~case is set for August 2015.

The “Dodd-Frank Wall Street Reform and Consumer Protection Act” was signed into law in July 2010. Among other things, the legislation authorizes various assessments and fees and requires the establishment of minimum leverage and risk-based capital requirements for insured depository institutions. The legislation also eliminated the Office of Thrift Supervision effective July 21, 2011 and, as a result, the Federal Reserve became CSC’s primary regulator and the Office of the Comptroller of the Currency became the primary regulator of Schwab Bank. CSC is continuing to review the impact the legislation, studies and related rule-making will have on the Company’s business, financial condition, and results of operations.

- 23 -

~~- 20 -~~

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 ~~RESULTS~~ OF OPERATIONS

The following discussion ~~presents~~is an analysis of the Company’s results of operations for the years ended December 31, ~~2011, 2010,~~2014, 2013, and ~~2009.~~2012.

Net Revenues

~~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 and net interest revenue increased, while trading revenue remained relatively flat in 2014 as compared to 2013. Asset management and administration fees, net interest revenue, and trading revenue ~~which~~ all increased in ~~2011~~2013 as compared to ~~2010. Asset management and administration fees and trading revenue decreased, while net interest revenue increased in 2010 as compared to 2009.~~2012.

		$4,691			$4,691			$4,691			$4,691			$4,691			$4,691			$4,691
Year Ended December 31,				2011						2010						2009								2014				2013				2012
																										% of				% of				% of
																						Growth Rate				Total Net				Total Net				Total Net
	Growth Rate 2010-2011			Amount			% of Total Net Revenues			Amount			% of Total Net Revenues			Amount			% of Total Net Revenues			2013-2014			Amount	Revenues			Amount	Revenues			Amount	Revenues
Asset management and administration fees
Schwab money market funds before fee waivers		—		$	865					$	865					$	1,011					2	%	$	957			$	936			$	891
Fee waivers		31	%		(568	)					(433	)					(224	)				11	%		(751)				(674)				(587)

Schwab money market funds after fee waivers		(31	%)		297			6	%		432			10	%		787			18	%	(21)	%		206	3	%		262	5	%		304	6	%
Equity and bond funds		4	%		118			3	%		114			3	%		108			3	%	22	%		192	3	%		157	3	%		125	3	%
Mutual Fund OneSource^®		12	%		680			14	%		608			14	%		446			11	%	8	%		839	14	%		774	14	%		680	14	%

Total mutual funds		5	%		1,095			23	%		1,154			27	%		1,341			32	%
Total mutual fund service fees																						4	%		1,237	20	%		1,193	22	%		1,109	23	%
Advice solutions		36	%		522			11	%		384			9	%		278			7	%	17	%		840	14	%		718	13	%		580	12	%
Other		10	%		311			7	%		284			7	%		256			6	%	13	%		456	8	%		404	8	%		354	7	%

Asset management and administration fees		6	%		1,928			41	%		1,822			43	%		1,875			45	%	9	%		2,533	42	%		2,315	43	%		2,043	42	%


Net interest revenue
Interest revenue		10	%		1,900			41	%		1,723			41	%		1,428			34	%	14	%		2,374	39	%		2,085	38	%		1,914	39	%
Interest expense		(12	%)		(175	)		(4	%)		(199	)		(5	%)		(183	)		(4	%)	(3)	%		(102)	(1)	%		(105)	(2)	%		(150)	(3)	%

Net interest revenue		13	%		1,725			37	%		1,524			36	%		1,245			30	%	15	%		2,272	38	%		1,980	36	%		1,764	36	%


Trading revenue
Commissions		12	%		866			19	%		770			18	%		884			21	%	(1)	%		857	14	%		864	16	%		816	17	%
Principal transactions		2	%		61			1	%		60			2	%		112			3	%	2	%		50	1	%		49	1	%		52	1	%

Trading revenue		12	%		927			20	%		830			20	%		996			24	%	(1)	%		907	15	%		913	17	%		868	18	%

Other		19	%		160			3	%		135			3	%		175			3	%
Other – net																						45	%		343	5	%		236	4	%		256	5	%
Provision for loan losses		(33	%)		(18	)		—			(27	)		(1	%)		(38	)		(1	%)	N/M			4	-			1	-			(16)	-
Net impairment losses on securities		(14	%)		(31	)		(1	%)		(36	)		(1	%)		(60	)		(1	%)	(90)	%		(1)	-			(10)	-			(32)	(1)	%

Total net revenues		10	%	$	4,691			100	%	$	4,248			100	%	$	4,193			100	%	11	%	$	6,058	100	%	$	5,435	100	%	$	4,883	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 ~~and transfer agent services (through July 2009)~~ 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 third-party mutual fund service fees, trust fees, ~~401k~~401(k) 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 a discussion of the impact of current market conditions on asset management and administration fees, see “Current Market and Regulatory ~~Environment.~~Environment and Other Developments.”

Asset management and administration fees increased by ~~$106~~$218 million, or 6%9%, in ~~2011~~2014 from ~~2010 primarily~~2013 due to ~~an increase in~~fees from mutual fund services, advice solutions, ~~fees, partially offset by a decrease in mutual fund service fees. Asset~~and other asset management and administration ~~fees~~services. Asset management and

- 24 -

~~- 21 -~~

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)

~~decreased~~administration fees increased by ~~$53~~$272 million, or 3%13%, in ~~2010~~2013 from ~~2009~~2012 primarily due to ~~the decrease in~~fees from mutual fund ~~service fees, partially offset by an increase in~~services and advice ~~solutions fees.~~solutions.

Given the low interest rate environment in 2011, 2010, and 2009, the overall yields on certain Schwab-sponsored money market mutual funds have remained at levels at or below the management fees on those funds. As a result, the Company waived a portion of its fees in order to provide a positive return to clients. Mutual fund service fees ~~decreased~~increased by ~~$59~~$44 million, or 5%4%, in ~~2011~~2014 from ~~2010~~2013 and by ~~$187~~$84 million, or ~~14%~~8%, in ~~2010~~2013 from ~~2009 primarily~~2012, due to ~~the increase~~growth in ~~money market mutual fund fee waivers, offset by higher average balances of~~ client assets invested in the Company’s Mutual Fund OneSource funds and equity and bond funds, partially offset by a decrease in net money market mutual fund fees as a result of continued ~~asset inflows.~~low yields on fund assets.

Advice solutions fees increased by $122 million, or 17%, in 2014 from 2013 due to growth in client assets enrolled in advisory offers, including Schwab Private Client™, ThomasPartners®, and Schwab Managed Portfolios™. Advice solutions fees increased by $138 million, or ~~36%~~24%, in ~~2011~~2013 from ~~2010 and by $106 million, or 38%, in 2010 from 2009~~2012 primarily due to ~~higher average balances of~~growth in client assets enrolled in ~~retail~~ advisory ~~and managed account programs,~~offers, including Windhaven®, Schwab Private ~~Client~~Client™, and ~~Schwab Managed Portfolios™~~ThomasPartners®. ~~The increase~~

Other asset management and administration fees increased by $52 million, or 13%, in ~~2011 was also attributed to the integration of Windhaven, which was acquired~~2014 from 2013 and $50 million, or 14%, in ~~November 2010. Additionally, the increases in advice solutions fees were~~2013 from 2012 primarily due to ~~temporary~~third-party mutual fund service fees ~~rebates of $63 million and $68 million, which reduced advice solutions fees~~on higher client asset balances invested in ~~2010 and 2009, respectively, under a rebate program that ended in 2010.~~other third-party mutual funds.

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 majority of the Company’s interest-earnings assets and interest-bearing liabilities are sensitive to changes in short-term interest rates. 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).~~from current levels. 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. However, the spread is influenced by external factors such as the interest rate environment and competition. The current low interest rate environment limits the extent to which the Company can reduce interest expense paid on funding sources. ~~However,~~To a lesser degree, the ~~spread~~Company is ~~influenced by external factors such as~~sensitive to changes in long-term interest rates through some of its investment portfolios. To mitigate the ~~interest rate environment and competition.~~related risk, the Company may alter the types of investments purchased. For discussion of the impact of current market conditions on net interest revenue, see “Current Market and Regulatory ~~Environment.~~Environment and Other Developments.”

The Company’s interest-earning assets are financed primarily by brokerage client cash balances and Schwab Bank deposits. Non-interest-bearing funding sources include non-interest-bearing brokerage client cash balances, stockholders’ equity, and proceeds from stock-lending activities. Revenue from stock-lending activities is included in other interest revenue.

Schwab Bank maintains available for sale and held to maturity investment portfolios for liquidity as well as to earn interest by investing funds from deposits that are in excess of loans to banking clients and liquidity requirements. Schwab Bank lends funds to banking clients primarily in the form of mortgage loans, HELOCs, and personal loans secured by securities. These loans are largely funded by interest-bearing deposits from banking clients.

In clearing ~~its~~their clients’ trades, 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 consolidated balance ~~sheet.~~sheets. When investing segregated client cash balances, Schwab and optionsXpress, Inc. must adhere to applicable regulations that restrict investments to securities guaranteed by the full faith and credit of the U.S. government, participation certificates, mortgage-backed securities guaranteed by the Government National Mortgage Association, ~~certificates~~deposits held at U.S.

- 25 -

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of ~~deposit issued by U.S.~~ Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, or as Noted)

banks and thrifts, and resale agreements collateralized by qualified securities. Additionally, Schwab and optionsXpress, Inc. have established policies for the minimum credit quality and maximum maturity of these investments.

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 HELOCs. These loans are largely funded by interest-bearing deposits from banking clients.

~~- 22 -~~

~~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 Company’s interest-earning assets are financed primarily by brokerage client cash balances and deposits from banking clients. Noninterest-bearing funding sources include noninterest-bearing brokerage client cash balances and proceeds from stock-lending activities, as well as stockholders’equity.

The following table presents net interest revenue information corresponding to interest-earning assets and funding sources on the consolidated balance ~~sheet:~~sheets:


Year Ended December 31,	2011							2010							2009							2014						2013						2012
																								Interest		Average				Interest		Average				Interest		Average
																						Average		Revenue/		Yield/		Average		Revenue/		Yield/		Average		Revenue/		Yield/
	Average Balance		Interest Revenue/ Expense		Average Yield/ Rate			Average Balance		Interest Revenue/ Expense		Average Yield/ Rate			Average Balance		Interest Revenue/ Expense		Average Yield/ Rate			Balance		Expense		Rate		Balance		Expense		Rate		Balance		Expense		Rate
Interest-earning assets:
Cash and cash equivalents	$	5,554	$	13		0.23	%	$	7,269	$	19		0.26	%	$	7,848	$	33		0.42	%	$	7,179	$	16	0.22	%	$	6,943	$	16	0.23	%	$	7,130	$	18	0.25	%
Cash and investments segregated		25,831		39		0.15	%		19,543		57		0.29	%		16,291		80		0.49	%		20,268		24	0.12	%		25,419		35	0.14	%		25,263		46	0.18	%
Broker-related receivables⁽¹⁾		310		—		0.05	%		317		—		0.08	%		363		1		0.28	%		325		-	0.09	%		377		-	0.04	%		351		-	0.04	%
Receivables from brokerage clients		10,637		467		4.39	%		8,981		437		4.87	%		6,749		351		5.20	%		13,778		482	3.50	%		11,800		434	3.68	%		10,928		446	4.08	%
Other securities owned⁽¹⁾		—		—		—			74		—		0.45	%		126		1		0.79	%
Securities available for sale⁽²⁾		27,486		456		1.66	%		24,209		486		2.01	%		18,558		521		2.81	%		52,057		546	1.05	%		49,114		557	1.13	%		39,745		583	1.47	%
Securities held to maturity		16,050		492		3.07	%		10,440		361		3.46	%		1,915		74		3.86	%		32,361		828	2.56	%		24,915		610	2.45	%		15,371		397	2.58	%
Loans to banking clients		9,472		310		3.27	%		7,987		275		3.44	%		6,671		241		3.61	%		12,906		355	2.75	%		11,758		329	2.80	%		10,053		309	3.07	%
Loans held for sale		65		3		4.62	%		80		4		5.00	%		110		5		4.55	%		-		-	-			-		-	-			18		1	4.12	%

Total interest-earning assets		95,405		1,780		1.87	%		78,900		1,639		2.08	%		58,631		1,307		2.23	%		138,874		2,251	1.62	%		130,326		1,981	1.52	%		108,859		1,800	1.65	%

Other interest revenue				120							84							121							123						104						114

Total interest-earning assets	$	95,405	$	1,900		1.99	%	$	78,900	$	1,723		2.18	%	$	58,631	$	1,428		2.44	%	$	138,874	$	2,374	1.71	%	$	130,326	$	2,085	1.60	%	$	108,859	$	1,914	1.76	%


Funding sources:
Deposits from banking clients	$	52,701	$	62		0.12	%	$	44,858	$	105		0.23	%	$	31,249	$	107		0.34	%	$	95,842	$	30	0.03	%	$	85,465	$	31	0.04	%	$	65,546	$	42	0.06	%
Payables to brokerage clients		29,992		3		0.01	%		22,715		2		0.01	%		18,002		3		0.02	%		26,731		2	0.01	%		30,258		3	0.01	%		29,831		3	0.01	%
Long-term debt		2,004		108		5.39	%		1,648		92		5.58	%		1,231		71		5.77	%		1,901		73	3.84	%		1,751		69	3.94	%		1,934		103	5.33	%

Total interest-bearing liabilities		84,697		173		0.20	%		69,221		199		0.29	%		50,482		181		0.36	%		124,474		105	0.08	%		117,474		103	0.09	%		97,311		148	0.15	%

Noninterest-bearing funding sources		10,708							9,679							8,149
Other interest expense				2							—							2

Non-interest-bearing funding sources																							14,400						12,852						11,548
Other interest expense (3)																									(3)						2						2
Total funding sources	$	95,405	$	175		0.18	%	$	78,900	$	199		0.25	%	$	58,631	$	183		0.32	%	$	138,874	$	102	0.07	%	$	130,326	$	105	0.08	%	$	108,859	$	150	0.14	%

Net interest revenue			$	1,725		1.81	%			$	1,524		1.93	%			$	1,245		2.12	%			$	2,272	1.64	%			$	1,980	1.52	%			$	1,764	1.62	%

(1)	Interest revenue was less than $500,000 in the ~~period or~~ periods presented.

(2)	Amounts have been calculated based on amortized cost.
(3)	Includes the impact of capitalizing interest on building construction and software development.

Net interest revenue increased in ~~2011~~2014 from ~~2010~~2013 primarily due to higher ~~average~~ balances of interest-earning assets, ~~partially offset by~~including margin loans and the Company’s investment portfolio, and the effect ~~of lower~~higher average interest rate spreads resulting from higher amortization of premiums relating to residential mortgage-backed securities. The growth in average balances of deposits from banking clients and payables to brokerage clients funded the increases in the balances of receivables from brokerage clients, securities available for sale, andrates on securities held to ~~maturity. Further declines in interest rates in 2011 accelerated the prepayment activity in~~maturity had on the Company’s ~~portfolio of residential mortgage-backed securities, which resulted in higher premium amortization.~~

~~Net~~average net interest ~~revenue increased in 2010 from 2009 due to higher average balances of interest-earning assets. This resulted from significant~~margin. The growth in the average balance of deposits from banking clients ~~which~~funded the increase in ~~turn funded increases in~~ the ~~average~~ balances of securities held to maturity and securities available for sale.

Net interest revenue increased in 2013 from 2012 primarily due to higher balances of interest-earning assets and higher interest rates on new fixed-rate investments, including securities available for sale and ~~loans~~securities held to ~~banking clients. These interest-earning assets are invested at rates above the cost of supporting funding sources. The increase in net interest revenue was~~maturity, partially offset by the ~~decline~~effect lower average short-term interest rates and the maturity of short-term interest-earning assets had on the Company’s average net interest margin. The growth in the ~~yields~~average balance of ~~almost all interest-earning assets compared~~deposits from banking clients funded the increase in the balance of securities available for sale and securities held to ~~2009.~~maturity. Net interest revenue also increased due to the redemption of higher rate trust preferred securities and the exchange of higher rate Senior Notes during the third quarter of 2012.

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 trading activity in client fixed income securities. To accommodate clients’ fixed income trading activity, the Company maintains positions in fixed income securities, ~~trading activity.~~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

- 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)

revenue also includes adjustments to the fair value of these securities positions. Factors that influence principal transaction revenue include the volume of client trades and market price volatility.

Trading revenue remained relatively flat in 2014 from 2013. Trading revenue increased by ~~$97~~$45 million, or ~~12%~~5%, in ~~2011~~2013 from ~~2010~~2012 primarily due to higher daily average revenue trades and ~~the addition of optionsXpress. Trading revenue decreased by $166 million, or 17%,~~two additional trading days in ~~2010 from 2009 due to lower~~2013.

~~- 23 -~~

~~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)~~

~~average revenue per revenue trade resulting from improved online trade pricing for clients and lower daily average revenue trades.~~

~~As shown in the following table, daily~~Daily average revenue trades ~~increased by 12%~~were relatively flat in ~~2011. The increase was~~2014 from 2013 primarily due to a higher volume of ~~option,~~equity trades, offset by a lower volume of mutual fund trades. Daily average revenue trades increased by 4% in 2013 from 2012 primarily due to a higher volume of equity and mutual fund trades, partially offset by a lower volume of future and option trades. Average revenue per revenue trade remained relatively flat ~~in 2011. Daily average revenue trades decreased 5% in 2010~~ from ~~2009 primarily due~~2012 to a lower volume of equity and principal transaction trades, partially offset by a higher volume of option trades. Average revenue per revenue trade decreased 11% in 2010 from 2009 primarily due to lower online equity trade commissions, which were implemented in January 2010.2014.


										Growth Rate
Year Ended December 31,	Growth Rate 2010-2011			2011		2010		2009		2013-2014			2014		2013		2012
Daily average revenue trades⁽¹⁾(in thousands)		12	%		303.8		270.7		285.8	1	%		298.2		295.0		282.7
Number of trading days		—			251.5		251.5		251.0
Clients’ daily average trades (2) (in thousands)										5	%		516.8		490.5		440.9
Number of trading days (3)										-			250.5		250.5		248.5
Average revenue per revenue trade		(1	%)	$	12.15	$	12.28	$	13.86	(1)	%	$	12.13	$	12.31	$	12.35

(1)	Includes all client trades that generate trading revenue (i.e., commission revenue or ~~revenue from fixed income securities trading)~~principal transaction revenue).
(2)	Includes daily average revenue trades, trades by clients in asset-based pricing relationships, and all commission-free trades, including the Company’s Mutual Fund OneSource funds and ETFs, and other proprietary products. Clients’ daily average trades is an indicator of client engagement with securities markets.
(3)	October 29 and 30, 2012, were not included as trading days due to weather-related market closures.

Other Revenue – Net

Other revenue – net includes order flow revenue, nonrecurring gains, software ~~fee revenue relating to~~fees from the Company’s portfolio management services, exchange processing ~~fee revenue,~~fees, realized gains or losses on sales of ~~mortgage loans,~~securities available for sale, and other service ~~fee revenues.~~ fees.

Other revenue – net increased by ~~$25~~$107 million, or ~~19%~~45%, in ~~2011~~2014 compared to 2010 primarily due to increases in software and exchange processing fee revenues, as well as the addition of education services revenue from the acquisition of optionsXpress. Other revenue was lower by $40 million, or 23%, in 2010 compared to 20092013 primarily due to a ~~gain~~net insurance settlement of ~~$31~~$45 million, ~~on the repurchase~~net litigation proceeds of ~~a portion of~~$28 million related to the Company’s ~~long-term debt~~non-agency residential mortgage-backed securities portfolio, and increases in ~~2009.~~order flow revenue.

Other revenue – net decreased by $20 million, or 8%, in 2013 compared to 2012 primarily due to a non-recurring gain of $70 million relating to a confidential resolution of a vendor dispute in the second quarter of 2012 and realized gains of $35 million from the sales of securities available for sale in 2012, partially offset by an increase in order flow revenue that Schwab began receiving in November 2012.

Provision for Loan Losses

The provision for loan losses decreased by $9$3 million ~~or 33%,~~ in ~~2011~~2014, from ~~2010, due~~$(1) million to ~~a decrease~~$(4) million in ~~overall expected loss rates resulting primarily from a decrease in first mortgage loan delinquencies. The provision for loan losses decreased by $11 million, or 29%, in 2010 from 2009,~~2013 and 2014, respectively, primarily due to ~~stabilization~~improved residential real estate mortgage and HELOC credit quality in the ~~levels of~~Company’s loan ~~delinquencies and nonaccrual loans in 2010 compared to 2009.~~portfolio. Charge-offs were ~~$19~~$5 million, ~~$20~~$11 million, and ~~$13~~$16 million in ~~2011, 2010,~~2014, 2013, and ~~2009,~~2012, respectively. For further discussion on the Company’s credit risk and the allowance for loan losses, see “Risk Management – Credit Risk” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 7.6. Loans to Banking Clients and Related Allowance for Loan Losses.”

Net Impairment Losses on Securities

Net impairment losses on securities were ~~$31~~$1 million, ~~$36~~$10 million, and ~~$60~~$32 million in ~~2011, 2010,~~2014, 2013, and ~~2009,~~2012, respectively. These charges ~~relate~~were lower in 2014 compared to 2013, reflecting a stabilization of the credit characteristics of certain non-agency residential mortgage-backed ~~securities in the Company’s available for sale portfolio as a result of credit deterioration of the~~ securities’ underlying loans. For further discussion, see “Item 8 – Financial Statements

- 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)

and Supplementary Data – Notes to Consolidated Financial Statements – 6.5. Securities Available for Sale and Securities Held to Maturity.”

~~- 24 -~~

~~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 were ~~lower~~higher in ~~2011~~2014 compared to ~~2010~~2013 primarily due to ~~certain significant charges~~increases in ~~2010, including class action litigation~~compensation and ~~regulatory reserves relating to the Schwab YieldPlus Fund~~benefits and ~~losses recognized for Schwab money market mutual funds. The decrease in expenses~~professional services expense. Expenses excluding interest ~~caused by these charges~~were higher in ~~2010 was offset by~~2013 compared to 2012 primarily due to increases in compensation and benefits, professional services, ~~occupancy and equipment, and~~ advertising and market development, ~~expenses in 2011. Expenses excluding interest were higher in 2010 compared to 2009 primarily due to the charges previously discussed.~~and other expense.


													Growth Rate
Year Ended December 31,	Growth Rate 2010-2011			2011			2010			2009			2013-2014			2014			2013			2012
Compensation and benefits		10	%	$	1,732		$	1,573		$	1,544		8	%	$	2,184		$	2,027		$	1,803
Professional services		13	%		387			341			275		10	%		457			415			388
Occupancy and equipment		11	%		301			272			318		5	%		324			309			311
Advertising and market development		16	%		228			196			191		(5)	%		245			257			241
Communications		6	%		220			207			206		1	%		223			220			220
Depreciation and amortization		6	%		155			146			159		(1)	%		199			202			196
Class action litigation and regulatory reserve		N/M			7			320			—
Money market mutual fund charges		N/M			—			132			—
Other		(5	%)		269			282			224		4	%		311			300			274

Total expenses excluding interest		(5	%)	$	3,299		$	3,469		$	2,917		6	%	$	3,943		$	3,730		$	3,433


Expenses as a percentage of total net revenues:
Total expenses excluding interest					70	%		82	%		70	%
Compensation and benefits																36	%		37	%		37	%
Advertising and market development					5	%		5	%		5	%				4	%		5	%		5	%

~~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 ~~bonus costs,~~bonuses, and stock-based compensation. Variable compensation includes payments to certain individuals based on their sales performance. Discretionary ~~bonus costs~~bonuses are based on the Company’s overall performance as measured by earnings per common share, and therefore will fluctuate with this measure. ~~In 2009, discretionary bonus costs were based on the achievement of specified performance objectives, including revenue growth and pre-tax profit margin.~~ Stock-based compensation primarily includes employee and board of director stock options ~~restricted stock awards,~~ and restricted ~~stock units.~~stock.

~~- 25 -~~

~~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 $159 million, or 10%, in 2011 from 2010 primarily due to increases in salaries and wages and incentive compensation. Compensation and benefits expense increased by $29 million, or 2%, in 2010 from 2009 primarily due to an increase in incentive compensation. The following table shows a comparison of certain compensation and benefits components and employee data:


													Growth Rate
Year Ended December 31,	Growth Rate 2010-2011			2011			2010			2009			2013-2014			2014		2013		2012
Salaries and wages		9	%	$	1,012		$	931		$	930		12	%	$	1,245	$	1,110	$	1,043
Incentive compensation		15	%		444			386			355		1	%		605		599		466
Employee benefits and other		8	%		276			256			259		5	%		334		318		294

Total compensation and benefits expense		10	%	$	1,732		$	1,573		$	1,544		8	%	$	2,184	$	2,027	$	1,803

Compensation and benefits expense as a percentage of total net revenues:
Salaries and wages					22	%		22	%		22	%
Incentive compensation					9	%		9	%		8	%
Employee benefits and other					6	%		6	%		7	%

Total compensation and benefits expense					37	%		37	%		37	%

Full-time equivalent employees (in thousands)⁽¹⁾
At year end		10	%		14.1			12.8			12.4		6	%		14.6		13.8		13.8
Average		6	%		13.4			12.6			12.4		2	%		14.2		13.9		13.8

(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 ~~2011~~2014 from ~~2010~~2013 primarily due to ~~increases~~a $68 million charge in ~~full-time employees~~2014 for estimated future severance benefits resulting from changes in the Company’s geographic footprint and ~~persons employed on a contract basis. The increase in full-time employees was partially~~ due to ~~the addition of full-time employees from the optionsXpress acquisition in September 2011.~~annual salary increases. Incentive compensation ~~increased~~was relatively flat in ~~2011~~2014 from ~~2010~~2013 primarily due to an increase in discretionary bonus costs, ~~and~~offset by higher variable compensation. Discretionary bonus costs increased based on the Company’s overall performance in 2011, as well as an increase in full time employees. Variable compensation was higher primarily due2013 expense related to the integration of Windhaven, which was acquired in November 2010. Employee benefits and other expense increased in 2011 from 2010 primarily due to increases in payroll taxes and the Company’s 401(k) plan contribution expense as a ~~result of increases in~~new payout schedule for field incentive ~~compensation and full-time employees.~~plans.

Salaries and wages were relatively flat in 2010 from 2009 primarily due to increases in persons employed on a contract basis and full-time employees, offset by severance expense of $58 million in 2009 relating to the Company’s cost reduction measures. Incentive compensation increased in 2010 from 2009 primarily due to higher variable compensation resulting from product sales performance in the Company’s branch offices and higher stock-based compensation relating to the amortization of its stock options and restricted stock units.

- 28 -

~~Expenses Excluding Compensation and Benefits~~

Professional services expense increased in 2011 from 2010 primarily due to an increase in fees relating to the Company’s technology investments and client facing infrastructure, and approximately $10 million in costs relating to the integration of optionsXpress. Professional services expense increased in 2010 from 2009 primarily due to increases in fees relating to technology services and enhancements, and investment advisor fees relating to the Company’s managed account service programs.

Occupancy and equipment expense increased in 2011 from 2010 primarily due to an increase in the Company’s investments in data processing equipment. Occupancy and equipment expense decreased in 2010 from 2009 primarily due to facilities charges of $43 million in 2009 relating to the Company’s cost reduction measures.

~~Advertising and market development expense increased in 2011 from 2010 primarily due to higher spending on customer and branch promotions and electronic media.~~

~~- 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)

~~Communications~~Salaries and wages increased in 2013 from 2012 primarily due to annual salary increases. Incentive compensation increased in 2013 from 2012 primarily due to the transition to a new payout schedule for field incentive plans, increased individual sales performance compensation as a result of higher field sales volume, and increased funding for the corporate bonus plan commensurate with achieving higher earnings per common share. Employee benefits and other expense increased in ~~2011~~2013 from ~~2010~~2012 primarily due to payroll taxes related to the increase in incentive compensation, and increased contributions to new employee HSAs. The Company was converting to HSA-based healthcare and employee enrollment in these plans rose significantly in 2013.

Expenses Excluding Compensation and Benefits

Professional services expense increased in 2014 from 2013 primarily due to higher ~~telephone~~spending on technology services and an increase in fees paid to outsourced service ~~expense~~providers and ~~third-party news and information expense.~~

~~Depreciation and amortization~~consultants. Professional services expense increased in ~~2011~~2013 from ~~2010~~2012 primarily due to an increase in fees paid to outsourced service providers and consultants and higher spending on printing and fulfillment services.

Occupancy and equipment expense increased in 2014 from 2013 primarily due to an increase in software maintenance expense relating to the Company’s information technology systems. Occupancy and equipment expense was relatively flat in 2013 compared to 2012.

Advertising and market development expense decreased in 2014 from 2013 primarily due to production costs incurred in 2013 relating to the development of the Company’s advertising and branding initiative, Own your tomorrowTM, partially offset by higher 2014 spending on customer promotions. Advertising and market development expense increased in 2013 from 2012 primarily due to higher ~~amortization~~spending on media relating to the launch of ~~intangible assets resulting~~the Company’s new advertising and branding initiative, Own your tomorrowTM.

Other expense increased in 2014 from ~~the acquisitions of optionsXpress and Windhaven. Depreciation and amortization expense decreased in 2010 from 2009~~2013 primarily due to ~~certain assets becoming fully depreciated.~~

In 2011 and 2010, the Company recorded class action litigation and regulatory reserves relating to the Schwab YieldPlus Fund. For further discussion of the Schwab YieldPlus Fund litigation and regulatory matters, see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 15. Commitments and Contingencies.”

~~In 2010, the Company decided to cover the net remaining losses of $132 million recognized by Schwab money market mutual funds~~an increase in travel costs as a result of ~~their investments in a single structured investment vehicle that defaulted in 2008.~~

increased employee headcount and travel. Other expense ~~was lower~~increased in ~~2011 compared to 2010~~2013 from 2012 primarily due to a charge of $30 million in 2010, relating to the Company’s Invest First and WorldPoints Visa credit cards, as the Company ended its sponsorship due to challenging credit card industry economics. Other expense was higher in 2010 as compared to 2009 primarily due to this charge and an increase in ~~employee travel expenses.~~regulatory assessments.

Taxes on Income

The Company’s effective income tax rate on income before taxes was ~~37.9%~~37.5% in ~~2011, 41.7%~~2014, 37.2% in ~~2010,~~2013, and ~~38.3%~~36.0% in 2009. The decrease in 2011 from 2010 was due to a lower effective state income tax rate in 2011 and the impact of non-deductible penalties relating to the Schwab YieldPlus Fund regulatory settlements recorded in 2010.2012. The increase in ~~2010~~2014 from ~~2009~~2013 was primarily due to the impact of ~~non-deductible penalties~~a non-recurring state tax benefit of $4 million from 2013. The increase in ~~2010.~~2013 from 2012 was primarily due to the impact of a non-recurring state tax benefit of $20 million in 2012, partially offset by the recognition of the additional state tax benefit of $4 million in 2013.

Segment Information

The Company provides financial services to individuals and institutional clients through two segments – Investor Services and ~~Institutional~~Advisor Services. The Investor Services segment provides retail brokerage and banking services to individual ~~investors.~~investors, retirement plan services, and corporate brokerage services. The ~~Institutional~~Advisor Services segment provides custodial, trading, and support services to independent investment ~~advisors. The Institutional Services segment also provides~~advisors, and retirement business services to independent retirement plan ~~services, specialty brokerage services,~~advisors and ~~mutual fund clearing services, and supports the availability of~~recordkeepers whose plan assets are held at Schwab ~~proprietary mutual funds and collective trust funds on third-party platforms.~~Bank. 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. Segment assets and liabilities are not ~~disclosed because the balances are not~~ used for evaluating segment performance ~~and~~or in deciding how to allocate resources to segments.

- 2729 -

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)

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


	Investor Services												Institutional Services
Year Ended December 31,	Growth Rate 2010-2011			2011			2010			2009			Growth Rate 2010-2011			2011			2010			2009
Net Revenues
Asset management andadministration fees		8	%	$	1,053		$	976		$	968			3	%	$	875		$	846		$	907
Net interest revenue		13	%		1,468			1,297			1,058			13	%		257			227			187
Trading revenue		12	%		625			557			679			11	%		302			273			317
Other		21	%		85			70			93			15	%		75			65			82
Provision for loan losses		(35	%)		(15	)		(23	)		(34	)		(25	%)		(3	)		(4	)		(4	)
Net impairment losses on securities		(16	%)		(27	)		(32	)		(54	)		—			(4	)		(4	)		(6	)

Total net revenues		12	%		3,189			2,845			2,710			7	%		1,502			1,403			1,483

Expenses Excluding Interest		9	%		2,261			2,065			1,906			8	%		1,039			960			929

Income before taxes on income		19	%	$	928		$	780		$	804			5	%	$	463		$	443		$	554

																									Investor Services								Advisor Services
	Unallocated												Total												Growth Rate								Growth Rate
Year Ended December 31,	Growth Rate 2010-2011			2011			2010			2009			Growth Rate 2010-2011			2011			2010			2009			2013-2014			2014		2013		2012	2013-2014			2014		2013		2012
Net Revenues
Asset management andadministration fees		—		$	—		$	—		$	—			6	%	$	1,928		$	1,822		$	1,875
Asset management and
administration fees																									9	%	$	1,775	$	1,627	$	1,436	10	%	$	758	$	689	$	607
Net interest revenue		—			—			—			—			13	%		1,725			1,524			1,245		16	%		2,030		1,756		1,559	8	%		242		224		205
Trading revenue		—			—			—			—			12	%		927			830			996		-			618		621		612	(1)	%		289		292		255
Other		—			—			—			—			19	%		160			135			175
Other – net																									24	%		221		178		123	25	%		71		57		62
Provision for loan losses		—			—			—			—			(33	%)		(18	)		(27	)		(38	)	N/M			4		1		(15)	-			-		-		(1)
Net impairment losseson securities		—			—			—			—			(14	%)		(31	)		(36	)		(60	)
Net impairment losses
on securities																									(89)	%		(1)		(9)		(29)	(100)	%		-		(1)		(3)
Total net revenues																									11	%		4,647		4,174		3,686	8	%		1,360		1,261		1,125
Expenses Excluding
Interest																									3	%		2,974		2,899		2,693	8	%		901		831		739
Income before taxes
on income																									31	%	$	1,673	$	1,275	$	993	7	%	$	459	$	430	$	386


																									Unallocated								Total
																									Growth Rate								Growth Rate
Year Ended December 31,																									2013-2014			2014		2013		2012	2013-2014			2014		2013		2012
Net Revenues
Asset management and
administration fees																									N/M		$	-	$	(1)	$	-	9	%	$	2,533	$	2,315	$	2,043
Net interest revenue																									N/M			-		-		-	15	%		2,272		1,980		1,764
Trading revenue																									N/M			-		-		1	(1)	%		907		913		868
Other – net																									N/M			51		1		71	45	%		343		236		256
Provision for loan losses																									N/M			-		-		-	N/M			4		1		(16)
Net impairment losses
on securities																									N/M			-		-		-	(90)	%		(1)		(10)		(32)
Total net revenues		—			—			—			—			10	%		4,691			4,248			4,193		N/M			51		-		72	11	%		6,058		5,435		4,883

Expenses Excluding Interest		N/M			(1	)		444			82			(5	%)		3,299			3,469			2,917

Income before taxes on income		N/M		$	1		$	(444	)	$	(82	)		79	%	$	1,392		$	779		$	1,276

Taxes on income														62	%		(528	)		(325	)		(489	)

Net Income														90	%	$	864		$	454		$	787

Expenses Excluding
Interest																									N/M			68		-		1	6	%		3,943		3,730		3,433
Income before taxes
on income																									N/M		$	(17)	$	-	$	71	24	%	$	2,115	$	1,705	$	1,450

N/M Not meaningful.

