SCHWAB CHARLES CORP (Form: 10-K, Received: 02/23/2017 17:34:16)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

Commission file number 1-9700

THE CHARLES SCHWAB CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction

of incorporation or organization)

94-3025021

(I.R.S. Employer Identification No.)

211 Main Street, San Francisco, CA 94105

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (415) 667-7000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock - $.01 par value per share	New York Stock Exchange
Depositary Shares, each representing a 1/40 th ownership interest in a share of 6.0% Non-Cumulative Preferred Stock, Series B	New York Stock Exchange
Depositary Shares, each representing a 1/40 th ownership interest in a share of 6.0% Non-Cumulative Preferred Stock, Series C Depositary Shares, each representing a 1/40 th ownership interest in a share of 5.95% Non-Cumulative Preferred Stock, Series D	New York Stock Exchange New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ⌧

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ⌧ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ⌧

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of June 30, 2016, the aggregate market value of the voting stock held by non-affiliates of the registrant was $29.7 billion. For purposes of this information, the outstanding shares of Common Stock owned by directors and executive officers of the registrant, and certain investment companies managed by Charles Schwab Investment Management, Inc. were deemed to be shares of the voting stock held by affiliates.

The number of shares of Common Stock outstanding as of January 31 , 2017, was 1,334,969,258 .

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates certain information contained in the registrant’s definitive proxy statement for its annual meeting of stockholders, to be held May 16, 2017, by reference to that document.

THE CHARLES SCHWAB CORPORATION

PART I

Item 1.

Business

General Corporate Overview

The Charles Schwab Corporation (CSC) is a savings and loan holding company, headquartered in San Francisco, California. CSC was incorporated in 1986 and engages, through its subsidiaries (collectively referred to as the Company), in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. At December 31, 2016, the Company had $ 2.78 trillion in client assets, 10.2 million active brokerage accounts, 1.5 million corporate retirement plan participants, and 1.1 million banking accounts.

Significant business subsidiaries of CSC include the following:

Charles Schwab & Co., Inc. (Schwab), which was incorporated in 1971, is a securities broker-dealer with over 335 domestic branch offices in 46 states, as well as a branch in each of the Commonwealth of Puerto Rico and London, England, and serves clients in Hong Kong through one of CSC’s subsidiaries;

Charles Schwab Bank (Schwab Bank), which commenced operations in 2003, is a federal savings bank located in Nevada; and

Charles Schwab Investment Management, Inc. (CSIM), which is the investment advisor for Schwab’s proprietary mutual funds, referred to as the Schwab Funds ® , and Schwab’s exchange-traded funds (ETFs), referred to as the Schwab ETFs™.

As of December 31, 2016, the Company had full-time, part-time and temporary employees, and persons employed on a contract basis that repre sented the equivalent of approximately 16,200 full-time employees.

Business Acquisition

In December 2012, the Company acquired ThomasPartners, Inc., ( ThomasPartners ® ) a growth and dividend income-focused asset management firm.

Business Strategy and Competitive Environment

Schwab was founded on the belief that average Americans deserve access to a better investing experience. Although much has changed in the intervening years, the Company’s purpose remains clear – to champion every client’s goals with passion and integrity. Guided by this purpose and the aspiration of creating the most trusted leader in investment services, management has adopted a strategy described as “Through Clients’ Eyes.”

Under this approach, t he Company’s strategic goals are focused on putting clients’ perspectives, needs , and desires at the forefront. Because investing plays a fundamental role in building financial security, the Company strives to deliver a better investing experience for its clients – individual investors and the people and institutions who serve them – by disrupting longstanding industry practices on their behalf and providing superior service. The Company aims to offer a broad range of products and solutions to meet client needs with a focus on transparency and value. In addition, management works to couple the Company’s scale and resources with ongoing expense discipline to keep costs low and ensure that products and solutions are affordable as well as responsive to client needs. Finally, the Company aims to maximize its market valuation and stockholder returns over time.

Management estimates that investable wealth in the U.S. currently exceeds $30 trillion, which means the Company’s $2.78 trillion in client assets represent a market share of less than ten percent, leaving subs tantial opportunity for growth. The

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THE CHARLES SCHWAB CORPORATION

Company’s strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue and , along with expense discipline, generat ing earnings growth and building long-term stockholder value.

Within Investor Services, t he Company’s competition in serving individual investors includes a wide range of brokerage, wealth management, and asset management firms, as well as banks and trust companies. In the Advisor Services arena, the Company competes with institutional custodians, traditional and discount brokers, banks and investment advisory firms and trust companies.

Across both segments, t he Company’s key competitive advantages are:

Scale and Size of the Business - As one of the largest investment services firms in the United States (U.S.), the Company is able to spread operating costs and amortize new investments over a large base of clients and has the resources to evolve capabilities to meet client needs.

Operating Efficiency - Coupled with scale, the Company’s operating efficiency and sharing of infrastructure across different businesses creates a cost advantage that enables the Company to competitively price products and services while profitably serving many different client channels.

Operating Structure - Adding bank and asset management capabilities to the broker-dealer helps the Company serve a wider array of client needs, thereby deepening client relationships, enhancing the stability of client assets, and enabling diversified revenue streams.

Brand and Corporate Reputation - In a n industry dependent on trust, the Company’s reputation and brand across multiple constituents enables it to attract clients and employees while credibly introducing new products to the market.

Service Culture - Delivering a great client experience earns the trust and loyalty of clients and increases the likelihood that those clients will refer others.

Willingness to Disrupt - The Company’s willingness to challenge the status quo to benefit clients fosters innovation and continuous improvement, which helps to attract more clients and assets.

Sources of Net Revenues

The Company’s major sources of net revenues are net interest revenue, asset management and administration fees, and trading revenue. These revenue streams are supported by the Company’s combination of bank, broker-dealer and asset manage ment operating subsidiaries, each of which brings specific capabilities that enable the Company to provide clients with the products and services they a re looking for.

Net interest revenue is the difference between interest generated on interest-earning assets and interest paid on funding sources, the majority of which is derived from client cash balances held by the Company as part of the clients’ overall relationship with the Company. While certain client cash balances are held on the broker-dealer’s balance sheet or swept to money market funds, a substantial amount of existing cash balances and most new client cash inflows are swept to Schwab Bank, which also offers clients checking and savings account capabilities. Over time, as supporting capital is available, the Company has been directing a growing proportion of client cash sweep balances to Schwab Bank relative to those going to the broker-dealer or money market funds. This shift has been effected through changes to default sweep options and the periodic bulk transfer of larger balances. Schwab Bank provides these balances with access to Federal Deposit Insurance Corporation (FDIC) insurance protection, as allowed, and provides the Company with greater flexibility in terms of options for investing the cash and administering the interest rate paid on client deposits . Optimizing the return on client sweep cash as part of net interest revenue supports the Company’s efforts to offer clients the best possible value in the areas most important to them across their overall relationship with the Company.

The Company generates the majority of its asset management and administration fees through its proprietary and third-party mutual fund and ETF offerings, as well as fee-based advisory solutions; a portion of these fees comes from client cash balances placed in the Company’s money market mutual funds.