Investor Services

Net revenues increased by ~~$344~~$473 million, or ~~12%~~11%, in ~~2011~~2014 from ~~2010~~2013 primarily due to increases in net interest revenue, asset management and administration fees, and ~~trading revenue.~~other revenue – net. Net interest revenue increased primarily due to higher ~~average~~ balances of interest-earning assets, ~~during~~including margin loans and the ~~year,~~Company’s investment portfolio, and the effect higher average interest rates on securities held to maturity had on the Company’s average net interest margin. Asset management and administration fees increased due to fees from mutual fund services, advice solutions, and other asset management and administration services. Mutual fund service fees increased due to growth in client assets invested in the Company’s Mutual Fund OneSource funds and equity and bond funds, partially offset by ~~the effect~~a decrease in net money market mutual fund fees as a result of ~~higher premium amortization relating~~continued low yields on fund assets. Advice solution fees increased due to ~~residential mortgage-backed securities caused by higher mortgage prepayments~~growth in ~~2011. Asset~~client assets enrolled in advisory offers. Other asset management and administration fees increased primarily due to ~~an increase in revenue from the Company’s advice solutions and continued asset inflows, offset by money market~~third-party mutual fund ~~fee waivers. Trading~~service fees on higher client asset balances invested in other third-party mutual funds. Other revenue – net increased primarily due to ~~higher daily average revenue trades~~litigation proceeds related to the Company’s non-agency residential mortgage-backed securities portfolio and ~~the addition of optionsXpress, which was acquired in September 2011. Expenses excluding interest increased by $196 million, or 9%, in 2011 from 2010 primarily due to~~ increases in ~~compensation and benefits, professional services, and advertising and market development expenses, which included the integration of optionsXpress.~~

- 30 -

~~- 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)

Net revenues increased by $135 million, or 5%, in 2010 from 2009 primarily due to an increase in net interest revenue and lower net impairment losses on securities, partially offset by decreases in trading revenue and otherorder flow revenue. Net interest revenue increased due to higher average balances of interest-earning assets, partially offset by a decrease in the average yield earned. Trading revenue decreased due to lower average revenue per revenue trade resulting from improved online trade pricing for clients, which was implemented in January 2010, and slightly lower daily average revenue trades in 2010. Other revenue was lower in comparison to 2009 due to a gain on the repurchase of a portion of the Company’s long-term debt in 2009. While the low interest rate environment caused additional money market mutual fund fee waivers from 2009, asset management and administration fees were relatively flat due to higher average asset valuations and continued asset inflows. Expenses excluding interest increased by ~~$159~~$75 million, or 8%3%, in ~~2010~~2014 from ~~2009~~2013 primarily due to increases in compensation and benefits and professional services expense, partially offset by a decrease in advertising and other expenses. Other expense includes a charge relating to the Company’s termination of its sponsorship in its Invest First and WorldPoints Visa credit cards in 2010 as a result of challenging credit card economics.

~~Institutional Services~~market development expense.

Net revenues increased by ~~$99~~$488 million, or 7%13%, in ~~2011~~2013 from ~~2010~~2012 primarily due to increases in net interest revenue, asset management and administration fees, and ~~trading~~other revenue. Net interest revenue increased primarily due to higher ~~average~~ balances of interest-earning assets, ~~during the year,~~ partially offset by the effect ~~of higher premium amortization relating to residential mortgage-backed securities caused by higher mortgage prepayments in 2011.~~lower average short-term interest rates had on the Company’s average net interest margin. Asset management and administration fees increased primarily due to ~~an increase~~increases in advice solutions fees and mutual fund service fees. Advice solutions fees ~~relating~~increased due to growth in client assets enrolled in advisory offers, including Windhaven and Schwab Private Client. Mutual fund service fees increased due to market appreciation and growth in client assets invested in the Company’s Mutual Fund OneSource funds, and equity and bond funds, partially offset by a decrease in net money market mutual fund fees as a result of lower yields on fund assets. Other revenue – net increased primarily due to an increase in order flow revenue that Schwab began receiving in November 2012. Expenses excluding interest increased by $206 million, or 8%, in 2013 from 2012 primarily due to increases in compensation and benefits, professional services, advertising and market development, and other expenses.

Advisor Services

Net revenues increased by $99 million, or 8%, in 2014 from 2013 primarily due to an increase in asset management and administration fees, net interest revenue, and other revenue – net. Asset management and administration fees increased due to fees from mutual fund services, advice solutions, and other asset management and administration services. Mutual fund service fees increased due to growth in client assets invested in the Company’s Mutual Fund OneSource funds and equity and bond funds, partially offset by a decrease in net money market mutual fund fees as a result of continued low yields on fund assets. Advice solutions fees increased due to growth in client assets enrolled in advisory offers. Other asset ~~inflows, offset by money market~~management and administration fees increased primarily due to third-party mutual fund ~~fee waivers. Trading~~service fees on higher client asset balances invested in other third-party mutual funds. Net interest revenue increased primarily due to higher ~~daily~~balances of interest-earning assets, including margin loans and the Company’s investment portfolio, and the effect higher average interest rates on securities held to maturity had on the Company’s average net interest margin. Other revenue ~~trades.~~– net increased primarily due to increases in order flow revenue. Expenses excluding interest increased by ~~$79~~$70 million, or 8%, in ~~2011~~2014 from ~~2010~~2013 primarily due to increases in compensation and benefits and professional services ~~expenses.~~expense.

Net revenues ~~decreased~~increased by ~~$80~~$136 million, or 5%12%, in ~~2010~~2013 from ~~2009~~2012 primarily due to ~~decreases~~increases in asset management and administration fees, trading revenue, and ~~other revenue, offset by an increase in~~ net interest revenue. Asset management and administration fees ~~decreased~~increased primarily due to ~~money market~~increases in mutual fund ~~fee waivers, partially offset by the effect of higher average asset valuations~~service fees and ~~continued asset inflows. Additionally,~~advice solutions fees. Mutual fund service fees increased due to market appreciation and growth in ~~August 2010 management transferred~~ client assets ~~associated with~~invested in the ~~Schwab Advisor Network~~Company’s Mutual Fund OneSource funds, and equity and bond funds. Advice solutions fees increased due to ~~the Investor Services segment and started recording the related asset management and administration fee revenue to that segment.~~growth in client assets enrolled in advisory offers. Trading revenue ~~decreased~~increased primarily due to ~~lower average revenue per revenue trade resulting from improved online trade pricing for clients, which was implemented in January 2010, and slightly lower~~higher daily average revenue trades and two additional trading days in ~~2010. Other revenue was lower in comparison to 2009 due to a gain on the repurchase of a portion of the Company’s long-term debt in 2009.~~2013. Net interest revenue increased primarily due to higher ~~average~~ balances of interest-earning assets, partially offset by ~~a decrease in~~ the effect lower average ~~yield earned.~~short-term interest rates had on the Company’s average net interest margin. Expenses excluding interest increased by ~~$31~~$92 million, or 3%12%, in ~~2010~~2013 from ~~2009~~2012 primarily due to ~~an increase~~increases in compensation and benefits, ~~expense.~~professional services, advertising and market development expenses, and other expenses.

Unallocated

Other revenue – net in 2014 includes a net insurance settlement of $45 million.

Other revenue – net in 2012 includes a non-recurring gain of $70 million relating to a confidential resolution of a vendor dispute.

Expenses excluding interest increased in 2010 include class action litigation and regulatory reserves relating to the Schwab YieldPlus Fund and a charge relating to the Company’s decision to cover the net remaining losses recognized by Schwab money market mutual funds2014 from 2013 as a result of ~~their investments~~a charge of $68 million in ~~a single structured investment vehicle that defaulted~~the third quarter of 2014 for estimated future severance benefits resulting from changes in ~~2008. Expenses excluding interest in 2009 include facilities and severance charges relating to~~ the Company’s ~~cost reduction measures.~~geographic footprint.

- 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)

LIQUIDITY ~~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. ~~Prior to July 21, 2011,~~ CSC ~~and Schwab Bank were both~~is subject to supervision and regulation by the ~~OTS. The Dodd-Frank Act eliminated the OTS effective July 21, 2011, and as a result, the~~ Federal Reserve ~~became CSC’s primary regulator~~ and Schwab Bank is subject to supervision and regulation by the ~~Office of the Comptroller of the Currency became the primary regulator of Schwab Bank.~~OCC.

~~- 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)~~

Liquidity

~~Liquidity~~CSC

~~CSC~~

~~While CSC is not currently subject~~CSC’s liquidity needs arise from funding its subsidiaries’ operations, including margin and mortgage lending, and transaction settlement, in addition to ~~specific~~funding cash dividends, acquisitions, investments, short- and long-term debt, and managing 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 Board of Governors of the Federal Reserve System, of at least 6%. At December 31, 2011, the Company’s Tier 1 Leverage Ratio was 6.3%.requirements.

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 January 2012, the Company completed an equity offering~~On July 25, 2013, CSC issued $275 million of ~~400,000 shares of~~Senior Notes that mature in 2018 under its ~~preferred stock under the~~ Shelf Registration Statement. ~~For further discussion~~The Senior Notes have a fixed interest rate of ~~the equity offering, see “Subsequent Event”.~~2.20% with interest payable semi-annually.

CSC ~~has liquidity needs that arise from~~is required to serve as a source of strength for Schwab Bank and must have the ~~funding~~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 for CSC, as currently defined by the Federal Reserve, of ~~cash dividends, acquisitions, and investments, as well as its Senior Notes, Senior Medium-Term Notes, Series A (Medium-Term Notes)~~at least 6%. At December 31, 2014, CSC’s Tier 1 Leverage Ratio was 6.9%, Tier 1 Capital Ratio was 18.0%, and ~~Junior Subordinated Notes.~~ Total Capital Ratio was 18.1%. Prior to January 1, 2015, CSC, as a savings and loan holding company, was not subject to specific statutory capital requirements. Beginning on January 1, 2015, CSC is subject to new capital requirements set by the Federal Reserve.

The following are details of CSC’s long-term debt:

December 31, 2011
   Par
Outstanding    Maturity    Interest Rate    Moody’s    Standard
& Poor’s    Fitch
Senior Notes
   $     1,450       2014 – 2020    4.45% to 4.950% fixed    A2    A    A
Medium Term Notes
   $ 250       2017    6.375% fixed    A2    A    A
Junior Subordinated Notes⁽¹⁾
   $ 202       2067    7.50% fixed until 2017,    Baa1    BBB+    BBB+
         floating thereafter

⁽¹⁾	~~The Junior Subordinated Notes themselves are not rated, however, the trust preferred securities related to these Junior Subordinated Notes are rated.~~

Par

Standard

December 31, 2014

Outstanding

Maturity

Interest Rate

Moody’s

& Poor’s

Fitch

Senior Notes

1,581

2015 – 2022

0.850% to 4.45% fixed

Medium-Term Notes

250

2017

6.375% fixed

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 December 31, ~~2011.~~2014. CSC’s ratings for these short-term borrowings are P1 by Moody’s, A1 by Standard & Poor’s, and F1 by Fitch.

- 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)

CSC maintains an $800 million committed, unsecured credit facility with a group of 1112 banks, which is scheduled to expire in June ~~2012.~~2015. This facility replaced a similar facility that expired in June ~~2011~~2014 and ~~was~~both facilities were unused ~~in 2011.~~during 2014. The funds under this facility are available for general corporate ~~purposes, including repayment of the Commercial Paper Notes discussed above.~~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.~~equity, excluding accumulated other comprehensive income. At December 31, ~~2011,~~2014, the minimum level of stockholders’ equity required under this facility was ~~$5.0~~$7.8 billion (CSC’s stockholders’ equity, excluding accumulated other comprehensive income, at December 31, ~~2011~~2014, was ~~$7.7~~$11.6 billion). Management believes that these restrictions will not have a material effect on CSC’s ability to meet foreseeable dividend or funding requirements.

~~- 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)~~

CSC also has direct access to ~~$750 million~~certain of the ~~$875 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 ~~2011.~~2014.

In addition, Schwab ~~provides~~provided CSC with a $1.0 billion credit facility, ~~maturing~~which was scheduled to expire in December 2014. ~~This~~Schwab terminated this credit facility ~~replaced a similar facility that expired~~ in ~~December 2011. There~~July 2014.

Schwab

Schwab’s liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were ~~no funds drawn under this facility~~$32.0 billion and $33.2 billion at December 31, ~~2011.~~

~~Schwab~~2014 and 2013, respectively. Management believes that brokerage client cash balances and operating earnings will continue to be the primary sources of liquidity for Schwab.

Schwab is subject to regulatory requirements of Rule 15c3-1 under the Securities Exchange Act of 1934 (the Uniform Net Capital Rule) 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 December 31, ~~2011,~~2014, Schwab’s net capital was ~~$1.2~~$1.6 billion (10% of aggregate debit balances), which was ~~$948 million~~$1.2 billion in excess of its minimum required net capital and ~~$588~~$739 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 consolidated balance sheets and are not available as a general source of liquidity.

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 $33.5 billion and $29.9 billion at December 31, 2011 and 2010, 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 ~~$100~~$83 million at December 31, ~~2011,~~2014, is being reduced by a portion of the lease payments over the remaining lease term of 13ten years.

To manage short-term liquidity, Schwab maintains uncommitted, unsecured bank credit lines with a group of ~~six banks totaling $875 million at December 31, 2011.~~banks. The need for short-term borrowings arises primarily from timing differences between cash flow requirements, scheduled liquidation of interest-earnings investments, and movements of cash to meet regulatory brokerage client cash segregation requirements. Schwab ~~borrowed an average of $41 million per day~~used such borrowings for ~~nine~~three days in ~~2011 under these lines.~~2014, with average daily amounts borrowed of $25 million. There were no borrowings outstanding under these lines at December 31, ~~2011.~~2014.

- 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)

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 ~~eight~~five banks in favor of the ~~OCC~~Options Clearing Corporation aggregating ~~$350~~$225 million at December 31, ~~2011.~~2014. There were no funds drawn under any of these LOCs during 2014. 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 December 31, 2011, the aggregate face amount of these LOCs totaled $78 million. There were no funds drawn under any of these LOCs during 2011.providing cash as collateral.

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 ~~2012.~~2016. The amount outstanding under this facility at December 31, ~~2011,~~2014, was ~~$245~~$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. In December 2014, CSC and Schwab agreed to extend the expiration date of this facility ~~which is scheduled~~from December 2014 to ~~expire in~~ December ~~2014. This facility replaced a similar facility that expired in December 2011.~~2017. Borrowings under this facility do not qualify as regulatory capital for Schwab. There were no funds drawn under this facility at December 31, ~~2011.~~2014.

~~- 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)~~

Schwab Bank

Schwab Bank’s liquidity needs are met through deposits from banking clients and equity capital.

Deposits from banking clients at December 31, 2014 were $102.8 billion, which includes the excess cash held in certain Schwab and optionsXpress, Inc. brokerage accounts that is swept into deposit accounts at Schwab Bank. At December 31, 2014, these balances totaled $82.1 billion.

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.

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. The Company currently utilizes a target Tier 1 Leverage Ratio for Schwab Bank of at least 6.25%. Beginning on January 1, 2015, Schwab Bank is subject to new capital requirements set by the OCC. Based on its regulatory capital ratios at December 31, ~~2011,~~2014, Schwab Bank is considered well capitalized. Schwab Bank’s regulatory capital and ratios ~~at December 31, 2011,~~ are as follows:


	Actual					Minimum Capital Requirement					Minimum to be Well Capitalized									Minimum to be				Minimum Capital
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Actual				Well Capitalized				Requirement
December 31, 2014																Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 Risk-Based Capital	$	4,984		23.4	%	$	850		4.0	%	$	1,276		6.0	%	$	7,700	22.1	%	$	2,095	6.0	%	$	1,397	4.0	%
Total Risk-Based Capital	$	5,036		23.7	%	$	1,701		8.0	%	$	2,126		10.0	%	$	7,744	22.2	%	$	3,492	10.0	%	$	2,793	8.0	%
Tier 1 Core Capital	$	4,984		7.5	%	$	2,642		4.0	%	$	3,302		5.0	%
Tier 1 Leverage																$	7,700	6.9	%	$	5,548	5.0	%	$	4,438	4.0	%
Tangible Equity	$	4,984		7.5	%	$	1,321		2.0	%		N/A				$	7,700	6.9	%		N/A			$	2,219	2.0	%

N/A Not applicable.

Management has established a target Tier 1 Core Capital Ratio for Schwab Bank of at least 7.5%. 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 December 31, 2011, these balances totaled $40.6 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~~and/or securities held to maturity that are pledged as ~~collateral.~~collateral to the FRB. Schwab Bank maintains policies and procedures necessary to access this funding and tests discount window borrowing procedures annually. At December 31, ~~2011, $1.2~~2014, $2.3 billion was available under this arrangement. There were no funds drawn under this arrangement during ~~2011.~~2014.

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.

- 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)

Schwab Bank maintains policies and procedures necessary to access this funding and tests borrowing procedures annually. At December 31, ~~2011, $5.2~~2014, $9.0 billion was available under this facility. There were no funds drawn under this facility during ~~2011.~~2014.

CSC provides Schwab Bank with a $100 million short-term credit facility, which is scheduled to expire in December 2014. This facility replaced a similar facility that expired in December 2011. Borrowings under this facility do not qualify as regulatory capital for Schwab Bank. There were no funds drawn under these facilities during 2011.optionsXpress, Inc.

optionsXpress, Inc.’s liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $942 million at December 31, 2014. Management believes that brokerage client cash balances and operating earnings will continue to be the primary sources of liquidity for optionsXpress, Inc.

optionsXpress, Inc., ~~a wholly-owned subsidiary of optionsXpress, is a registered broker-dealer and~~ is subject to regulatory requirements of the Uniform Net Capital Rule 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 December 31, ~~2011,~~2014, optionsXpress Inc.’s net capital was ~~$78~~$123 million ~~(29%~~(38% of aggregate debit balances), which was ~~$73~~$117 million in excess of its minimum required net capital and ~~$65~~$107 million in excess of 5% of aggregate debit balances.

~~- 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)~~

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). At December 31, 2014, optionsXpress, Inc. met the requirements of Reg. 1.17.

~~Liquidity needs relating~~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 consolidated balance sheets and are not available as a general source of liquidity.

To partially satisfy the margin requirement of client ~~trading and margin borrowing activities are met primarily through cash balances~~option transactions with the Options Clearing Corporation, optionsXpress, Inc. has an unsecured standby LOC with one bank in ~~brokerage client accounts, which were $1.2 billion~~favor of the Options Clearing Corporation in the amount of $15 million at December 31, ~~2011. Management believes that brokerage client cash balances and operating earnings will continue to be the primary sources of liquidity for optionsXpress, Inc.~~2014. There were no funds drawn under this LOC during 2014.

CSC provides optionsXpress, Inc. with a ~~$100~~$200 million credit facility. In December 2014, CSC and optionsXpress, Inc. agreed to extend the expiration date of this facility ~~which is scheduled~~from December 2014 to ~~expire in~~ December ~~2014.~~2016. Borrowings under this facility do not qualify as regulatory capital for optionsXpress, Inc. There were no ~~funds drawn~~borrowings outstanding under this facility ~~since the acquisition date.~~at December 31, 2014.

optionsXpress has a term loan with CSC, of which ~~$118~~$12 million was outstanding at December 31, ~~2011,~~2014, and it matures in December ~~2014.~~2017.

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 December 31, 2011, was $9.7 billion, up $1.5 billion, or 18%, from December 31, 2010. At December 31, 2011, the Company had long-term debt of $2.0 billion, or 21% of total financial capital, that bears interest at a weighted-average rate of 5.24%. At December 31, 2010, the Company had long-term debt of $2.0 billion, or 24% of total financial capital. The Company repaid $116 million of long-term debt in 2011, which included the pay off of long-term debt acquired from optionsXpress of $110 million subsequent to the acquisition date. In 2010, the Company issued $700 million of additional Senior Notes that mature in 2020 and have a fixed interest rate of 4.45%. The Company repaid $205 million of long-term debt in 2010, which included the maturity of $200 million of Medium-Term Notes.

The Company’s cash position (reported as cash and cash equivalents on its consolidated balance ~~sheet)~~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,~~security portfolios, 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.

- 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)

The Company monitors both the relative composition and absolute level of its capital structure. Management is focused on optimizing 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 December 31, 2014 was $13.7 billion, up $1.4 billion, or 12%, from December 31, 2013.

Long-term Debt

At December 31, 2014, the Company had long-term debt of $1.9 billion, or 14% of total financial capital, that bears interest at a weighted-average rate of 3.60%. At December 31, 2013, the Company had long-term debt of $1.9 billion, or 15% of total financial capital. On July 25, 2013, CSC issued $275 million of Senior Notes that mature in 2018 under its Shelf Registration Statement. The Senior Notes have a fixed interest rate of 2.20% with interest payable semi-annually. The Company repaid $6 million of other long-term debt in 2014. For further discussion of the Company’s long-term debt, see “Liquidity and Capital Resources – Liquidity” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 13. Borrowings.”

Capital Expenditures

The Company’s capital expenditures were ~~$190~~$405 million ~~(4%~~(7% of net revenues) and ~~$127~~$270 million ~~(3%~~(5% of net revenues) in ~~2011~~2014 and ~~2010,~~2013, respectively. Capital expenditures in ~~2011 and 2010~~2014 were primarily for buildings and land relating to changes in the Company’s geographic footprint, developing internal-use software, and software and equipment relating to the Company’s information technology ~~systems,~~systems. Capital expenditures in 2013 were primarily for buildings and land, capitalized costs for developing internal-use software, and ~~leasehold improvements. Capitalized costs for developing internal-use software were $57 million and $21 million in 2011 and 2010, respectively.~~

~~Management currently anticipates that 2012 capital expenditures will be approximately 30% lower than 2011 spending primarily due to decreased spending on~~ software and equipment relating to the Company’s information technology ~~systems, capitalized~~systems. Capitalized costs for developing internal-use software were $81 million and ~~leasehold improvements.~~$74 million in 2014 and 2013, respectively.

Management currently anticipates that 2015 capital expenditures will be approximately 15% lower than 2014 primarily due to decreased spending on buildings and furniture and equipment. A majority of this decrease is due to the construction of the Company’s new office campus in Denver, Colorado in 2014. As ~~has been the case~~ in recent years, the Company ~~may adjust~~adjusts its capital expenditures periodically as business conditions change. Management believes that funds generated by its operations will continue to be the primary funding source of its capital expenditures.

~~- 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)~~

~~Equity Offering~~

On January 26, 2010, the Company sold 29,670,300 shares of its common stock, $.01 par value, at a public offering price of $19.00 per share. Net proceeds received from the offering were $543 million and were used to support the Company’s balance sheet growth, including expansion of its deposit base and migration of certain client balances from money market funds into deposit accounts at Schwab Bank.

Dividends

CSC paid common stock cash dividends of ~~$295~~$316 million ($0.24 per share) and ~~$288~~$311 million ($0.24 per share) in ~~2011~~2014 and ~~2010,~~2013, respectively. Since the initial dividend in 1989, CSC has paid 91103 consecutive quarterly dividends and has increased the quarterly dividend rate 19 times, ~~including~~resulting in a ~~20% increase in the third quarter of 2008. Since 1989, dividends have increased by a 24%~~21% compounded annual growth rate, excluding the special cash dividend of $1.00 per common share in 2007. While the payment and amount of dividends are at the discretion of the Board of Directors, subject to certain regulatory and other restrictions, the Company currently targets its common stock cash dividend at approximately 20% to 30% of net income.

~~Under the terms of the~~CSC paid Series A Preferred Stock ~~issued~~cash dividends of $28 million ($70.00 per share) in January 2012, the Company’s ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire its common stock is subject to restrictions in the event that the Company does not declare2014 and ~~either pay or set aside a sum sufficient for payment of dividends on the~~2013, respectively. CSC paid Series AB Preferred Stock ~~for the immediately preceding dividend period.~~cash dividends of $29 million ($60.00 per share) in 2014 and 2013, respectively.

Share Repurchases

There were no repurchases of CSC’s common stock in ~~2011~~2014 or ~~2010.~~2013. As of December 31, ~~2011,~~2014, CSC had remaining authority from the Board of Directors to repurchase up to $596 million of its common stock, which ~~does~~is not ~~have an expiration date.~~subject to expiration.

Business ~~Acquisitions~~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.

~~On November9, 2010,~~December 14, 2012, the Company acquired ~~substantially all of the assets of Windward~~ThomasPartners, Inc., a growth and dividend income-focused asset management firm, for ~~$106~~$85 million in ~~common stock and $44 million in~~ cash.

- 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)

For more information on ~~the acquisitions of optionsXpress and Windward,~~this acquisition, see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 3.24. Business ~~Acquisitions”.~~Acquisition.”

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 information on each of these arrangements, see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – ~~15.~~14. Commitments and ~~Contingencies.~~Contingencies and 15. Financial Instruments Subject to Off-Balance Sheet Credit Risk or Concentration Risk.”

~~- 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)~~

Contractual Obligations

The Company’s principal contractual obligations as of December 31, ~~2011,~~2014, are shown in the following table. Management believes that funds generated by its continuing operations, as well as cash provided by external financing, will continue to be the primary funding sources in meeting these obligations. Excluded from this table are liabilities recorded on the consolidated balance sheet that are generally short-term in nature (e.g., payables to brokers, dealers, and clearing organizations) or without contractual payment terms (e.g., deposits from banking clients, payables to brokerage clients, and deferred compensation).

   Less than
1 Year    1-3
    Years        3-5
    Years        More than
5 Years    Total
Credit-related financial instruments⁽¹⁾
   $ 757       $ 725       $ 1,130       $ 3,186       $ 5,798
Long-term debt⁽²⁾
   99       930       125       1,309       2,463
Leases⁽³⁾
   96       150       110       201       557
Purchase obligations⁽⁴⁾
   118       81       33       1       233










Total
   $     1,070       $     1,886       $     1,398       $     4,697       $     9,051


	Less than		1-3		3-5		More than
	1 Year		Years		Years		5 Years		Total
Credit-related financial instruments (1)	$	868	$	915	$	3,119	$	2,063	$	6,965
Long-term debt (2)		414		373		360		1,013		2,160
Leases (3)		95		162		107		162		526
Purchase obligations (4)		165		210		37		230		642
Total	$	1,542	$	1,660	$	3,623	$	3,468	$	10,293

(1)	Represents Schwab Bank’s ~~firm~~ commitments to extend credit to banking ~~clients.~~clients and purchase mortgage loans.

(2)

Includes estimated future interest payments through ~~2020 for Senior Notes and through~~ 2017 for Medium-Term Notes and ~~Junior Subordinated~~through 2022 for Senior Notes. The Junior Subordinated Notes have a fixed interest rate of 7.50% until 2017 and a floating rate from 2018 to 2067. Based on the current interest rate of 7.50% and no repayments of principal, the estimated future interest payments on the Junior Subordinated Notes in 2018 to 2067 would be $15 million per year. Amounts exclude maturities under a finance lease obligation and unamortized discounts and premiums.

(3)	Represents minimum rental commitments, net of sublease commitments, and includes facilities under the Company’s past restructuring initiatives and rental commitments under a finance lease obligation.

(4)	Consists of purchase obligations for services such as advertising and marketing, telecommunications, professional services, and hardware- and software-related agreements. Includes purchase obligations that can be canceled by the Company without penalty.

~~RISK MANAGEMENT~~

~~Overview~~Risk MANAGEMENT

The Company’s business activities expose it to a variety of risks, including ~~technology, operations,~~operational, credit, market, liquidity, compliance and legal risk. The Company has a comprehensive risk management program to identify and manage these risks and their associated potential for financial and reputational ~~risk. Identification~~impact. 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 these risks.

The Company’s risk management process is comprised of ~~these~~risk identification and assessment, risk measurement, risk monitoring and reporting and risk mitigation. The activities and organizations that comprise the risk management process are described below.

Risk Culture

The Company’s Board of Directors sets the tone for effective risk management and has approved an Enterprise Risk Management (ERM) Framework commensurate with the size, risk profile, complexity, and continuing growth of the

- 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)

Company. The ERM Framework and governance structure constitute a comprehensive approach to managing risks ~~are essential~~encountered by the Company in its business activities. Risk appetite, which is defined as the amount of risk the Company is willing to accept in pursuit of its corporate strategy, is set by executive management and approved by the ~~success~~Board of Directors.

The Company has established risk metrics and ~~financial soundness~~reporting that enable the measurement of the ~~Company.~~impact of strategy execution against risk appetite. The risk metrics, with risk limits and tolerance levels, are established for key risk categories by the Global Risk Committee and its functional risk sub-committees.

Risk Governance

Senior management takes an active role in the ~~Company’s~~ risk management process and has developed policies and procedures under which specific business and control units are responsible for identifying, measuring and controlling ~~various~~ risks. ~~Oversight of risk management has been delegated to the~~

The Global Risk Committee, which is comprised of senior ~~managers of~~executives from each major business and control ~~functions.~~ function, is responsible for the oversight of risk management. This includes identifying emerging risks, assessing risk management practices and the control environment, reinforcing business accountability for risk management, supervisory controls and regulatory compliance, supporting resource prioritization across the Company, and escalating significant issues to the Board of Directors.

The Global Risk Committee ~~is responsible for reviewing and monitoring~~reports regularly to the ~~Company’s risk exposures and leading~~Risk Committee of the ~~continued development~~Board of Directors. The Risk Committee assists the Board of Directors in fulfilling its oversight responsibilities with respect to the Company’s risk management ~~policies~~program, including approving risk appetite statements and ~~practices.~~reviewing reports relating to risk issues from functional areas of risk management, legal, compliance, and internal audit.

Functional risk sub-committees focusing on specific areas of risk report into the Global Risk Committee. These sub-committees include the:

~~Corporate Asset-Liability Management and Pricing Committee, which focuses on the Company’s~~
·
Asset-Liability Management and Pricing Committee, which establishes strategies and policies for the management of corporate capital, liquidity, ~~capital resources,~~ interest rate risk, and investments;

Credit and Market Risk Oversight Committee, which provides oversight of and approves credit and market risk policies, limits, and exposures in loan, investment, and positioning portfolios;

New Products and Services Risk Oversight Committee, which provides oversight of, and approves corporate policy and procedures relating to the risk governance of new products and services; and the

Operational Risk Oversight Committee, which provides oversight of and approves operational risk management policies, risk tolerance levels, and operational risk governance processes, and includes the following sub-committees:

Client Fiduciary Risk Sub-Committee, which provides oversight of fiduciary risk throughout the Company;

Information Security and Privacy Sub-Committee, which provides oversight of the information security and privacy programs and policies;

Model Governance Sub-Committee, which provides oversight of model risk throughout the Company; and the

Vendor Management Sub-Committee, which provides oversight of the Company’s vendor management and outsourcing program and policies.

Senior management has also created an Incentive Compensation Risk Oversight Committee, which ~~focuses on credit exposures resulting from client borrowing activity (e.g., margin lending activities~~establishes policy and loans to banking clients), investing activities of certain of the Company’s proprietary funds, corporate credit and investment activity, and market risk resulting from the Company taking positions in certain securities to facilitate client trading activity;

~~- 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)~~

~~Information Security and Privacy Steering Committee, which oversees information security and privacy policies, procedures and controls;~~

~~Investment Management and ERISA Risk Committee, which oversees activities in which the Company and its principals operate in an investment advisory capacity or as an ERISA fiduciary;~~

~~Investment Products Review Board, which~~ provides ~~senior level~~ oversight of ~~investment products~~incentive compensation risk. The committee reviews and ~~services made available~~approves the Annual Risk Assessment of incentive compensation plans, and reports directly to ~~clients; and~~the Board Compensation Committee.

Operational Risk Management Committee, which focuses on risks relating to potential inadequate or failed internal processes, people and systems, and from external events and relationships (e.g., vendors and business partners).

The ~~Global Risk Committee reports regularly to the Audit Committee of the Board of Directors (Audit Committee), which reviews major~~Company’s compliance, finance, internal audit, legal, and corporate risk ~~exposures~~management departments assist management and the ~~steps management has taken to monitor~~various risk committees in evaluating, testing, and ~~control such exposures.~~monitoring the Company’s risk management.

~~The~~In addition, the Company’s Disclosure Committee is responsible for monitoring and evaluating the effectiveness of the Company’s (a) disclosure controls and procedures and (b) internal control over financial reporting as of the end of each fiscal

- 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)

quarter. The Disclosure Committee reports on this evaluation to the CEO and CFO prior to their certification required by Sections 302 and 906 of the Sarbanes Oxley Act of 2002.

The Company’s compliance, finance, internal audit, legal, and corporate risk management departments assist management and the various risk committees in evaluating, testing, and monitoring the Company’s risk management.Operational Risk

~~Risk is inherent in~~Operational risks arise due to potentially inadequate or failed internal processes, people, and systems or from external events and relationships impacting the ~~Company’s business. Consequently, despite the Company’s efforts to identify areas~~Company and/or any of its key business partners and vendors. Operational risk includes model and fiduciary 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. The following discussion highlights the Company’s policies and procedures for identification, assessment, and management of the principal areas of riskeach is also described in ~~its operations.~~detail below.

~~Technology and Operating Risk~~

Technology and operating risk is the potential for loss due to deficiencies in control processes or technology systems that constrain the Company’s ability to gather, process, and communicate information and process client transactions efficiently and securely, without interruptions. The Company’s operations are highly dependent on the integrity of its technology systems and the Company’s success depends, in part, on its ability to make timely enhancements and additions to its technology in anticipation of evolving client needs. To the extent the Company experiences system interruptions, errors or downtime (which could result from a variety of causes, including changes in client use patterns, technological failure, changes to its systems, linkages with third-party systems, and power failures), the Company’s business and operations could be significantly negatively impacted. To minimize business interruptions, Schwab has two data centers intended, in part, to further improve the recovery of business processing in the event of an emergency. The Company is committed to an ongoing process of upgrading, enhancing, and testing its technology systems. This effort is focused on meeting client needs, meeting market and regulatory changes, and deploying standardized technology platforms.

~~Technology and operating~~Operational risk also includes the risk of human error, employee misconduct, external fraud, computer viruses, ~~distributed denial of service~~cyber attacks, terrorist attacks, and natural disaster. Employee misconduct could include fraud and misappropriation of client or Company assets, improper use or disclosure of confidential client or Company information, and unauthorized activities, such as transactions exceeding acceptable risks or authorized limits. External fraud includes misappropriation of client or Company assets by third parties, including through unauthorized access to Company systems and data and client accounts. The frequency and sophistication of such fraud attempts continue to increase.

Operational risk is mitigated through a system of internal controls and risk management practices that are designed to keep operational risk and operational losses at levels appropriate to the inherent risk of the business in which the Company operates. The Company has specific policies and procedures to identify and manage operational risk, and uses periodic risk self-assessments and internal audit reviews to evaluate the effectiveness of these internal controls. The Company maintains backup and recovery functions, including facilities for backup and communications, and conducts periodic testing of disaster recovery plans. The Company also maintains policies and procedures and technology to protect against fraud and unauthorized access to systems and data.

~~- 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)~~

Despite the Company’s risk management efforts, it is not always possible to deter or prevent technological or operational failure, or fraud or other misconduct, and the precautions taken by the Company may not be effective in all cases. The Company may be subject to litigation, losses, and regulatory actions in such cases, and may be required to expend significant additional resources to remediate vulnerabilities or other exposures.

The Company also faces ~~technology and operating~~operational risk when it employs the services of various external vendors, including domestic and international outsourcing of certain technology, processing, servicing, and support functions. The Company manages its exposure to external vendor risk through contractual provisions, control standards, and ongoing monitoring of vendor performance. The Company maintains policies and procedures regarding the standard of care expected with Company data, whether the data is internal company information, employee information, or non-public client information. The Company clearly defines for employees, contractors, and vendors the Company’s expected standards of care for confidential data. Regular training is provided by the Company in regard to data security.

The Company is actively engaged in the research and development of new technologies, services, and products. The Company endeavors to protect its research and development efforts, and its brands, through the use of copyrights, patents, trade secrets, and contracts.

~~Credit Risk~~

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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)

Model Risk

Model risk is the potential for adverse consequences from decisions based on incorrect or misused model outputs and reports. Models are owned by several business units throughout the Company, and are used for a variety of purposes. Model use includes, but is not limited to, calculating capital requirements for hypothetical stressful environments, estimating interest and credit risk for loans and other balance sheet assets, and providing guidance in the management of client portfolios. The Company has established a policy to describe the roles and responsibilities of all key stakeholders in model development, management, and use. All models at the Company are registered in a centralized database and classified into different risk ratings depending on their potential financial, reputational, or regulatory impact to the Company. The model risk rating informs the scope of all model governance activities.