The Company generates trading revenue through commissions earned for executing trades for clients in individual equities, options, fixed income securities, and certain third-party mutual funds and ETFs, as well as principal transaction revenue earned primarily from actions to support client trading in fixed income securities.

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THE CHARLES SCHWAB CORPORATION

Products and Services

The Company offers a broad range of products to address individuals’ varying investment and financial needs. Examples of these product offerings include the following:

Brokerage – an array of full-feature brokerage accounts with cash management capabilities;

Mutual funds – third-party mutual funds through the Mutual Fund Marketplace ® , including no-transaction fee mutual funds through the Mutual Fund OneSource ® service, which also includes proprietary mutual funds, plus mutual fund trading and clearing services to broker-dealers;

Exchange-traded funds – an extensive offering of ETFs, including many proprietary and third-party ETFs available without a commission through Schwab ETF OneSource™;

Advice solutions – managed portfolios of both proprietary and third-party mutual funds and ETFs, separately managed accounts, customized personal advice for tailored portfolios, and specialized planning and full-time portfolio management;

Banking – checking and savings accounts, certificates of deposit, first lien residential real estate mortgage loans (First Mortgages), home equity loans and lines of credit (HELOCs), and p ledged a sset l ine s (PAL s ); and

Trust – trust custody services, personal trust reporting services, and administrative trustee services.

The Company’s full array of investing services is made available through its two segments – Investor Services and Advisor Services. The Company’s major sources of revenues are generated by both of the Company’s reportable segments. Revenue is attributable to a reportable segment based on which segment has the primary responsibility for serving the client. The accounting policies of the Company’s reportable segments are the same as those described in “ Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements” (Item 8) – Note 2. For financial information related to the Company’s reportable segments, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations– Results of Operations” (Item 7) and Item 8 – Note 23.

Investor Services

Through the Investor Services segment, the Company offers individual investors a multi-channel service delivery model, which includes online, mobile, telephone, and branch capabilities. Under this model, the Company can offer personalized service at competitive prices while giving clients the choice of where, when, and how they do business with the Company. Financial Consultants (FCs) in Schwab’s branches and regional telephone service centers focus on building and sustaining client relationships. The Company offers the ability to meet client investing needs through a single ongoing point of contact, even as those needs change over time. Management believes that the Company’s ability to provide those clients seeking help, guidance, or advice with an individually tailored solution – ranging from occasional consultations to an ongoing relationship with a Schwab FC or a n independent registered investment advisor (R IA ) in the Schwab Advisor Network ® – is a competitive strength compared to the more fragmented or limited offerings of other firms. The Company has been expanding advice offerings over time in response to client needs to provide a compelling and often disruptive solution in the marketplace.

The Company’s service delivery model provide s quick and efficient access to an extensive array of information, research, tools, trade execution, and administrative services, which clients can access according to their needs. For example, clients that trade more actively can use these channels to access highly competitive pricing, expert tools, and extensive service capabilities – including experienced, knowledgeable teams of trading specialists and integrated product offerings. Individuals investing for retirement through 401(k) plans can take advantage of the Company’s bundled offering of multiple investment choices, education, and third-party advice. Management also believes the Company is able to compete with the wide variety of financial services firms striving to attract individual client relationships by complementing these capabilities with a range of investment and banking products.

Schwab strives to educate and assist clients in reaching their financial goals. Educational tools include workshops, interactive courses, and online information about investing, from which Schwab does not earn revenue. Additionally, Schwab provides various online research and analysis tools that are designed to help clients achieve better investment outcomes. As an example of such tools, Schwab Equity Ratings ® is a quantitative model-based stock rating system that provides all clients with ratings on approximately 3,000 stocks, assigning each equity a single grade: A, B, C, D, or F. Schwab Equity Ratings International ® , an international ranking methodology, covers approximately 4,000 stocks in 27 foreign equity markets.

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THE CHARLES SCHWAB CORPORATION

Clients may seek specific investment recommendations, either from time to time or on an ongoing basis. The Company provides clients seeking advice with personalized solutions. The Company’s approach to advice is based on long-term investment strategies and guidance on portfolio diversification and asset allocation. This approach is designed to be offered consistently across all of Schwab’s delivery channels.

Schwab Private Client™ features a personal advice relationship with a designated Portfolio Consultant ( PC ) , supported by a team of investment professionals who provide individualized service, a customized investment strategy developed in collaboration with the client, and ongoing guidance and execution.

For clients seeking a relationship in which investment decisions are fully delegated to a financial professional, the Company offers several alternatives. The Company provides investors access to professional investment management in a diversified account that is invested exclusively in either mutual funds or ETFs through the Schwab Managed Portfolios™ and Windhaven Investment Management, Inc. (Windhaven ® ), or equity securities and ETFs through ThomasPartners programs. The Company also refers investors who want to utilize a specific third-party money manager to direct a portion of their investment assets to the Schwab Managed Account program. Schwab Intelligent Portfolios ® , available since 2015, are for clients who are looking to have their assets professionally managed via a fully automated online investment advisory service. In addition, clients who want the assistance of an independent professional in managing their financial affairs may be referred to R IAs in the Schwab Advisor Network. These R IAs provide personalized portfolio management, financial planning, and wealth management solutions.

To meet the specific needs of clients who actively trade, Schwab and optionsXpress, Inc. (optionsXpress) both offer integrated web- and software-based trading platforms, which incorporate intelligent order routing technology, real-time market data, options trading, premium stock and futures research, and multi-channel access, as well as sophisticated account and trade management features, risk management and decision support tools, and dedicated personal support.

For U.S. clients wishing to invest in foreign equities, the Company offers a suite of global investing capabilities, including online access to certain foreign equity markets with the ability to trade in their local currencies. In addition, the Company serves both foreign investors and non-English-speaking U.S. clients who wish to trade or invest in U.S. dollar-based securities. In the U.S., the Company serves Mandarin-, Cantonese-, Spanish-, and Vietnamese-speaking clients through a combination of its branch offices , web-based and telephonic services.

The Investor Services segment also includes the Retirement Plan Services, Stock Plan Services, Compliance Solutions, Mutual Fund Clearing Services and Off-Platform Sales business units.

Retirement Plan Services offers a bundled 401(k) retirement plan product that provides plan sponsors a wide array of investment options, trustee or custodial services, and participant-level recordkeeping. Plan design features, which increase plan efficiency and achieve employer goals, are also offered, such as automatic enrollment, automatic fund mapping at conversion, and automatic contribution increases. In addition to an open architecture investment platform, the Company offers a unique 401(k) plan utilizing low cost index mutual funds and ETFs, combined with a managed investing service to help participants reach their retirement goals. Services also include support for Roth 401(k) accounts, profit sharing and defined benefit plans. The Company provides a robust suite of tools to plan sponsors to manage their plans, including plan-specific reports, studies and research, access to legislative updates and benchmarking reports that provide perspective on their plan’s features compared with overall industry and segment-specific plans. Participants in bundled plans serviced by the Company receive targeted education materials, have access to electronic tools and resources, may attend onsite and virtual seminars, and can receive third-party advice. This third-party advice service is delivered online, by phone, or in person, including recommendations based on the core investment fund choices in their retirement plan and specific recommended savings rates.

Stock Plan Services offers equity compensation plan sponsors full-service recordkeeping for stock plans, stock options, restricted stock, performance shares and stock appreciation rights. Specialized services for executive transactions and reporting, grant acceptance tracking, and other services are offered to employers to meet the needs of administering the reporting and compliance aspects of an equity compensation plan.

Compliance Solutions provides software and services for compliance departments of regulated companies and firms with special requirements to monitor employee personal trading, including trade surveillance technology.

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THE CHARLES SCHWAB CORPORATION

Mutual Fund Clearing Services provides custody, recordkeeping , and trading services to banks, brokerage firms and trust companies.

Off-Platform Sales offers proprietary mutual funds, ETFs, and collective trust funds outside the Company.

Advisor Services

Through the Advisor Services segment, the Company is the largest provider of custodial, trading, banking, and support services to RIA s . It also provides retirement business services to independent retirement advisors and recordkeepers . Management believes that it s Advisor Services segment can maintain its market leadership position primarily through the efforts of its sales, support, and business consulting service teams, which are dedicated to helping R IAs grow, compete, and succeed in serving their clients. In addition to focusing on superior service, Advisor Services utiliz es technology to provide R IAs with a highly-developed, scalable platform for administering their clients’ assets easily and efficiently. Advisor Services sponsors a variety of national, regional, and local events designed to help R IAs identify and implement better ways to expand and efficiently manage their practices.

R IAs who custody client accounts at Schwab may use proprietary software that provides them with up-to-date client account information as well as trading capabilities. The Advisor Services website is the core platform for R IAs to conduct daily business activities online with Schwab, including viewing and managing client account information and accessing news and market information. The website provides account servicing capabilities for R IAs, including account opening, money movement, transfer of assets, trading, checking status and communicating with the Company’s service team. The site provides multi-year archiving of statements, trade confirms, and tax reports, along with document search capabilities.

To help R IAs grow and manage their practices, the Company offers a variety of services, including business management and technology and operations consulting on a variety of topics critical to an R IA’s success including strategic business planning, client segmentation, growth strategies, technological strategies and succession planning. The Advisor Services website provides interactive tools, educational content, and research reports to assist advisors thinking about establishing and managing their own independent practices.

The Company offers an array of services to help advisors establish their own independent practices through the Business Start-up Solutions package. These services include access to dedicated service teams and outsourcing of back-office operations, as well as third-party firms who provide assistance with real estate, errors and omissions insurance, and company benefits.

The Company offers a variety of educational materials, programs, and events to R IAs seeking to expand their knowledge of industry issues and trends, as well as sharpen their individual expertise and practice management skills. The Company updates and shares market research on an ongoing basis, and it holds a series of events and conferences every year to discuss topics of interest to R IAs, including business strategies and best practices. The Company sponsors the annual IMPACT ® conference, which provides a national forum for the Company, R IAs, and other industry participants to gather and share information and insights, as well as a multitude of smaller events across the country each year.

R IAs and their clients have access to a broad range of the Company’s products and services, including individual securities, mutual funds, ETFs, managed accounts, and cash products.

The Advisor Services segment also includes the Retirement Business Services and Corporate Brokerage Retirement Services business units. Retirement Business Services provides trust, custody, and retirement business services to independent retirement plan advisors and independent recordkeepers. Plan assets are held at the Business Trust division of Schwab Bank. The Company and independent retirement plan providers work together to serve plan sponsors ; combining the consulting and administrative expertise of the administrator with the Company’s investment, technology, trust, and custodial services. Retirement Business Services also offers the Schwab Personal Choice Retirement Account ® , a self-directed brokerage offering for retirement plans.

Corporate Brokerage Retirement Services serves plan sponsors, advisors and independent recordkeepers seeking a brokerage-based account to hold retirement plan assets. Plans held at Schwab are either self-trusteed or trusteed by a separate, independent trustee. Corporate Brokerage Retirement Services also offers the Schwab Personal Choice Retirement Account ® ,

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THE CHARLES SCHWAB CORPORATION

and the Company Retirement Account, both of which are self-directed brokerage-based solutions designed to hold the assets of company-sponsored retirement plans.

Regulation

As a participant in the securities, banking and financial services industries, the Company is subject to extensive regulation under both federal and state laws by governmental agencies, supervisory authorities, and self-regulatory organizations (SROs). The Company is also subject to oversight by regulatory bodies in other countries in which the Company operates. These regulations affect the Company’s business operations and impose capital, client protection and market conduct requirements.

As a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (Dodd-Frank), the adoption of implementing regulations by the federal regulatory agencies, and other recent regulatory reforms, the Company has experienced significant changes in the laws and regulations that apply to it, how it is regulated, and regulatory expectations in the areas of compliance, risk management, corporate governance, operations, capital and liquidity.

Holding Company and Bank Regulation

CSC is a savings and loan holding company and Schwab Bank, CSC’s depository institution subsidiary, is a federal savings bank. CSC is regulated, supervised, and examined by the Board of Governors of the Federal Reserve System (Federal Reserve), and Schwab Bank is regulated, supervised, and examined by the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the FDIC. CSC and Schwab Bank are also subject to regulation and various requirements and restrictions under state and other federal laws.

This regulatory framework is designed to protect depositors and consumers, the safety and soundness of depository institutions and their holding companies, and the stability of the banking system as a whole. This framework affects the activities and investments of CSC, Schwab Bank and CSC’s non-bank subsidiaries and gives the regulatory authorities broad discretion in connection with their supervisory, examination and enforcement activities and policies.

Financial Regulatory Reform

Following the enactment of Dodd-Frank, the federal banking agencies have adopted a number of implementing regulations and other regulatory reforms that are significant for CSC and Schwab Bank. These regulations are highlighted below.

Basel III Capital and Liquidity Framework

In 2013, the U.S. Federal banking agencies adopted strengthened regulatory capital requirements for U.S. banking organizations consistent with Basel III (Final Regulatory Capital Rules). The Final Regulatory Capital Rules established Common Equity Tier 1 (CET1) Capital as a new capital standard, increased minimum required risk-based capital ratios, narrowed the eligibility criteria for regulatory capital instruments, provided for new regulatory capital deductions and adjustments, and modified methods for calculating risk-weighted assets (the denominator of risk-based capital ratios). See Capital Management in Part II, Item 7 , and Item 8 – Note 22 for more information on capital requirements.

The Final Regulatory Capital Rules provided for a one-time election which CSC and Schwab Bank made to exclude accumulated other comprehensive income (AOCI) from the calculation of all capital ratios . The Final Regulatory Capital Rules also introduced a capital conservation buffer that limits a banking organization’s ability to make capital distributions and discretionary bonus payments to executive officers if a banking organization fails to maintain a capital conservation buffer of more than 2.5%, on a fully phased-in basis, in excess of all of its minimum risk-based capital ratio requirements.

The Final Regulatory Capital Rules provide for a “standardized approach” framework for the calculation of a banking organization’s regulatory capital and risk-weighted assets. Depository institutions and their holding companies with consolidated total assets of $250 billion or more, or total on-balance-sheet foreign exposures of $10 billion or more, are also required to calculate their regulatory capital and risk-weighted assets using an “advanced approaches” framework and must satisfy the minimum capital ratios under both approaches. Such companies must also maintain a minimum supplementary leverage ratio of at least 3.0% and are subject to certain other enhanced provisions. CSC and Schwab Bank are currently only subject to the “standardized approach” framework.