Fiduciary Risk

Fiduciary risk is the potential for financial or reputational loss through breach of fiduciary duties to a client. Fiduciary activities include, but are not limited to, individual and institutional trust, investment management, custody, and cash and securities processing. The Company attempts to manage this risk by establishing procedures to ensure that obligations to clients are discharged faithfully and in compliance with applicable legal and regulatory requirements. Business units have the primary responsibility for adherence to the procedures applicable to their business. Guidance and control are provided through the creation, approval, and ongoing review of applicable policies by business units and various risk committees.

Credit Risk

Credit risk is the potential for loss due to a borrower, counterparty, or issuer failing to perform its contractual obligations. The Company’s direct exposure to credit risk mainly results from margin lending and client option and futures activities, securities lending activities, mortgage lending activities, its role as a counterparty in financial contracts and other investing activities. To manage the risks of such losses, the Company has established policies and procedures which include: establishing and reviewing credit limits, monitoring of credit limits and quality of counterparties, and adjusting margin, option, and futures requirements for certain securities. ~~Most of the Company’s credit extensions are supported by collateral arrangements.~~ Collateral arrangements relating to margin loans, option positions, securities lending agreements, and resale agreements include provisions that require additional collateral in the event that market fluctuations result in declines in the value of collateral received.Additionally, for margin loan and securities lending agreements, collateral arrangements require that the fair value of such collateral exceeds the amounts loaned.

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 senior management.~~losses. The Company’s mortgage loan portfolios primarily include ~~first lien residential real estate mortgage loans (First Mortgage)~~First Mortgages of ~~$5.6~~$8.1 billion and HELOCs of ~~$3.5~~$3.0 billion at December 31, ~~2011.~~2014.

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 ~~Issac & Company~~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~~In January 2014, the Company revised its First Mortgage underwriting criteria in conformance with the CFPB’s new guidance on Qualified Mortgage lending and a borrower’s ability to repay. Revisions were made to requirements affecting debt to income ratio, loan to value ratio, and liquid asset holdings. These revised underwriting criteria are not expected to have ~~been no significant changes to~~a material impact on the ~~LTV ratio or FICO~~ credit ~~score guidelines related to~~quality of the Company’s First Mortgage or HELOC ~~portfolios during 2011.~~portfolios. The Company does not purchase loans that allow for negative amortization and does not purchase subprime loans (generally defined as extensions of credit to borrowers with a FICO score of less than 620 at origination), unless the borrower has compensating credit factors. At December 31, ~~2011, the weighted-average originated LTV ratios were 60% and 59% for~~2014, approximately 1% of both the First Mortgage and HELOC portfolios ~~respectively.~~consisted of loans to borrowers with updated FICO scores of less than 620.

- 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)

At December 31, 2014, the weighted-average originated LTV ratio was 59% for both the First Mortgage and HELOC portfolios. The computation of the origination LTV ratio for a HELOC includes any first lien mortgage outstanding on the same property at the time of origination. At December 31, ~~2011, 22%~~2014, 21% of HELOCs ($~~755~~635 million of the HELOC portfolio) were in a first lien position. The weighted-average originated FICO ~~credit scores were 766~~score was 770 and ~~768~~769 for the First Mortgage and HELOC portfolios, respectively.

The Company ~~does not offer loans that allow for negative amortization~~monitors the estimated current LTV ratios of its First Mortgage 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.HELOC portfolios on an ongoing basis. At December 31, ~~2011, approximately 1% of both~~2014, the weighted-average estimated current LTV ratios were 50% and 55% for the First Mortgage and HELOC portfolios, ~~consisted~~respectively. The computation of ~~loans~~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 ~~borrowers with~~a home price appreciation index. The Company also monitors updated borrower FICO ~~credit~~ scores, ~~of less than 620.~~delinquency trends, and verified liquid assets held by individual borrowers. At December 31, 2014, the weighted-average updated FICO scores were 773 and 769 for the First Mortgage and HELOC portfolios, respectively.

~~- 37 -~~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 December 31, 2014, $2.3 billion, or 79%, of the HELOC portfolio was 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. Additionally, at December 31, 2014, approximately 30% of the HELOC borrowers that had a balance only paid the minimum amount due.

~~THE CHARLES SCHWAB CORPORATION~~

~~Management’s Discussion~~For more information on the Company’s credit quality indicators relating to its First Mortgage and ~~Analysis of~~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 8 – Financial ~~Condition~~Statements and ~~Results of Operations~~

~~(Tabular Amounts in Millions, Except Ratios, or as Noted)~~

Supplementary Data – Notes to Consolidated Financial Statements – 6. 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:


December 31,	2011			2010			2014		2013
Loan delinquencies⁽¹⁾		0.81	%		0.96	%	0.27	%	0.48	%
Nonaccrual loans		0.53	%		0.58	%	0.26	%	0.39	%
Allowance for loan losses		0.55	%		0.60	%	0.31	%	0.39	%

(1)	Loan delinquencies ~~are defined as~~include loans that are 30 days or more past ~~due.~~due and other nonaccrual loans.

The Company has exposure to credit risk associated with its securities available for sale and securities held to maturity portfolios, whose fair values totaled ~~$34.0~~$54.8 billion and ~~$15.5~~$34.7 billion at December 31, ~~2011,~~2014, respectively. These portfolios include U.S. agency and non-agency ~~residential~~ mortgage-backed securities, ~~certificates of deposit,~~asset-backed securities, corporate debt securities, U.S. agency notes, certificates of deposit, and ~~asset-backed and other~~treasury securities. U.S. agency ~~residential~~ mortgage-backed securities do not have explicit credit ~~ratings,~~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~~

At December 31, 2014, with the exception of certain non-agency residential mortgage-backed securities, ~~are~~all securities ~~collateralized by loans that are considered~~in the available for sale and held 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 2011, 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.” At December 31, 2011, non-agency residential mortgage-backed securities consisted of 3%, based on amortized cost, of total residential mortgage-backed securities. These securities were originated between 2003 and 2007. At December 31, 2011, all of the corporate debt securities and non-mortgage asset-backed securitiesmaturity portfolios 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). In the fourth quarter of 2014, the Company sold $504 million of its non-agency residential mortgage-backed securities, resulting in a net realized loss of $8 million. The Company marked the remaining $15 million of these securities to market and recorded a $0.6 million other-than-temporary impairment charge in the fourth quarter. The decision was made to sell the securities in the fourth quarter as market valuations on these non-agency residential mortgage-backed securities became more consistent with actual performance. In addition, the Company has reached an initial settlement in legal claims it is pursuing to recover losses relating to certain of these securities.

- 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)

Schwab performs clearing services for all securities transactions in its client accounts. Schwab has exposure to credit risk due to its obligation to settle transactions with clearing corporations, mutual funds, and other financial institutions even if Schwab’s client or a counterparty fails to meet its obligations to Schwab.

The Company sponsors a number of proprietary money market mutual funds and other proprietary funds. Although the Company has no obligation to do so, the Company may decide for competitive reasons to provide credit, liquidity or other support to its funds in the event of significant declines in valuation of fund holdings or significant redemption activity that exceeds available liquidity. Such support could cause the Company to take significant charges and could reduce the Company’s liquidity. If the Company chose not to provide credit, liquidity or other support in such a situation, the Company could suffer reputational damage and its business could be adversely affected.

Concentration Risk

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 within a particular industry.

The fair value of the Company’s investments in ~~residential~~ mortgage-backed securities totaled ~~$37.0~~$53.8 billion at December 31, ~~2011.~~2014. Of these, ~~$36.1~~$52.5 billion were issued by U.S. agencies and $1.3 billion were issued by private entities (non-agency securities). These U.S. agency ~~securities~~ and ~~$907 million were~~ non-agency ~~securities. The U.S. agency~~ securities are included in securities available for sale and securities held to ~~maturity and~~maturity.

The fair value of the ~~non-agency~~Company’s investments in asset-backed securities totaled $19.4 billion at December 31, 2014. Of these, $11.7 billion were securities backed by student loans, the majority of which are guaranteed by the U.S. federal government. These asset-backed securities are included in securities available for sale. ~~Included in non-agency residential mortgage-backed securities are securities collateralized by Alt-A loans. At December 31, 2011, the amortized cost and~~

The fair value of ~~Alt-A mortgage-backed securities were $390 million and $279 million, respectively.~~

~~- 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)~~

~~The~~the Company’s investments in corporate debt securities and commercial paper totaled ~~$5.6~~$8.1 billion at December 31, ~~2011,~~2014, 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 consolidated balance sheets. ~~At December 31, 2011, the Company held $867 million of corporate debt securities issued~~Issuer, geographic, and sector concentrations are controlled by ~~financial institutions and guaranteed under the FDIC Temporary Liquidity Guarantee Program.~~established credit policy limits to each concentration type.

The Company’s loans to banking clients include ~~$5.6~~$7.4 billion of adjustable rate ~~first lien residential real estate mortgage~~First Mortgage loans at December 31, ~~2011.~~2014. The Company’s adjustable rate mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately ~~60%~~40% 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 December 31, 2011, 44%~~

The Company’s HELOC product has a 30-year loan term with an initial draw period of ten years from the ~~residential real estate mortgages~~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 ~~50% of~~ the ~~HELOC balances were secured by properties which are located~~20-year amortizing period is a floating rate based on the prime rate plus a margin. HELOCs that convert to an amortizing loan may experience higher delinquencies and higher loss rates than those in ~~California.~~the initial draw period. The Company’s allowance for loan loss methodology takes this increased inherent risk into consideration. The following table presents when current outstanding HELOCs will convert to amortizing loans:


December 31, 2014	Balance
Converted to amortizing loan by period end	$	307
Within 1 year		274
> 1 year – 3 years		356
> 3 years – 5 years		1,139
> 5 years		879
Total	$	2,955

The Company also has exposure to concentration risk from its margin and securities lending and client option and futures activities collateralized by or referencing securities of a single issuer, an index, or within a single industry. This concentration risk is mitigated by collateral arrangements that require the fair value of such collateral exceeds the amounts loaned.

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 ~~$18.3~~$10.4 billion at December 31, ~~2011.~~2014.

- 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)

European Holdings

The Company has exposure to non-sovereign financial and non-financial institutions in Europe. The following table shows the ~~amortized cost and fair values~~balances of ~~cash equivalents, cash segregated and on deposit for regulatory purposes, securities available for sale, and securities held to maturity~~this exposure 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 December 31, ~~2011.~~2014.

The determination of the domicile of exposure varies by the type of investment. For time deposits and certificates of deposit, the exposure is grouped in the country in which the financial institution is chartered under the regulatory framework of the European country. For asset-backed commercial paper, the exposure is grouped by the country of the sponsoring bank that provides the credit and liquidity support for such instruments. For corporate debt securities, the exposure is grouped by the country in which the issuer is domiciled. In situations in which the Company invests in a corporate debt security of a U.S. subsidiary of a European parent company, such holdings will be attributable to the European country only if significant reliance is placed on the European parent company for credit support underlying the security. For substantially all of the holdings listed below, the issuers or counterparties were financial institutions. All of the Company’s resale agreements, which are included in investments segregated and on deposit for regulatory purposes, are collateralized by U.S. government securities. Additionally, the Company’s securities lending activities are collateralized by cash. Therefore, the Company’s resale agreements and securities lending activities are not included in the table below even if the counterparty is a European institution.

~~- 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)~~

   Fair Value as of December 31, 2011
   Denmark    France    Germany    Netherlands    Sweden    Switzerland    United
Kingdom    Total
Cash equivalents:

Time deposits
   $ —       $ 850       $ 389       $ —       $ —       $ —       $ 200       $ 1,439
Commercial paper
   —       350       20       —       —       —       200       570
Cash segregated and on deposit for regulatory purposes:

Trust deposits
   —       —       400       —       —       —       —       400
Securities available for sale:

Certificates of deposit
   —       300       150       300       499       550       700       2,499
Corporate debt securities
   214       74       —       187       97       —       550       1,122
Securities held to maturity:

Corporate debt securities
   —       —       —       —       117       100       —       217
















Total fair value
   $ 214       $ 1,574       $ 959       $ 487       $ 713       $ 650       $ 1,650       $ 6,247
















Total amortized cost
   $ 212       $ 1,575       $ 959       $ 492       $ 716       $ 650       $ 1,650       $ 6,254
















Maturities:

Overnight
   $ —       $ 1,200       $ 789       $ —       $ —       $ —       $ 200       $ 2,189
1 day – < 6 months
   —       174       20       200       200       150       700       1,444
6 months – < 1 year
   —       100       —       —       117       274       650       1,141
1 year – 2 years
   214       100       150       187       299       126       100       1,176
> 2 years
   —       —       —       100       97       100       —       297
















Total fair value
   $ 214       $ 1,574       $ 959       $ 487       $ 713       $ 650       $ 1,650       $ 6,247


	Fair Value as of December 31, 2014
											United
	France		Netherlands		Norway		Sweden		Switzerland		Kingdom		Total
Cash equivalents	$	200	$	-	$	-	$	-	$	-	$	-	$	200
Securities available for sale		86		35		75		521		509		500		1,726
Total fair value	$	286	$	35	$	75	$	521	$	509	$	500	$	1,926
Total amortized cost	$	285	$	35	$	75	$	520	$	509	$	500	$	1,924
Maturities:
Overnight	$	200	$	-	$	-	$	-	$	-	$	-	$	200
1 day – < 6 months		-		-		-		-		184		-		184
6 months – < 1 year		-		-		-		-		275		150		425
1 year – 2 years		-		-		-		371		50		200		621
> 2 years		86		35		75		150		-		150		496
Total fair value	$	286	$	35	$	75	$	521	$	509	$	500	$	1,926

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 December 31, ~~2011,~~2014, the Company had ~~$332~~$224 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.

Management mitigates exposure to European holdings by employing a separate team of credit analysts that evaluate each issuer, counterparty, and country. Management monitors its exposure to European issuers by 1) performing risk assessments of the foreign countries, which include evaluating the size of the country and economy, currency trends, political landscape and the countries’ regulatory environment and ~~developments,~~developments; 2) performing ad hoc stress tests that evaluate the impact of sovereign governments’ debt write-downs on ~~the~~financial issuers and counterparties the Company has exposure to ~~our investments,~~through its investments; 3) reviewing publicly available stress tests that are published by various regulators in the European ~~market,~~market; 4) establishing credit and maturity limits by ~~issuer,~~issuer; and 5) establishing and monitoring aggregate ~~exposures~~credit limits by ~~country.~~geography and sector.

Market Risk

Market risk is the potential for changes in ~~revenue~~earnings or the value of financial instruments held by the Company as a result of fluctuations in interest rates, equity prices or market conditions. Included in market risk is interest rate risk, which is the risk

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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)

to earnings or capital arising from movement of interest rates. For discussion of the Company’s market risk, see “Item 7A – Quantitative and Qualitative Disclosures About Market Risk.”

~~Fiduciary~~Liquidity Risk

~~Fiduciary~~Liquidity risk arises from the inability to meet obligations when they come due without incurring unacceptable losses. It is the ~~potential~~risk that valuations will be negatively affected by changes in demand and the underlying market for a financial ~~or reputational loss through breach of fiduciary duties~~instrument. Limits and contingency funding scenarios have been established for the Company to ~~a client. Fiduciary activities include, but are not limited to, individual~~support liquidity levels and ~~institutional trust, investment management, custody,~~quality during both expected and ~~cash and securities processing.~~stressed scenarios. The Company ~~attempts~~seeks to ~~manage this risk~~maintain client confidence in its balance sheet and the safety of client assets by ~~establishing procedures~~maintaining liquidity and diversity of funding sources to ~~ensure that~~allow the firm to meet its obligations ~~to clients are discharged faithfully~~under both expected and ~~in compliance with applicable legal~~stressed scenarios. See “Liquidity and ~~regulatory~~Capital Resources” for additional detail on the Company’s liquidity requirements. ~~Business units have the~~

~~- 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)~~

primary responsibility for adherence to the procedures applicable to their business. Guidance and control are provided through the creation, approval, and ongoing review of applicable policies by business units and various risk committees.

~~Legal and Regulatory~~Compliance Risk

The Company faces significant ~~legal and~~ compliance risk in its business, ~~and~~that is, the ~~volume~~risk of ~~litigation and~~legal or regulatory ~~proceedings against~~sanctions, fines or penalties, financial ~~services firms and~~loss, or damage to reputation resulting from the ~~amount of damages claimed have been increasing.~~failure to comply with laws, regulations, rules, or other regulatory requirements. Among other things, ~~these~~compliance risks relate to the suitability of client investments, conflicts of interest, disclosure obligations and performance expectations for Company products and services, supervision of employees, and the adequacy of the Company’s controls. Claims against the Company may increase due to a variety of factors, such as if clients suffer losses during a period of deteriorating equity market conditions, as the Company increases the level of advice it provides to clients, and as the Company enhances the services it provides to IAs. In addition, theThe Company and its affiliates are subject to extensive regulation by federal, state and foreign regulatory authorities, ~~and SROs, and such~~including SROs. Such regulation is becoming increasingly extensive and ~~complex.~~complex, and regulatory proceedings and sanctions against financial services firms continue to increase.

The Company attempts to manage ~~legal and~~ compliance risk through policies, procedures and ~~procedures~~controls reasonably designed to ~~avoid litigation claims and prevent~~ achieve and/or ~~detect violations of~~monitor compliance with applicable legal and regulatory requirements. These procedures address issues such as business conduct and ethics, sales and trading practices, marketing and communications, extension of credit, client funds and securities, books and records, anti-money laundering, client privacy, and employment ~~policies, and contracts management.~~policies. Despite the Company’s efforts to maintain an effective compliance program and internal controls, legal breaches and rule violations could result in reputational harm, significant losses and disciplinary sanctions, including limitations on the Company’s business activities.

Legal Risk

Legal risk is a consequence of operational failure – the risk of a claim for damages brought by clients, employees or other third parties, alleging error that amounts to a breach of legal requirements or other duties under law. The financial services industry is subject to substantial litigation risk, and the firm incurs legal claims in the ordinary course of business. Increased litigation costs or substantial legal liability relating to an extraordinary claim or incidence of claims could have a material adverse effect on the Company’s business and financial condition. For information about the Company’s legal risk, see “Item 1A – Risk Factors,” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 14. Commitments and Contingencies.”

Capital Planning

The capital plan considers significant risks to meeting the Company’s capital goals over time and through evolving economic, financial, and business environments. Internal guidelines are set, for both the Company and regulated subsidiaries, to ensure continued regulatory compliance as well as to meet expectations of investors and rating agencies.

The capital plan also considers the potential effects of a sudden and sustained systemic economic downturn, idiosyncratic events which are uniquely impactful to the Company, and sensitivity analyses applied to significant assumptions that are either quantitative or qualitative in nature. The comprehensive Capital Contingency Plan was developed by the Company to address the action plans for certain capital events with low probability, but high severity, that the Company might face. The Capital Contingency Plan is issued under the authority of the Asset-Liability Management and Pricing Committee and provides guidelines for sustained capital events. It does not specifically address every contingency, but is designed to provide a framework for responding to any capital stress.

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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)

Capital forecasts are reviewed monthly at Capital Planning and Asset-Liability Management and Pricing Committee meetings and semi-annually at the Company’s Board of Directors meetings. Exceptions to internal guidelines are also reviewed at quarterly Global Risk Committee meetings.

FAIR ~~FAIR~~ VALUE OF FINANCIAL INSTRUMENTS

The Company uses the market and income approaches to determine the fair value ~~measurements to record~~of certain financial assets and liabilities recorded at fair value, and to determine fair value disclosures. Assets are measured at fair value using quoted prices or market-based information and accordingly are classified as Level 1 or Level 2 measurements in accordance with the fair value hierarchy described in fair value measurement accounting guidance. Liabilities recorded at fair value were not material at December 31, 2011 or 2010. See “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – ~~17.~~2. Summary of Significant Accounting Policies and 16. Fair Values of Assets and Liabilities” for more information on the Company’s assets and liabilities recorded at fair value.

When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. 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 ~~validates~~generally obtains prices ~~received~~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 ~~using various methods, including comparison~~ to ~~prices received~~determine if the price obtained from ~~additional~~the primary independent pricing ~~services, comparison to quoted market prices, where available, comparison to internal valuation models, and review of other relevant market data.~~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 December 31, ~~2011~~2014 and ~~2010,~~2013, the Company did not adjust prices received from the primary independent third-party pricing ~~services.~~service.

CRITICAL ~~CRITICAL~~ ACCOUNTING ESTIMATES

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. While the majority of the Company’s revenues, expenses, assets and liabilities are not based on estimates, there are certain accounting principles that require management to make estimates regarding matters that are uncertain and susceptible to change where such change may result in a material adverse impact on the Company’s financial position and reported financial results. These critical accounting estimates are described below. Management regularly reviews the estimates and assumptions used in the preparation of the Company’s financial statements for reasonableness and adequacy.

~~- 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)~~

Other-than-Temporary Impairment of Securities Available for Sale and Securities Held to Maturity:

Management evaluates whether securities available for sale and securities held to maturity are other-than-temporarily impaired (OTTI) on a quarterly basis. Debt securities with unrealized losses are considered OTTI if the Company intends to sell the security or if it is more likely than not that the Company will be required to sell such security ~~prior to~~before any anticipated recovery. If management determines that a security is OTTI under these circumstances, the impairment recognized in earnings is measured as the entire difference between the amortized cost and the then-current fair value.

A security is also OTTI if management does not expect to recover the amortized cost of the security. In this circumstance, ~~management~~the impairment recognized in earnings represents estimated credit loss, and is measured by the difference between the present value of expected cash flows and the amortized cost of the security. Management utilizes cash flow models to estimate the expected future cash flow from the securities and to estimate the credit loss. Expected cash flows are discounted using the security’s effective interest rate.

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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 evaluation of whether the Company expects to recover the amortized cost of a security is inherently judgmental. The evaluation includes the assessment of several bond performance indicators including: the portion of the underlying loans that are delinquent (30 days, 60 days, 90+ days), in bankruptcy, in foreclosure or converted to real estate owned; the actual amount of loss incurred on the underlying loans in which the property has been foreclosed and sold; the amount of credit support provided by the structure of the security available to absorb credit losses on the underlying loans; the current price and magnitude of the unrealized loss; and whether the Company has received all scheduled principal and interest payments. Management uses cash flow models to further assess the likelihood of other-than-temporary impairment for the Company’s non-agency residential mortgage-backed securities. To develop the cash flow models, the Company uses forecasted loss severity, prepayment speeds (i.e. the rate at which the principal on underlying loans are paid down), and default rates over the securities’ expected remaining maturities.

Valuation of Goodwill

The Company tests goodwill for impairment at least annually, or whenever indications of impairment exist. Impairment exists when the carrying amount of goodwill exceeds its implied fair value, resulting in an impairment charge for this excess. Adverse changes in the Company’s planned business operations such as unanticipated competition, a loss of key personnel, the sale of a reporting unit or a significant portion of a reporting unit, or other unforeseen developments could result in an impairment of the Company’s recorded goodwill.

The Company’s annual goodwill impairment testing date is April 1st. In testing for a potential impairment of goodwill on April 1, 2014, management performed an assessment 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 concluded that goodwill was not impaired.

Allowance for Loan Losses

The appropriateness of the allowance is reviewed quarterly by management, taking into consideration current economic conditions, the existing loan portfolio composition, past loss experience, and risks inherent in the portfolio.

The methodology to establish an allowance for loan losses related to the First Mortgage and HELOC portfolio 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, LTV ratios, past loss experience, estimates of future loss severities, borrower credit risk measured by FICO scores, and the adequacy of collateral. The methodology also evaluates concentrations in the loan segments including loan products, year of origination, and geographical distribution of collateral.

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 London Interbank Offered Rate (LIBOR) rates, and borrower FICO scores. The more significant variables 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 Mortgage and HELOC portfolios. Loss severity estimates are based on the Company’s historical loss experience and market trends. The estimated loss severity (i.e. loss given default) used in the allowance for loan loss methodology for HELOCs is higher than that used in the methodology for First Mortgages. 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 and the current state of delinquencies unique to the Company’s First Mortgage and

- 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)

HELOC portfolios are considered in the allowance for loan loss methodology. This methodology results in loss factors that are applied to the outstanding balances to determine the allowance for loan loss for each loan segment.

The allowance for personal loans secured by securities is established on a loan by loan basis. The market value of collateral pledged by borrowers is regularly reviewed to ensure the Company’s commitment to extend credit is over-collateralized. If collateral is in danger of falling below specified levels, the Company may reduce a borrower’s committed line or may liquidate collateral. At December 31, 2014 and 2013, the allowance for loan losses related to personal loans secured by securities was immaterial.

Legal and Regulatory Reserves

Reserves for legal and regulatory claims and proceedings reflect an estimate of probable losses for each matter, after considering, among other factors, the progress of the case, prior experience and the experience of others in similar cases, available defenses, insurance coverage and indemnification, and the opinions and views of legal counsel. In many cases, including most class action lawsuits, it is not possible to determine whether a loss will be incurred, or to estimate the range of that loss, until the matter is close to resolution, in which case no accrual is made until that time. Reserves are adjusted as more information becomes available or when an event occurs requiring a change. Significant judgment is required in making these estimates, and the actual cost of resolving a matter may ultimately differ materially from the amount reserved.

The Company’s management has discussed the development and selection of these critical accounting estimates with the Audit Committee. Additionally, management has reviewed with the Audit Committee the Company’s significant estimates discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

- 49 -

THE CHARLES SCHWAB CORPORATION

Item 8.

Financial Statements and Supplementary Data

TABLE OF CONTENTS

Consolidated Statements of Income		51
Consolidated Statements of Comprehensive Income		52
Consolidated Balance Sheets		53
Consolidated Statements of Cash Flows		54
Consolidated Statements of Stockholders’ Equity		55
Notes to Consolidated Financial Statements		56
Note 1.	Introduction and Basis of Presentation	56
Note 2.	Summary of Significant Accounting Policies	56
Note 3.	Receivables from Brokerage Clients	62
Note 4.	Other Securities Owned	63
Note 5.	Securities Available for Sale and Securities Held to Maturity	63
Note 6.	Loans to Banking Clients and Related Allowance for Loan Losses	66
Note 7.	Equipment, Office Facilities, and Property	70
Note 8.	Intangible Assets and Goodwill	70
Note 9.	Other Assets	71
Note 10.	Deposits from Banking Clients	71
Note 11.	Payables to Brokers, Dealers, and Clearing Organizations	71
Note 12.	Payables to Brokerage Clients	72
Note 13.	Borrowings	72
Note 14.	Commitments and Contingencies	73
Note 15.	Financial Instruments Subject to Off-Balance Sheet Credit Risk or Concentration Risk	75
Note 16.	Fair Values of Assets and Liabilities	77
Note 17.	Stockholders’ Equity	81
Note 18.	Accumulated Other Comprehensive Income	82
Note 19.	Employee Incentive, Retirement, and Deferred Compensation Plans	83
Note 20.	Taxes on Income	85
Note 21.	Earnings Per Common Share	87
Note 22.	Regulatory Requirements	87
Note 23.	Segment Information	89
Note 24.	Business Acquisition	90
Note 25.	Subsequent Events	90
Note 26.	The Charles Schwab Corporation – Parent Company Only Financial Statements	90
Note 27.	Quarterly Financial Information (Unaudited)	93
Report of Independent Registered Public Accounting Firm		94
Management’s Report on Internal Control Over Financial Reporting		95

- 50 -

THE CHARLES SCHWAB CORPORATION


Consolidated Statements of Income
(In Millions, Except Per Share Amounts)

Year Ended December 31,		2014		2013		2012
Net Revenues
Asset management and administration fees	$	2,533	$	2,315	$	2,043
Interest revenue		2,374		2,085		1,914
Interest expense		(102)		(105)		(150)
Net interest revenue		2,272		1,980		1,764
Trading revenue		907		913		868
Other — net		343		236		256
Provision for loan losses		4		1		(16)
Net impairment losses on securities (1)		(1)		(10)		(32)
Total net revenues		6,058		5,435		4,883
Expenses Excluding Interest
Compensation and benefits		2,184		2,027		1,803
Professional services		457		415		388
Occupancy and equipment		324		309		311
Advertising and market development		245		257		241
Communications		223		220		220
Depreciation and amortization		199		202		196
Other		311		300		274
Total expenses excluding interest		3,943		3,730		3,433
Income before taxes on income		2,115		1,705		1,450
Taxes on income		794		634		522
Net Income		1,321		1,071		928
Preferred stock dividends		60		61		45
Net Income Available to Common Stockholders	$	1,261	$	1,010	$	883
Weighted-Average Common Shares Outstanding — Diluted		1,315		1,293		1,275
Earnings Per Common Share — Basic	$	.96	$	.78	$	.69
Earnings Per Common Share — Diluted	$	.95	$	.78	$	.69
Dividends Declared Per Common Share	$	.24	$	.24	$	.24

(1)

Net impairment losses on securities include total other-than-temporary impairment losses of $1 million, $2 million, and $15 million recognized in other comprehensive income, net of less than $1 million, $(8) million, and $(17) million reclassified from other comprehensive income in 2014, 2013, and 2012, respectively.

See Notes to Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION


Consolidated Statements of Comprehensive Income
(In Millions)

Year Ended December 31,		2014		2013		2012
Net income	$	1,321	$	1,071	$	928
Other comprehensive income (loss), before tax:
Change in net unrealized gain on securities available for sale:
Net unrealized gain (loss)		255		(468)		470
Reclassification of impairment charges included in net
impairment losses on securities		1		10		32
Other reclassifications included in other revenue		(7)		(7)		(38)
Other		-		1		1
Other comprehensive income (loss), before tax		249		(464)		465
Income tax effect		(93)		175		(175)
Other comprehensive income (loss), net of tax		156		(289)		290
Comprehensive Income	$	1,477	$	782	$	1,218

See Notes to Consolidated Financial Statements.

- 52 -

THE CHARLES SCHWAB CORPORATION


Consolidated Balance Sheets
(In Millions, Except Per Share and Share Amounts)

December 31,	2014		2013
Assets
Cash and cash equivalents	$	11,363	$	7,728
Cash and investments segregated and on deposit for regulatory purposes
(including resale agreements of $10,186 and $14,016 at December 31, 2014
and 2013, respectively)		20,781		23,553
Receivables from brokers, dealers, and clearing organizations		469		509
Receivables from brokerage clients — net		15,669		13,951
Other securities owned — at fair value		516		517
Securities available for sale		54,783		51,618
Securities held to maturity (fair value — $34,743 and $29,490 at December 31,
2014 and 2013, respectively)		34,389		30,318
Loans to banking clients — net		13,399		12,419
Equipment, office facilities, and property — net		1,039		790
Goodwill		1,227		1,227
Intangible assets — net		227		266
Other assets		780		746
Total assets	$	154,642	$	143,642
Liabilities and Stockholders’ Equity
Deposits from banking clients	$	102,815	$	92,972
Payables to brokers, dealers, and clearing organizations		2,004		1,467
Payables to brokerage clients		34,305		35,333
Accrued expenses and other liabilities		1,816		1,586
Long-term debt		1,899		1,903
Total liabilities		142,839		133,261
Stockholders’ equity:
Preferred stock — $.01 par value per share; aggregate liquidation
preference of $885		872		869
Common stock — 3 billion shares authorized; $.01 par value per share;
1,487,543,446 shares issued		15		15
Additional paid-in capital		4,050		3,951
Retained earnings		10,198		9,253
Treasury stock, at cost — 176,821,202 shares and 190,657,263 shares
at December 31, 2014 and 2013, respectively		(3,497)		(3,716)
Accumulated other comprehensive income		165		9
Total stockholders’ equity		11,803		10,381
Total liabilities and stockholders’ equity	$	154,642	$	143,642

See Notes to Consolidated Financial Statements.

- 53 -

THE CHARLES SCHWAB CORPORATION


Consolidated Statements of Cash Flows
(In Millions)

Year Ended December 31,		2014		2013		2012
Cash Flows from Operating Activities
Net income	$	1,321	$	1,071	$	928
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		(4)		(1)		16
Net impairment losses on securities		1		10		32
Stock-based compensation		115		116		105
Depreciation and amortization		199		202		196
(Benefit) Provision for deferred income taxes		(25)		(21)		5
Premium amortization, net, on securities available for sale and securities held to maturity		125		162		222
Other		(7)		15		26
Originations of loans held for sale		-		-		(441)
Proceeds from sales of loans held for sale		-		-		513
Net change in:
Cash and investments segregated and on deposit for regulatory purposes		2,772		4,916		(2,549)
Receivables from brokers, dealers, and clearing organizations		44		(175)		(104)
Receivables from brokerage clients		(1,725)		(496)		(2,391)
Other securities owned		1		119		(43)
Other assets		(30)		17		10
Payables to brokers, dealers, and clearing organizations		393		318		28
Payables to brokerage clients		(1,028)		(4,997)		4,950
Accrued expenses and other liabilities		196		400		(237)
Net cash provided by operating activities		2,348		1,656		1,266
Cash Flows from Investing Activities
Purchases of securities available for sale		(15,134)		(22,942)		(29,035)
Proceeds from sales of securities available for sale		6,556		6,167		3,336
Principal payments on securities available for sale		5,843		10,772		13,867
Purchases of securities held to maturity		(6,920)		(16,061)		(8,678)
Principal payments on securities held to maturity		2,687		3,895		5,453
Net increase in loans to banking clients		(1,016)		(1,634)		(978)
Purchase of equipment, office facilities, and property		(400)		(249)		(148)
Cash paid in business acquisitions		-		-		(80)
Other investing activities		(11)		2		3
Net cash used for investing activities		(8,395)		(20,050)		(16,260)
Cash Flows from Financing Activities
Net change in deposits from banking clients		9,843		13,595		18,523
Issuance of commercial paper		-		-		300
Repayment of commercial paper		-		(300)		-
Issuance of long-term debt		-		275		350
Repayment of long-term debt		(6)		(6)		(732)
Premium paid on debt exchange		-		-		(19)
Net proceeds from preferred stock offerings		-		-		863
Dividends paid		(373)		(368)		(337)
Proceeds from stock options exercised and other		189		258		35
Other financing activities		29		5		(5)
Net cash provided by financing activities		9,682		13,459		18,978
Increase (Decrease) in Cash and Cash Equivalents		3,635		(4,935)		3,984
Cash and Cash Equivalents at Beginning of Year		7,728		12,663		8,679
Cash and Cash Equivalents at End of Year	$	11,363	$	7,728	$	12,663

Supplemental Cash Flow Information
Cash paid during the year for:
Interest	$	103	$	99	$	143
Income taxes	$	778	$	624	$	508
Non-cash investing activity:
Securities purchased during the year but settled after year end	$	143	$	81	$	-
Non-cash financing activity:
Exchange of Senior Notes	$	-	$	-	$	256

See Notes to Consolidated Financial Statements.

- 54 -

THE CHARLES SCHWAB CORPORATION


Consolidated Statements of Stockholders’ Equity
(In Millions)

													Accumulated
						Additional							Other
	Preferred		Common Stock			Paid-In		Retained		Treasury Stock,			Comprehensive
	Stock		Shares	Amount		Capital		Earnings		at cost			Income (Loss)			Total
Balance at December 31, 2011	$	-	1,488	$	15	$	3,826	$	7,978		$	(4,113)		$	8	$	7,714
Net income		-	-		-		-		928			-			-		928
Other comprehensive income, net of tax		-	-		-		-		-			-			290		290
Issuance of preferred stock		863	-		-		-		-			-			-		863
Dividends declared on preferred stock		-	-		-		-		(43)			-			-		(43)
Dividends declared on common stock		-	-		-		-		(308)			-			-		(308)
Stock option exercises and other		-	-		-		(40)		-			76			-		36
Stock-based compensation and
related tax effects		-	-		-		98		-			-			-		98
Other		2	-		-		(3)		(1)			13			-		11
Balance at December 31, 2012		865	1,488		15		3,881		8,554			(4,024)			298		9,589
Net income		-	-		-		-		1,071			-			-		1,071
Other comprehensive loss, net of tax		-	-		-		-		-			-			(289)		(289)
Dividends declared on preferred stock		-	-		-		-		(57)			-			-		(57)
Dividends declared on common stock		-	-		-		-		(311)			-			-		(311)
Stock option exercises and other		-	-		-		(54)		-			314			-		260
Stock-based compensation and
related tax effects		-	-		-		119		-			-			-		119
Other		4	-		-		5		(4)			(6)			-		(1)
Balance at December 31, 2013		869	1,488		15		3,951		9,253			(3,716)			9		10,381
Net income		-	-		-		-		1,321			-			-		1,321
Other comprehensive income, net of tax		-	-		-		-		-			-			156		156
Dividends declared on preferred stock		-	-		-		-		(57)			-			-		(57)
Dividends declared on common stock		-	-		-		-		(316)			-			-		(316)
Stock option exercises and other		-	-		-		(53)		-			240			-		187
Stock-based compensation and
related tax effects		-	-		-		139		-			-			-		139
Other		3	-		-		13		(3)			(21)			-		(8)
Balance at December 31, 2014	$	872	1,488	$	15	$	4,050	$	10,198		$	(3,497)		$	165	$	11,803

See Notes to Consolidated Financial Statements.