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THE CHARLES SCHWAB CORPORATION

The new capital requirements under the Final Regulatory Capital Rules became effective in 2015, for CSC, which had not previously been subject to any consolidated capital requirements, and Schwab Bank.

In 2014, U.S. Federal banking agencies adopted an inter-agency rule that imposes a quantitative Liquidity C overage R atio ( LCR ) requirement on large banking organizations. Banking organizations with $250 billion or more in total consolidated assets or foreign exposures of $10 billion or more must hold High Quality Liquid Assets ( HQLA ) in an amount equal to at least 100% of their projected net cash outflows over the 30-day period. Other bank and savings and loan holding companies with total consolidated assets of $50 billion or more, such as CSC, are subject to a modified LCR rule requiring them to hold HQLA in an amount equal to at least 70% of their projected net cash outflows over the 30-day period. The modified LCR rule went into effect on January 1, 2016, with holding companies subject to the rule required to hold at least 90% of the necessary amount of HQLA in 2016 and at least 100% starting on January 1, 2017.

Capital Stress Testing

In 2012, the OCC issued final rules implementing provisions of Dodd-Frank that require national banks and federal savings associations with total consolidated assets of more than $10 billion to conduct annual company-run stress tests. Under the Dodd-Frank Act Stress Test (DFAST) rules, Schwab Bank must conduct annual stress tests using certain scenarios and prescribed stress-testing methodologies, report the results to the OCC and the Federal Reserve and publish a summary of the results of its stress tests. In July 2016, Schwab Bank submitted its company-run stress test results to the OCC. In October 2016, Schwab Bank publicly disclosed a summary of its stress test results under the severely adverse scenario prescribed by the OCC based upon a nine-quarter timeframe beginning on January 1, 2016 and ending on March 31, 2018. In its summary, Schwab Bank reported that its 7.1% Tier 1 leverage ratio at the beginning of the forecast period declined to a low of 6.7% during the nine-quarter forecast horizon and ended at 7.2%.

Under the Federal Reserve’s DFAST regulations, CSC will be required to conduct its first stress test using financial statement data as of December 31, 2016, report the results of that stress test to the Federal Reserve by April 5, 2017, and publicly disclose a summary of its stress test results between June 15 and June 30, 2017. CSC is not subject to the annual Comprehensive Capital Analysis and Review (CCAR) process, which requires certain financial institutions to submit annual capital plans to the Federal Reserve. CSC has been taking steps to implement stress testing policies, procedures, systems, and governance structures that are designed to be consistent with regulatory expectations for a firm of its size and complexity.

Insured Depository Institution Resolution Plans

In 2011 and 2012, the FDIC issued rules requiring insured depository institutions with total consolidated assets of $50 billion or more to submit to the FDIC periodic plans providing for their resolution by the FDIC in the event of failure (resolution plans or so-called “living wills”) under the receivership and liquidation provisions of the Federal Deposit Insurance Act. Under these rules, Schwab Bank is required to file with the FDIC an annual resolution plan demonstrating how the bank could be resolved in an orderly and timely manner in the event of receivership such that the FDIC would be able to : ensure that the bank’s depositors receive access to their deposits within one business day; maximize the net present value of the bank’s assets when disposed of; and minimize losses incurred by the bank’s creditors.

Consumer Financial Protection

In 2011, pursuant to Dodd-Frank, the CFPB began operations and was given broad rulemaking, supervisory and enforcement authority for a wide range of federal consumer protection laws relating to financial products. As a federal savings bank with $10 billion or more in consolidated total assets, Schwab Bank’s lending and deposit-taking activities are subject to regulation, supervision and examination by the CFPB. The CFPB has adopted many consumer protection rules since its creation and has additional authority to issue orders, guidance and policy statements, conduct examinations, and bring enforcement actions.

Deposit Insurance Assessments

The FDIC’s Deposit Insurance Fund (DIF) provides insurance coverage for certain deposits, generally up to $250,000 per depositor per account ownership type, and is funded by quarterly assessments on insured depository institutions. In 2011, the FDIC established a risk-based deposit premium assessment system that, for large insured depository institutions with at least $10 billion in total consolidated assets, such as Schwab Bank, uses a scorecard method based on a number of factors, including the institution’s regulatory ratings, asset quality and brokered deposits. The deposit insurance assessment base is calculated as average consolidated total assets minus average tangible equity.

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The Dodd-Frank Act (i) raised the minimum reserve ratio for the DIF to 1.35% (from the former minimum of 1.15%) and (ii) required that the DIF’s reserve ratio reach 1.35% by September 30, 2020.

In March 2016, the FDIC issued a final rule imposing a flat-rate surcharge on the quarterly assessments of insured depository institutions with total assets of $10 billion or more to pay for the increase. The surcharge went into effect on July 1, 2016 , at the same time as a scheduled reduction in the regular FDIC insurance. As a result, the Company is now subject to a 3 basis point regular assessment on its total assessment base (down from 5 basis points) and a new 4.5 basis point surcharge on the amount of its assessment base in excess of $10 billion.

Community Reinvestment Act

The Community Reinvestment Act of 1977 (CRA) requires Schwab Bank’s primary federal bank regulatory agency, the OCC, to assess the bank’s record in meeting the credit needs of the communities served by the bank, including low- and moderate-income neighborhoods and persons. Institutions are assigned one of four ratings and the assessment is reviewed in connection with any acquisition, merger or branch office application.

Source of Strength

The Dodd-Frank Act codified the Federal Reserve’s long-held position that a depository institution holding company must serve as a source of financial strength for its subsidiary depository institutions, the so-called “source of strength doctrine.” In effect, the holding company may be compelled to commit resources to support the subsidiary in the event the subsidiary is in financial distress.

Broker-Dealer and Investment Advisor Regulation

CSC’s principal broker-dealers are Schwab and optionsXpress . Schwab is registered as a broker-dealer with the United States Securities and Exchange Commission (SEC), the fifty states, the District of Columbia and Puerto Rico. optionsXpress is registered as a broker-dealer with the SEC, the fifty states, the District of Columbia, Puerto Rico, and the Virgin Islands. Schwab and CSIM are registered as investment advisors with the SEC. Additionally, Schwab and optionsXpress are regulated by the Commodities Futures Trading Commission (CFTC) with respect to the commodity futures and trading activities they conduct as an introducing broker and futures commission merchant, respectively.

Much of the regulation of broker-dealers has been delegated to SROs. Schwab is a member of the Financial Industry Regulatory Authority, Inc. (FINRA), the Municipal Securities Rulemaking Board (MSRB), NYSE Arca, and the Chicago Board Options Exchange (CBOE) . optionsXpress is also a member of FINRA and the MSRB. In addition to the SEC, the primary regulators of Schwab and optionsXpress are FINRA and, for municipal securities, the MSRB. The National Futures Association (NFA) is Schwab and optionsXpress’s primary regulator for futures and commodities trading activities.

The principal purpose of regulating broker-dealers and investment advisors is the protection of clients and securities markets. The regulations cover all aspects of the securities business, including, among other things, sales and trading practices, publication of research, margin lending, uses and safekeeping of clients’ funds and securities, capital adequacy, recordkeeping and reporting, fee arrangements, disclosure to clients, fiduciary duties owed to advisory clients, and the conduct of directors, officers , and employees.