- 55 -

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)

1.Introduction and Basis of Presentation

The Charles Schwab Corporation (CSC) is a savings and loan holding company engaged, through its subsidiaries, in wealth management, securities brokerage, banking, money management, and financial advisory services. Charles Schwab & Co., Inc. (Schwab) is a securities broker-dealer with over 325 domestic branch offices in 45 states, as well as a branch in each of the Commonwealth of Puerto Rico and London, England. 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 ETFsTM.

The accompanying consolidated financial statements include CSC and its majority-owned subsidiaries (collectively referred to as the Company). Intercompany balances and transactions have been eliminated. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (U.S.), 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 and regulatory reserves. Actual results may differ from those estimates.

2.Summary of Significant Accounting Policies

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, and are recognized as revenue over the period that the related service is provided, based upon average asset balances. The Company’s policy is to recognize revenue subject to refunds because management can estimate refunds based on Company specific experience. Actual refunds were not material as of December 31, 2014. 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 from advisory offers 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 third-party mutual fund service fees, trust fees, 401(k) record keeping fees, and mutual fund clearing and other service fees.

In 2014, 2013, and 2012, the Company waived a portion of its asset management fees earned from certain Schwab-sponsored money market mutual funds in order to provide a positive return to clients. Under agreements with these funds, the Company may recover such fee waivers depending on the future performance of the funds and approval by the boards of the respective funds until the third anniversary of the end of the fiscal year in which such fee waiver occurs, subject to certain limitations. Recoveries of previously-waived asset management fees are recognized as revenue when substantially all uncertainties about timing and amount of realization are resolved.

Interest revenue

Interest revenue represents interest earned on cash and cash equivalents, cash and investments segregated, receivables from brokers, dealers, and clearing organizations, receivables from brokerage clients, other securities owned, securities available for sale, securities held to maturity, and loans to banking clients. Interest revenue is recognized in the period earned based upon average or daily asset balances and respective interest rates.

Trading revenue

Trading revenue includes commission and principal transaction revenues. Clients’ securities transactions are recorded on the date that they settle, while the related commission revenues and expenses are recorded on the date that the trade occurs.

- 56 -

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)

Principal transaction revenue is primarily comprised of revenue from trading activity in client fixed income securities, which is recorded on a trade date basis. 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 adjustments to the fair value of these securities positions.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less that are not segregated and on deposit for regulatory purposes to be cash equivalents. Cash and cash equivalents include money market funds, deposits with banks, certificates of deposit, commercial paper, and treasury securities. Cash and cash equivalents also include balances that Schwab Bank maintains at the Federal Reserve Bank.

Cash and investments segregated and on deposit for regulatory purposes

Cash and investments segregated and on deposit for regulatory purposesinclude securities purchased under agreements to resell (resale agreements), which are collateralized by U.S. Government and agency securities. Resale agreements are accounted for as collateralized investing transactions that are recorded at their contractual amounts plus accrued interest. The Company obtains control of collateral with a market value equal to or in excess of the principal amount loaned and accrued interest under resale agreements. Collateral is valued daily by the Company, with additional collateral obtained to ensure full collateralization. Cash and investments segregated also include certificates of deposit and U.S. Government securities. Certificates of deposit and U.S. Government securities are recorded at fair value. 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.

Receivables from brokerage clients

Receivables from brokerage clients include margin loans to clients and are recorded net of an allowance for doubtful accounts. Receivables from brokerage clients that remain unsecured or partially secured for more than 30 days are fully reserved.

Other securities owned

Other securities owned are recorded at fair value based on quoted market prices or other observable market data. Unrealized gains and losses are included in trading revenue.

Securities available for sale and securities held to maturity

Securities available for sale are recorded at fair value and unrealized gains and losses are reported, net of taxes, in accumulated other comprehensive income (loss) included in stockholders’ equity. Securities held to maturity are recorded at amortized cost based on the Company’s positive intent and ability to hold these securities to maturity. Realized gains and losses from sales of securities available for sale are determined on a specific identification basis and are included in other revenue – net.

Management evaluates whether securities available for sale and securities held to maturity are other-than-temporarily impaired (OTTI) on a quarterly basis. Debt securities with unrealized losses are considered OTTI if the Company intends to sell the security or if it is more likely than not that the Company will be required to sell such security before any anticipated recovery. If management determines that a security is OTTI under these circumstances, the impairment recognized in earnings is measured as the entire difference between the amortized cost and the then-current fair value.

A security is also OTTI if management does not expect to recover all of the amortized cost of the security. In this circumstance, the impairment recognized in earnings represents estimated credit loss, and is measured by the difference between the present value of expected cash flows and the amortized cost of the security. Management utilizes cash flow

- 57 -

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)

models to estimate the expected future cash flow from the securities to estimate the credit loss. Expected cash flows are discounted using the security’s effective interest rate.

~~Valuation of Goodwill~~: The Company tests goodwill for impairment at least annually, or whenever indications of impairment exist. An impairment exists when the carrying amount of goodwill exceeds its implied fair value, resulting in an impairment charge for this excess.

~~The Company has elected April 1~~^st as its annual goodwill impairment testing date. In testing for a potential impairment of goodwill on April 1, 2011, 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 substantially exceeded its carrying value, and therefore management concluded that no amount of goodwill was impaired. The estimated fair value of the reporting units was established using a discounted cash flow model that includes significant assumptions about the future operating results and cash flows of each reporting unit. Adverse changes in the Company’s planned business operations such as unanticipated competition, a loss of key personnel, the sale of a reporting unit or a significant portion of a reporting unit, or other unforeseen developments could result in an impairment of the Company’s recorded goodwill.

~~Allowance for Loan Losses:~~ The adequacy of the allowance is reviewed quarterly by management, taking into consideration current economic conditions, the existing loan portfolio composition, past loss experience, and risks inherent in the portfolio.

The process to establish an allowance for loan losses utilizes loan-level 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 ratios, past loss experience, estimates of future loss severities, borrower credit risk measured by 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.

The more significant variables considered include a measure of 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

~~- 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)~~

in a loss) are estimated from the Company’s historical loss experience adjusted for current trends and market information. 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. This quarterly analysis results in a loss factor that is applied to the outstanding balances to determine the allowance for loan loss for each loan segment.

~~Legal Reserve~~: Reserves for legal and regulatory claims and proceedings reflect an estimate of probable losses for each matter, after considering, among other factors, the progress of the case, prior experience and the experience of others in similar cases, available defenses, insurance coverage and indemnification, and the opinions and views of legal counsel. In many cases, including most class action lawsuits, it is not possible to determine whether a loss will be incurred, or to estimate the range of that loss, until the matter is close to resolution, in which case no accrual is made until that time. Reserves are adjusted as more information becomes available or when an event occurs requiring a change. Significant judgment is required in making these estimates, and the actual cost of resolving a matter may ultimately differ materially from the amount reserved.

~~FORWARD-LOOKING STATEMENTS~~

~~the Company’s ability to pursue its business strategy (see “Part I – Item 1. – Business – Business Strategy and Competitive Environment”);~~

the impact of legal proceedings and regulatory matters (see “Part I – Item 3. – Legal Proceedings” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements –15. Commitments and Contingencies – Legal Contingencies”);

the impact of current market conditions on the Company’s results of operations (see “Current Market and Regulatory Environment” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 6. Securities Available for Sale and Securities Held to Maturity”);

~~sources of liquidity, capital, and level of dividends (see “Liquidity and Capital Resources” and “Contractual Obligations”);~~

target capital ratios (see “Liquidity and Capital Resources” and “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 24. Regulatory Requirements”);

~~capital expenditures (see “Liquidity and Capital Resources – Capital Resources”);~~

~~the impact of changes in management’s estimates on the Company’s results of operations (see “Critical Accounting Estimates”);~~

~~- 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)~~

the impact on the Company’s results of operations of recording stock option expense (see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 20. Employee Incentive, Deferred Compensation, and Retirement Plans”).

~~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;~~

~~adverse developments in litigation or regulatory matters;~~

~~the extent of any charges associated with litigation and regulatory matters;~~

~~amounts recovered on insurance policies;~~

~~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 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;~~

~~the amount of loans to the Company’s brokerage and banking clients;~~

~~the level of the Company’s stock repurchase activity;~~

~~the level of brokerage client cash balances and deposits from banking clients;~~

~~the availability and terms of external financing;~~

~~capital needs;~~

~~optionsXpress integration costs and operating expenses;~~

~~level of expenses;~~

~~the timing and impact of changes in the Company’s level of investments in software, equipment, and leasehold improvements; and~~

~~potential breaches of contractual terms for which the Company has indemnification and guarantee obligations.~~

~~Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in this Annual Report on Form 10-K, including “Item 1A – Risk Factors.”~~

~~- 44 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Item 7A.~~

~~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 re-price 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 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Current Market and Regulatory Environment”.

~~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 and to better isolate risks. The simulations involve assumptions that are inherently uncertain and, as a result, cannot precisely estimate net interest

~~- 45 -~~

~~THE CHARLES SCHWAB CORPORATION~~

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 December 31, 2011 and 2010.

December 31,
   2011 2010
Increase of 100 basis points
   19.1 % 13.5 %
Decrease of 100 basis points
   (8.1 %) (4.8 %)

The sensitivities shown in the simulation reflect the fact that short-term interest rates in 2011 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.

~~- 46 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Item 8.~~

~~Financial Statements and Supplementary Data~~

~~TABLE OF CONTENTS~~


~~Consolidated Statements of Income~~			48
~~Consolidated Balance Sheets~~			49
~~Consolidated Statements of Cash Flows~~			50
~~Consolidated Statements of Stockholders’ Equity~~			51
~~Notes to Consolidated Financial Statements~~			52
	~~Note 1.~~	~~Introduction and Basis of Presentation~~	52
	~~Note 2.~~	~~Summary of Significant Accounting Policies~~	52
	~~Note 3.~~	~~Business Acquisitions~~	56
	~~Note 4.~~	~~Receivables from Brokerage Clients~~	58
	~~Note 5.~~	~~Other Securities Owned~~	59
	~~Note 6.~~	~~Securities Available for Sale and Securities Held to Maturity~~	59
	~~Note 7.~~	~~Loans to Banking Clients and Related Allowance for Loan Losses~~	63
	~~Note 8.~~	~~Equipment, Office Facilities, and Property~~	66
	~~Note 9.~~	~~Intangible Assets and Goodwill~~	67
	~~Note 10.~~	~~Other Assets~~	67
	~~Note 11.~~	~~Deposits from Banking Clients~~	68
	~~Note 12.~~	~~Payables to Brokers, Dealers, and Clearing Organizations~~	68
	~~Note 13.~~	~~Payables to Brokerage Clients~~	68
	~~Note 14.~~	~~Borrowings~~	68
	~~Note 15.~~	~~Commitments and Contingencies~~	70
	~~Note 16.~~	~~Financial Instruments Subject to Off-Balance Sheet Risk, Credit Risk, or Market Risk~~	72
	~~Note 17.~~	~~Fair Values of Assets and Liabilities~~	75
	~~Note 18.~~	~~Equity Offering~~	78
	~~Note 19.~~	~~Accumulated Other Comprehensive Income (Loss)~~	79
	~~Note 20.~~	~~Employee Incentive, Deferred Compensation, and Retirement Plans~~	80
	~~Note 21.~~	~~Money Market Mutual Fund Charges~~	82
	~~Note 22.~~	~~Taxes on Income~~	82
	~~Note 23.~~	~~Earnings Per Share~~	84
	~~Note 24.~~	~~Regulatory Requirements~~	84
	~~Note 25.~~	~~Segment Information~~	86
	~~Note 26.~~	~~Subsequent Event~~	87
	~~Note 27.~~	~~The Charles Schwab Corporation – Parent Company Only Financial Statements~~	88
	~~Note 28.~~	~~Quarterly Financial Information (Unaudited)~~	90
~~Report of Independent Registered Public Accounting Firm~~			91
~~Management’s Report on Internal Control Over Financial Reporting~~			92

~~- 47 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Consolidated Statements of Income~~

~~(In Millions, Except Per Share Amounts)~~

Year Ended December 31,
   2011 2010 2009
Net Revenues

Asset management and administration fees
   $     1,928    $     1,822    $     1,875
Interest revenue
   1,900    1,723    1,428
Interest expense
   (175 ) (199 ) (183 )


Net interest revenue
   1,725    1,524    1,245
Trading revenue
   927    830    996
Other
   160    135    175
Provision for loan losses
   (18 ) (27 ) (38 )
Net impairment losses on securities⁽¹⁾
   (31 ) (36 ) (60 )


Total net revenues
   4,691    4,248    4,193


Expenses Excluding Interest

Compensation and benefits
   1,732    1,573    1,544
Professional services
   387    341    275
Occupancy and equipment
   301    272    318
Advertising and market development
   228    196    191
Communications
   220    207    206
Depreciation and amortization
   155    146    159
Class action litigation and regulatory reserve
   7    320    —
Money market mutual fund charges
   —    132    —
Other
   269    282    224


Total expenses excluding interest
   3,299    3,469    2,917


Income before taxes on income
   1,392    779    1,276
Taxes on income
   (528 ) (325 ) (489 )


Net Income
   $ 864    $ 454    $ 787


Weighted-Average Common Shares Outstanding — Diluted
   1,229    1,194    1,160


Earnings Per Share — Basic
   $ .70    $ .38    $ .68
Earnings Per Share — Diluted
   $ .70    $ .38    $ .68

⁽¹⁾	Net impairment losses on securities include total other-than-temporary impairment losses of $18 million, $41 million, and $278 million, net of $(13) million, $5 million, and $218 million recognized in other comprehensive income in 2011, 2010, and 2009, respectively.

~~See Notes to Consolidated Financial Statements.~~

~~- 48 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Consolidated Balance Sheets~~

~~(In Millions, Except Share and Per Share Amounts)~~

December 31,
   2011 2010
Assets

Cash and cash equivalents
   $ 8,679    $ 4,931
Cash and investments segregated and on deposit for regulatory purposes (including resale agreements of $17,899 and $12,697 at December 31, 2011 and 2010, respectively)
   26,034    22,749
Receivables from brokers, dealers, and clearing organizations
   230    415
Receivables from brokerage clients — net
   11,072    11,235
Other securities owned — at fair value
   593    337
Securities available for sale
   33,965    23,993
Securities held to maturity (fair value — $15,539 and $17,848 at December 31, 2011 and 2010, respectively)
   15,108    17,762
Loans to banking clients — net
   9,812    8,725
Loans held for sale
   70    185
Equipment, office facilities, and property — net
   685    624
Goodwill
   1,161    631
Intangible assets — net
   326    54
Other assets
   818    927


Total assets
   $     108,553    $     92,568


Liabilities and Stockholders’ Equity

Deposits from banking clients
   $ 60,854    $ 50,590
Payables to brokers, dealers, and clearing organizations
   1,098    1,389
Payables to brokerage clients
   35,489    30,861
Accrued expenses and other liabilities
   1,397    1,496
Long-term debt
   2,001    2,006


Total liabilities
   100,839    86,342


Stockholders’ equity:

Preferred stock — 9,940,000 shares authorized; $.01 par value per share; none issued
   —    —
Common stock — 3 billion shares authorized; $.01 par value per share; 1,487,543,446 shares and 1,428,604,522 shares issued at December 31, 2011 and 2010, respectively
   15    14
Additional paid-in capital
   3,826    3,034
Retained earnings
   7,978    7,409
Treasury stock, at cost — 216,378,623 shares and 226,222,313 shares at December 31, 2011 and 2010, respectively
   (4,113 ) (4,247 )
Accumulated other comprehensive income
   8    16


Total stockholders’ equity
   7,714    6,226


Total liabilities and stockholders’ equity
   $ 108,553    $ 92,568

~~See Notes to Consolidated Financial Statements.~~

~~- 49 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Consolidated Statements of Cash Flows~~

~~(In Millions)~~

Year Ended December 31,
   2011 2010 2009
Cash Flows from Operating Activities

Net income
   $ 864    $ 454    $ 787
Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Provision for loan losses
   18    27    38
Net impairment losses on securities
   31    36    60
Stock-based compensation
   99    87    75
Depreciation and amortization
   155    146    159
Provision (benefit) for deferred income taxes
   52    (51 ) 16
Premium (discount) amortization, net, on securities available for sale and securities held to maturity
   136    35    (18 )
Other
   9    (3 ) (32 )
Originations of loans held for sale
   (1,574 ) (2,015 ) (2,746 )
Proceeds from sales of loans held for sale
   1,703    1,943    2,695
Net change in:

Cash and investments segregated and on deposit for regulatory purposes
   (2,211 ) (4,376 ) (3,688 )
Receivables from brokers, dealers, and clearing organizations
   220    148    202
Receivables from brokerage clients
   341    (2,612 ) (1,503 )
Other securities owned
   (231 ) 581    (290 )
Other assets
   (15 ) 133    (253 )
Payables to brokers, dealers, and clearing organizations
   (357 ) 283    56
Payables to brokerage clients
   3,407    4,886    5,990
Accrued expenses and other liabilities
   (183 ) 289    (111 )


Net cash provided by (used for) operating activities
   2,464    (9 ) 1,437


Cash Flows from Investing Activities

Purchases of securities available for sale
   (18,434 ) (15,697 ) (14,342 )
Proceeds from sales of securities available for sale
   500    871    107
Principal payments on securities available for sale
   7,978    13,261    7,063
Purchases of securities held to maturity
   (2,253 ) (14,906 ) (5,470 )
Principal payments on securities held to maturity
   4,786    2,672    139
Net increase in loans to banking clients
   (1,125 ) (1,443 ) (1,411 )
Purchase of equipment, office facilities, and property
   (180 ) (129 ) (140 )
Cash acquired in business acquisition, net of cash paid
   54    (44 ) —
Other investing activities
   7    5    (3 )


Net cash used for investing activities
   (8,667 ) (15,410 ) (14,057 )


Cash Flows from Financing Activities

Net change in deposits from banking clients
   10,264    11,328    14,979
Issuance of long-term debt
   —    701    747
Repayment of long-term debt
   (116 ) (205 ) (80 )
Net proceeds from common stock offering
   —    543    —
Dividends paid
   (295 ) (288 ) (279 )
Proceeds from stock options exercised and other
   96    35    53
Other financing activities
   2    (5 ) (1 )


Net cash provided by financing activities
   9,951    12,109    15,419


Increase (Decrease) in Cash and Cash Equivalents
   3,748    (3,310 ) 2,799
Cash and Cash Equivalents at Beginning of Year
   4,931    8,241    5,442


Cash and Cash Equivalents at End of Year
   $ 8,679    $ 4,931    $ 8,241


Supplemental Cash Flow Information

Cash paid during the year for:

Interest
   $ 168    $ 178    $ 173
Income taxes
   $ 517    $ 327    $ 446
Non-cash investing activities:

Common stock issued and equity awards assumed for business acquisitions (See note “3 - Business Acquisitions”)
   $ 714    $ 106    $ —
Securities purchased during the year but settled after year end
   $ 58    $ —    $ 1,267
Non-cash financing activity:

Transfer of trust related balances to deposits from banking clients
   $ —    $ 442    $ —

~~See Notes to Consolidated Financial Statements.~~

~~- 50 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Consolidated Statements of Stockholders’ Equity~~

~~(In Millions)~~

      Accumulated
   Common Stock
Additional
Paid-In
Retained Treasury Stock,
Other
Comprehensive
Income

   Shares    Amount    Capital Earnings at cost (Loss) Total
Balance at December 31, 2008
   1,392       $     14       $     2,214    $     6,735    $     (4,349 ) $ (553 ) $     4,061






Comprehensive income:

Net income
   —       —       —    787    —    —    787
Other comprehensive income, net of tax:

Net unrealized gain on securities available for sale
   —       —       —    —    —    362    362


Total comprehensive income
         1,149
Dividends declared on common stock
   —       —       —    (279 ) —    —    (279 )
Stock option exercises and other
   —       —       —    —    52    —    52
Stock-based compensation and related tax effects
   —       —       80    —    —    —    80
Other
   —       —       4    —    6    —    10






Balance at December 31, 2009
   1,392       14       2,298    7,243    (4,291 ) (191 ) 5,073






Comprehensive income:

Net income
   —       —       —    454    —    —    454
Other comprehensive income, net of tax:

Net unrealized gain on securities available for sale
   —       —       —    —    —    208    208
Net unrealized loss on cash flow hedging instruments
   —       —       —    —    —    (1 ) (1 )


Total comprehensive income
         661
Issuance of common stock
   30       —       543    —    —    —    543
Issuance of common stock for business acquisition
   7       —       106    —    —    —    106
Dividends declared on common stock
   —       —       —    (288 ) —    —    (288 )
Stock option exercises and other
   —       —       (4 ) —    39    —    35
Stock-based compensation and related tax effects
   —       —       87    —    —    —    87
Other
   —       —       4    —    5    —    9






Balance at December 31, 2010
   1,429       14       3,034    7,409    (4,247 ) 16    6,226






Comprehensive income:

Net income
   —       —       —    864    —    —    864
Other comprehensive income, net of tax:

Net unrealized loss on securities available for sale
   —       —       —    —    —    (7 ) (7 )
Foreign currency translation adjustment
   —       —       —    —    —    (1 ) (1 )


Total comprehensive income
         856
Issuance of common stock for business acquisition
   59       1       713    —    —    —    714
Dividends declared on common stock
   —       —       —    (295 ) —    —    (295 )
Stock option exercises and other
   —       —       (24 ) —    122    —    98
Stock-based compensation and related tax effects
   —       —       99    —    —    —    99
Other
   —       —       4    —    12    —    16






Balance at December 31, 2011
   1,488       $ 15       $ 3,826    $ 7,978    $ (4,113 ) $ 8    $ 7,714

~~See Notes to Consolidated Financial Statements.~~

~~- 51 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

~~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~~^TM.

The accompanying consolidated financial statements include CSC and its majority-owned subsidiaries (collectively referred to as the Company). Intercompany balances and transactions have been eliminated. These 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. Certain prior-period amounts have been reclassified to conform to the current period presentation.

~~2. Summary of Significant Accounting Policies~~

~~Asset management and administration fees~~, which include mutual fund service fees and fees for other asset-based financial services provided to individual and institutional clients, are recognized as revenue over the period that the related service is provided, based upon average asset balances. The Company earns mutual fund service fees for shareholder services, administration, investment management services, and transfer agent services (through July 2009) 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 fees.

In 2011, 2010 and 2009, the Company waived a portion of its asset management fees earned from certain Schwab-sponsored money market mutual funds in order to provide a positive return to clients. Under agreements with these funds, the Company may recover such fee waivers depending on the future performance of the funds and approval by the boards of the respective funds until the third anniversary of the end of the fiscal year in which such fee waiver occurs, subject to certain limitations. Recoveries of previously-waived asset management fees are recognized as revenue when substantially all uncertainties about timing and amount of realization are resolved. Amounts recognized in revenue for recoveries of previously-waived asset management fees were not material in 2011, 2010 or 2009.

~~Interest revenue~~ represents interest earned on certain assets, which include cash and cash equivalents, cash and investments segregated, receivables from brokers, dealers, and clearing organizations, receivables from brokerage clients, other securities owned, securities available for sale, securities held to maturity, loans to banking clients, and loans held for sale. Interest revenue is recognized in the period earned based upon average or daily asset balances and respective interest rates.

~~Securities transactions:~~ Trading revenue includes commission and principal transaction revenues. Clients’ securities transactions are recorded on the date that they settle, while the related commission revenues and expenses are recorded on the date that the trade occurs. Principal transaction revenues are primarily comprised of revenues from client fixed income securities trading activity, which are recorded on a trade date basis.

~~Cash and cash equivalents:~~ The Company considers all highly liquid investments with original maturities of three months or less that are not segregated and on deposit for regulatory purposes to be cash equivalents. Cash and cash equivalents include

~~- 52 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

money market funds, deposits with banks, certificates of deposit, federal funds sold, commercial paper, and treasury securities. Cash and cash equivalents also include balances that Schwab Bank maintains at the Federal Reserve Bank.

~~Cash and investments segregated and on deposit for regulatory purposes~~include securities purchased under agreements to resell (resale agreements), which are collateralized by United States (U.S.) Government and agency securities. Resale agreements are accounted for as collateralized investing transactions that are recorded at their contractual amounts plus accrued interest. The Company obtains control of collateral with a market value equal to or in excess of the principal amount loaned and accrued interest under resale agreements. Collateral is valued daily by the Company, with additional collateral obtained to ensure full collateralization. Cash and investments segregated also include certificates of deposit and U.S. Government securities, as well as corporate debt securities guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program. Certificates of deposit, U.S. Government securities, and corporate debt securities are recorded at fair value.

~~Receivables from brokerage clients~~ include margin loans to clients and are recorded net of an allowance for doubtful accounts. Receivables from brokerage clients that remain unsecured or partially secured for more than 30 days are fully reserved.

~~Other securities owned~~ ~~include Schwab Funds~~^® money market funds, certificates of deposit, equity and bond mutual funds, state and municipal debt obligations, equity securities, U.S. Government and corporate debt, and other securities recorded at fair value based on quoted market prices. Unrealized gains and losses are included in trading revenue.

~~Securities available for sale and securities held to maturity:~~ Securities available for sale include U.S. agency and non-agency residential mortgage-backed securities, certificates of deposit, corporate debt securities, U.S. agency notes, and asset-backed and other securities. Securities available for sale are recorded at fair value and unrealized gains and losses are reported, net of taxes, in accumulated other comprehensive income (loss) included in stockholders’ equity. Securities held to maturity include U.S. agency residential mortgage-backed securities and other securities. Securities held to maturity are recorded at amortized cost based on the Company’s positive intent and ability to hold these securities to maturity. Realized gains and losses from sales of securities available for sale are determined on a specific identification basis and are included in other revenue.

Management evaluates whether securities available for sale and securities held to maturity are other-than-temporarily impaired (OTTI) on a quarterly basis. Debt securities with unrealized losses are considered OTTI if the Company intends to sell the security or if it is more likely than not that the Company will be required to sell such security prior to any anticipated recovery. If management determines that a security is OTTI under these circumstances, the impairment recognized in earnings is measured as the entire difference between the amortized cost and the then-current fair value.

A security is also OTTI if management does not expect to recover the amortized cost of the security. In this circumstance, management utilizes cash flow models to estimate the expected future cash flow from the securities and to estimate the credit loss. The impairment recognized in earnings is measured by the difference between the present value of expected cash flows and the amortized cost of the security. Expected cash flows are discounted using the security’s effective interest rate.

~~- 53 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

Securities borrowed and securities ~~loaned:~~loaned

Securities borrowed require the Company to deliver cash to the lender in exchange for securities and are included in receivables from brokers, dealers, and clearing organizations. For securities loaned, the Company receives collateral in the form of cash in an amount equal to or greater than the market value of securities loaned. Securities loaned are included in payables to brokers, dealers, and clearing organizations. The Company monitors the market value of securities borrowed and loaned, with additional collateral obtained or refunded to ensure full collateralization. Fees received or paid are recorded in interest revenue or interest expense.

Loans to banking clients and related allowance for loan losses

Loans to banking clientsare recorded at their contractual principal amounts and include unamortized direct origination ~~costs.~~costs or net purchase premiums. Additionally, loans are recorded net of an allowance for loan losses. The Company’s loan portfolio includes four loan segments: residential real estate mortgages, home equity loans and lines of credit (HELOC), personal loans secured by securities and other loans. Residential real estate mortgages include two loan classes: ~~originated~~ first mortgages and purchased first mortgages. Loan segments are defined as the level to which the Company disaggregates its loan portfolio when developing and documenting a methodology for determining the allowance for loan losses. A loan class is defined as a group of loans within a loan segment that has homogeneous risk characteristics.

The Company records an allowance for loan losses through a charge to earnings based on management’s ~~evaluation~~estimate of probable losses in the existing portfolio. ~~The adequacy of~~Management reviews the allowance ~~is reviewed~~for loan losses quarterly, ~~by management,~~ taking into consideration current economic conditions, the composition of the existing loan portfolio, ~~composition,~~ past loss experience, and risks inherent in the ~~portfolio.~~portfolio to ensure that the allowance for loan losses is maintained at an appropriate level.

The ~~process~~methodology to establish an allowance for loan losses utilizes ~~loan-level~~ 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, and geographical distribution of ~~collateral, and~~collateral.

Probable losses are forecast using a loan-level simulation of the ~~portion~~delinquency status of ~~borrowers who have other client relationships~~the loans over the term of the loans. The simulation starts with the ~~Company.~~

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 London Interbank Offered Rate (LIBOR) rates, and borrower FICO scores. The more significant variables ~~considered~~in the simulation include ~~a measure of~~ 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

- 58 -

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)

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 HELOC portfolios. Loss severity estimates are based on the Company’s historical loss experience and market trends. The estimated loss severity (i.e. loss given default) used in the allowance for loan loss methodology for HELOC loans is higher than that used in the methodology for First Mortgages. 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 ~~quarterly analysis~~methodology results in a loss ~~factor~~factors that isare applied to the outstanding balances to determine the allowance for loan loss for each loan segment.

The Company considers loan modifications in which it makes an economic concession to a borrower experiencing financial difficulty to be a troubled debt restructuring.

Nonaccrual ~~loans:~~loans

Residential real estate mortgages, HELOC, personal, and other loans are placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless the loans are well-secured and in the process of collection), or when the full timely collection of interest or principal becomes ~~uncertain.~~uncertain, including loans to borrowers who have filed for bankruptcy. For the portion of the HELOC portfolio for which the Company is able to track the delinquency status on the associated first lien loan, the Company places a HELOC on non-accrual status if the associated first mortgage is 90 days or more delinquent, regardless of the payment status of the HELOC. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is reversed and the loan is accounted for on the cash or cost recovery method thereafter, until qualifying for return to accrual status. Generally, a nonaccrual loan may be returned to accrual status when all delinquent interest and principal is repaid and the ~~loan is performing in accordance with the terms~~borrower demonstrates a sustained period of ~~the loan agreement,~~performance, or when the loan is both well-secured and in the process of collection and collectability is no longer doubtful.

~~Loans held~~Loan Charge-Offs

The Company charges off a loan in the period that it is deemed uncollectible and records a reduction in the allowance for ~~sale~~~~include fixed-rate~~loan losses and ~~adjustable-rate~~the loan balance. The Company’s charge-off policy for residential ~~first-mortgage~~real estate first mortgages and HELOC loans ~~intended for sale. Loans held for sale are recorded at~~is to assess the ~~lower of cost or fair value. The fair~~ value of ~~loans held~~the property when the loan has been delinquent for ~~sale~~180 days or has been discharged in bankruptcy proceedings, regardless of whether or not the property is in foreclosure, and charge-off the amount of the loan balance in excess of the estimated ~~using quoted market prices for securities backed by similar types~~current value of ~~loans.~~the underlying property less estimated costs to sell.

~~- 54 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

Equipment, office facilities, and property

Equipment, office facilities, and property are recorded at cost net of accumulated depreciation and amortization, except for land, which is recorded at cost. Equipment and office facilities are depreciated on a straight-line basis over an estimated useful life of ~~three~~five to ten years. Buildings are depreciated on a straight-line basis over 20 to 40 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life of the asset or the term of the lease. Software and certain costs incurred for purchasing or developing software for internal use are amortized on a straight-line basis over an estimated useful life of three or five years. Equipment, office facilities, and property are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Goodwill

Goodwill represents the fair value of acquired businesses in excess of the fair value of the individually identified net assets acquired. Goodwill is not amortized but is tested for impairment annually or whenever indications of impairment exist. InThe Company’s annual impairment testing date is April 1st. The Company can elect to qualitatively assess goodwill for

- 59 -

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)

impairment if it is more likely than not that the fair value of a ~~potential impairment~~reporting unit exceeds its carrying value. A qualitative assessment may consider macroeconomic and other industry-specific factors, such as trends in short-term and long-term interest rates and the ability to access capital, or Company specific factors such as market capitalization in excess of net assets, trends in revenue generating activities, and merger or acquisition activity.

If the Company elects to bypass qualitatively assessing goodwill, or it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, management estimates the fair ~~value~~values of each of the Company’s reporting units (defined as the Company’s businesses for which financial information is available and reviewed regularly by management), and compares it to their carrying ~~value. If the~~values. The estimated fair ~~value of a reporting unit is less than its carrying value, management is required to estimate the fair value of all assets and liabilities~~values of the reporting units are established using an income approach based on a discounted cash flow model that includes significant assumptions about the future operating results and cash flows of each reporting unit, ~~including goodwill. If~~a market approach which compares each reporting unit to comparable companies in their respective industries, and a market capitalization analysis. Based on the Company’s analysis, fair value significantly exceeded the carrying value for all reporting units as of ~~the reporting unit’s goodwill is greater than the estimated fair value, an impairment charge is recognized for the excess. The Company’s~~its annual ~~impairment~~ testing ~~date is April 1~~^st~~. The Company did not recognize any goodwill impairment in 2011, 2010, or 2009.~~date.

Intangible assetsinclude customer relationships, technology, tradenames, and other intangible assets and are recorded at fair value. The Company utilizes independent third-party valuation specialists to determine the fair value of intangible assets acquired in a business combination, and does not have any internally generated intangible assets. Subsequently, intangible

Intangible assets are amortized over their useful lives in a manner that best reflects their economic benefit. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company does not have any indefinite-lived intangible assets.

Guarantees and ~~indemnifications:~~indemnifications

The Company recognizes, at the inception of a guarantee, a liability equal to the estimated fair value of the obligation undertaken in issuing the guarantee. The fair values of the obligations relating to standby letter of credit agreements (LOCs) are estimated based on fees charged to enter into similar agreements, considering the creditworthiness of the counterparties. The fair values of the obligations relating to other guarantees are estimated based on transactions for similar guarantees or expected present value measures.

Income ~~taxes:~~taxes

The Company provides for income taxes on all transactions that have been recognized in the consolidated financial statements. Accordingly, deferred tax assets are adjusted to reflect the tax rates at which future taxable amounts will likely be settled or realized. The effects of tax rate changes on future deferred tax assets and deferred tax liabilities, as well as other changes in income tax laws, are recorded in earnings in the period during which such changes are enacted. The Company’s unrecognized tax benefits, which are included in accrued expenses and other liabilities, represent the difference between positions taken on tax return filings and estimated potential tax settlement outcomes. Interest and penalties relating to unrecognized tax benefits are recorded in income tax expense.

Stock-based compensation

Stock-based compensation includes employee and board of director stock options, restricted stock ~~awards,~~units, and restricted stock ~~units.~~awards. The Company measures compensation expense for these share-based payment arrangements based on their estimated fair values as of the awards’ grant date. The fair value of the share-based award is recognized over the vesting period as stock-based compensation.

Stock-based compensation expense is based on awards expected to vest and therefore is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant based on the Company’s historical forfeiture experience and revised in subsequent periods if actual forfeitures differ from those estimates. The excess tax benefits from the exercise of stock options and the vesting of restricted stock awards are recorded in additional paid-in capital.

~~Adoption of New Accounting Standards~~

- 60 -

~~Goodwill Impairment Test:~~In December 2010, the Financial Accounting Standards Board (FASB) issued new guidance on when to perform the second step in the two-step goodwill impairment test, which is effective for all goodwill impairment tests

~~- 55 -~~

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)

performed after January 1, 2011. Specifically, if the carrying value of a reporting unit, as computed in step one of the goodwill impairment test, is zero or negative, step two must be performed when it is “more likely than not” that goodwill is impaired; under these circumstances, entities can no longer assume that no impairment exists because fair value, as computed in step two, would generally be greater than zero. The adoption of this new guidance did not have a material impact on the Company’s financial position, results of operations, earnings per share (EPS), or cash flows.