Schwab and optionsXpress are both subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the Uniform Net Capital Rule) and related SRO requirements. The CFTC and NFA also impose net capital requirements. The Uniform Net Capital Rule specifies minimum capital requirements intended to ensure the general financial soundness and liquidity of broker-dealers. CSC itself is not a registered broker-dealer and it is not subject to the Uniform Net Capital Rule. If Schwab fails to maintain specified levels of net capital, such failure could constitute a default by CSC of certain debt covenants under its credit agreement.

The Uniform Net Capital Rule prohibits a broker-dealer subsidiary from paying cash dividends, making unsecured advances or loans or repaying subordinated loans 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.

In addition to net capital requirements, as self-clearing broker-dealers, Schwab and optionsXpress are subject to cash deposit and collateral requirements with clearing houses, such as the Depository Trust & Clearing Corporation and Options Clearing

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THE CHARLES SCHWAB CORPORATION

Corporation, which may fluctuate significantly from time to time based upon the nature and size of clients’ trading activity and market volatility.

Financial Service Regulation

Bank Secrecy Act of 1970 and USA PATRIOT Act of 2001

CSC and its subsidiaries that conduct financial services activities are subject to the Bank Secrecy Act of 1970 (BSA), as amended by the USA PATRIOT Act of 2001, which requires financial institutions to develop and implement programs reasonably designed to achieve compliance with these regulations. The BSA and USA PATRIOT Act include a variety of monitoring, recordkeeping and reporting requirements (such as currency transaction reporting and suspicious activity reporting), as well as identity verification and client due diligence requirements which are intended to detect, report and/or prevent money laundering , and the financing of terrorism. In addition, CSC and various subsidiaries of the Company are subject to U.S. sanctions programs administered by the Office of Foreign Assets Control.

For additional information on Regulation, see Capital Management in Part II, Item 7 and Item 8 – Note 22.

Available Information

The Company files annual, quarterly, and current reports, proxy statements, and other information with the SEC. The Company’s SEC filings are available to the public over the Internet on the SEC’s website at http s ://www.sec.gov . You may read and copy any document that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.

On the Company’s website, http s ://www.aboutschwab.com , the Company posts the following filings after they are electronically filed with or furnished to the SEC: the Company’s annual reports on Form 10-K, the Company’s quarterly reports on Form 10-Q, the Company’s current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

In addition, the Company’s website also includes the Dodd-Frank stress test results and the Company’s regulatory capital disclosures based on Basel III.

All such filings are available free of charge either on the Company’s website or by request via email ( investor.relations@schwab.com ), telephone (415-667- 7000 ), or mail (Charles Schwab Investor Relations at 211 Main Street, San Francisco, CA 94105).

Item 1A.

Risk Factors

The Company faces a variety of risks that may affect its operations , financial results, or stock price and many of those risks are driven by factors that the Company cannot control or predict. The following discussion addresses those risks that management believes are the most significant, although there may be other risks that could arise, or may prove to be more significant than expected, that may affect the Company’s operations or financial results.

For a discussion of the Company’s risk management, including operational risk, compliance risk, credit risk, market risk, and liquidity risk, see Risk Management in Part II, Item 7.

Developments in the business, economic, and geopolitical environment could negatively impact the Company’s business.

The Company’s business can be adversely affected by the general environment – economic, corporate, securities market, regulatory, and geopolitical developments all play a role in client asset valuations, trading activity, interest rates and overall investor engagement, and are outside of the Company’s control. Deterioration in the housing and credit markets, reductions

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THE CHARLES SCHWAB CORPORATION

in short-term interest rates, and decreases in securities valuations negatively impact the Company’s results of operations and capital resources.

Extensive regulation of the Company’s businesses may subject it to significant penalties or limitations on business activities .

As a participant in the securities, banking and financial services industries, the Company is subject to extensive regulation under federal, state, and foreign laws by governmental agencies, supervisory authorities and SROs. Such regulation continues to grow more extensive and complex, the costs and uncertainty related to complying with such regulations continue to increase, and regulatory proceedings continue to become more frequent and sanctions more severe. The requirements imposed by the Company’s regulators are designed to ensure the integrity of the financial markets, the safety and soundness of financial institutions and the protection of clients. These regulations affect the Company’s business operations and impose capital, client protection and market conduct requirements.

In addition to specific banking laws and regulations, the Company’s banking regulators have broad discretion in connection with their supervisory and enforcement activities and examination policies and could require CSC and/or Schwab Bank to hold more capital, increase liquidity or limit their ability to pay dividends or CSC’s ability to repurchase shares. The banking regulators could also limit the Company’s ability to grow, including adding assets, launching new products, making acquisitions and undertaking strategic investments, could limit Schwab Bank’s ability to accept deposits swept from client brokerage accounts and brokered deposits and could prevent the Company from pursuing its business strategy.

Despite the Company’s efforts to comply with applicable legal requirements, there are a number of risks, particularly in areas where applicable laws or regulations may be unclear or where regulators could revise their previous guidance. Any enforcement actions or other proceedings brought by the Company’s regulators against the Company or its affiliates, officers or employees could result in fines, penalties, cease and desist orders, enforcement actions, suspension, disqualification or expulsion, or other disciplinary sanctions, including limitations on the Company’s business activities, any of which could harm the Company’s reputation and adversely affect the Company’s results of operations and financial condition.

While the Company maintains systems and procedures designed to ensure that it complies with applicable laws and regulations, violations could occur. In addition, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though systems and procedures reasonably designed to prevent violations were in place at the time. There may be other negative consequences resulting from a finding of noncompliance, including restrictions on certain activities. Such a finding may also damage the Company’s reputation and its relationships with its regulators and could restrict the ability of institutional investment managers to invest in the Company’s securities.

Legislation or changes in rules and regulations could negatively affect the Company’s business and financial results.

New legislation, rules, regulations and guidance, or changes in the interpretation or enforcement of existing federal, state, foreign and SRO rules, regulations and guidance, including changes relating to mutual funds, broker-dealer fiduciary duties and regulatory treatment of deposit accounts may directly affect the operation and profitability of the Company or its specific business lines. The profitability of the Company could also be affected by rules and regulations that impact the business and financial communities generally, including changes to the laws governing taxation, electronic commerce, client privacy and security of client data. In addition, the rules and regulations could result in limitations on the lines of business the Company conducts, modifications to the Company’s business practices, more stringent capital and liquidity requirements , increased deposit insurance assessments or additional costs. These changes may also require the Company to invest significant management attention and resources to evaluate and make necessary changes to its compliance, risk management, treasury and operations functions.

While U.S. banking regulators have finalized many regulations to implement various provisions of Dodd-Frank and other financial reforms such as Basel III, implementation of the legislation is ongoing and significant rule-making and interpretations remain to be completed. For example, rules relating to a minimum net stable funding ratio (NSFR) , which will require financial institutions to have a stable funding structure over a one-year horizon, have been proposed but have not yet been finalized. In addition, the SEC was given discretion to adopt rules regarding standards of conduct for broker-dealers providing investment advice to retail clients but has not yet made any rule proposals. The Company has incurred and will

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THE CHARLES SCHWAB CORPORATION

continue to incur significant additional costs and expend a significant amount of time as it develops and integrates appropriate systems and procedures to comply with the rule-making, and then monitors, supports and refines those systems and procedures.

Failure to meet capital adequacy and liquidity guidelines could affect the Company’s financial condition.

CSC, together with Schwab Bank and its broker-dealer subsidiaries, must meet certain capital and liquidity standards, subject to qualitative judgments by regulators about the adequacy of the Company’s capital and the Company’s internal assessment of its capital needs. The Uniform Net Capital Rule limits Schwab’s ability to transfer capital to CSC and other affiliates. New regulatory capital, liquidity, and stress testing requirements may limit or otherwise restrict how the Company utilizes its capital, including paying dividends and stock repurchases, and may require the Company to increase its capital and/or liquidity or to limit its growth. Failure by either CSC or Schwab Bank to meet its minimum capital requirements could result in certain mandatory and additional discretionary actions by regulators that, if undertaken, could have a negative impact on the Company. In addition, failure by CSC or Schwab Bank to maintain a sufficient amount of capital to satisfy its capital conservation buffer requirements (as phased in) would result in restrictions on the Company’s ability to make capital distributions and discretionary cash bonus payments to executive officers. Any requirement that the Company increase its regulatory capital, replace certain capital instruments which presently qualify as Tier 1 capital, or increase regulatory capital ratios or liquidity, could require the Company to liquidate assets, deleverage or otherwise change its business and/or investment plans, which may adversely affect its financial results. Issuing additional common stock would dilute the ownership of existing stockholders.

With $ 223 billion in consolidated total assets at December 31, 2016, the Company is currently only subject to the “standardized approach” framework of the Basel III capital and liquidity requirements. When the Company’s consolidated total assets equal or exceed $250 billion, the Company will become subject to the “advanced approaches” framework, including being subject to a supplementary leverage ratio, the inclusion of AOCI in regulatory capital, the unmodified LCR, enhanced Basel III disclosures, and a more complex calculation of risk weighted assets that includes an assessment of the impact of operational risk. In addition, federal banking agencies have broad discretion and could require CSC or Schwab Bank to hold higher levels of capital or increase liquidity above the applicable regulatory requirements.

For a discussion of the Company’s Liquidity and Capital Management, see Risk Management and Capital Management in Part II, Item 7 and Item 8 – Note 22.

Significant interest rate changes could affect the Company’s profitability.

The direction and level of interest rates are important factors in earnings. A decline in interest rates may have a negative impact on the Company’s net interest revenue. A low interest rate environment may also have a negative impact on the Company’s asset management and administration fee revenues if the Company has to waive a portion of its management fees for certain Schwab-sponsored money market mutual funds in order to continue providing a positive return to clients.

Overall, the Company is positioned to benefit from a rising interest rate environment. A rise in interest rates may cause the Company’s funding costs to increase if market conditions or the competitive environment forces the Company to raise its interest rates to avoid losing deposits. Higher funding costs without offsetting increases in yields on interest-earning assets can reduce the Company’s net interest revenue.

For additional information on the Company’s net interest revenue, see Results of Operations and Risk Management in Part II, Item 7.

Security breaches of the Company’s systems, or those of its clients or third parties, may subject the Company to significant liability and damage the Company’s reputation.

The Company’s business involves the secure processing, storage and transmission of confidential information about the Company and its clients. Information security risks for financial institutions are increasing, in part because of the use of the internet and mobile technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, activists, hackers and other external parties, including foreign state actors. The Company’s systems and those of other financial institutions have been and are likely to continue to be the target of cyber attacks, malicious code, computer viruses

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THE CHARLES SCHWAB CORPORATION

and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential client information), account takeovers, unavailability of service or other events. Despite the Company’s efforts to ensure the integrity of its systems, the Company may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently or are not recognized until launched, and because security attacks can originate from a wide variety of sources. Data security breaches may also result from non-technical means, for example, employee misconduct.

Security breaches, including breaches of the Company’s security measures or those of the Company’s third-party service providers or clients, could result in a violation of applicable privacy and other laws and could subject the Company to significant liability or loss that may not be covered by insurance, actions by the Company’s regulators, damage to the Company’s reputation, or a loss of confidence in the Company’s security measures which could harm the Company’s business. The Company may be required to expend significant additional resources to modify its protective measures or to investigate and remediate vulnerabilities or other exposures.

The Company also faces risk related to external fraud involving the compromise of clients’ personal electronic devices that can facilitate the unauthorized access to login and password information for their various online financial accounts, including those at the Company. Such risk has grown in recent years due to the increased sophistication and activities of organized crime and other external parties, including foreign state-sponsored parties. For example, these parties send fraudulent “phishing” emails to the Company’s clients in order to misappropriate user names, passwords or other personal information. Losses reimbursed to clients under the Company’s guarantee against unauthorized account activity could have a negative impact on the Company’s business, financial condition and results of operations.

Technology and operational failures or errors could subject the Company to losses, litigation, and regulatory actions.

The Company must process, record and monitor a large number of transactions and its operations are highly dependent on the integrity of its technology systems and its ability to make timely enhancements and additions to its systems. System interruptions, errors or downtime can 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 and can have a significant impact on the Company’s business and operations. The Company’s systems are vulnerable to disruptions from human error, execution errors, errors in models such as those used for asset management, capital planning and management, risk management, stress testing and compliance, employee misconduct, unauthorized trading, external fraud, computer viruses, distributed denial of service attacks, cyber attacks, terrorist attacks, natural disaster, power outage, capacity constraints, software flaws, events impacting key business partners and vendors, and similar events. For example, the Company and other financial institutions have been the target of various denial of service attacks that have, in certain circumstances, made websites, mobile applications and email unavailable for periods of time. It could take an extended period of time to restore full functionality to the Company’s technology or other operating systems in the event of an unforeseen occurrence, which could affect the Company’s ability to process and settle client transactions. Moreover, instances of fraud or other misconduct might also negatively impact the Company’s reputation and client confidence in the Company, in addition to any direct losses that might result from such instances. Despite the Company’s efforts to identify areas of risk, oversee operational areas involving risk, and implement policies and procedures designed to manage these risks, there can be no assurance that the Company will not suffer unexpected losses, reputational damage or regulatory action due to technology or other operational failures or errors, including those of its vendors or other third parties.

While the Company devotes substantial attention and resources to the reliability, capacity and scalability of its systems, extraordinary trading volumes could cause the Company’s computer systems to operate at unacceptably slow speeds or even fail, affecting the Company’s ability to process client transactions and potentially resulting in some clients’ orders being executed at prices they did not anticipate. Disruptions in service and slower system response times could result in substantial losses and decreased client satisfaction. The Company is also dependent on the integrity and performance of securities exchanges, clearing houses and other intermediaries to which client orders are routed for execution and settlement. Systems failures and constraints and transaction errors at such intermediaries could result in delays and erroneous or unanticipated execution prices, cause substantial losses for the Company and for its clients, and subject the Company to claims from its clients for damages.

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THE CHARLES SCHWAB CORPORATION

A significant decrease in the Company’s liquidity could negatively affect the Company’s business and financial management as well as reduce client confidence in the Company.