~~A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring:~~In April 2011, the FASB issued new guidance clarifying when a debt restructuring by a creditor constitutes a troubled debt restructuring, which is effective July 1, 2011 for all restructurings that occur on or after January 1, 2011. This guidance clarifies that a troubled debt restructuring only exists when a creditor makes a concession in interest rates or payment terms to a debtor experiencing financial difficulties. It provides additional guidance on determining what constitutes a concession, and on the use of probability in determining if a debtor could be experiencing financial difficulty prior to defaulting on payments. The adoption of this new guidance did not have a material impact on the Company’s financial position, results of operations, EPS, or cash flows.

~~New Accounting Standard Not Yet Adopted~~

~~Testing Goodwill for Impairment:~~ In September 2011, the FASB issued new guidance allowing companies to consider qualitative factors before performing a quantitative assessment when determining whether goodwill is impaired, which is 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 is not expected to have a material impact on the Company’s financial position, results of operations, EPS, or cash flows.

~~3. Business Acquisitions~~

~~optionsXpress Holdings, Inc.~~

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.

The results of optionsXpress’ operations have been included in the Company’s consolidated statement of income for the year ended December 31, 2011, from the date of acquisition. optionsXpress’ net revenues were $68 million and their net loss was not material for the period September 1, 2011 through December 31, 2011.

~~- 56 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

~~The following table summarizes the preliminary allocation of the purchase price to the net assets of optionsXpress as of September 1, 2011:~~

Fair value of common stock issued
   $ 710
Fair value of equity awards assumed
   4


Total consideration paid⁽¹⁾
   $ 714


Fair value of net assets acquired
   $ 207


Preliminary goodwill
   $     507

⁽¹⁾	~~Represents a non-cash investing activity.~~

~~The following table summarizes the preliminary fair~~Fair values of the assets acquired and liabilities assumed as of the acquisition date. The allocation of the purchase price is preliminary and subject to further adjustment as information relative to closing date fair values and related tax balances are finalized.

   September 1,
2011
Assets

Cash and cash equivalents
   $ 84
Cash and investments segregated and on deposit for regulatory purposes
   1,074
Receivables from brokers, dealers, and clearing organizations
   40
Receivables from brokerage clients
   185
Other securities owned - at fair value
   32
Intangible assets
   285
Other assets
   24


Total assets acquired⁽¹⁾
   $ 1,724


Liabilities

Payables to brokerage clients
   $ 1,221
Deferred tax liability
   95
Long-term debt⁽²⁾
   110
Accrued expenses and other liabilities
   91


Total liabilities assumed⁽¹⁾
   $     1,517


Net assets acquired
   $ 207

⁽¹⁾	~~All~~ assets and liabilities ~~except for cash and cash equivalents, represent non-cash investing activities.~~

⁽²⁾	~~The Company paid off long-term debt acquired from optionsXpress subsequent to the date of acquisition in September 2011.~~

~~Preliminary goodwill of $507 million was assigned to the Investor Services segment and will not be deductible for tax purposes.~~

The Company recorded preliminary intangible assets of $285 million, which are subject to amortization and will be amortized over their estimated useful lives. The following table summarizes the preliminary estimated fair value and useful lives of the intangible assets.

September 1, 2011
   Estimated
Fair Value    Estimated
Useful Life
(In Years)
Customer relationships
   $     200       11
Technology
   70       9
Trade name
   15       9




Total intangible assets
   $ 285

~~- 57 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

~~Pro Forma Financial Information (Unaudited)~~

The following table presents unaudited pro forma financial information as if optionsXpress had been acquired on January 1, 2009. Pro forma net income for the year ended December 31, 2011, was adjusted to exclude $16 million, after tax, of acquisition related costs incurred by the Company in 2011. Pro forma net income for the year ended December 31, 2009, was adjusted to include these costs. 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 $20 million, $22 million, and $24 million, for the years ended December 31, 2011, 2010, and 2009, respectively.

Year Ended December 31,
   2011    2010    2009
Net revenues
   $     4,857       $     4,479       $     4,426
Net income
   $ 896       $ 481       $ 804
Basic EPS
   $ .71       $ .39       $ .66
Diluted EPS
   $ .71       $ .38       $ .66

The unaudited 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 at the beginning of 2009, nor is it indicative of the results of operations for future periods.

~~Windward Investment Management, Inc.~~

On November 9, 2010, the Company completed its acquisition of substantially all of the assets of Windward Investment Management, Inc. (Windward) for $106 million in common stock and $44 million in cash. Windward was an investment advisory firm that managed diversified investment portfolios comprised primarily of exchange-traded fund securities. As a result of the acquisition, Windhaven Investment Management, Inc. was formed as a wholly-owned subsidiary of Schwab Holdings, Inc.

The Company’s consolidated financial statements include the net assets and results of operations associated with this acquisition from November 9, 2010. Pro forma financial information for the business acquired from Windward is not presented as it is not material to the Company’s consolidated financial statements. As a result of a fair value allocation, the Company recorded goodwill of $103 million and intangible assets of $47 million, both of which are deductible for tax purposes over a period of 15 years. The intangible assets, which primarily relate to customer relationships and technology, are being amortized on a straight-line basis over 11 years and 9 years, respectively. The goodwill was allocated to the Investor Services and Institutional Services segments in the amounts of $30 million and $73 million, respectively.

In connection with the acquisition, the Company established employee retention and incentive programs that provide for cash payments up to an aggregate $100 million. These payments are contingent upon the employees’ continued employment and achievement of certain assets under management thresholds prior to specified time periods concluding 102 months (the Service Period) following the acquisition, with payments due at intervals throughout the period if earned. These payments will be recorded as compensation expense if such payments are deemed probable, and will be recognized over the Service Period. The estimated liability under this program was not material at December 31, 2011 or 2010.

~~4. Receivables from Brokerage Clients~~

Receivables from brokerage clients are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts was not material at December 31, 2011 or 2010. Receivables from brokerage clients consist primarily of margin loans to brokerage clients of $10.2 billion and $10.3 billion at December 31, 2011 and 2010, respectively. Securities owned by brokerage clients are held as collateral for margin loans. Such collateral is not reflected in the consolidated financial statements. The average yield earned on margin loans was 4.39% and 4.87% in 2011 and 2010, respectively.

~~- 58 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

~~5. Other Securities Owned~~

~~A summary of other securities owned is as follows:~~

December 31,
   2011    2010
Schwab Funds^®money market funds
   $     332       $     172
Equity and bond mutual funds
   183       99
State and municipal debt obligations
   46       47
Equity, U.S. Government and corporate debt, and other securities
   32       19




Total other securities owned⁽¹⁾
   $ 593       $ 337

⁽¹⁾	~~Securities pledged were not material at December 31, 2011 or 2010.~~

~~The Company’s positions in Schwab Funds~~^® money market funds arise from certain overnight funding of clients’ redemption, check-writing, and debit card activities. Equity and bond mutual funds include mutual fund investments held at CSC, investments made by the Company relating to its deferred compensation plan, and inventory maintained to facilitate certain Schwab Funds and third-party mutual fund clients’ transactions. State and municipal debt obligations, equity, U.S. Government and corporate debt, and other securities include securities held to meet clients’ trading activities.

~~Securities sold, but not yet purchased were not material at December 31, 2011 or 2010, and are recorded at fair value in accrued expenses and other liabilities.~~

~~6. 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:~~

December 31, 2011
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Fair 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
Certificates of deposit
   3,623       2       3       3,622
Corporate debt securities
   3,592       5       26       3,571
U.S. agency notes
   1,795       5       —       1,800
Asset-backed and other securities
   3,144       7       7       3,144








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

~~- 59 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

December 31, 2010
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Fair
Value
Securities available for sale:

U.S. agency residential mortgage-backed securities
   $     12,879       $     222       $ 3       $ 13,098
Non-agency residential mortgage-backed securities
   1,701       3       234       1,470
Certificates of deposit
   1,874       1       —       1,875
Corporate debt securities
   2,261       8       1       2,268
U.S. agency notes
   2,757       23       —       2,780
Asset-backed securities
   2,495       9       2       2,502








Total securities available for sale
   $ 23,967       $ 266       $     240       $     23,993








Securities held to maturity:

U.S. agency residential mortgage-backed securities
   $ 16,722       $ 209       $ 137       $ 16,794
Other securities
   1,040       14       —       1,054








Total securities held to maturity
   $ 17,762       $ 223       $ 137       $ 17,848

~~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
December 31, 2011
   Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
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
Certificates of deposit
   2,158       3       —       —       2,158       3
Corporate debt securities
   1,888       26       —       —       1,888       26
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.~~

~~- 60 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

   Less than    12 months
   12 months    or longer    Total
December 31, 2010
   Fair Value    Unrealized
Losses    Fair Value    Unrealized
Losses    Fair Value    Unrealized
Losses
Securities available for sale:

U.S. agency residential mortgage-backed securities
   $ 707       $ 3       $ —       $ —       $ 707       $ 3
Non-agency residential mortgage-backed securities
   —       —       1,207       234       1,207       234
Corporate debt securities
   549       1       —       —       549       1
Asset-backed securities
   873       2       —       —       873       2












Total
   $ 2,129       $ 6       $ 1,207       $ 234       $ 3,336       $ 240












Securities held to maturity:

U.S. agency residential mortgage-backed securities
   $ 6,880       $ 137       $ —       $ —       $ 6,880       $ 137












Total
   $ 6,880       $ 137       $ —       $ —       $ 6,880       $ 137












Total securities with unrealized losses⁽¹⁾
   $     9,009       $     143       $     1,207       $     234       $     10,216       $     377

⁽¹⁾	~~The number of investment positions with unrealized losses totaled 178 for securities available for sale and 37 for securities held to maturity.~~

Unrealized losses in securities available for sale of $273 million as of December 31, 2011, 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 & Company credit score of 620 or higher at origination), and “Alt-A” (defined as Prime loans with reduced documentation at origination). At December 31, 2011, the amortized cost and fair value of Alt-A residential mortgage-backed securities were $390 million and $279 million, respectively.

Management evaluates whether securities available for sale and securities held to maturity are other-than-temporarily impaired (OTTI) on a quarterly basis as described in note “2 – Summary of Significant Accounting Policies.”

Certain Alt-A and Prime residential mortgage-backed securities experienced continued credit deterioration in 2011, including increased payment delinquency rates and losses on foreclosures of underlying mortgages. 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 OTTI. The Company employs a buy and hold strategy relative to its mortgage-related securities, and does not intend to sell these securities and it will not be required to sell these securities before anticipated recovery of the unrealized losses on these securities. Further, the Company has an adequate liquidity position at December 31, 2011, with cash and cash equivalents totaling $8.7 billion, a loan-to-deposit ratio of 16%, 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 $31 million in 2011. 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 in 2011 or 2010. There were no actual credit losses on the Company’s residential mortgage-backed securities in 2009.

~~- 61 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

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:

Year Ended December 31,
   2011    2010      2009
Balance at beginning of year
   $ 96       $ 60       $ —
Credit losses recognized into current year earnings on debt securities for which an other-than-temporary impairment was not previously recognized
   6       7       60
Credit losses recognized into current year earnings on debt securities for which an other-than-temporary impairment was previously recognized
   25       29       —






Balance at the end of year
   $     127       $     96       $ 60

~~The maturities of securities available for sale and securities held to maturity at December 31, 2011, are as follows:~~

   Within 1
year    After 1 year
through
5 years    After 5 years
through
10 years    After
10 years    Total
Securities available for sale:

U.S. agency residential mortgage-backed securities⁽¹⁾
   $ —       $ 2       $ 2,950       $ 17,969       $ 20,921
Non-agency residential mortgage-backed securities⁽¹⁾
   —       —       13       894       907
Certificates of deposit
   1,897       1,725       —       —       3,622
Corporate debt securities
   954       2,517       100       —       3,571
U.S. agency notes
   —       1,800       —       —       1,800
Asset-backed and other securities
   225       812       534       1,573       3,144










Total fair value
   $ 3,076       $ 6,856       $ 3,597       $ 20,436       $ 33,965
Total amortized cost
   $     3,076       $     6,871       $     3,512       $     20,491       $     33,950










Securities held to maturity:

U.S. agency residential mortgage-backed securities⁽¹⁾
   $ —       $ —       $ 2,581       $ 12,617       $ 15,198
Other securities
   117       224       —       —       341










Total fair value
   $ 117       $ 224       $ 2,581       $ 12,617       $ 15,539
Total amortized cost
   $ 116       $ 222       $ 2,507       $ 12,263       $ 15,108

⁽¹⁾

Residential mortgage-backed securities have been allocated to 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:~~

Year Ended December 31,
   2011    2010    2009
Proceeds
   $     500       $     871       $     107
Gross realized gains
   $ 1       $ 1       $ 1
Gross realized losses
   $ —       $ —       $ (4 )

~~- 62 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

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

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

December 31,
   2011 2010
Residential real estate mortgages
   $     5,596    $     4,695
Home equity lines of credit
   3,509    3,500
Personal loans secured by securities
   742    562
Other
   19    21


Total loans to banking clients⁽¹⁾
   9,866    8,778
Allowance for loan losses
   (54 ) (53 )


Total loans to banking clients – net
   $ 9,812    $ 8,725

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

The allowance for loan losses is established through charges to earnings based on management’s evaluation of the existing portfolio. The adequacy of the allowance is reviewed quarterly by management, taking into consideration current economic conditions, the existing loan portfolio composition, past loss experience, and risks inherent in the portfolio, as described in note “2 – Summary of Significant Accounting Policies.”

In addition to the allowance for loan losses, the Company maintains a separate reserve for the losses inherent in unused commitments on its HELOC loans. This reserve is included in accrued expenses and other liabilities and was not material at December 31, 2011 or 2010.

~~Changes in the allowance for loan losses were as follows:~~

Year Ended
   December 31, 2011
   Residential
real estate
mortgages Home
equity lines
of credit Total December 31,
2010 December 31,
2009
Balance at beginning of year
   $             38    $             15    $             53    $       45    $       20
Charge-offs
   (11 ) (8 ) (19 ) (20 ) (13 )
Recoveries
   1    1    2    1    —
Provision for loan losses
   12    6    18    27    38


Balance at end of year
   $ 40    $ 14    $ 54    $ 53    $ 45

Included in the loan portfolio are nonaccrual loans totaling $52 million and $51 million at December 31, 2011 and 2010, respectively. There were no loans accruing interest that were contractually 90 days or more past due at December 31, 2011 or 2010. The amount of interest revenue that would have been earned on nonaccrual loans, versus actual interest revenue recognized on these loans, was not material to the Company’s results of operations in 2011 or 2010. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $56 million and $54 million at December 31, 2011 and 2010, 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 December 31, 2011 or 2010.

~~- 63 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

~~The delinquency aging analysis by loan class is as follows:~~

      30-59 days    60-89 days    Greater than    Total    Total
December 31, 2011
   Current    past due    past due    90 days    past due    loans
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












December 31, 2010

Residential real estate mortgages:

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












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

In addition to monitoring the delinquency characteristics as presented in the aging analysis above, the Company monitors the credit quality of residential real estate mortgages and HELOCs by stratifying the portfolios by the year of origination, borrower FICO scores at origination, updated FICO scores, and loan-to-value ratios at origination (Origination LTV), as presented in the following tables. Borrowers’ FICO scores are provided by an independent third party credit reporting service and were last updated in December 2011. The Company monitors the credit quality of personal loans secured by securities by reviewing the fair value of collateral to ensure adequate collateralization of at least 100% of the principal amount of the loans. All of these personal loans were fully collateralized by securities with fair values in excess of borrowing amounts at December 31, 2011 and 2010.

~~- 64 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

   Residential real estate mortgages
      Originated first
mortgages    Purchased first
mortgages    Total    Home equity
lines of credit
December 31, 2011

Year of origination
Pre-2007
   $ 291       $ 52       $ 343       $ 1,074
2007
   278       8       286       232
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⁽¹⁾
< 70%
   $ 3,507       $ 91       $ 3,598       $ 2,378
71% - 89%
   1,904       60       1,964       1,091
> 90%
   26       8       34       40








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

⁽¹⁾	The computation of the Origination LTV ratio for a HELOC includes any first lien mortgage outstanding on the same property at the time of origination. At December 31, 2011, $755 million of $3.5 billion in HELOCs were in a first lien position.

~~- 65 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

   Residential real estate mortgages
   Originated first    Purchased first       Home equity
December 31, 2010
   mortgages    mortgages    Total    lines of credit
Year of origination

Pre-2007
   $ 352       $ 58       $ 410       $ 1,132
2007
   384       9       393       245
2008
   728       8       736       1,345
2009
   884       12       896       466
2010
   2,240       20       2,260       312








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








Origination FICO

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








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








Updated FICO

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








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








Origination LTV⁽¹⁾

< 70%
   $ 2,911       $ 55       $ 2,966       $ 2,375
71% - 89%
   1,659       51       1,710       1,092
> 90%
   18       1       19       33








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

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

~~8. Equipment, Office Facilities, and Property~~

~~Equipment, office facilities, and property are detailed below:~~

December 31,
   2011 2010
Software
   $         993    $         902
Buildings
   446    438
Information technology equipment
   430    405
Leasehold improvements
   307    282
Furniture and equipment
   131    118
Telecommunications equipment
   104    91
Land
   59    57
Construction in progress
   17    15


Total equipment, office facilities, and property
   2,487    2,308
Accumulated depreciation and amortization
   (1,802 ) (1,684 )


Total equipment, office facilities, and property – net
   $ 685    $ 624

~~- 66 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

~~9. Intangible Assets and Goodwill~~

~~The gross carrying value of intangible assets and accumulated amortization was:~~

   December 31, 2011    December 31, 2010
   Gross
Carrying
Value    Accumulated
Amortization    Net
Carrying
Value    Gross
Carrying
Value    Accumulated
Amortization    Net
Carrying
Value
Customer relationships
   $         245       $ 17       $         228       $           42       $ 2       $           40
Technology
   88       6       82       14       2       12
Trade name
   15       1       14       —       —       —
Other
   2       —       2       2       —       2












Total intangible assets
   $ 350       $ 24       $ 326       $ 58       $ 4       $ 54

~~Amortization expense for intangible assets was $20 million in 2011 and not material in 2010 or 2009.~~

~~Estimated future annual amortization expense for intangible assets as of December 31, 2011 is as follows:~~

2012
   $ 47
2013
   $ 42
2014
   $ 39
2015
   $ 36
2016
   $ 34
Thereafter
   $         128

~~The changes in the carrying amount of goodwill, as allocated to the Company’s reportable segments for purposes of testing goodwill for impairment going forward, are presented in the following table:~~

   Investor    Institutional
   Services    Services    Total
Balance at December 31, 2010
   $         446       $         185       $ 631
Goodwill acquired during the period
   507       23       530






Balance at December 31, 2011
   $ 953       $ 208       $       1,161

~~10. Other Assets~~

~~The components of other assets are as follows:~~

December 31,
   2011    2010
Accounts receivable⁽¹⁾
   $         330       $         320
Prepaid expenses
   153       172
Interest and dividends receivable
   142       134
Other investments
   57       56
Deferred tax asset – net
   27       170
Other
   109       75




Total other assets
   $ 818       $ 927

⁽¹⁾	~~Accounts receivable includes accrued service fee income and a receivable from the Company’s loan servicer.~~

~~- 67 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

~~11. Deposits from Banking Clients~~

~~Deposits from banking clients consist of interest-bearing and noninterest-bearing deposits as follows:~~

December 31,
   2011    2010
Interest-bearing deposits:

Deposits swept from brokerage accounts
   $     40,617       $     30,980
Checking
   10,765       9,890
Savings and other
   8,997       9,241




Total interest-bearing deposits
   60,379       50,111




Noninterest-bearing deposits
   475       479




Total deposits from banking clients
   $ 60,854       $ 50,590

~~Demand deposit overdrafts included as other loans within loans to banking clients were not material at December 31, 2011 or 2010.~~

In 2010, the Company entered into deposit account agreements with existing trust clients and accordingly transferred balances totaling $442 million from payables to brokerage clients and accrued expenses and other liabilities to noninterest-bearing deposits from banking clients.

~~12. Payables to Brokers, Dealers, and Clearing Organizations~~

Payables to brokers, dealers, and clearing organizations include securities loaned of $852 million and $1.3 billion at December 31, 2011 and 2010, respectively. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at December 31, 2011 and 2010.

~~13. Payables to Brokerage Clients~~

The principal source of funding for Schwab’s margin lending is cash balances in brokerage client accounts, which are included in payables to brokerage clients. Cash balances in interest-bearing brokerage client accounts were $30.6 billion and $26.2 billion at December 31, 2011 and 2010, respectively. The average rate paid on cash balances in interest-bearing brokerage client accounts was 0.01% in 2011 and 2010.

~~14. Borrowings~~

~~Long-term debt including unamortized debt discounts and premiums, where applicable, consists of the following:~~

December 31,
   2011    2010
Senior Notes
   $     1,450       $     1,449
Senior Medium-Term Notes, Series A
   249       249
Junior Subordinated Notes
   202       202
Finance lease obligation
   100       106




Total long-term debt
   $ 2,001       $ 2,006

CSC has a universal automatic shelf registration statement (Shelf Registration Statement) on file with the Securities and Exchange Commission (SEC), which enables CSC to issue debt, equity and other securities. This Shelf Registration Statement was filed in December 2011 to replace the prior Shelf Registration Statement, which expired in the same month.

~~- 68 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

The Senior Notes outstanding at December 31, 2011 have maturities ranging from 2014 to 2020 and fixed interest rates ranging from 4.45% to 4.950% with interest payable semi-annually. The Company issued $700 million of these Senior Notes in 2010 under the prior Shelf Registration Statement. These Senior Notes mature in 2020 and have a fixed interest rate of 4.45%.

The Senior Medium-Term Notes, Series A (Medium-Term Notes) outstanding at December 31, 2011, mature in 2017 and have a fixed interest rate of 6.375% with interest payable semi-annually. In 2010, $200 million of Medium-Term Notes matured.

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 the trust preferred securities were invested by the Trust in fixed to floating rate Junior Subordinated Notes issued by CSC. The Junior Subordinated Notes, which mature in 2067, have a fixed interest rate of 7.50% until 2017, and a floating rate thereafter. The Junior Subordinated Notes may be redeemed at a redemption price of principal plus accrued but unpaid interest on November 15, 2017, on or after November 15, 2037, or following the occurrence of certain events, and at a make-whole redemption price at any other time. In 2010, the Company terminated the replacement capital covenant related to the trust preferred securities, upon receiving the requisite consents, in order to have more flexibility to manage its capital structure. The replacement capital covenant had restricted the Company from redeeming, repaying or purchasing the Junior Subordinated Notes or the trust preferred securities unless it received proceeds of the issuance of certain replacement capital securities, among other conditions.

Schwab has a finance lease obligation related to an office building and land under a 20-year lease. The remaining finance lease obligation of $100 million at December 31, 2011, is being reduced by a portion of the lease payments over the remaining lease term of 13 years.

~~Annual maturities on long-term debt outstanding at December 31, 2011, are as follows:~~

2012
   $ 6
2013
   6
2014
   756
2015
   7
2016
   7
Thereafter
   1,220


Total maturities
   2,002
Unamortized discount, net
   (1 )


Total long-term debt
   $     2,001

CSC maintains an $800 million committed, unsecured credit facility with a group of 11 banks, which is scheduled to expire in June 2012. This facility replaced a similar facility that expired in June 2011. The funds under this facility are available for general corporate purposes, including repayment of the Commercial Paper Notes discussed above. 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 December 31, 2011, the minimum level of stockholders’ equity required under this facility was $5.0 billion (CSC’s stockholders’ equity at December 31, 2011 was $7.7 billion). There were no borrowings outstanding under this facility at December 31, 2011 or 2010.

~~- 69 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

To manage short-term liquidity, Schwab maintains uncommitted, unsecured bank credit lines with a group of six banks totaling $875 million at December 31, 2011. CSC has direct access to $750 million of these credit lines. There were no borrowings outstanding under these lines at December 31, 2011 or 2010.

To partially satisfy the margin requirement of client option transactions with the Options Clearing Corporation (OCC), Schwab has unsecured standby LOCs with eight banks in favor of the OCC aggregating $350 million at December 31, 2011. 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 December 31, 2011, the aggregate face amount of these LOCs totaled $78 million. There were no funds drawn under any of these LOCs at December 31, 2011 or 2010.

~~15. Commitments and Contingencies~~

~~Operating leases and other commitments:~~ The Company has non-cancelable operating leases for office space and equipment. Future annual minimum rental commitments under these leases, net of contractual subleases, at December 31, 2011, are as follows:

   Operating
   Leases    Subleases    Net
2012
   $ 116       $ 30       $ 86
2013
   96       26       70
2014
   83       24       59
2015
   72       24       48
2016
   64       24       40
Thereafter
   139       18       121






Total
   $ 570       $ 146       $     424

Certain leases contain provisions for renewal options, purchase options, and rent escalations based on increases in certain costs incurred by the lessor. Rent expense was $187 million, $168 million, and $213 million in 2011, 2010, and 2009, respectively. Rent expense in 2009 included charges of $37 million relating to the Company’s cost reduction measures.

~~Purchase obligations:~~The Company has purchase obligations for services such as advertising and marketing, telecommunications, professional services, and hardware- and software-related agreements. At December 31, 2011, the Company has purchase obligations as follows:

2012
   $ 118
2013
   48
2014
   33
2015
   27
2016
   6
Thereafter
   1


Total
   $     233

~~Guarantees and indemnifications:~~ In the normal course of business, the Company provides certain indemnifications (i.e., protection against damage or loss) to counterparties in connection with the disposition of certain of its assets. Such indemnifications are generally standard contractual terms with various expiration dates and typically relate to title to the assets transferred, ownership of intellectual property rights (e.g., patents), accuracy of financial statements, compliance with laws and regulations, failure to pay, satisfy or discharge any liability, or to defend claims, as well as errors, omissions, and misrepresentations. The maximum potential future liability under these indemnifications cannot be estimated. The Company has not recorded a liability for these indemnifications and believes that the occurrence of events that would trigger payments under these agreements is remote.

~~- 70 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

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 LOCs, in favor of the clearing houses, which are issued by multiple banks. At December 31, 2011, the aggregate face amount of these LOCs totaled $350 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 December 31, 2011, the aggregate face amount of these LOCs totaled $78 million. There were no funds drawn under any of these LOCs at December 31, 2011.

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, 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, or pending the outcome of key motions or appeals. 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. On November 30, 2011, the NYAG filed notice of its intention to appeal the ruling.

~~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

~~- 71 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

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, and 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 appealed to the Ninth Circuit, where the case is currently pending.

A second class action lawsuit filed on September 3, 2010, in the U.S. District Court for the Northern District of California, which raised similar allegations on behalf of investors in the fund (Smit lawsuit), was dismissed with prejudice on April 19, 2011.

~~optionsXpress Merger Litigation~~: Between March 21, 2011 and April 6, 2011, ten purported class action lawsuits were filed by optionsXpress stockholders challenging the terms of the Company’s merger agreement to acquire optionsXpress. Named defendants included the Company, optionsXpress and members of its board of directors. Seven lawsuits were filed in the Circuit Court of Cook County, Illinois and consolidated in a single amended complaint on May 9, 2011 (Consolidated Illinois Action); and three lawsuits were filed in the Court of Chancery of the State of Delaware and consolidated in a single amended complaint on April 25, 2011 (Consolidated Delaware Action). On April 28, 2011, the Delaware court stayed the Consolidated Delaware Action in favor of the Consolidated Illinois Action.

On June 16, 2011, the Illinois court dismissed all claims against the Company with prejudice. On July 29, 2011, the parties entered into a settlement agreement under which the remaining defendants agreed to provide certain supplemental merger disclosures in exchange for full releases of all claims related to the merger, including all claims in the Consolidated Illinois Action and the Consolidated Delaware Action. Defendants also agreed not to oppose any fee application by plaintiffs’ counsel that did not exceed $650,000. The settlement received final approval from the Illinois court on December 7, 2011.

~~optionsXpress Regulatory Matters~~: The Company is in discussions with the Securities and Exchange Commission (SEC), the Chicago Board Options Exchange and FINRA to resolve several optionsXpress regulatory matters which predate the Company’s acquisition of optionsXpress. optionsXpress entities and individual employees have received Wells notices concerning potential violations of SEC Regulation SHO (short sale delivery rules) in connection with certain customer trading activities, and potential violations of the broker-dealer registration requirements in connection with an unregistered optionsXpress entity. The Company has recorded a contingent liability associated with these matters, which was not material at December 31, 2011.

~~YieldPlus Fund Litigation~~: As disclosed previously, the Company recorded total charges in 2010 of $199 million, net of insurance proceeds of $39 million under applicable policies, for settlements to resolve consolidated class action litigation in the U.S. District Court for the Northern District of California relating to the Schwab YieldPlus Fund^®~~. On April 19, 2011, the court granted final approval of the settlement agreements and entered final judgment in the litigation.~~

~~16. Financial Instruments Subject to Off-Balance Sheet Risk, Credit Risk, or Market Risk~~

~~Securities lending:~~ The Company loans client securities temporarily to other brokers in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its client obligations. The Company mitigates this risk by requiring credit approvals for counterparties, by monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. The fair value of client securities pledged in securities lending transactions to other broker-dealers was $783 million and $1.2 billion at December 31, 2011 and 2010, respectively. Additionally, the Company borrows

~~- 72 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

~~securities from other broker-dealers to fulfill short sales by clients. The fair value of these borrowed securities was $44 million and $113 million at December 31, 2011 and 2010, respectively.~~

~~Client trade settlement:~~The Company is obligated to settle transactions with brokers and other financial institutions even if the Company’s clients fail to meet their obligations to the Company. Clients are required to complete their transactions on settlement date, generally three business days after the trade date. If clients do not fulfill their contractual obligations, the Company may incur losses. The Company has established procedures to reduce this risk by requiring deposits from clients in excess of amounts prescribed by regulatory requirements for certain types of trades, and therefore the potential for Schwab to make payments under these client transactions is remote. Accordingly, no liability has been recognized for these transactions.

~~Margin lending:~~ The Company provides margin loans to its clients which are collateralized by securities in their brokerage accounts and may be liable for the margin requirement of its client margin securities transactions. As clients write options or sell securities short, the Company may incur losses if the clients do not fulfill their obligations and the collateral in client accounts is not sufficient to fully cover losses which clients may incur from these strategies. To mitigate this risk, the Company monitors required margin levels and clients are required to deposit additional collateral, or reduce positions to meet minimum collateral requirements. Clients with margin loans have agreed to allow the Company to pledge collateralized securities in their brokerage accounts in accordance with federal regulations and was allowed, under such regulations, to pledge securities with a fair value of $14.7 billion and $15.0 billion at December 31, 2011 and 2010, respectively. The fair value of client securities pledged to fulfill the short sales of its clients was $1.2 billion and $1.4 billion at December 31, 2011 and 2010, respectively. The fair value of client securities pledged to fulfill the Company’s proprietary short sales, which resulted from facilitating clients’ dividend reinvestment elections, was $101 million and $99 million at December 31, 2011 and 2010, respectively. The Company has also pledged a portion of its securities owned in order to fulfill the short sales of clients and in connection with securities lending transactions to other broker-dealers. The fair value of these pledged securities was not material at December 31, 2011 or 2010. The Company may also pledge client securities to fulfill client margin requirements for open option contracts established with the OCC. The fair value of these pledged securities to the OCC was $1.3 billion and $1.2 billion at December 31, 2011 and 2010, respectively.

~~Financial instruments held for trading purposes:~~ The Company maintains inventories in securities on a long and short basis relating to its fixed income operations. The Company could incur losses or gains as a result of changes in the fair value of these securities. To mitigate the risk of losses, long and short positions are marked to fair value and are monitored by management to assure compliance with limits established by the Company.

~~Resale and repurchase agreements:~~ Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. At December 31, 2011 and 2010, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $18.3 billion and $13.0 billion, respectively. Schwab utilizes the collateral provided under repurchase agreements to meet obligations under broker-dealer client protection rules, which place limitations on its ability to access such segregated securities. For Schwab to repledge or sell this collateral, it would be required to deposit cash and/or securities of an equal amount into its segregated reserve bank accounts in order to meet its segregated cash and investment requirement.

~~Concentration risk:~~ The Company has exposure to concentration risk when holding large positions of financial instruments collateralized by assets with similar economic characteristics or in securities of a single issuer or industry. For discussion on the Company’s exposure to concentration risk relating to residential mortgage-backed securities, see note “6 – Securities Available for Sale and Securities Held to Maturity.”

The Company’s investments in corporate debt securities and commercial paper totaled $5.6 billion and $4.6 billion at December 31, 2011 and 2010, respectively, 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

~~- 73 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

deposit for regulatory purposes, cash and cash equivalents, and other securities owned. At December 31, 2011 and 2010, the Company held $867 million and $1.9 billion, respectively, 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 $5.6 billion and $4.7 billion of adjustable rate first lien residential real estate mortgage loans at December 31, 2011 and 2010, respectively. The Company’s adjustable rate mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. At December 31, 2011, approximately 60% of these mortgages consisted of loans with interest-only payment terms. At December 31, 2011, 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 December 31, 2011, 44% of the residential real estate mortgages and 50% of the HELOC balances were secured by properties which are located in California. At December 31, 2010, 42% of the residential real estate mortgages and 49% of the HELOC balances were secured by properties which are located in California.

~~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 $18.3 billion and $13.0 billion at December 31, 2011 and 2010, respectively.

~~Commitments to extend credit:~~ Schwab Bank enters into commitments to extend credit to banking clients primarily relating to mortgage lending. The credit risk associated with these commitments varies depending on the creditworthiness of the client and the value of any collateral expected to be held. Collateral requirements vary by type of loan. These commitments are legally binding agreements to lend to a client that generally have fixed expiration dates or other termination clauses, may require payment of a fee and are not secured by collateral until funds are advanced. Schwab Bank also has commitments to extend credit related to its clients’ unused HELOC. Total amounts outstanding for these commitments to extend credit were $5.8 billion and $6.1 billion at December 31, 2011 and 2010, respectively.

~~Forward sale and interest rate lock commitments:~~Schwab Bank’s loans held for sale portfolio consists of fixed-rate and adjustable-rate residential mortgage loans, which are subject to a loss in value when market interest rates rise. Schwab Bank uses forward sale commitments to manage this risk. These forward sale commitments have been designated as cash flow hedging instruments, and are recorded on the Company’s consolidated balance sheet at fair value with gains or losses recorded in other comprehensive income (loss). Amounts included in other comprehensive income (loss) are reclassified into earnings when the related loan is sold. At December 31, 2011 and 2010, the derivative asset and liability for these forward sale commitments were not material.

Additionally, Schwab Bank uses forward sale commitments to hedge interest rate lock commitments issued on mortgage loans that will be held for sale. Schwab Bank considers the fair value of these commitments to be zero at the commitment date, with subsequent changes in fair value determined solely based on changes in market interest rates. Any changes in fair value of the interest rate lock commitments are completely offset by changes in fair value of the related forward sale commitments. Schwab Bank had interest rate lock commitments on mortgage loans to be held for sale with principal balances totaling approximately $347 million and $628 million at December 31, 2011 and 2010, respectively. At December 31, 2011 and 2010, the derivative asset and liability for these interest rate lock commitments and the related forward sale commitments were not material.

~~- 74 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Notes to Consolidated Financial Statements~~

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

~~17. 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 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. This category includes active exchange-traded money market funds, mutual funds, options, and equity securities. The Company did not transfer any assets or liabilities between Level 1 and Level 2 during 2011 or 2010.

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.

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.

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. This category includes residential mortgage-backed securities, corporate debt securities, certificates of deposit, commercial paper, U.S. agency and municipal debt securities, U.S. Treasury securities, and asset-backed and other securities.

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

The ~~Company’s assets recorded at~~Company uses the market and income approaches to determine the fair value ~~include certain cash equivalents, investments segregated~~of assets and ~~on deposit for regulatory purposes, other securities owned, and securities available for sale.~~liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of ~~assets.~~assets and liabilities. When utilizing market data and 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 ~~validates~~generally obtains prices ~~received~~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 ~~using various methods, including comparison~~ to ~~prices received~~determine if the price obtained from ~~additional~~the primary independent pricing ~~services, comparison to quoted market prices, where available, comparison to internal valuation models, and review of other relevant market data.~~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.