Maintaining adequate liquidity is crucial to the business operations of the Company, including margin lending, mortgage lending, and transaction settlement, among other liquidity needs. The Company meets its liquidity needs primarily through cash generated by client activity and operating earnings, as well as cash provided by external financing. Fluctuations in client cash or deposit balances, as well as changes in regulatory treatment of client deposits or market conditions, may affect the Company’s ability to meet its liquidity needs. A reduction in the Company’s liquidity position could reduce client confidence in the Company, which could result in the loss of client accounts, or could cause the Company to fail to satisfy its liquidity requirements, including the modified LCR. In addition, if the Company’s broker-dealer or depository institution subsidiaries fail to meet regulatory capital guidelines, regulators could limit the subsidiaries’ operations or their ability to upstream funds to CSC, which could reduce CSC’s liquidity and adversely affect its ability to repay debt and pay cash dividends. In addition, CSC may need to provide additional funding to such subsidiaries.

Factors which may adversely affect the Company’s liquidity position include Schwab having temporary liquidity demands due to timing differences between brokerage transaction settlements and the availability of segregated cash balances, unanticipated outflows of company cash, fluctuations in cash held in banking or brokerage client accounts, a dramatic increase in the Company’s client lending activities (including margin, mortgage-related, and personal lending), increased capital requirements, changes in regulatory guidance or interpretations, other regulatory changes, or a loss of market or client confidence in the Company.

When cash generated by client activity and operating earnings is not sufficient for the Company’s liquidity needs, the Company may seek external financing. During periods of disruptions in the credit and capital markets, potential sources of external financing could be reduced, and borrowing costs could increase. Although CSC and Schwab maintain committed and uncommitted, unsecured bank credit lines and CSC has a commercial paper issuance program, as well as a universal shelf registration statement filed with the SEC which can be used to sell securities, financing may not be available on acceptable terms or at all due to market conditions or disruptions in the credit markets. In addition, a significant downgrade in the Company’s credit ratings could increase its borrowing costs and limit its access to the capital markets.

The Company may suffer significant losses from its credit exposures.

The Company’s businesses are subject to the risk that a client, counterparty or issuer will fail to perform its contractual obligations, or that the value of collateral held to secure obligations will prove to be inadequate. While the Company has policies and procedures designed to manage this risk, the policies and procedures may not be fully effective. The Company’s exposure mainly results from margin lending, clients’ options trading, futures activities, securities lending, mortgage lending, pledged asset lending, its role as a counterparty in financial contracts and investing activities, and indirectly from the investing activities of certain of the proprietary funds the Company sponsors.

When clients purchase securities on margin, borrow on lines of credit collateralized by securities, or trade options or futures, the Company is subject to the risk that clients may default on their obligations when the value of the securities and cash in their accounts falls below the amount of clients’ indebtedness. Abrupt changes in securities valuations and the failure of clients to meet margin calls could result in substantial losses.

The Company has exposure to credit risk associated with its investments. Those investments are subject to price fluctuations as a result of changes in the financial market’s assessment of credit quality. Loss of value of securities can negatively affect earnings if management determines that such securities are other than temporarily impaired. The evaluation of whether other-than-temporary impairment (OTTI) exists is a matter of judgment, which includes the assessment of several factors. If management determines that a security is OTTI , the cost basis of the security may be adjusted and a corresponding loss may be recognized in current earnings. Deterioration in the performance of available for sale (AFS) and held to maturity (HTM) securities could result in the recognition of future impairment charges. Even if a security is not considered OTTI , if the Company was ever forced to sell the security sooner than intended prior to maturity due to liquidity needs, the Company would have to recognize any unrealized losses at that time. See Critical Accounting Estimates in Part II, Item 7 for additional information.

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THE CHARLES SCHWAB CORPORATION

The Company’s bank loans primarily consist of First Mortgages, HELOCs, and PALs. Increases in delinquency and default rates, housing and stock price declines, increases in the unemployment rate, and other economic factors can result in charges for loan loss reserves and write downs on such loans.

Heightened credit exposures to specific counterparties or instruments (concentration risk) can increase the Company’s risk of loss. Examples of the Company’s credit concentration risk include:

Large positions in financial instruments collateralized by assets with similar economic characteristics or in securities of a single issuer or industry;

Mortgage loans and HELOCs to banking clients which are secured by properties in the same geographic region; and

Margin , pledged asset, and securities lending activities collateralized by securities of a single issuer or industry.

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 or other 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, could reduce the Company’s liquidity and, in certain situations, could, with respect to proprietary funds other than money market mutual funds, result in the Company having to consolidate a supported fund in its financial statements. 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.

The Company is subject to litigation and regulatory investigations and proceedings and may not be successful in defending itself against claims or proceedings.

The financial services industry faces significant litigation and regulatory risks. 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.

Litigation and arbitration claims include those brought by the Company’s clients and the clients of third party advisors whose assets are custodied at the Company. Claims from clients of third party advisors may allege losses due to investment decisions made by the third party advisors or the advisors’ misconduct. Litigation claims also include claims from third parties alleging infringement of their intellectual property rights (e.g., patents). Such litigation can require the expenditure of significant Company resources. If the Company were found to have infringed on a third-party patent, or other intellectual property rights, it could incur substantial damages, and in some circumstances could be enjoined from using certain technology, or providing certain products or services.

Actions brought against the Company may result in settlements, awards, injunctions, fines, penalties or other results adverse to the Company including reputational harm. Even if the Company is successful in defending against these actions, the defense of such matters may result in the Company incurring significant expenses. A substantial judgment, settlement, fine, or penalty could be material to the Company’s operating results or cash flows for a particular future period, depending on the Company’s results for that period. In market downturns, the volume of legal claims and amount of damages sought in litigation and regulatory proceedings against financial services companies have historically increased. See Item 8 – Note 14 for more information on contingencies.

The Company relies on outsourced service providers to perform key functions.

The Company relies on external service providers to perform certain key technology, processing, servicing, and support functions. These service providers face technology, operating, business, and economic risks, and any significant failures by them, including the improper use or disclosure of the Company’s confidential client, employee, or company information, could cause the Company to incur losses and could harm the Company’s reputation. An interruption in or the cessation of service by any external service provider as a result of systems failures, capacity constraints, financial difficulties or for any other reason, and the Company’s inability to make alternative arrangements in a timely manner could disrupt the Company’s operations, impact the Company’s ability to offer certain products and services, and result in financial losses to the Company. Switching to an alternative service provider may require a transition period and result in less efficient operations.

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THE CHARLES SCHWAB CORPORATION

Potential strategic transactions could have a negative impact on the Company’s financial position.

The Company evaluates potential strategic transactions, including business combinations, acquisitions, and dispositions. Any such transaction could have a material impact on the Company’s financial position, results of operations, or cash flows. The process of evaluating, negotiating, and effecting any such strategic transaction may divert management’s attention from other business concerns, and might cause the loss of key clients, employees, and business partners. Moreover, integrating businesses and systems may result in unforeseen expenditures as well as numerous risks and uncertainties, including the need to integrate operational, financial, and management information systems and management controls, integrate relationships with clients and business partners, and manage facilities and employees in different geographic areas. In addition, an acquisition may cause the Company to assume liabilities or become subject to litigation or regulatory proceedings. Further, the Company may not realize the anticipated benefits from an acquisition, and any future acquisition could be dilutive to the Company’s current stockholders’ percentage ownership or to earnings per common share (EPS) .