Descriptions of the valuation methodologies and assumptions used to estimate the fair value of financial instruments not recorded at fair value are described below. The Company’s financial instruments not recorded at fair value but for which fair value can be approximated and disclosed include:

In January 2014, the Financial Accounting Standards Board (FASB) issued new guidance for creditors of consumer mortgage loans, which is effective January 1, 2015. The guidance clarifies when physical possession of a property underlying a consumer mortgage loan transfers to the creditor, and therefore when a loan receivable should be derecognized and the real estate property underlying the loan should be recognized. The adoption of this new guidance is not expected to have a material impact on the Company’s financial statements or earnings per common share (EPS).

In May 2014, the FASB issued new guidance on revenue recognition, which is effective January 1, 2017. The guidance clarifies that revenue from contracts with customers should be recognized in a manner that depicts the timing of the transfer of goods or performance of services at an amount that reflects the expected consideration. The Company is currently evaluating the impact of this new guidance on its financial statements and EPS.

Receivables from brokerage clients consist primarily of margin loans to brokerage clients of $14.3 billion and $12.8 billion at December 31, 2014 and 2013, respectively. Securities owned by brokerage clients are held as collateral for margin loans. Such collateral is not reflected in the consolidated financial statements. The average yield earned on margin loans was 3.50% and 3.68% in 2014 and 2013, respectively.

The Company’s positions in Schwab Funds® money market funds arise from certain overnight funding of clients’ redemption, check-writing, and debit card activities. Equity and bond mutual funds include mutual fund investments held at CSC, investments made by the Company relating to its deferred compensation plan, and inventory maintained to facilitate certain Schwab Funds and third-party mutual fund clients’ transactions. State and municipal debt obligations, equity, U.S. Government and corporate debt, and other securities include securities held to meet clients’ trading activities.

The amortized cost, gross unrealized gains and losses, and fair value of securities available for sale and securities held to maturity are as follows:

Schwab Bank pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $132 million at December 31, 2014.

A summary of securities with unrealized losses, aggregated by category and period of continuous unrealized loss, is as follows:

Management evaluates whether securities available for sale and securities held to maturity are OTTI on a quarterly basis as described in note “2 – Summary of Significant Accounting Policies.”

Non-agency residential mortgage-backed securities include securities collateralized by loans that are considered to be “Prime” (defined as loans to borrowers with a Fair Isaac Corporation (FICO) credit score of 620 or higher at origination), and “Alt-A” (defined as Prime loans with reduced documentation at origination). Management determined that it does not expect to recover all of the amortized cost of certain of its Alt-A and Prime residential mortgage-backed securities and therefore determined that these securities were OTTI. The Company recognized an impairment charge equal to the securities’ expected credit losses of $1 million in 2014, based on the Company’s cash flow projections for these securities. The expected credit losses are measured as the difference between the present value of expected cash flows and the amortized cost of the securities. In the fourth quarter of 2014, the Company sold $504 million of its non-agency residential mortgage-backed securities portfolio, resulting in a net realized loss of $8 million. The Company marked the remaining $15 million of these securities to market and recorded a $0.6 million OTTI charge in the fourth quarter.

The maturities of securities available for sale and securities held to maturity at December 31, 2014, are as follows:

Proceeds and gross realized gains and losses from sales of securities available for sale are as follows:

The Company has commitments to extend credit related to unused HELOCs, personal loans secured by securities, and other lines of credit, which totaled $6.7 billion and $5.7 billion at December 31, 2014 and 2013, respectively. All personal loans were fully collateralized by securities with fair values in excess of borrowings at December 31, 2014 and 2013.

Schwab Bank provides a co-branded loan origination program for Schwab Bank clients (the Program) with Quicken Loans, Inc. (Quicken Loans®). Pursuant to the Program, Quicken Loans originates and services First Mortgages and HELOCs for Schwab Bank clients. Under the Program, Schwab Bank purchases certain First Mortgages and HELOCs that are originated by Quicken Loans. Schwab Bank purchased First Mortgages of $1.4 billion and $3.5 billion during 2014 and 2013, respectively. Schwab Bank purchased HELOCs with commitments of $664 million and $917 million during 2014 and 2013, respectively.

There were no loans accruing interest that were contractually 90 days or more past due at December 31, 2014 or 2013. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $44 million and $53 million at December 31, 2014 and 2013, respectively. Troubled debt restructurings were not material at December 31, 2014 or 2013, respectively.

In addition to monitoring delinquency, the Company monitors the credit quality of residential real estate mortgages and HELOCs by stratifying the portfolios by the year of origination, borrower FICO scores at origination (Origination FICO), updated borrower FICO scores (Updated FICO), LTV ratios at origination (Origination LTV), and estimated current LTV ratios (Estimated Current LTV), as presented in the following tables. Borrowers’ FICO scores are provided by an independent third party credit reporting service and were last updated in December 2014. The Origination LTV and Estimated Current LTV ratios for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is estimated by reference to a home price appreciation index.

Depreciation and amortization expense for equipment, office facilities, and property was $155 million, $154 million, $149 million in 2014, 2013, and 2012, respectively.

Amortization expense for intangible assets was $44 million, $48 million, and $47 million in 2014, 2013, and 2012, respectively.

Estimated future annual amortization expense for intangible assets as of December 31, 2014, is as follows:

Goodwill impairment charges since January 1, 2002 are immaterial. The changes in the carrying amount of goodwill, as allocated to the Company’s reportable segments for purposes of testing goodwill for impairment going forward, are presented in the following table:

In testing for potential impairment of goodwill on April 1, 2014, management performed an assessment of each of the Company’s reporting units. As a result of this assessment, management concluded that goodwill was not impaired. The Company did not recognize any goodwill impairment in 2013 or 2012.

Deposits from banking clients consist of interest-bearing and non-interest-bearing deposits as follows:

Payables to brokers, dealers, and clearing organizations include securities loaned of $1.5 billion and $1.2 billion at December 31, 2014 and 2013, respectively. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at December 31, 2014 and 2013.

The principal source of funding for Schwab’s margin lending is cash balances in brokerage client accounts, which are included in payables to brokerage clients. Cash balances in interest-bearing brokerage client accounts were $27.6 billion and $28.8 billion at December 31, 2014 and 2013, respectively. The average rate paid on cash balances in interest-bearing brokerage client accounts was 0.01% in 2014 and 2013.

Long-term debt including unamortized debt discounts and premiums, where applicable, consists of the following:

CSC has a universal automatic shelf registration statement (Shelf Registration Statement) on file with the Securities and Exchange Commission (the SEC), which enables CSC to issue debt, equity, and other securities.

The Senior Notes outstanding at December 31, 2014, have maturities ranging from 2015 to 2022 and fixed interest rates ranging from 0.850% to 4.45% with interest payable semi-annually.

On July 25, 2013, CSC issued $275 million of Senior Notes that mature in 2018 under its Shelf Registration Statement. The Senior Notes have a fixed interest rate of 2.20% with interest payable semi-annually.

The Senior Medium-Term Notes, Series A (Medium-Term Notes) outstanding at December 31, 2014, mature in 2017 and have a fixed interest rate of 6.375% with interest payable semi-annually.

Schwab has a finance lease obligation related to an office building and land under a 20-year lease. The remaining finance lease obligation of $83 million at December 31, 2014, is being reduced by a portion of the lease payments over the remaining lease term of 10 years.

Annual maturities on long-term debt outstanding at December 31, 2014, are as follows:

CSC maintains an $800 million committed, unsecured credit facility with a group of 12 banks, which is scheduled to expire in June 2015. This facility replaced a similar facility that expired in June 2014. 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, excluding accumulated other comprehensive income. At December 31, 2014, the minimum level of stockholders’ equity required under this facility was $7.8 billion (CSC’s stockholders’ equity, excluding accumulated other comprehensive income, at December 31, 2014, was $11.6 billion). There were no borrowings outstanding under these facilities at December 31, 2014 or 2013.

To manage short-term liquidity, Schwab maintains uncommitted, unsecured bank credit lines with a group of banks. There were no borrowings outstanding under these lines at December 31, 2014 or 2013.

To partially satisfy the margin requirement of client option transactions with the Options Clearing Corporation, Schwab has unsecured standby LOCs with five banks in favor of the Options Clearing Corporation aggregating $225 million at December 31, 2014. There were no funds drawn under any of these LOCs at December 31, 2014 or 2013. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. Schwab satisfies the collateral requirements by providing cash as collateral.

To partially satisfy the margin requirement of client option transactions with the Options Clearing Corporation, optionsXpress, Inc. has an unsecured standby LOC with one bank in favor of the Options Clearing Corporation in the amount of $15 million at December 31, 2014. There were no funds drawn under this LOC during 2014.

Operating leases: The Company has non-cancelable operating leases for office space and equipment. Future annual minimum rental commitments under these leases, net of contractual subleases, at December 31, 2014, are as follows:

Certain leases contain provisions for renewal options, purchase options, and rent escalations based on increases in certain costs incurred by the lessor. Rent expense was $214 million, $208 million, and $203 million in 2014, 2013, and 2012, respectively.

Purchase obligations: The Company has purchase obligations for services such as advertising and marketing, telecommunications, professional services, and hardware- and software-related agreements. At December 31, 2014, the Company has purchase obligations as follows:

Guarantees and indemnifications: In the normal course of business, the Company provides certain indemnifications (i.e., protection against damage or loss) to counterparties in connection with the disposition of certain of its assets. Such indemnifications are generally standard contractual terms with various expiration dates and typically relate to title to the assets transferred, ownership of intellectual property rights (e.g., patents), accuracy of financial statements, compliance with laws and regulations, failure to pay, satisfy or discharge any liability, or to defend claims, as well as errors, omissions, and misrepresentations. The maximum potential future liability under these indemnifications cannot be estimated. The Company has not recorded a liability for these indemnifications and believes that the occurrence of events that would trigger payments under these agreements is remote.

The Company has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. The Company partially satisfies the margin requirements by arranging unsecured standby LOCs, in favor of the Options Clearing Corporation, which are issued by multiple banks. At December 31, 2014, the aggregate face amount of these LOCs totaled $240 million. There were no funds drawn under any of these LOCs at December 31, 2014. In connection with its securities lending activities, the Company is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral.

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.

With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would 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, 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. It may not be 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: As disclosed previously, Schwab has been responding to a civil complaint filed on August 17, 2009, in New York state court by the Attorney General of the State of New York (NYAG) alleging misrepresentations in sales of auction rate securities to clients. In 2011, the court granted Schwab’s motion to dismiss the complaint with prejudice. After part of the case was reinstated on appeal in 2013, Schwab filed a motion for summary judgment of the NYAG’s remaining

causes of action. On February 3, 2015, the parties entered into a settlement agreement under which the NYAG’s complaint will be voluntarily dismissed and ~~2010,~~discontinued with prejudice. The Company’s liability with respect to resolution of the matter is not material.

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™. 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.

Other Regulatory Matters: On April16, 2012, optionsXpress, Inc. was charged by the SEC in an administrative proceeding alleging violations of the firm’s close-out obligations under Regulation SHO (short sale delivery rules) in connection with certain customer trading activity. Following trial, in a decision issued June 7, 2013, the judge held that the firm had violated Regulation SHO and aided and abetted fraudulent trading activity by its customer, and ordered the firm and the customer to pay disgorgement and penalties in an amount which would not be material. The Company continues to dispute the allegations and is appealing the decision.

15.Financial Instruments Subject to Off-Balance Sheet Credit Risk or Concentration Risk

Resale and repurchase agreements: Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. At December 31, 2014 and 2013, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $10.4 billion and $14.3 billion, respectively. Schwab utilizes the collateral provided under these resale agreements to meet obligations under broker-dealer client protection rules, which place limitations on its ability to access such segregated securities. For Schwab to repledge or sell this collateral, it would be required to deposit cash and/or securities of an equal amount into its segregated reserve bank accounts in order to meet its segregated cash and investment requirement. The Company’s resale agreements are not subject to master netting arrangements.

Securities lending: The Company loans client securities temporarily to other brokers in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its client obligations. The Company mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. The fair value of client securities pledged in securities lending transactions to other broker-dealers was $1.3 billion and $1.1 billion at December 31, 2014 and 2013, respectively. The Company has also pledged a portion of its securities owned in connection with securities lending transactions to other broker-dealers. Additionally, the Company borrows securities from other broker-dealers to fulfill short sales by clients and delivers cash to the lender in exchange for the securities. The fair value of these borrowed securities was $88 million and $276 million at December 31, 2014 and 2013, respectively. All of the Company’s securities lending transactions are subject to enforceable master netting arrangements

with other broker-dealers. However, the Company does not net securities lending transactions and therefore, the Company’s securities loaned and securities borrowed are presented gross in the consolidated balance sheets.

The following table presents information about the Company’s resale agreements and securities lending activity to enable the users of the Company’s financial statements to evaluate the potential effect of rights of setoff between these recognized assets and recognized liabilities at December 31, 2014 and 2013.

Client trade settlement: The Company is obligated to settle transactions with brokers and other financial institutions even if the Company’s clients fail to meet their obligations to the Company. Clients are required to complete their transactions on settlement date, generally three business days after the trade date. If clients do not fulfill their contractual obligations, the Company may incur losses. The Company has established procedures to reduce this risk by requiring deposits from clients in excess of amounts prescribed by regulatory requirements for certain types of trades, and therefore the potential to make payments under these client transactions is remote. Accordingly, no liability has been recognized for these transactions.

Margin lending: The Company provides margin loans to its clients which are collateralized by securities in their brokerage accounts and may be liable for the margin requirement of its client margin securities transactions. As clients write options or sell securities short, the Company may incur losses if the clients do not fulfill their obligations and the collateral in client accounts is insufficient to fully cover losses which clients may incur from these strategies. To mitigate this risk, the Company monitors required margin levels and requires clients to deposit additional collateral, or reduce positions to meet minimum collateral requirements. The contractual value of margin loans to clients was $14.3 billion and $12.8 billion at December 31, 2014 and 2013, respectively.

Clients with margin loans have agreed to allow the Company to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. Under such regulations, the Company was allowed to pledge securities with a fair value of $20.4 billion and $18.2 billion at December 31, 2014 and 2013, respectively. The fair value of client securities pledged to fulfill the short sales of its clients was $1.5 billion and $1.6 billion at December 31, 2014 and 2013, respectively. The fair

value of client securities pledged to fulfill the Company’s proprietary short sales, which resulted from facilitating clients’ dividend reinvestment elections, was $216 million and $130 million at December 31, 2014 and 2013, respectively. The Company may also pledge client securities to fulfill client margin requirements for open option contracts established with the OCC. The fair value of these pledged securities to the OCC was $1.3 billion and $1.3 billion at December 31, 2014 and 2013, respectively.

Commitments to extend credit: Schwab Bank enters into commitments to extend credit to banking clients. Schwab Bank also has commitments to purchase certain First Mortgage loans and HELOCs under the Program with Quicken Loans, which began in 2012. The credit risk associated with these commitments varies depending on the creditworthiness of the client and the value of any collateral expected to be held. Collateral requirements vary by type of loan. At December 31, 2014 and 2013, the Company had commitments to purchase First Mortgage loans of $226 million and $208 million, respectively. Schwab Bank also has commitments to extend credit related to its clients’ unused HELOCs, personal loans secured by securities, and other lines of credit, which totaled $6.7 billion and $5.7 billion at December 31, 2014 and 2013, respectively. See also note “6 – Loans to Banking Clients and Related Allowance for Loan Losses.”

The Company has exposure to concentration risk when holding large positions of 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 mortgage-backed securities totaled $53.8 billion at December 31, 2014. Of these, $52.5 billion were issued by U.S. agencies and $1.3 billion were issued by private entities (non-agency securities). The fair value of the Company’s investments in mortgage-backed securities totaled $48.9 billion at December 31, 2013. Of these, $47.1 billion were issued by U.S. agencies and $1.8 billion were non-agency securities. These U.S. agency and non-agency securities are included in securities available for sale and securities held to maturity.

The fair value of the Company’s investments in corporate debt securities and commercial paper totaled $8.1 billion and $9.2 billion at December 31, 2014 and 2013, respectively, with the majority issued by institutions in the financial services industry. These securities are included in securities available for sale, cash and cash equivalents, and other securities owned.

The fair value of the Company’s investments in asset-backed securities totaled $19.4 billion and $15.2 billion at December 31, 2014 and 2013, respectively, with the majority serviced by a single servicer.

The Company’s loans to banking clients include $7.4 billion and $7.3 billion of adjustable rate First Mortgages at December 31, 2014 and 2013, respectively. At December 31, 2014, approximately 40% of these mortgages consisted of loans with interest-only payment terms. At December 31, 2014, the interest rates on approximately 65% of these interest-only loans are not scheduled to reset for three or more years. For additional detail on concentrations in loans to banking clients, see note “6 – Loans to Banking Clients and Related Allowance for Loan Losses.”

The Company also has exposure to concentration risk from its margin and securities lending activities collateralized by securities of a single issuer or industry. This concentration risk is mitigated by collateral arrangements that require the fair value of such collateral exceeds the amounts loaned, as described above.

For a description of the fair value hierarchy and the Company’s fair value methodologies, including the use of independent third-party pricing services, see note “2 – Summary of Significant Accounting Policies.” The Company did not transfer any assets or liabilities between Level 1, Level 2, or Level 3 during 2014 or 2013. In addition, the Company did not adjust prices received from the primary independent third-party pricing ~~services.~~service at December 31, 2014 or 2013.

The following tables present the fair value hierarchy for assets measured at fair value. Liabilities recorded at fair value were not material, and therefore are not included in the following ~~tables.~~tables:

~~The following tables present the fair value hierarchy for assets measured at fair value:~~

The Company’s stock incentive plans provide for granting options, restricted stock units, and ~~Retirement Plans~~restricted stock awards to employees, officers, and directors. In addition, the Company offers retirement and employee stock purchase plans to eligible employees and sponsors deferred compensation plans for eligible officers and non-employee directors.

A summary of the Company’s stock-based compensation and related income tax benefit is as follows:

The Company issues shares for stock options and restricted stock awards from treasury stock. At December 31, ~~2011,~~2014, the Company was authorized to grant up to 5259 million common shares under its existing stock incentive plans. Additionally, at December 31, 2014, the Company had 41 million shares reserved for future issuance under its employee stock purchase plan.

As of December 31, ~~2011,~~2014, there was ~~$192~~$206 million of total unrecognized compensation cost, net of forfeitures, related to outstanding stock options, restricted stock awards, and restricted stock units, which is expected to be recognized through ~~2016~~2018 with a remaining weighted-average service period of 2.8 years.

~~The Company’s stock incentive plans provide for granting options to employees, officers, and directors.~~ Options are granted for the purchase of shares of common stock at an exercise price not less than market value on the date of grant, and expire within seven or ten years from the date of grant. Options generally vest annually over a three- to five-year period from the date of grant. Certain options were granted at an exercise price above the market value of common stock on the date of grant (i.e., premium-priced options).

The aggregate intrinsic value in the table above represents the difference between CSC’s closing stock price and the exercise price of each in-the-money option on the last trading day of the period presented.

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

Management uses a binomial option pricing model to estimate the fair value of options granted. The binomial model takes into account the contractual term of the stock option, expected volatility, dividend yield, and risk-free interest rate. Expected volatility is based on the implied volatility of publicly-traded options on CSC’s stock. Dividend yield is based on the average historical CSC dividend yield. The risk-free interest rate is based on the yield of a U.S. Treasury zero-coupon issue with a remaining term ~~equal~~similar to the contractual term of the option. Management uses historical option exercise data, which includes employee termination data to estimate the probability of future option exercises. Management uses the Black-Scholes model to solve for the expected life of options valued with the binomial model presented below. The assumptions used to value the Company’s options granted during the years presented and their expected lives were as follows:

~~The Company’s stock incentive plans provide for granting restricted stock awards and restricted stock units to employees, officers, and directors.~~ Restricted stock units are awards that entitle the holder to receive shares of CSC’s common stock following a vesting period.

Restricted stock ~~awards and~~ units are restricted from transfer or sale and generally vest annually over a three- to five-year period, ~~but~~while some vest based upon the Company achieving certain financial or other measures. The fair value of restricted stock ~~awards and~~ units is based on the market price of the Company’s stock on the date of grant. The grant date fair value is amortized to compensation expense on a straight-line basis over the requisite service period. The ~~total~~ fair value of the restricted stock ~~awards and~~ units that vested during each of the years ~~2011, 2010,~~2014, 2013, and ~~2009~~2012 was ~~$24~~$116 million, ~~$27~~$78 million, and ~~$28~~$30 million, respectively.

~~The Company’s restricted stock awards and units activity is summarized below:~~

~~Employee Stock Purchase Plan~~Upon completing three months of consecutive service, employees of the Company can participate in the Company’s qualified retirement plan, the SchwabPlan® Retirement Savings and Investment Plan. The Company may match certain employee contributions or make additional contributions to this plan at its discretion. The Company’s total expense was $68 million, $63 million, and $59 million in 2014, 2013, and 2012, respectively.

Under the Company’s Employee Stock Purchase Plan (ESPP), eligible employees can purchase shares of CSC’s common stock using amounts withheld through payroll deductions, subject to limitations. Payroll deductions are accumulated during six-month offering periods that start each year on February 1^st ~~and August 1~~^st~~. Share purchases are made on the last trading day of each three-month purchase period within the offering period. The three-month purchase periods end on January 31~~^st~~, April 30~~^th~~, July 31~~^st~~, and October 31~~^st of each year. The purchase price for each share of common stock is 85% of the fair market value of the shares on the last trading day of the purchase period. At December 31, 2011, the Company had 45 million shares reserved for future issuance under the ESPP.Deferred Compensation Plans

~~The Company sponsors deferred compensation plans for eligible officers and non-employee directors.~~ The Company’s deferred compensation plan for officers permits participants to defer the receipt of certain cash compensation. ~~The deferred compensation liability was $128 million and $139 million at December 31, 2011 and 2010, respectively.~~ The Company’s deferred compensation plan for non-employee directors permits participants to defer receipt of all or a portion of their director fees and to receive either a grant of stock options, or upon ceasing to serve as a director, the number of shares of CSC’s common stock that would have resulted from investing the deferred fee amount into CSC’s common stock. The deferred compensation liability was $132 million and $135 million at December 31, 2014 and 2013, respectively.

~~Upon completing three months of consecutive service, employees of the Company can participate in the Company’s qualified retirement plan, the SchwabPlan~~^® Retirement Savings and Investment Plan. The Company may match certain employee contributions or make additional contributions to this plan at its discretion. The Company’s total contribution expense was $53 million, $50 million, and $49 million in 2011, 2010, and 2009, respectively.

In 2010, the Company decided to cover the net remaining losses recognized by Schwab money market mutual funds as a result of their investments in a single structured investment vehicle that defaulted in 2008 and recorded a charge of $132 million.

The temporary differences that created deferred tax assets and liabilities are detailed below:

~~The Company determined that no material valuation allowance against deferred tax assets at December 31, 2011 and 2010 was necessary.~~

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

The ~~Company classifies interest~~federal returns for 2011 through 2013 remain open to Federal tax examinations. The years open to examination by state and penalties related to unrecognized tax benefits as a component of income tax expense, which were not material in 2011, 2010, or 2009. The Company’s liability for estimated interest on unrecognized tax benefits was not material at December 31, 2011 or 2010.local governments vary by jurisdiction.

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, if dilutive, the effect of outstanding stock options and unvested restricted stock awards and units. EPS under the basic and diluted computations is as follows:

CSC is a savings and loan holding company and Schwab Bank, CSC’s depository institution subsidiary, is a federal savings bank. ~~Prior~~CSC is subject to ~~July 21, 2011, CSC~~supervision and regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve). Schwab Bank ~~were both~~is subject to supervision and regulation by the Office of Thrift Supervision (OTS). The “Dodd-Frank Wall Street Reform and Consumer Protection Act” legislation (Dodd-Frank Act) eliminated the OTS effective July 21, 2011. As a result, the Board of Governors of the Federal Reserve System (Federal Reserve) became CSC’s primary regulator and the Office of the Comptroller of the Currency ~~became the~~(the OCC), as its primary regulator, ~~of Schwab Bank. Effective July 21, 2011,~~the Federal Deposit Insurance Corporation, as its deposit insurer, and the Consumer Financial Protection Bureau. CSC is required ~~by the Dodd-Frank Act~~ to serve as a source of strength for Schwab Bank. ~~While under the OTS,~~Prior to January 1, 2015, CSC, ~~was required to have~~as a ~~“prudential level of capital” to support CSC’s risk profile. The OTS did not historically subject~~ savings and loan holding ~~companies, such as CSC,~~company, was not subject to ~~consolidated regulatory~~specific statutory capital requirements. ~~However, under the Dodd-Frank Act,~~Beginning on January 1, 2015, CSC ~~will be~~is subject to new ~~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.~~Reserve.

Schwab Bank is subject to regulation and supervision and to various requirements and restrictions under federal and state laws, including regulatory capital guidelines. Among other things, these requirements also restrict and govern the terms of affiliate transactions, ~~with CSC and its non-depository institution subsidiaries, including loans and other~~such as extensions of credit ~~investments~~ and ~~asset purchases,~~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 ~~and investments.~~to CSC. The federal banking agencies have broad powers to enforce these regulations, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver. Under the Federal Deposit Insurance Act, Schwab Bank could be subject to restrictive actions if it were to fall within one of the lowest three of five capital categories. CSC and Schwab Bank isare 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 CSC and Schwab Bank. At December 31, ~~2011, CSC and~~2014, Schwab Bank met the capital level requirements.

Based on its regulatory capital ratios at December 31, ~~2011~~2014 and ~~2010,~~2013, Schwab Bank is considered well capitalized (the highest category) pursuant to banking regulatory guidelines. There are no conditions or events since December 31, ~~2011,~~2014, that management believes have changed Schwab Bank’s capital category.

The Federal Reserve requires Schwab Bank to maintain reserve balances at the Federal Reserve Bank based on certain deposit levels. Schwab Bank’s average reserve requirement was ~~$1.1~~$1.3 billion and ~~$918 million~~$1.2 billion in ~~2011~~2014 and ~~2010,~~2013, respectively.

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)~~250,000), 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 December 31, ~~2011,~~2014, are as follows:

Schwab and optionsXpress, Inc. are also subject to Rule 15c3-3 under the Securities Exchange Act of 1934 ~~and/or~~and other applicable regulations, which require them to maintain cash or qualified securities in a segregated reserve account for the

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

exclusive benefit of clients. In accordance with Rule 15c3-3, Schwab and optionsXpress, Inc. had portions of their cash and investments segregated for the exclusive benefit of clients at December 31, ~~2011.~~2014. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit, whereas cash and investments

required to be segregated and on deposit for regulatory purposes at December 31, ~~2011~~2014 for Schwab and optionsXpress, Inc. totaled ~~$26.3~~$21.9 billion. On January ~~4, 2012,~~5, 2015, Schwab and optionsXpress, Inc. deposited a net amount of ~~$1.1~~$1.7 billion of ~~excess segregated~~ cash into their segregated reserve bank accounts. Cash and investments required to be segregated and on deposit for regulatory purposes at December 31, ~~2010~~2013 for Schwab ~~was $22.0~~and optionsXpress, Inc. totaled $24.0 billion. On January ~~4, 2011,~~3, 2014, Schwab ~~withdrew~~and optionsXpress, Inc. deposited a net amount of ~~$194~~$965 million of ~~excess segregated~~ cash ~~from its~~into their segregated reserve bank accounts.

~~Operating~~The Company’s two reportable segments are ~~defined as components of a company in which separate financial information is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources~~Investor Services and ~~in assessing performance.~~Advisor Services. The Company structures its operating segments according to its ~~various types of~~ clients and the services provided to those clients. ~~The Company’s two reportable segments are Investor Services and Institutional Services.~~

The Investor Services segment provides retail brokerage and banking services to individual ~~investors.~~investors, retirement plan services, and corporate brokerage services. The ~~Institutional~~Advisor Services segment provides custodial, trading, and support services to independent investment ~~advisors. The Institutional Services segment also provides~~advisors, and retirement business services to independent retirement plan ~~services, specialty brokerage services,~~advisors and ~~mutual fund clearing services, and supports the availability of~~recordkeepers whose plan assets are held at Schwab ~~proprietary mutual funds and collective trust funds on third-party platforms. Banking revenues~~Bank. Revenues and expenses are allocated to the Company’s two segments based on which segment services the client.

The accounting policies of the segments are the same as those described in note “2– Summary of Significant Accounting Policies.” Financial information for the Company’s reportable segments is presented in the following table. For the computation of its segment information, the Company utilizes an activity-based costing model to allocate traditional income statement line item expenses (e.g., compensation and benefits, depreciation and amortization, and professional services) to the business activities driving segment expenses (e.g., client service, opening new accounts, or business development) and a funds transfer pricing methodology to allocate certain revenues.

The Company evaluates the performance of its segments on a pre-tax basis, excluding ~~items such as impairment charges on non-financial assets, discontinued operations,~~ extraordinary or significant non-recurring items and ~~significant restructuring and other charges.~~results of discontinued operations. Segment assets and liabilities ~~are not disclosed because the balances~~ are not used for evaluating segment performance ~~and~~or in deciding how to allocate resources to segments. However, capital expenditures are used in resource allocation and are therefore disclosed. There are no revenues from transactions ~~with other segments within~~between the ~~Company.~~segments. Capital expenditures are reported gross, and are not net of proceeds from the sale of fixed assets.

~~(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)~~

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

Fees received from Schwab’s proprietary mutual funds represented ~~approximately 10%~~7%, ~~14%~~9%, and ~~23%~~10% of the Company’s net revenues in ~~2011, 2010,~~2014, 2013, and ~~2009,~~2012, respectively. Except for Schwab’s proprietary mutual funds, which are considered a single client for purposes of this computation, no single client accounted for more than 10% of the Company’s net revenues in ~~2011, 2010,~~2014, 2013, or ~~2009.~~2012. Substantially all of the Company’s revenues and assets are generated or located in the U.S. The percentage of Schwab’s total client accounts located in California was ~~approximately~~ 23% at December 31, ~~2011, 2010,~~2014, 2013, and ~~2009.~~2012.

On December 14, 2012, the Company acquired ThomasPartners, Inc., a growth and dividend income-focused asset management firm, for $85 million in cash. The Company recorded goodwill of $68 million and intangible assets of $32 million. The intangible assets primarily relate to customer relationships and are being amortized over 11 years. The goodwill was allocated to the Investor Services and Advisor Services segments in the amounts of $54 million and $14 million, respectively.

The Company has evaluated the impact of events that have occurred subsequent to December 31, 2014, through the date the consolidated financial statements were filed with the SEC. Based on this evaluation, other than as recorded or disclosed within these consolidated financial statements and related notes, the Company has determined none of these events were required to be recognized or disclosed.

26.The Charles Schwab Corporation – Parent Company Only Financial Statements

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THE CHARLES SCHWAB CORPORATION

Management’s ~~Management’s~~ Report on Internal Control Over Financial Reporting

Management of The Charles Schwab Corporation, together with its subsidiaries (the Company), is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of and effected by the Company’s chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with accounting principles generally accepted in the United States of America.

As of December 31, ~~2011,~~2014, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting was effective as of December 31, ~~2011.~~2014.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

The Company’s internal control over financial reporting as of December 31, ~~2011,~~2014, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on the previous page.

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THE CHARLES SCHWAB CORPORATION

~~Item 9.~~

~~Changes in and Disagreements With Accountants on Accounting and Financial Disclosure~~

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

~~Item 9A.~~

~~Controls and Procedures~~

Item 9A.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 December 31, ~~2011.~~2014. 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 December 31, ~~2011.~~2014.

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 December 31, ~~2011,~~2014, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm are included in “Item 8 – Financial Statements and Supplementary Data.”

~~Item 9B.~~

~~Other Information~~

Item 9B.Other Information

None.

PART ~~PART~~ III

~~Item 10.~~

~~Directors, Executive Officers, and Corporate Governance~~

Item 10.Directors, Executive Officers, and Corporate Governance

The information relating to directors of CSC required to be furnished pursuant to this item is incorporated by reference from portions of the Company’s definitive proxy statement for its annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A by April 30, ~~2012~~2015 (the Proxy Statement) under “Members of the Board of Directors,” “Corporate Governance Information,” “Director Nominations,” and “Section 16(a) Beneficial Ownership Reporting Compliance.” The Company’s Code of Conduct and Business Ethics, applicable to directors and all employees, including senior financial officers, is available on the Company’s website athttp://www.aboutschwab.com/governance. If the Company makes any amendments to or grants any waivers from its Code of Conduct and Business Ethics, which are required to be disclosed pursuant to the Securities Exchange Act of 1934, the Company will make such disclosures on this website.

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THE CHARLES SCHWAB CORPORATION

SchwabExecutive Officers of the Registrant

The following table provides certain information about each of the Company’s executive officers as of December 31, ~~2011.~~2014.

~~Executive Officers of the Registrant~~


~~Name~~		~~Age~~				~~Title~~
									Executive Officers of the Registrant

	Name	Age			Title
	Charles R. Schwab	77				74		Chairman of the Board

Walter W. Bettinger II	54				51		President and Chief Executive Officer

Jay L. Allen	58			Executive Vice President and Chief Administrative Officer
	55 Bernard J. Clark	56				Executive Vice President – ~~Human Resources and Employee~~Advisor Services

~~Benjamin L. Brigeman~~			49			~~Executive Vice President – Investor Services~~

~~John S. Clendening~~David R. Garfield					49		~~Executive Vice President – Shared Strategic Services~~

~~Carrie E. Dwyer~~58			61			Executive Vice President, General Counsel and Corporate Secretary
	Terri R. Kallsen	46			Executive Vice President – Investor Services
	Joseph R. Martinetto	52				49		Executive Vice President and Chief Financial Officer

James D. McCool	55				53		Executive Vice President – ~~Institutional Services~~Client Solutions

Mr. Schwab has been Chairman of the Board and a director of CSC since its incorporation in 1986. He also served as Chief Executive Officer of CSC from 1986 to 1997, and as Co-Chief Executive Officer from 1998 until 2003. He was re-appointed Chief Executive Officer in 2004 and served in that role until 2008. Mr. Schwab is also Chairman of Charles Schwab & Co., Inc. and Charles Schwab Bank, and aChairman and trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, and Laudus Institutional Trust, all registered investment companies.

Mr. Bettingerhas been President and Chief Executive Officer of CSC since 2008. ~~In 2010, he took on responsibility as Chief Executive Officer of Charles Schwab Bank.~~ He also serves on the Board of Directors of CSC, Charles Schwab & Co., Inc. and Charles Schwab Bank, and as a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, Laudus Institutional Trust, and Schwab Strategic Trust, all registered investment companies. Prior to assuming his current role, Mr. Bettinger served as President and Chief Operating Officer of CSC from 2007 until 2008 and as Executive Vice President and President – Schwab Investor Services of CSC and Schwab from 2005 to 2007. He served as Executive Vice President and Chief Operating Officer – Individual Investor Enterprise of CSC and Schwab from 2004 until 2005, and Executive Vice President – Corporate Services of Schwab from 2002 until 2004. Mr. Bettinger joined Schwab in 1995.

Mr. Allenhas been Executive Vice President and Chief Administrative Officer of CSC and Schwab since April 2014. He served as Executive Vice President – Human Resources and Employee Services of CSC and Schwab ~~since 2007.~~from 2007 until April 2014. He served as Senior Vice President – Human Resources of Schwab Investor Services from 2004 to 2007. Mr. Allen joined Schwab in 2003 as Vice President – Human Resources of Schwab Investor Services.

Mr. ~~Brigeman~~Clark has been Executive Vice President – Advisor Services of CSC since 2012. Mr. Clark has served as Executive Vice President – ~~Investor~~Advisor Services of ~~CSC and~~ Schwab ~~from 2007 to February 2012.~~since 2010. From 2006 until 2010, Mr. ~~Brigeman was~~Clark served as Senior Vice President – Schwab ~~Investor Services~~Institutional Sales of ~~Schwab from~~Schwab. During 2005 ~~to 2007~~ and Senior Vice President – Schwab Retirement Plan Services of Schwab from 2000 to 2005. Mr. Brigeman joined Schwab in 1996. Mr. Brigeman stepped down as Executive Vice President – Investor Services of CSC and Schwab, effective February 15, 2012.

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~~THE CHARLES SCHWAB CORPORATION~~

~~Mr. Clendening~~~~has been Executive Vice President – Shared Strategic Services of CSC and Schwab since 2009. He~~2006, he served as Executive Vice President – Solution Services of CSC and Schwab from 2008 to 2009 and as Executive Vice President – Client Experience, Schwab Investor Services of CSC in 2007 and of Schwab from 2006 to 2008. Mr. Clendening served as Executive Vice President and President – Individual Investor Enterprise Marketing of Schwab from 2005 to 2007. He joined Schwab in 2004 as Senior Vice President – ~~Individual Investor Enterprise Marketing.~~Client Service of Schwab. Mr. Clark joined Schwab in 1998.

~~Ms. Dwyer~~Mr. Garfield has been Executive Vice President, General Counsel and Corporate Secretary of CSC and Executive Vice President ~~– Corporate Oversight~~ of Schwab since ~~1996. Ms. Dwyer~~October 2014. Mr. Garfield served as Deputy General Counsel of Wells Fargo & Company from 1998 until he joined Schwab in ~~1996.~~October 2014.

Ms. Kallsen has been Executive Vice President – Investor Services of CSC and Schwab since December 2014. She served as Senior Vice President – Portfolio Consulting of Schwab from 2012 until June 2014 and as Senior Vice President – Branch Network from June 2014 until December 2014. Prior to joining Schwab, Ms. Kallsen served as Executive Vice President of First Command Financial Services from 2009 until 2012 and as Senior Vice President of USAA from 2004 until 2009.

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THE CHARLES SCHWAB CORPORATION

Mr. Martinettohas been Executive Vice President and Chief Financial Officer of CSC and Schwab since 2007. He has served as Chief Executive Officer of Charles Schwab Bank since December 2012. Mr. Martinetto served as Senior Vice President and Treasurer of CSC and Schwab from 2003 to 2007 and Senior Vice President – Individual Investor Finance of Schwab from 2002 to 2003. Mr. Martinetto joined Schwab in 1997.

Mr. McCool has been Executive Vice President – Clients Solutions of CSC and Schwab since 2012. He served as Executive Vice President – Institutional Services of CSC and Schwab ~~since 2008.~~from 2008 until 2012. Mr. McCool served as Executive Vice President – Schwab Corporate and Retirement Services of CSC from 2007 until 2008 and of Schwab from 2006 until 2008. Mr. McCool served as Senior Vice President – Corporate Services of Schwab from 2004 until 2006. Mr. McCool also served as President and Chief Executive Officer of The Charles Schwab Trust Company (CSTC) from 2005 until 2007. Mr. McCool served as Senior Vice President – Plan Administrative Services of CSTC from 2004 until 2005, Chief Operating Officer of CSTC from 2003 until 2004, and Vice President – Development and Business Technology of CSTC from 2002 until 2003. Mr. McCool joined Schwab in 1995.

~~Item 11.~~

~~Executive Compensation~~

Item 11.Executive Compensation

The information required to be furnished pursuant to this item is incorporated by reference from portions of the Proxy Statement under “Compensation Discussion and Analysis,” “Executive Compensation Tables – ~~2011~~2014 Summary Compensation Table,” “Executive Compensation Tables – ~~2011~~2014 Grants of Plan-Based Awards Table,” “Executive Compensation Tables – Narrative to Summary Compensation and Grants of Plan-Based Awards Tables,” “Executive Compensation Tables – ~~2011~~2014 Termination and Change in Control Benefits Table,” “Executive Compensation Tables – Outstanding Equity Awards as of December 31, ~~2011,~~2014,” “Executive Compensation Tables – ~~2011~~2014 Option Exercises and Stock Vested Table,” “Executive Compensation Tables – ~~2011~~2014 Nonqualified Deferred Compensation Table,” “Director Compensation,” and “Compensation Committee Interlocks and Insider Participation.” In addition, the information from a portion of the Proxy Statement under “Compensation Committee Report,” is incorporated by reference from the Proxy Statement and furnished on this Form 10-K, and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

~~Item 12.~~

~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required to be furnished pursuant to this item is incorporated by reference from portions of the Proxy Statement under “Security Ownership of Certain Beneficial Owners and Management,” and “Securities Authorized for Issuance under Equity Compensation Plans.”

~~Item 13.~~

~~Certain Relationships and Related Transactions, and Director Independence~~

Item 13.Certain Relationships and Related Transactions, and Director Independence

The information required to be furnished pursuant to this item is incorporated by reference from portions of the Proxy Statement under “Transactions with Related Persons” and “Director Independence.”

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~~THE CHARLES SCHWAB CORPORATION~~

Item 14.Principal Accountant Fees and Services

The information required to be furnished pursuant to this item is incorporated by reference from a portion of the Proxy Statement under “Auditor Fees.”

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THE CHARLES SCHWAB CORPORATION

PART IV

Item 15.~~PART IV~~Exhibits and Financial Statement Schedule

~~Item 15.~~

~~Exhibits and Financial Statement Schedule~~

(a) Documents filed as part of this Report

~~(a)~~

~~Documents filed as part of this Report~~

1. Financial Statements

The financial statements and independent auditors’ report are included in “Item 8 – Financial Statements and Supplementary Data” and are listed below:

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders’ Equity

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

2. Financial Statement Schedule

The financial statement schedule required to be furnished pursuant to this item is listed in the accompanying index appearing on page F-1.

~~(b)~~

~~Exhibits~~

(b) Exhibits

~~The~~

~~exhibits listed below are filed as part of this annual report on Form 10-K.~~

The exhibits listed below are filed as part of this annual report on Form 10-K.


Exhibit Number		Exhibit

2.1	~~2.1~~		Agreement and Plan of Merger, dated March 18, 2011, by and among The Charles Schwab Corporation, Neon Acquisition Corp. and optionsXpress Holdings, Inc., filed as Exhibit 2.1 to the Registrant’s Form 8-K dated March 18, 2011, and incorporated herein by reference.

3.11	~~3.11~~		Fifth Restated Certificate of Incorporation, effective May 7, 2001, of the Registrant, filed as Exhibit 3.11 to the Registrant’s Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference.

3.14	~~3.14~~		Fourth Restated Bylaws, as amended on January 27, 2010, of the Registrant, filed as Exhibit 3.1 to the Registrant’s Form 8-K dated January 27, 2010, and incorporated herein by reference.

3.15	~~3.15~~		Certificate of Designations of Fixed to Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A of The Charles Schwab Corporation filed as Exhibit 3.15 to the Registrant’s Form 8-K dated January 24, 2012, and incorporated herein by reference.

3.16	Certificate of Designations of 6.00% Non-Cumulative Perpetual Preferred Stock, Series B, of the Charles Schwab Corporation filed as Exhibit 3.1 to the Registrant’s Form 8-K dated May 31, 2012, and incorporated herein by reference.

4.1	Deposit Agreement, dated June 6, 2012, between the Company and Wells Fargo Bank, N.A., as Depositary (including the form of Depositary Share Receipt attached as Exhibit A thereto), filed as Exhibit 4.1 to the Registrant’s Form 8-K dated May 31, 2012, and incorporated herein by reference.

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THE CHARLES SCHWAB CORPORATION

Exhibit
Number

Exhibit

  4.2           Neither the Registrant nor its subsidiaries are parties to any instrument with respect to long-term debt for which securities authorized thereunder exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. Copies of instruments with respect to long-term debt of lesser amounts will be provided to the SEC upon request.
10.1           Voting Agreement, dated as of March 18, 2011, by and among The Charles Schwab Corporation, G-Bar Limited Partnership, JG 2002 delta Trust and optionsXpress Holdings, Inc., filed as Exhibit 10.1 to the Registrant’s Form 8-K dated March 18, 2011 and incorporated herein by reference.
10.4           Form of Release Agreement dated as of March 31, 1987 among BAC, Registrant, Schwab Holdings, Inc., Charles Schwab & Co., Inc. and former shareholders of Schwab Holdings, Inc., filed as the identically-numbered exhibit to Registrant’s Registration Statement No. 33-16192 on Form S-1 and incorporated herein by reference.
10.57         Registration Rights and Stock Restriction Agreement, dated as of March 31, 1987, between the Registrant and the holders of the Common Stock, filed as Exhibit 4.23 to Registrant’s Registration Statement No. 33-16192 on Form S-1 and incorporated herein by reference.
10.72         Restatement of Assignment and License, as amended January 25, 1988, among Charles Schwab & Co., Inc., Charles R. Schwab and the Registrant, filed as Exhibit 10.72 to the Registrant’s Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
10.271       The Charles Schwab Corporation Directors’ Deferred Compensation Plan, as amended through December 8, 2004, filed as Exhibit 10.271 to the Registrant’s Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.    (2)
10.272       The Charles Schwab Corporation Deferred Compensation Plan, as amended through December 8, 2004, filed as Exhibit 10.272 to the Registrant’s Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.    (2)
10.288       Stock Purchase Agreement by and between the Registrant and Bank of America Corporation, dated as of November 19, 2006 and incorporated herein by reference.
10.289       Form of Notice and Restricted Stock Agreement for Walter W. Bettinger under The Charles Schwab Corporation 2004 Stock Incentive Plan dated February 20, 2007, filed as Exhibit 10.289 to the Registrant’s Form 10-Q for the quarter ended March 31, 2007 and incorporated herein by reference.    (2)
10.290       Summary of Non-Employee Director Compensation, filed as Exhibit 10.290 to the Registrant’s Form 10-Q for the quarter ended March 31, 2007 and incorporated herein by reference.    (2)
10.294       Form of Notice and Restricted Stock Agreement for Joseph R. Martinetto under The Charles Schwab Corporation 2004 Stock Incentive Plan dated May 18, 2007, filed as Exhibit 10.294 to the Registrant’s Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference.    (2)
10.295       Form of Notice and Nonqualified Stock Option Agreement for Joseph R. Martinetto under The Charles Schwab Corporation 2004 Stock Incentive Plan dated May 18, 2007, filed as Exhibit 10.295 to the Registrant’s Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference.    (2)
10.296       Stock Purchase Agreement dated July 2, 2007, by and among Charles R. Schwab, Helen O. Schwab, The Charles & Helen Schwab Living Trust, HOS Family Partners, LLC, 188 Partners, LP, and the Charles & Helen Schwab Foundation, and The Charles Schwab Corporation, filed as Exhibit 10.296 to the Registrant’s Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference.    (2)

Exhibit Number	Exhibit

4.2	Neither the Registrant nor its subsidiaries are parties to any instrument with respect to long-term debt for which securities authorized thereunder exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. Copies of instruments with respect to long-term debt of lesser amounts will be provided to the SEC upon request.

10.4	Form of Release Agreement dated as of March 31, 1987 among BAC, Registrant, Schwab Holdings, Inc., Charles Schwab & Co., Inc. and former shareholders of Schwab Holdings, Inc., filed as the identically-numbered exhibit to Registrant’s Registration Statement No. 33-16192 on Form S-1 and incorporated herein by reference.

10.57	Registration Rights and Stock Restriction Agreement, dated as of March 31, 1987, between the Registrant and the holders of the Common Stock, filed as Exhibit 4.23 to Registrant’s Registration Statement No. 33-16192 on Form S-1 and incorporated herein by reference.

10.72	Restatement of Assignment and License, as amended January 25, 1988, among Charles Schwab & Co., Inc., Charles R. Schwab and the Registrant.

10.271	The Charles Schwab Corporation Directors’ Deferred Compensation Plan, as amended through December 8, 2004.	(2)

10.272	The Charles Schwab Corporation Deferred Compensation Plan, as amended through December 8, 2004.	(2)

10.302	The Charles Schwab Corporation 2001 Stock Incentive Plan, as amended and restated as of December 12, 2007, filed as Exhibit 10.302 to the Registrant’s Form 10-K for the year ended December 31, 2012, and incorporated herein by reference.	(2)

10.314	Employment Agreement dated as of March 13, 2008, between the Registrant and Charles R. Schwab, filed as Exhibit 10.314 to the Registrant’s Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.	(2)

10.317	Form of Notice and Nonqualified Stock Option Agreement for Walter W. Bettinger under The Charles Schwab Corporation 2004 Stock Incentive Plan dated October 1, 2008, filed as Exhibit 10.317 to the Registrant’s Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference.	(2)

10.322	The Charles Schwab Corporation Deferred Compensation Plan II, as amended and restated as of October 23, 2008, filed as Exhibit 10.322 to the Registrant’s Form 10-K for the year ended December 31, 2013, and incorporated herein by reference.	(2)

10.331	The Charles Schwab Corporation Corporate Executive Bonus Plan, restated to include amendments approved at the Annual Meeting of Stockholders on May 13, 2010, filed as Exhibit 10.331 to the Registrant’s Form 10-Q for the quarter ended June 30, 2010, and incorporated herein by reference.	(2)

10.338	The Charles Schwab Corporation 2004 Stock Incentive Plan, as approved at the Annual Meeting of Stockholders on May 17, 2011, filed as Exhibit 10.338 to the Registrant’s Form 10-Q for the quarter ended June 30, 2011, and incorporated herein by reference.	(2)

10.349	The Charles Schwab Severance Pay Plan, as Amended and Restated Effective May 1, 2012, filed as Exhibit 10.349 to the Registrant’s Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference.	(2)

10.351	Summary of Non-Employee Director Compensation, filed as Exhibit 10.351 to the Registrant’s Form 10-K for the year ended December 31, 2012, and incorporated herein by reference.	(2)

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THE CHARLES SCHWAB CORPORATION

Exhibit
Number

Exhibit

10.298       Directed Employee Benefit Trust Agreement under the SchwabPlan Retirement Savings and Investment Plan dated August 17, 2007, filed as Exhibit 10.298 to the Registrant’s Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference.    (2)
10.300       The Charles Schwab Corporation Employee Stock Incentive Plan, as amended and restated as of December 12, 2007, filed as Exhibit 10.300 to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.    (2)
10.301       The Charles Schwab Corporation 1992 Stock Incentive Plan, as amended and restated as of December 12, 2007, filed as Exhibit 10.301 to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.    (2)
10.302       The Charles Schwab Corporation 2001 Stock Incentive Plan, as amended and restated as of December 12, 2007, filed as Exhibit 10.302 to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.    (2)
10.306       Form of Notice and Nonqualified Stock Option Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.306 to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.    (2)
10.307       Form of Notice and Restricted Stock Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.307 to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.    (2)
10.309       Form of Notice and Premium-Priced Stock Option Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.309 to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.    (2)
10.311       Form of Notice and Restricted Stock Agreement for Non-Employee Directors under The Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.311 to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.    (2)
10.312       Form of Notice and Option Agreement for Non-Employee Directors under The Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.312 to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.    (2)
10.314       Employment Agreement dated as of March 13, 2008, between the Registrant and Charles R. Schwab, filed as Exhibit 10.314 to the Registrant’s Form 10-Q for the quarter ended March 31, 2008 and incorporated herein by reference.    (2)
10.316       Form of Notice and Restricted Stock Agreement for Walter W. Bettinger under the Charles Schwab Corporation 2004 Stock Incentive Plan dated October 1, 2008, filed as Exhibit 10.316 to the Registrant’s Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference.    (2)
10.317       Form of Notice and Nonqualified Stock Option Agreement for Walter W. Bettinger under The Charles Schwab Corporation 2004 Stock Incentive Plan dated October 1, 2008, filed as Exhibit 10.317 to the Registrant’s Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference.    (2)
10.318       Form of Notice and Performance-Based Restricted Stock Agreement under the Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.318 to the Registrant’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference.    (2)

Exhibit Number	Exhibit

10.352	Form of Performance-Based Cash Long-Term Incentive Award Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as Exhibit 10.352 to the Registrant’s Form 8-K dated January 24, 2013, and incorporated herein by reference.	(2)

10.353	Form of Notice and Performance-Based Restricted Stock Unit Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as Exhibit 10.353 to the Registrant’s Form 8-K dated January 24, 2013, and incorporated herein by reference.	(2)

10.354	Form of Notice and Nonqualified Stock Option Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as Exhibit 10.354 to the Registrant’s Form 8-K dated January 24, 2013, and incorporated herein by reference.	(2)

10.355	Form of Notice and Restricted Stock Unit Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as Exhibit 10.355 to the Registrant’s Form 8-K dated January 24, 2013, and incorporated herein by reference.	(2)

10.356	Form of Notice and Retainer Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as Exhibit 10.356 to the Registrant’s Form 8-K dated January 24, 2013, and incorporated herein by reference.	(2)

10.357	Form of Notice and Retainer Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as Exhibit 10.357 to the Registrant’s Form 8-K dated January 24, 2013, and incorporated herein by reference.	(2)

10.358	Form of Notice and Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation Directors’ Deferred Compensation Plan II and The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as Exhibit 10.358 to the Registrant’s Form 8-K dated January 24, 2013, and incorporated herein by reference.	(2)

10.359	Form of Notice and Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation Directors’ Deferred Compensation Plan II and The Charles Schwab Corporation 2004 Stock Incentive Plan and successor plans, filed as Exhibit 10.359 to the Registrant’s Form 8-K dated January 24, 2013, and incorporated herein by reference.	(2)

10.360	The Charles Schwab Corporation 2013 Stock Incentive Plan, as approved at the Annual Meeting of Stockholders on May 16, 2013, filed as Exhibit 10.360 to the Registrant’s Form 8-K dated May 16, 2013, and incorporated herein by reference.	(2)

10.361	Credit Agreement (364 – Day Commitment) dated as of June 7, 2013, between the Registrant and financial institutions therein, filed as Exhibit 10.361 to the Registrant’s Form 10-Q for the quarter ended June 30, 2013, and incorporated herein by reference.

10.362	The Charles Schwab Corporation Directors’ Deferred Compensation Plan II, as amended and restated as of April 24, 2013, filed as Exhibit 10.362 to the Registrant’s Form 10-Q for the quarter ended June 30, 2013, and incorporated herein by reference.	(2)

10.363	Credit Agreement (364 – Day Commitment) dated as of June 6, 2014, between the Registrant and financial institutions therein (supersedes Exhibit 10.361), filed as Exhibit 10.363 to the Registrant’s Form 10-Q for the quarter ended June 30, 2014, and incorporated herein by reference.

10.364	Separation Agreement, General Release and Waiver of Claims by and between Mr. Clendening and CSC, filed as Exhibit 10.364 to the Registrant’s Form 8-K/A dated December 10, 2014, and incorporated herein by reference.	(2)

- 98101 -

THE CHARLES SCHWAB CORPORATION

Exhibit
Number

Exhibit

10.319       Form of Notice and Restricted Stock Unit Agreement for Non-Employee Directors under the Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.319 to the Registrant’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference.    (2)
10.321       The Charles Schwab Corporation Long Term Incentive Plan, as amended and restated as of October 23, 2008, filed as Exhibit 10.321 to the Registrant’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference.    (2)
10.322       The Charles Schwab Corporation Deferred Compensation Plan II, as amended and restated as of October 23, 2008, filed as Exhibit 10.322 to the Registrant’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference.    (2)
10.323       The Charles Schwab Corporation Directors’ Deferred Compensation Plan II, as amended and restated as of October 23, 2008, filed as Exhibit 10.323 to the Registrant’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference.    (2)
10.327       The Charles Schwab Corporation 2004 Stock Incentive Plan, as amended and restated as of December 10, 2009, filed as Exhibit 10.327 to the Registrant’s Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.    (2)
10.331       The Charles Schwab Corporation Corporate Executive Bonus Plan, restated to include amendments approved at the Annual Meeting of Stockholders on May 13, 2010, filed as Exhibit 10.331 to the Registrant’s Form 10-Q for the quarter ended June 30, 2010 and incorporated herein by reference.    (2)
10.332       Credit Agreement (364-Day Commitment) dated as of June 11, 2010, between the Registrant and the financial institutions listed therein, filed as Exhibit 10.332 to the Registrant’s Form 10-Q for the quarter ended June 30, 2010 and incorporated herein by reference.
10.333       Form of Notice and Retainer Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.333 to the Registrant’s Form 10-Q for the quarter ended September 30, 2010 and incorporated herein by reference.    (2)
10.335       Form of Notice and Restricted Stock Unit Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.335 to the Registrant’s Form 10-Q for the quarter ended September 30, 2010 and incorporated herein by reference.    (2)
10.336       Form of Notice and Performance-Based Restricted Stock Unit Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan, filed as Exhibit 10.336 to the Registrant’s Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.    (2)
10.337       The Charles Schwab Severance Pay Plan, as amended and restated effective July 1, 2011, filed as Exhibit 10.337 to the Registrant’s Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.    (2)
10.338       The Charles Schwab Corporation 2004 Stock Incentive Plan, as approved at the Annual Meeting of Stockholders on May 17, 2011 (supersedes Exhibit 10.327), filed as Exhibit 10.338 to the Registrant’s Form 10-Q for the quarter ended June 30, 2011 and incorporated herein by reference.    (2)
10.339       Credit Agreement (364 – Day Commitment) dated as of June 10, 2011, between the Registrant and financial institutions listed therein (supersedes Exhibit 10.332), filed as Exhibit 10.339 to the Registrant’s Form 10-Q for the quarter ended June 30, 2011 and incorporated herein by reference.

Exhibit Number	Exhibit

12.1	Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.

21.1	Subsidiaries of the Registrant.

23.1	Independent Registered Public Accounting Firm’s Consent.

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.	(1)

32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	(1)

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)

(1)	Furnished as an exhibit to this annual report on Form 10-K.

(2)	Management contract or compensatory plan.

(3)	Attached as Exhibit 101 to this Annual Report on Form 10-K for the annual period ended December 31, 2014, are the following materials formatted in XBRL (Extensible Business Reporting Language) (i) the Consolidated Statements of Income,(ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Consolidated Financial Statements.

- 99102 -

THE CHARLES SCHWAB CORPORATION

Exhibit
Number

Exhibit

  10.340    The Charles Schwab Severance Pay Plan, as Amended and Restated Effective January 1, 2012 (supersedes Exhibit 10.337).    (2)
  10.341    Form of Notice and Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation 2004 Stock Incentive Plan (supersedes Exhibit 10.319).    (2)
  10.342    Form of Notice and Retainer Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation 2004 Stock Incentive Plan (supersedes exhibit 10.312).    (2)
  10.343    Form of Notice and Performance-Based Restricted Stock Unit Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan (supersedes Exhibit 10.336).    (2)
  10.344    Form of Notice and Retainer Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation 2004 Stock Incentive Plan (supersedes Exhibit 10.333).    (2)
  10.345    Form of Notice and Nonqualified Stock Option Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan (supersedes Exhibit 10.306).    (2)
  10.346    Form of Notice and Restricted Stock Unit Agreement under The Charles Schwab Corporation 2004 Stock Incentive Plan (supersedes Exhibit 10.335).    (2)
  10.347    Form of Notice and Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation Directors’ Deferred Compensation Plan II.    (2)
  12.1    Computation of Ratio of Earnings to Fixed Charges.
  21.1    Subsidiaries of the Registrant.
  23.1    Independent Registered Public Accounting Firm’s Consent.
  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.    (1)
  32.2    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.    (1)
  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)

~~- 100 -~~

~~THE CHARLES SCHWAB CORPORATION~~


~~Exhibit~~ ~~Number~~	~~Exhibit~~

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation~~	~~(3)~~

~~(1)~~

~~Furnished as an exhibit to this annual report on Form 10-K.~~

~~(2)~~

~~Management contract or compensatory plan.~~

~~(3)~~

~~Attached as Exhibit 101 to this Annual Report on Form 10-K for the annual period ended December 31, 2011, are the following materials formatted in XBRL (Extensible Business Reporting Language) (~~i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Stockholders’ Equity, and (v) Notes to Consolidated Financial Statements.

~~- 101 -~~

~~THE CHARLES SCHWAB CORPORATION~~

S~~SIGNATURES~~IGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on February 23, ~~2012.~~2015.


THE CHARLES SCHWAB CORPORATION ~~(Registrant)~~
	(Registrant)
~~BY:~~
	BY:	/s/ Walter W. Bettinger II
		Walter W. Bettinger II
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on February 23, ~~2012.~~2015.

Signature / Title			Signature / Title
~~Signature / Title~~			~~Signature / Title~~

/s/ Walter W. Bettinger II			/s/ Joseph R. Martinetto
Walter W. Bettinger II,			Joseph R. Martinetto,
President and Chief Executive Officer			Executive Vice President
			and Chief Financial Officer
			(principal financial and accounting officer)


/s/ Charles R. Schwab			/s/ ~~Nancy H. Bechtle~~John K. Adams, Jr.
Charles R. Schwab, Chairman of the Board			~~Nancy H. Bechtle,~~John K. Adams, Jr., Director


/s/ Nancy H. Bechtle	/s/ C. Preston Butcher
Nancy H. Bechtle, Director	C. Preston Butcher, Director


/s/ Christopher V. Dodds	/s/ Stephen A. Ellis
Christopher V. Dodds, Director	Stephen A. Ellis, Director


/s/ Mark A. Goldfarb	/s/ William S. Haraf
Mark A. Goldfarb, Director	William S. Haraf, Director


/s/ Frank C. Herringer
~~C. Preston Butcher, Director~~			~~Frank C. Herringer, Director~~

/s/ Stephen T. McLin
	Frank C. Herringer, Director	~~/s/ Arun Sarin~~
Stephen T. McLin, Director
		~~Arun Sarin, Director~~

/s/ Arun Sarin	/s/ Paula A. Sneed
Arun Sarin, Director	Paula A. Sneed, Director


/s/ Roger O. Walther
~~Paula A. Sneed, Director~~			~~Roger O. Walther, Director~~

/s/ Robert N. Wilson
Roger O. Walther, Director
Robert N. Wilson, Director

~~- 102 -~~

~~THE CHARLES SCHWAB CORPORATION~~

~~Index to Financial Statement Schedule~~


		~~Page~~
~~Schedule II~~ ~~- Valuation and Qualifying Accounts~~		~~F-2~~

~~Supplemental Financial Data for Charles Schwab Bank (Unaudited)~~		~~F-3 – F-8~~

Schedules not listed are omitted because of the absence of the conditions under which they are required or because the information is included in the Company’s consolidated financial statements and notes in “Item 8 – Financial Statements and Supplementary Data.”

- 103 -

THE CHARLES SCHWAB CORPORATION

~~SCHEDULE~~




Index to Financial Statement Schedule



	Page


Schedule II - Valuation and Qualifying Accounts	F-2

Supplemental Financial Data for Charles Schwab Bank (Unaudited)	F-3 – F-9
























Schedules not listed are omitted because of the absence of the conditions under which they are required or because the information is included in the Company’s consolidated financial statements and notes in “Item 8 – Financial Statements and Supplementary Data.”

~~Valuation and Qualifying Accounts~~

~~(In millions)~~

F-1

THE CHARLES SCHWAB CORPORATION

         Balance at      Additions          Balance at
Description
   Beginning of
Year         Charged
to Expense        Other⁽¹⁾          Written off      End
of Year
For the year ended December 31, 2011:

Allowance for doubtful accounts of brokerage clients⁽²⁾
   $ 1       $ 6       $ 3       $ (8)       $ 2










For the year ended December 31, 2010:

Allowance for doubtful accounts of brokerage clients⁽²⁾
   $ 2       $ 3       $ —       $ (4)       $ 1










For the year ended December 31, 2009:

Allowance for doubtful accounts of brokerage clients⁽²⁾
   $     4       $     3       $ 2       $     (7)       $     2


								SCHEDULE II



Valuation and Qualifying Accounts
(In millions)


	Balance at		Additions						Balance at
	Beginning		Charged						End
Description	of Year		to Expense		Other (1)		Written off		of Year

For the year ended December 31, 2014:
Allowance for doubtful accounts of
brokerage clients (2)	$	-	$	6	$	1	$	(5)	$	2

For the year ended December 31, 2013:
Allowance for doubtful accounts of
brokerage clients (2)	$	1	$	2	$	1	$	(4)	$	-

For the year ended December 31, 2012:
Allowance for doubtful accounts of
brokerage clients (2)	$	2	$	4	$	-	$	(5)	$	1

(1)	Includes collections of previously written-off accounts.

(2)	Excludes banking-related valuation and qualifying accounts. See “Item 8 -– Financial Statements and Supplementary Data -

– Notes to Consolidated Financial Statements ~~- 7.~~– 6. Loans to Banking Clients and Related Allowance for Loan Losses.”

F-2

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

The following supplemental financial data is consistent with the Securities Exchange Act of 1934, Industry Guide 3 – Statistical Disclosure by Bank Holding Companies. The accompanying unaudited financial information represents Charles Schwab Bank (Schwab Bank), which is a subsidiary of The Charles Schwab Corporation (CSC). CSC is a savings and loan holding company and Schwab Bank is a federal savings bank. The following information excludes intercompany balances and transactions with CSC and its affiliates.

1.Three-year Net Interest Revenue and Average Balances


For the Year Ended December 31,	2014						2013						2012
	Average				Average		Average				Average		Average				Average
	Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate
Assets:
Cash and cash equivalents (1)	$	5,871	$	15	0.26	%	$	5,626	$	15	0.27	%	$	5,575	$	15	0.27	%
Securities available for sale (2)		52,056		546	1.05	%		49,112		557	1.13	%		39,739		583	1.47	%
Securities held to maturity		32,361		828	2.56	%		24,915		610	2.45	%		15,371		397	2.58	%
Loans to banking clients (3)		12,903		354	2.74	%		11,756		329	2.80	%		10,050		309	3.07	%
Loans held for sale		-		-	-			-		-	-			18		1	4.12	%
Other interest-earning assets		63		6	9.52	%		53		2	3.77	%		54		1	1.85	%
Total interest-earning assets		103,254		1,749	1.69	%		91,462		1,513	1.65	%		70,807		1,306	1.84	%
Net unrealized gain on
securities available for sale		229						252						275
Noninterest-earning assets		525						671						566
Total Assets	$	104,008					$	92,385					$	71,648
Liabilities and Stockholder’s Equity:
Interest-bearing banking deposits	$	95,842		30	0.03	%	$	85,465		31	0.04	%	$	65,546		42	0.06	%
Total sources on which interest is paid		95,842		30	0.03	%		85,465		31	0.04	%		65,546		42	0.06	%
Noninterest-bearing liabilities		723						650						577
Stockholder’s equity		7,443						6,270						5,525
Total Liabilities and Stockholder’s Equity	$	104,008					$	92,385					$	71,648

Net interest revenue			$	1,719					$	1,482					$	1,264
Net yield on interest-earning assets					1.66	%					1.62	%					1.79	%

1.	~~Three-year Net Interest Revenue and Average Balances~~

(1)

For the Year Ended December 31,
   2011 2010 2009
   Average
Balance    Interest       Average
Rate    Average
Balance    Interest       Average
Rate    Average
Balance    Interest       Average
Rate
Assets:

Cash and cash equivalents⁽¹⁾
   $ 4,142    $ 11    0.27 % $ 5,890    $ 16    0.27 % $ 6,352    $ 26    0.40 %
Securities available for sale ⁽²⁾
   27,477    456    1.66 % 24,209    486    2.01 % 18,558    521    2.81 %
Securities held to maturity
   16,050    492    3.07 % 10,440    361    3.46 % 1,915    74    3.86 %
Loans to banking clients⁽³⁾
   9,468    310    3.27 % 7,983    275    3.44 % 6,668    241    3.61 %
Loans held for sale
   65    3    4.62 % 80    4    5.00 % 110    5    4.55 %
Other interest-earning assets
   50    1    2.00 % 51    1    1.96 % 30    —    0.49 %


Total interest-earning assets
   57,252    1,273    2.22 % 48,653    1,143    2.35 % 33,633    867    2.58 %


Net unrealized gain (loss) on securities available for sale
   64    (109 ) (614 )
Noninterest-earning assets
   212    297    331


Total Assets
   $     57,528    $     48,841    $     33,350


Liabilities and Stockholder’s Equity:

Interest-bearing banking deposits
   $ 52,701    62    0.12 % $ 44,858    105    0.23 % $ 31,249    107    0.34 %


Total sources on which interest is paid
   52,701    62    0.12 % 44,858    105    0.23 % 31,249    107    0.34 %


Noninterest-bearing liabilities
   345    299    513
Stockholder’s equity
   4,482    3,684    1,588


Total Liabilities and Stockholder’s Equity
   $ 57,528    $ 48,841    $ 33,350


Net interest revenue
   $ 1,211    $ 1,038    $ 760


Net yield on interest-earning assets
   2.12 % 2.13 % 2.26 %

⁽¹⁾	Includes deposits with banks, short-term investments, and federal funds sold.

(2)	Amounts have been calculated based on amortized cost.

(3)	Includes average principal balances of nonaccrual loans.

F-3

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

2.	~~Analysis of Change in Net Interest Revenue~~

2.Analysis of Change in Net Interest Revenue

An analysis of the year-to-year changes in the categories of interest revenue and interest expense resulting from changes in volume and rate is as follows:


																				2014 Compared to 2013						2013 Compared to 2012
																				Increase (Decrease) Due to						Increase (Decrease) Due to
																			Change in:						Change in:
	2011 Compared to 2010 Increase (Decrease) Due to Change in:									2010 Compared to 2009 Increase (Decrease) Due to Change in:									Average		Average				Average		Average
	Average Volume			Average Rate			Total			Average Volume			Average Rate			Total			Volume		Rate		Total		Volume		Rate		Total
Interest-earning assets:
Cash and cash equivalents⁽¹⁾	$	(4	)	$	(1	)	$	(5	)	$	(2	)	$	(8	)	$	(10	)	$	-	$	-	$	-	$	-	$	-	$	-
Securities available for sale⁽²⁾		65			(95	)		(30	)		159			(194	)		(35	)		33		(44)		(11)		137		(163)		(26)
Securities held to maturity		194			(63	)		131			329			(42	)		287			182		36		218		247		(34)		213
Loans to banking clients⁽³⁾		51			(16	)		35			47			(13	)		34			32		(7)		25		52		(32)		20
Loans held for sale		(1	)		—			(1	)		(1	)		—			(1	)		-		-		-		(1)		-		(1)
Other interest-earning assets		—			—			—			—			1			1			-		4		4		-		1		1

Total interest-earning assets	$	305		$	(175	)	$	130		$	532		$	(256	)	$	276		$	247	$	(11)	$	236	$	435	$	(228)	$	207

Interest-bearing sources of funds:
Interest-bearing banking deposits	$	18		$	(61	)	$	(43	)	$	46		$	(48	)	$	(2	)	$	4	$	(5)	$	(1)	$	12	$	(23)	$	(11)

Total sources on which interest is paid	$	18		$	(61	)	$	(43	)	$	46		$	(48	)	$	(2	)	$	4	$	(5)	$	(1)	$	12	$	(23)	$	(11)

Change in net interest revenue	$	287		$	(114	)	$	173		$	486		$	(208	)	$	278		$	243	$	(6)	$	237	$	423	$	(205)	$	218

Changes that are not due solely to volume or rate have been allocated to rate.

(1)	Includes deposits with banks and short-term investments.

(2)	Amounts have been calculated based on amortized cost.

(3)	Includes average principal balances of nonaccrual loans.

F-4

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

3.	~~Securities Available for Sale and Securities Held to Maturity~~

3.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:


December 31, 2011	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses		Fair Value
												Gross		Gross
										Amortized		Unrealized		Unrealized		Fair
December 31, 2014										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
Certificates of deposit		3,623		2			3		3,622
Asset-backed securities										$	19,320	$	64	$	18	$	19,366
U.S. agency mortgage-backed securities											18,487		242		12		18,717
Corporate debt securities		3,592		5			26		3,571		8,023		30		8		8,045
U.S. agency notes		1,795		5			—		1,800		3,839		-		44		3,795
Asset-backed and other securities		3,136		7			7		3,136

Treasury securities											2,993		2		1		2,994
Certificates of deposit											1,533		1		-		1,534
Non-agency commercial mortgage-backed securities											310		7		-		317
Other securities											15		-		-		15
Total securities available for sale	$	33,942	$	288		$	273	$	33,957	$	54,520	$	346	$	83	$	54,783

Securities held to maturity:
U.S. agency residential mortgage-backed securities	$	14,770	$	430		$	2	$	15,198
Other securities		338		3			—		341
U.S. agency mortgage-backed securities										$	33,388	$	531	$	174	$	33,745
Non-agency commercial mortgage-backed securities											1,001		11		14		998
Total securities held to maturity	$	15,108	$	433		$	2	$	15,539	$	34,389	$	542	$	188	$	34,743


December 31, 2010	Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses		Fair Value
Securities available for sale:
U.S. agency residential mortgage-backed securities	$	12,879	$	222		$	3	$	13,098
Non-agency residential mortgage-backed securities		1,701		3			234		1,470
Certificates of deposit		1,874		1			—		1,875
Corporate debt securities		2,261		8			1		2,268
U.S. agency notes		2,757		23			—		2,780
Asset-backed securities		2,495		9			2		2,502

Total securities available for sale	$	23,967	$	266		$	240	$	23,993
					��
Securities held to maturity:
U.S. agency residential mortgage-backed securities	$	16,722	$	209		$	137	$	16,794
Other securities		1,040		14			—		1,054

Total securities held to maturity	$	17,762	$	223		$	137	$	17,848


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2013	Cost		Gains		Losses		Value
Securities available for sale:
U.S. agency mortgage-backed securities	$	18,554	$	140	$	49	$	18,645
Asset-backed securities		15,201		42		37		15,206
Corporate debt securities		8,973		49		15		9,007
U.S. agency notes		4,239		1		104		4,136
Certificates of deposit		3,650		4		2		3,652
Non-agency residential mortgage-backed securities		616		11		34		593
Non-agency commercial mortgage-backed securities		271		8		-		279
Other securities		100		-		-		100
Total securities available for sale	$	51,604	$	255	$	241	$	51,618
Securities held to maturity:
U.S. agency mortgage-backed securities	$	29,260	$	161	$	921	$	28,500
Non-agency commercial mortgage-backed securities		958		-		68		890
Other securities		100		-		-		100
Total securities held to maturity	$	30,318	$	161	$	989	$	29,490

F-5

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

December 31, 2009
   Amortized
Cost    Gross
   Unrealized
Gains    Gross
   Unrealized
Losses       Fair
Value
Securities available for sale:

U.S. agency residential mortgage-backed securities
   $ 11,601       $ 199       $ 21       $ 11,779
Non-agency residential mortgage-backed securities
   2,460       —       519       1,941
Certificates of deposit
   1,950       3       —       1,953
Corporate debt securities
   2,368       13       1       2,380
U.S. agency notes
   2,975       4       1       2,978
Asset-backed securities
   1,077       12       —       1,089








Total securities available for sale
   $ 22,431       $ 231       $ 542       $ 22,120








Securities held to maturity:

U.S. agency residential mortgage-backed securities
   $ 5,105       $ 36       $ 27       $ 5,114
Other securities
   1,734       32       —       1,766








Total securities held to maturity
   $     6,839       $     68       $     27       $     6,880


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2012	Cost		Gains		Losses		Value
Securities available for sale:
U.S. agency mortgage-backed securities	$	20,080	$	396	$	-	$	20,476
Asset-backed securities		8,104		62		2		8,164
Corporate debt securities		6,197		61		2		6,256
Certificates of deposit		6,150		12		1		6,161
U.S. agency notes		3,465		2		3		3,464
Non-agency residential mortgage-backed securities		796		2		65		733
Commercial paper		574		-		-		574
Other securities		273		16		-		289
Total securities available for sale	$	45,639	$	551	$	73	$	46,117
Securities held to maturity:
U.S. agency mortgage-backed securities	$	17,750	$	558	$	19	$	18,289
Other securities		444		-		1		443
Total securities held to maturity	$	18,194	$	558	$	20	$	18,732

The maturities and related weighted-average yields of securities available for sale and securities held to maturity at December 31, ~~2011,~~2014, are as follows:

   After 1 year After 5 years
   Within 1
year through
5 years through
10 years After
10 years Total
Securities available for sale:

U.S. agency residential mortgage-backed securities⁽¹⁾
   $ —    $ 2    $ 2,950    $ 17,969    $ 20,921
Non-agency residential mortgage-backed securities⁽¹⁾
   —    —    13    894    907
Certificates of deposit
   1,897    1,725    —    —    3,622
Corporate debt securities
   954    2,517    100    —    3,571
U.S. agency notes
   —    1,800    —    —    1,800
Asset-backed and other securities
   225    812    534    1,565    3,136


Total fair value
   $     3,076    $     6,856    $     3,597    $     20,428    $     33,957
Total amortized cost
   $ 3,076    $ 6,871    $ 3,512    $ 20,483    $ 33,942


Weighted-average yield⁽²⁾
   1.29 % 1.11 % 1.83 % 1.70 % 1.56 %


Securities held to maturity:

U.S. agency residential mortgage-backed securities⁽¹⁾
   $ —    $ —    $ 2,581    $ 12,617    $ 15,198
Other securities
   117    224    —    —    341


Total fair value
   $ 117    $ 224    $ 2,581    $ 12,617    $ 15,539
Total amortized cost
   $ 116    $ 222    $ 2,507    $ 12,263    $ 15,108


Weighted-average yield⁽²⁾
   2.67 % 3.00 % 2.57 % 2.59 % 2.60 %


				After 1 year			After 5 years
	Within			through			through			After
	1 year			5 years			10 years			10 years			Total
Securities available for sale:
Asset-backed securities	$	-		$	2,946		$	5,062		$	11,358		$	19,366
U.S. agency mortgage-backed securities (1)		-			1,281			5,196			12,240			18,717
Corporate debt securities		999			7,046			-			-			8,045
U.S. agency notes		-			3,795			-			-			3,795
Treasury securities		-			2,994			-			-			2,994
Certificates of deposit		624			910			-			-			1,534
Non-agency commercial mortgage-backed
securities (1)		-			-			-			317			317
Other securities		-			-			-			15			15
Total fair value	$	1,623		$	18,972		$	10,258		$	23,930		$	54,783
Total amortized cost	$	1,621		$	18,981		$	10,168		$	23,750		$	54,520
Weighted-average yield (2)		1.00	%		0.88	%		0.90	%		1.08	%		0.97	%
Securities held to maturity:
U.S. agency mortgage-backed securities (1)	$	-		$	857		$	15,618		$	17,270		$	33,745
Non-agency commercial mortgage-backed
securities (1)		-			-			359			639			998
Total fair value	$	-		$	857		$	15,977		$	17,909		$	34,743
Total amortized cost	$	-		$	853		$	15,789		$	17,747		$	34,389
Weighted-average yield (2)		-			1.98	%		2.64	%		2.46	%		2.53	%

(1)

~~Residential mortgage-backed~~Mortgage-backed securities have been allocated ~~over~~to 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.

(2)	The weighted-average yield is computed using the amortized cost at December 31, ~~2011.~~2014.

F-6

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

4.	~~Cross-border Holdings~~

4.Cross-border Holdings

The ~~table~~tables below ~~sets~~set forth the amount of Schwab Bank’s cross-border holdings, based on carrying value, as of December 31, ~~2011.~~2014, 2013, and 2012. Such holdings, by country, that exceed 1% of total assets are disclosed separately, and such holdings, by country, that are between 0.75% and 1% of total assets are listed in the aggregate. Cross-border holdings are comprised of cash equivalents and securities available for ~~sale, and securities held to maturity.~~sale.


	Banks and other		Exposure as a %			Banks and other			Commercial and						Exposure as a %
Country	financial institutions		of total assets
December 31, 2014						financial institutions			industrial institutions			Total			of total assets
Country:
Canada							$	1,437		$	-		$	1,437		1.3	%
Australia								1,182			-			1,182		1.1	%
Total							$	2,619		$	-		$	2,619


						Banks and other			Commercial and						Exposure as a %
December 31, 2013						financial institutions			industrial institutions			Total			of total assets
Country:
Canada							$	2,408		$	-		$	2,408		2.4	%
Australia								1,563			-			1,563		1.6	%
United Kingdom								1,262			140			1,402		1.4	%
Sweden								1,247			-			1,247		1.2	%
Switzerland								825			-			825		0.8	%
Total							$	7,305		$	140		$	7,445


						Banks and other			Commercial and						Exposure as a %
December 31, 2012						financial institutions			industrial institutions			Total			of total assets
Country:
Australia							$	2,300		$	-		$	2,300		2.7	%
United Kingdom	$	1,450		2.2	%			1,556			351			1,907		2.2	%
Canada		1,098		1.7	%			1,732			-			1,732		2.0	%
Sweden		712		1.1	%			1,302			-			1,302		1.5	%
Switzerland, France and Australia		1,849		2.8	%

Switzerland								902			-			902		1.1	%
Japan								800			-			800		0.9	%
Total	$	5,109					$	8,592		$	351		$	8,943

~~As of December 31, 2010, cross-border holdings in the United Kingdom were $1.5 billion (2.7% of total assets). As of December��31, 2009, cross-border holdings in the Netherlands~~

5.Loans to Banking Clients and ~~the United Kingdom were $351 million (0.8% of total assets) and $983 million (2.3% of total assets), respectively.~~Related Allowance for Loan Losses

5.	~~Loans to Banking Clients and Related Allowance for Loan Losses~~

The composition of the loan portfolio is as follows:

December 31,
   2011 2010 2009 2008 2007
Residential real estate mortgages
   $     5,596    $     4,695    $     3,710    $     3,195    $     2,101
Home equity lines of credit
   3,509    3,500    3,304    2,662    1,234
Personal loans secured by securities
   742    562    366    187    102
Other
   16    16    11    18    13


Total loans to banking clients
   $ 9,863    $ 8,773    $ 7,391    $ 6,062    $ 3,450


An analysis of nonaccrual loans is as follows:

December 31,
       2011         2010         2009         2008         2007
Nonaccrual loans
   $     52    $     51    $     34    $     8    $     4
Average nonaccrual loans
   $ 51    $ 40    $ 17    $ 6    $ 1
Changes in the allowance for loan losses were as follows:

December 31,
       2011         2010         2009         2008         2007
Balance at beginning of year
   $     53    $     45    $     20    $     7    $     4
Charge-offs
   (19 ) (20 ) (13 ) (4 ) —
Recoveries
   2    1    —    —    —
Provision for loan losses
   18    27    38    17    3


Balance at end of year
   $ 54    $ 53    $ 45    $ 20    $ 7


December 31,	2014		2013		2012		2011		2010
Residential real estate mortgages	$	8,127	$	8,006	$	6,507	$	5,596	$	4,695
Home equity loans and lines of credit		2,955		3,041		3,287		3,509		3,500
Personal loans secured by securities		2,320		1,384		963		742		562
Other		36		34		22		16		16
Total loans to banking clients	$	13,438	$	12,465	$	10,779	$	9,863	$	8,773

F-7

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

An analysis of nonaccrual loans is as follows:


December 31,	2014		2013		2012		2011		2010
Nonaccrual loans	$	35	$	48	$	48	$	52	$	51
Average nonaccrual loans	$	39	$	43	$	48	$	51	$	40

Changes in the allowance for loan losses were as follows:


December 31,	2014		2013		2012		2011		2010
Balance at beginning of year	$	48	$	56	$	54	$	53	$	45
Charge-offs		(5)		(11)		(16)		(19)		(20)
Recoveries		3		4		2		2		1
Provision for loan losses		(4)		(1)		16		18		27
Balance at end of year	$	42	$	48	$	56	$	54	$	53

The maturities of the loan portfolio at December 31, ~~2011,~~2014, are as follows:


											After 1 year
			After 1 year						Within		through		After
	Within 1 year		through 5 years		After 5 years		Total		1 year		5 years		5 years		Total
Residential real estate mortgages⁽¹⁾	$	—	$	—	$	5,596	$	5,596	$	-	$	-	$	8,127	$	8,127
Home equity lines of credit⁽²⁾		—		1,074		2,435		3,509
Home equity loans and lines of credit (2)										574		1,500		881		2,955
Personal loans secured by securities		52		690		—		742		127		2,193				2,320
Other		5		—		11		16		7		26		3		36

Total	$	57	$	1,764	$	8,042	$	9,863	$	708	$	3,719	$	9,011	$	13,438

(1)	Maturities are based upon the contractual terms of the loans.

(2)	Maturities are based on an initial draw period of 10 years.

The interest sensitivity of loans with contractual maturities in excess of one year at December 31, ~~2011,~~2014, is as follows:

   After 1
year
Loans with predetermined interest rates
   $ 473
Loans with floating or adjustable interest rates
   9,333


Total
   $     9,806


6.	~~Summary of Credit Loss on Banking~~	After
		1 year
Loans ~~Experience~~with predetermined interest rates		$	11,974
Loans with floating or adjustable interest rates			756
Total		$	12,730

December 31,
   2011 2010 2009 2008 2007
Average loans
   $     9,468    $     7,983    $     6,668    $     4,831    $     2,786
Allowance to year end loans
   .55 % .60 % .61 % .33 % .20 %
Allowance to nonperforming loans
   104 % 104 % 132 % 235 % 173 %
Nonperforming assets to average loans and real estate owned
   .59 % .68 % .51 % .18 % .14 %

7.	~~Deposits from Banking Clients~~

6.Summary of Loan Loss on Banking Loans Experience

   2011 2010 2009
   Amount          Rate       Amount          Rate       Amount          Rate
Analysis of average daily deposits:

Certificates of deposit of $100,000 or more
   $ —       —    $ —       —    $ —       —
Money market and other savings deposits
   42,342               0.09 % 35,794               0.18 % 24,879               0.14 %
Interest-bearing demand deposits
   10,359       0.22 % 9,064       0.45 % 6,370       0.60 %








Total deposits
   $     52,701       $     44,858       $     31,249


December 31,	2014			2013			2012			2011			2010
Average loans	$	12,904		$	11,756		$	10,050		$	9,468		$	7,983
Allowance to year end loans		.31	%		.39	%		.52	%		.55	%		.60	%
Allowance to nonperforming loans		120	%		100	%		117	%		104	%		104	%
Nonperforming assets to average loans	��
and real estate owned		.31	%		.45	%		.54	%		.59	%		.68	%

F-8

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

7.Deposits from Banking Clients

The following table presents the average amount of and the average rate paid on deposit categories that are in excess of ten percent of average total deposits from banking clients:


	2014				2013				2012
	Amount		Rate		Amount		Rate		Amount		Rate
Analysis of average daily deposits:
Money market and other savings deposits	$	82,927	0.01	%	$	73,167	0.03	%	$	54,318	0.05	%
Interest-bearing demand deposits		12,915	0.09	%		12,298	0.10	%		11,227	0.13	%
Total	$	95,842			$	85,465			$	65,545

At December 31, ~~2011, the Company had~~2014, deposits from banking clients included one domestic-issued certificate of deposit of $100,000 or more, in the amount of ~~$501,784,~~$524,765, with a contractual maturity of ~~over~~less than twelve months.

8.	~~Ratios~~

December 31,
   2011 2010 2009
Return on average stockholder’s equity
   13.99 % 14.22 % 21.95 %
Return on average total assets
   1.10 % 1.07 % 1.05 %
Average stockholder’s equity as a percentage of average total assets
   7.83 % 7.54 % 4.76 %

~~F-8~~8.Ratios


December 31,	2014		2013		2012
Return on average stockholder’s equity	12.71	%	12.46	%	11.82	%
Return on average total assets	0.91	%	0.85	%	0.91	%
Average stockholder’s equity as a percentage of average total assets	7.15	%	6.79	%	7.71	%

F-9


Title of each class		Name of each exchange on which registered
Common Stock - $.01 par value per share		New York Stock Exchange
Depository Shares, each representing a 1/40th ownership interest in a share of 6.0% Non-Cumulative Preferred Stock, Series B	New York Stock Exchange


					Total Number of		Approximate Dollar
					Shares Purchased		Value of Shares that
	Total Number of		Average		as Part of Publicly		May Yet be Purchased
	Shares Purchased		Price Paid		Announced Program (1)		under the Program
Month	(in thousands)		per Share		(in thousands)		(in millions)
October:
Share Repurchase Program (1)		-	$	-		-		$	596
Employee transactions (2)		21	$	29.21		N/A			N/A
November:
Share Repurchase Program (1)		-	$	-		-		$	596
Employee transactions (2)		1,132	$	28.59		N/A			N/A
December:
Share Repurchase Program (1)		-	$	-		-		$	596
Employee transactions (2)		5	$	28.00		N/A			N/A
Total:
Share Repurchase Program (1)		-	$	-		-		$	596
Employee transactions (2)		1,158	$	28.60		N/A			N/A


For the fiscal year ended December 31, ~~2011~~2014		Commission file number 1-9700


Part I

Item 1.		Business			1
		General Corporate Overview			1
		Business Acquisitions ~~and Divestiture~~			1
		Business Strategy and Competitive Environment			2
		Products and Services			3	2
		Regulation			5
		Sources of Net Revenues			6
		Available Information			6
Item 1A.		Risk Factors			7
Item 1B.		Unresolved Securities and Exchange Commission Staff Comments			12	13
Item 2.		Properties			13	14
Item 3.		Legal Proceedings			13	14

~~Part II~~

Item 4.		Mine Safety Disclosures			13	14

Part II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities			13	15
Item 6.		Selected Financial Data			16	17
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			17	18
		~~Overview~~Forward-Looking Statements			17	18
		Overview	20
	Current Market and Regulatory Environment and Other Developments			20	22
		Results of Operations			21	24
		Liquidity and Capital Resources			29	32
		Risk Management			35	37
		Fair Value of Financial Instruments			41	45
		Critical Accounting Estimates			41	45
	Item 7A.	~~Forward-Looking Statements~~			43
~~Item 7A.~~		Quantitative and Qualitative Disclosures About Market Risk			45	48
Item 8.		Financial Statements and Supplementary Data			47	50
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			93	96
Item 9A.		Controls and Procedures			93	96
Item 9B.		Other Information			93	96

Part III

Item 10.		Directors, Executive Officers, and Corporate Governance			93	96
Item 11.		Executive Compensation			95	98
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			95	98
Item 13.		Certain Relationships and Related Transactions, and Director Independence			95	98
Item 14.		Principal Accountant Fees and Services			96	98

Part IV

Item 15.		Exhibits and Financial Statement Schedule			96	99
		Exhibit Index			96	99
		Signatures			~~102~~	103
		Index to Financial Statement Schedule			F-1


	Square Footage		Square Footage
(amounts in thousands)	Leased	Owned	Leased	Owned
Location
Corporate office space:

San Francisco, CA⁽¹⁾	776	—	772	-

Service centers:

Service and other office space:
Denver, CO (2)			247	527
Phoenix, AZ⁽²⁾	47	709	37	669

Denver, CO	383	—

Indianapolis, IN	—	274	-	274

Austin, TX	220	—	258	-

Orlando, FL	148	—	148	-

Richfield, OH	—	117	-	117
El Paso, TX			-	105

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
	Purchases of Equity Securities


December 31,	2006		2007		2008		2009		2010		2011			2009		2010		2011		2012		2013		2014
The Charles Schwab Corporation	$	100	$	140	$	90	$	106	$	98	$	65	$	100	$	92	$	62	$	80	$	147	$	172
Dow Jones U.S. Investment Services Index	$	100	$	90	$	30	$	47	$	49	$	32	$	100	$	103	$	67	$	86	$	138	$	158
Standard & Poor’s 500 Index	$	100	$	105	$	66	$	84	$	97	$	99	$	100	$	115	$	117	$	136	$	180	$	205


Month	Total Number of Shares Purchased (in thousands)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program⁽¹⁾ (in thousands)		Approximate Dollar Value of Shares that May Yet be Purchased under the Program (in millions)
October:
Share Repurchase Program⁽¹⁾		—	$	—		—	$	596
Employee transactions⁽²⁾		17	$	11.36		N/A		N/A
November:
Share Repurchase Program⁽¹⁾		—	$	—		—	$	596
Employee transactions⁽²⁾		505	$	12.04		N/A		N/A
December:
Share Repurchase Program⁽¹⁾		—	$	—		—	$	596
Employee transactions⁽²⁾		6	$	11.80		N/A		N/A

Total:
Share Repurchase Program⁽¹⁾		—	$	—		—	$	596
Employee transactions⁽²⁾		528	$	12.01		N/A		N/A


Selected Financial and Operating Data
(In Millions, Except Per Share Amounts, Ratios, or as Noted)

	Growth Rates
	Compounded		Annual
	4-Year (1)		1-Year
	2010-2014		2013-2014			2014			2013			2012			2011			2010
Results of Operations
Net revenues	9	%	11	%	$	6,058		$	5,435		$	4,883		$	4,691		$	4,248
Expenses excluding interest	3	%	6	%	$	3,943		$	3,730		$	3,433		$	3,299		$	3,469
Net income	31	%	23	%	$	1,321		$	1,071		$	928		$	864		$	454
Net income available to common stockholders	29	%	25	%	$	1,261		$	1,010		$	883		$	864		$	454
Basic earnings per common share	26	%	23	%	$	.96		$	.78		$	.69		$	.70		$	.38
Diluted earnings per common share	26	%	22	%	$	.95		$	.78		$	.69		$	.70		$	.38
Dividends declared per common share	-		-		$	.24		$	.24		$	.24		$	.24		$	.24
Weighted-average common shares outstanding — diluted	2	%	2	%		1,315			1,293			1,275			1,229			1,194
Asset management and administration fees as a
percentage of net revenues						42	%		43	%		42	%		41	%		43	%
Net interest revenue as a percentage of net revenues						38	%		36	%		36	%		37	%		36	%
Trading revenue as a percentage of net revenues (2)						15	%		17	%		18	%		20	%		20	%
Effective income tax rate						37.5	%		37.2	%		36.0	%		37.9	%		41.7	%
Capital expenditures — purchases of equipment,
office facilities, and property, net	34	%	50	%	$	404		$	269		$	138		$	190		$	127
Capital expenditures, net of disposals, as a
percentage of net revenues						7	%		5	%		3	%		4	%		3	%
Performance Measures
Net revenue growth						11	%		11	%		4	%		10	%		1	%
Pre-tax profit margin						34.9	%		31.4	%		29.7	%		29.7	%		18.3	%
Return on average common stockholders’ equity (3)						12	%		11	%		11	%		12	%		8	%
Financial Condition (at year end)
Total assets	14	%	8	%	$	154,642		$	143,642		$	133,617		$	108,553		$	92,568
Long-term debt	(1)	%	-		$	1,899		$	1,903		$	1,632		$	2,001		$	2,006
Stockholders’ equity (4)	17	%	14	%	$	11,803		$	10,381		$	9,589		$	7,714		$	6,226
Assets to stockholders’ equity ratio						13			14			14			14			15
Long-term debt to total financial capital
(long-term debt plus stockholders’ equity)						14	%		15	%		15	%		21	%		24	%
Employee Information
Full-time equivalent employees (in thousands,
at year end)	3	%	6	%		14.6			13.8			13.8			14.1			12.8

⁽⁴⁾	Trading revenue includes commission and principal transaction revenues.
(3)	Return on average common stockholders’ equity is calculated using net income available to common stockholders divided by average common stockholders’ equity.
(4)	In 2012, the Company issued non-cumulative perpetual preferred stock, Series B, for a total liquidation preference of $485 million and non-cumulative perpetual preferred stock, Series A, with a total liquidation preference of $400 million.


Year Ended December 31,	Growth Rate 1-Year 2010-2011			2011			2010			2009
Client Activity Metrics:
Net new client assets⁽¹⁾(in billions)		N/M		$	145.9		$	26.6		$	87.3
Client assets (in billions, at year end)		7	%	$	1,677.7		$	1,574.5		$	1,422.6
Clients’ daily average trades⁽²⁾(in thousands)		13	%		451.1			399.7			414.8

Company Financial Metrics:
Net revenues		10	%	$	4,691		$	4,248		$	4,193
Expenses excluding interest		(5	%)		3,299			3,469			2,917

Income before taxes on income		79	%		1,392			779			1,276
Taxes on income		62	%		(528	)		(325	)		(489	)

Net income		90	%	$	864		$	454		$	787

Earnings per share–diluted		84	%	$	.70		$	.38		$	.68
Net revenue growth (decline) from prior year					10	%		1	%		(19	%)
Pre-tax profit margin					29.7	%		18.3	%		30.4	%
Return on stockholders’ equity					12	%		8	%		17	%
Net revenue per average full-time equivalent employee (in thousands)		4	%	$	350		$	337		$	338


	Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total
Credit-related financial instruments⁽¹⁾	$	757	$	725	$	1,130	$	3,186	$	5,798
Long-term debt⁽²⁾		99		930		125		1,309		2,463
Leases⁽³⁾		96		150		110		201		557
Purchase obligations⁽⁴⁾		118		81		33		1		233

Total	$	1,070	$	1,886	$	1,398	$	4,697	$	9,051


	Fair Value as of December 31, 2011
	Denmark		France		Germany		Netherlands		Sweden		Switzerland		United Kingdom		Total
Cash equivalents:
Time deposits	$	—	$	850	$	389	$	—	$	—	$	—	$	200	$	1,439
Commercial paper		—		350		20		—		—		—		200		570

Cash segregated and on deposit for regulatory purposes:
Trust deposits		—		—		400		—		—		—		—		400

Securities available for sale:
Certificates of deposit		—		300		150		300		499		550		700		2,499
Corporate debt securities		214		74		—		187		97		—		550		1,122

Securities held to maturity:
Corporate debt securities		—		—		—		—		117		100		—		217

Total fair value	$	214	$	1,574	$	959	$	487	$	713	$	650	$	1,650	$	6,247

Total amortized cost	$	212	$	1,575	$	959	$	492	$	716	$	650	$	1,650	$	6,254


Maturities:
Overnight	$	—	$	1,200	$	789	$	—	$	—	$	—	$	200	$	2,189
1 day – < 6 months		—		174		20		200		200		150		700		1,444
6 months – < 1 year		—		100		—		—		117		274		650		1,141
1 year – 2 years		214		100		150		187		299		126		100		1,176
> 2 years		—		—		—		100		97		100		—		297

Total fair value	$	214	$	1,574	$	959	$	487	$	713	$	650	$	1,650	$	6,247


														Accumulated
	Common Stock				Additional Paid-In			Retained			Treasury Stock,			Other Comprehensive Income
	Shares		Amount		Capital			Earnings			at cost			(Loss)			Total
Balance at December 31, 2008		1,392	$	14	$	2,214		$	6,735		$	(4,349	)	$	(553	)	$	4,061

Comprehensive income:
Net income		—		—		—			787			—			—			787
Other comprehensive income, net of tax:
Net unrealized gain on securities available for sale		—		—		—			—			—			362			362

Total comprehensive income																		1,149
Dividends declared on common stock		—		—		—			(279	)		—			—			(279	)
Stock option exercises and other		—		—		—			—			52			—			52
Stock-based compensation and related tax effects		—		—		80			—			—			—			80
Other		—		—		4			—			6			—			10

Balance at December 31, 2009		1,392		14		2,298			7,243			(4,291	)		(191	)		5,073

Comprehensive income:
Net income		—		—		—			454			—			—			454
Other comprehensive income, net of tax:
Net unrealized gain on securities available for sale		—		—		—			—			—			208			208
Net unrealized loss on cash flow hedging instruments		—		—		—			—			—			(1	)		(1	)

Total comprehensive income																		661
Issuance of common stock		30		—		543			—			—			—			543
Issuance of common stock for business acquisition		7		—		106			—			—			—			106
Dividends declared on common stock		—		—		—			(288	)		—			—			(288	)
Stock option exercises and other		—		—		(4	)		—			39			—			35
Stock-based compensation and related tax effects		—		—		87			—			—			—			87
Other		—		—		4			—			5			—			9

Balance at December 31, 2010		1,429		14		3,034			7,409			(4,247	)		16			6,226

Comprehensive income:
Net income		—		—		—			864			—			—			864
Other comprehensive income, net of tax:
Net unrealized loss on securities available for sale		—		—		—			—			—			(7	)		(7	)
Foreign currency translation adjustment		—		—		—			—			—			(1	)		(1	)

Total comprehensive income																		856
Issuance of common stock for business acquisition		59		1		713			—			—			—			714
Dividends declared on common stock		—		—		—			(295	)		—			—			(295	)
Stock option exercises and other		—		—		(24	)		—			122			—			98
Stock-based compensation and related tax effects		—		—		99			—			—			—			99
Other		—		—		4			—			12			—			16

Balance at December 31, 2011		1,488	$	15	$	3,826		$	7,978		$	(4,113	)	$	8		$	7,714


Fair value of common stock issued	$	710
Fair value of equity awards assumed		4

Total consideration paid⁽¹⁾	$	714

Fair value of net assets acquired	$	207

Preliminary goodwill	$	507


	September 1, 2011
Assets
Cash and cash equivalents	$	84
Cash and investments segregated and on deposit for regulatory purposes		1,074
Receivables from brokers, dealers, and clearing organizations		40
Receivables from brokerage clients		185
Other securities owned - at fair value		32
Intangible assets		285
Other assets		24

Total assets acquired⁽¹⁾	$	1,724

Liabilities
Payables to brokerage clients	$	1,221
Deferred tax liability		95
Long-term debt⁽²⁾		110
Accrued expenses and other liabilities		91

Total liabilities assumed⁽¹⁾	$	1,517

Net assets acquired	$	207


September 1, 2011	Estimated Fair Value		Estimated Useful Life (In Years)
Customer relationships	$	200		11
Technology		70		9
Trade name		15		9

Total intangible assets	$	285


	Less than				12 months
	12 months				or longer				Total
December 31, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized 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
Certificates of deposit		2,158		3		—		—		2,158		3
Corporate debt securities		1,888		26		—		—		1,888		26
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


	Within 1 year		After 1 year through 5 years		After 5 years through 10 years		After 10 years		Total
Securities available for sale:
U.S. agency residential mortgage-backed securities⁽¹⁾	$	—	$	2	$	2,950	$	17,969	$	20,921
Non-agency residential mortgage-backed securities⁽¹⁾		—		—		13		894		907
Certificates of deposit		1,897		1,725		—		—		3,622
Corporate debt securities		954		2,517		100		—		3,571
U.S. agency notes		—		1,800		—		—		1,800
Asset-backed and other securities		225		812		534		1,573		3,144

Total fair value	$	3,076	$	6,856	$	3,597	$	20,436	$	33,965
Total amortized cost	$	3,076	$	6,871	$	3,512	$	20,491	$	33,950

Securities held to maturity:
U.S. agency residential mortgage-backed securities⁽¹⁾	$	—	$	—	$	2,581	$	12,617	$	15,198
Other securities		117		224		—		—		341

Total fair value	$	117	$	224	$	2,581	$	12,617	$	15,539
Total amortized cost	$	116	$	222	$	2,507	$	12,263	$	15,108


Year Ended	December 31, 2011
	Residential real estate mortgages			Home equity lines of credit			Total			December 31, 2010			December 31, 2009
Balance at beginning of year	$	38		$	15		$	53		$	45		$	20
Charge-offs		(11	)		(8	)		(19	)		(20	)		(13	)
Recoveries		1			1			2			1			—
Provision for loan losses		12			6			18			27			38

Balance at end of year	$	40		$	14		$	54		$	53		$	45


			30-59 days		60-89 days		Greater than		Total		Total
December 31, 2011	Current		past due		past due		90 days		past due		loans
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

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

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


	Residential real estate mortgages
	Originated first mortgages		Purchased first mortgages		Total		Home equity lines of credit
December 31, 2011	Originated first mortgages		Purchased first mortgages		Total		Home equity lines of credit
Year of origination
Pre-2007	$	291	$	52	$	343	$	1,074
2007		278		8		286		232
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⁽¹⁾
< 70%	$	3,507	$	91	$	3,598	$	2,378
71% - 89%		1,904		60		1,964		1,091
> 90%		26		8		34		40

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


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

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

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

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

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

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

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

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


	December 31, 2011						December 31, 2010
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Customer relationships	$	245	$	17	$	228	$	42	$	2	$	40
Technology		88		6		82		14		2		12
Trade name		15		1		14		—		—		—
Other		2		—		2		2		—		2

Total intangible assets	$	350	$	24	$	326	$	58	$	4	$	54


	Investor		Institutional
	Services		Services		Total
Balance at December 31, 2010	$	446	$	185	$	631
Goodwill acquired during the period		507		23		530

Balance at December 31, 2011	$	953	$	208	$	1,161


	Operating
	Leases		Subleases		Net
2012	$	116	$	30	$	86
2013		96		26		70
2014		83		24		59
2015		72		24		48
2016		64		24		40
Thereafter		139		18		121

Total	$	570	$	146	$	424


									>90 days past			Total past due
			30-59 days			60-89 days			due and other			and other			Total
December 31, 2014	Current		past due			past due			nonaccrual loans			nonaccrual loans			loans
Residential real estate mortgages	$	8,092		$	9		$	2		$	24		$	35	$	8,127
Home equity loans and lines of credit		2,942			1			1			11			13		2,955
Personal loans secured by securities		2,320			-			-			-			-		2,320
Other		38			1			-			-			1		39
Total loans to banking clients	$	13,392		$	11		$	3		$	35		$	49	$	13,441

December 31, 2013
Residential real estate mortgages	$	7,962		$	4		$	4		$	36		$	44	$	8,006
Home equity loans and lines of credit		3,025			2			2			12			16		3,041
Personal loans secured by securities		1,384			-			-			-			-		1,384
Other		36			-			-			-			-		36
Total loans to banking clients	$	12,407		$	6		$	6		$	48		$	60	$	12,467


			Weighted				Percent of Loans
			Average		Utilization		that are on
December 31, 2014	Balance		Updated FICO		Rate (1)		Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
<70%	$	7,131		774	N/A		0.04	%
>70% – <90%		882		765	N/A		0.50	%
>90% – <100%		61		740	N/A		2.95	%
>100%		53		726	N/A		10.95	%
Total	$	8,127		773	N/A		0.18	%
Home equity loans and lines of credit:
Estimated Current Combined LTV
<70%	$	2,282		773	36	%	0.08	%
>70% – <90%		526		762	48	%	0.34	%
>90% – <100%		81		749	61	%	1.67	%
>100%		66		742	63	%	1.54	%
Total	$	2,955		769	39	%	0.20	%


	Residential		Home equity
	real estate		loans and
December 31, 2014	mortgages		lines of credit
Year of origination
Pre-2010	$	749	$	2,076
2010		370		168
2011		588		137
2012		2,107		147
2013		3,047		250
2014		1,266		177
Total	$	8,127	$	2,955
Origination FICO
<620	$	10	$	-
620 – 679		97		18
680 – 739		1,366		549
>740		6,654		2,388
Total	$	8,127	$	2,955
Origination LTV
<70%	$	5,572	$	1,979
>70% – <90%		2,538		955
>90% – <100%		17		21
Total	$	8,127	$	2,955


	Investor		Advisor
	Services		Services		Total
Balance at December 31, 2012	$	1,128	$	100	$	1,228
Goodwill acquired and other changes during the period		(1)		-		(1)
Balance at December 31, 2013		1,127		100		1,227
Goodwill acquired and other changes during the period		-		-		-
Balance at December 31, 2014	$	1,127	$	100	$	1,227


							Gross Amounts Not Offset in the
			Gross Amounts		Net Amounts		Consolidated Balance Sheet
		Gross	Offset in the		Presented in the
		Assets /	Consolidated		Consolidated		Counterparty						Net
		Liabilities	Balance Sheet		Balance Sheet		Offsetting		Collateral				Amount
December 31, 2014
Assets:
Resale agreements (1)	$	10,186	$	-	$	10,186	$	-	$	(10,186)	(2)	$	-
Securities borrowed (3)		187		-		187		(69)		(117)			1
Total	$	10,373	$	-	$	10,373	$	(69)	$	(10,303)		$	1
Liabilities:
Securities loaned (4)	$	1,477	$	-	$	1,477	$	(69)	$	(1,293)		$	115
Total	$	1,477	$	-	$	1,477	$	(69)	$	(1,293)		$	115

December 31, 2013
Assets:
Resale agreements (1)	$	14,016	$	-	$	14,016	$	-	$	(14,016)	(2)	$	-
Securities borrowed (3)		349		-		349		(88)		(257)			4
Total	$	14,365	$	-	$	14,365	$	(88)	$	(14,273)		$	4
Liabilities:
Securities loaned (4)	$	1,187	$	-	$	1,187	$	(88)	$	(1,019)		$	80
Total	$	1,187	$	-	$	1,187	$	(88)	$	(1,019)		$	80

(1)	Included in cash and investments segregated and on deposit for regulatory purposes in the Company’s consolidated balance sheets.
(2)	Actual collateral was greater than 102% of the related assets.
(3)	Included in receivables from brokers, dealers, and clearing organizations in the Company’s consolidated balance sheets.
(4)	Included in payables to brokers, dealers, and clearing organizations in the Company’s consolidated balance sheets.

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