The Company’s acquisitions and dispositions are typically subject to closing conditions, including regulatory approvals and the absence of material adverse changes in the business, operations or financial condition of the entity being acquired or sold. To the extent the Company enters into an agreement to buy or sell an entity, there can be no guarantee that the transaction will close when expected, or at all. If a material transaction does not close, the Company’s stock price could decline.

The Company’s industry is characterized by aggressive price competition .

The Company continually monitors its pricing in relation to competitors and periodically adjusts trade commission rates, interest rates on deposits and loans, fees for advisory services, expense ratios on mutual funds and ETFs and other pricing to enhance its competitive position. Increased price competition from other financial services firms, such as reduced commissions to attract trading volume or higher deposit rates to attract client cash balances, could impact the Company’s results of operations and financial condition.

The Company faces competition in hiring and retaining qualified employees.

The market for qualified personnel in the Company’s business is highly competitive. At various times, different functions and roles are in especially high demand in the market , compelling the Company to pay more to attract talent. The Company’s ability to continue to compete effectively will depend upon its ability to attract new employees and retain existing employees while managing compensation costs.

The Company’s stock price has fluctuated historically, and may continue to fluctuate.

The Company’s stock price can be volatile. Among the factors that may affect the volatility of the Company’s stock price are the following:

The Company’s exposure to changes in interest rates;

Speculation in the investment community or the press about, or actual changes in, the Company’s competitive position, organizational structure, executive team, operations, financial condition, financial reporting and results, expense discipline, or strategic transactions;

The announcement of new products, services, acquisitions, or dispositions by the Company or its competitors; and

Increases or decreases in revenue or earnings, changes in earnings estimates by the investment community, and variations between estimated financial results and actual financial results.

Changes in the stock market generally, or as it concerns the Company’s industry, as well as geopolitical, corporate, regulatory, business, and economic factors may also affect the Company’s stock price.

Future sales of CSC’s equity securities may adversely affect the market price of CSC’s common stock and result in dilution.

CSC’s certificate of incorporation authorizes CSC’s Board of Directors, among other things, to issue additional shares of common or preferred stock or securities convertible or exchangeable into equity securities, without stockholder approval.

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THE CHARLES SCHWAB CORPORATION

CSC may issue additional equity or convertible securities to raise additional capital or for other purposes. The issuance of any additional equity or convertible securities could be substantially dilutive to holders of CSC’s common stock and may adversely affect the market price of CSC’s common stock.


Item 1B.	Unresolved Securities and Exchange Commission Staff Comments

None.

Item 2.

Properties

A summary of the Company’s significant locations is presented in the following table. Locations are leased or owned as noted below. The square footage amounts are presented net of space that has been subleased to third parties.


December 31, 2016	Square Footage
(amounts in thousands)	Leased	Owned
Location
Corporate headquarters:
San Francisco, CA	678	-
Service and other office space:
Phoenix, AZ	28	721
Denver, CO	-	731
Austin, TX	219	191
Indianapolis, IN	-	275
Orlando, FL	148	-
Richfield, OH	-	117
El Paso, TX	-	105
Chicago, IL	83	-
Dallas, TX	56	-

Substantially all of the Company’s branch offices are located in leased premises. The corporate headquarters, data centers, offices, and service centers support both of the Company’s segments.

Item 3.

Legal Proceedings

For a discussion of legal proceedings, see Item 8 – Note 14.

Item 4.

Mine Safety Disclosures

Not applicable.

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THE CHARLES SCHWAB CORPORATION

PART II

Item 5.

Market for Registrant’s Common Equity , Related Stockholder Matters , and Issuer

Purchases of Equity Securities

CSC’s common stock is listed on The New York Stock Exchange under the ticker symbol SCHW. The number of common stockholders of record as of January 31 , 2017, was 6,366 . The closing market price per share on that date was $ 41.24 .

The quarterly high and low sales prices for CSC’s common stock and the other information required to be furnished pursuant to this item are included in Item 8 – Note 19 and Note 25.

The following graph shows a five-year comparison o f cumulative total returns for CSC’s common stock, the Dow Jones U.S. Investment Services Index, and the Standard & Poor’s 500 Index, each of which assumes an initial investment of $100 and reinvestment of dividends.


December 31,		2011		2012		2013		2014		2015		2016
The Charles Schwab Corporation	$	100	$	130	$	238	$	279	$	307	$	371
Standard & Poor’s 500 Index	$	100	$	116	$	154	$	175	$	177	$	198
Dow Jones U.S. Investment Services Index	$	100	$	127	$	205	$	235	$	234	$	295

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THE CHARLES SCHWAB CORPORATION

Issuer Purchases of Equity Securities

At December 31, 2016, approximately $596 million of future share repurchases are authorized under the Share Repurchase Program. There were no share repurchases during the fourth quarter. There were two authorizations under this program by CSC’s Board of Directors, each covering up to $500 million of common stock that were publicly announced by the Company on April 25, 2007, and March 13, 2008. The remaining authorizations do not have an expiration date.

The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the fourth quarter of 2016:


		Total Number of		Average
		Shares Purchased		Price Paid
Month		(in thousands)		per Share
October:
Employee transactions (1)			5	$	31.64
November:
Employee transactions (1)			894	$	31.56
December:
Employee transactions (1)			2	$	39.33
Total:
Employee transactions (1)			901	$	31.58

(1)	Includes restricted shares withheld (under the terms of grants under employee stock incentive plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. The Company may receive shares delivered or attested to pay the exercise price and/or to satisfy tax withholding obligations by employees who exercise stock options granted under employee stock incentive plans, which are commonly referred to as stock swap exercises.

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THE CHARLES SCHWAB CORPORATION

Item 6.

Selected Financial Data


Selected Financial and Operating Data
(In Millions, Except Per Share Amounts, Ratios, or as Noted)

	Growth Rates
	Compounded		Annual
	4-Year (1)		1-Year
	2012-2016		2015-2016			2016			2015			2014			2013			2012
Results of Operations
Net revenues	11	%	17	%	$	7,478		$	6,380		$	6,058		$	5,435		$	4,883
Expenses excluding interest	7	%	9	%	$	4,485		$	4,101		$	3,943		$	3,730		$	3,433
Net income	19	%	31	%	$	1,889		$	1,447		$	1,321		$	1,071		$	928
Net income available to common stockholders	19	%	28	%	$	1,746		$	1,364		$	1,261		$	1,010		$	883
Earnings per common share:
Basic	18	%	27	%	$	1.32		$	1.04		$	.96		$	.78		$	.69
Diluted	17	%	27	%	$	1.31		$	1.03		$	.95		$	.78		$	.69
Dividends declared per common share					$	.27		$	.24		$	.24		$	.24		$	.24
Weighted average common shares outstanding:
Basic	1	%	1	%		1,324			1,315			1,303			1,285			1,274
Diluted	1	%	1	%		1,334			1,327			1,315			1,293			1,275
Asset management and administration fees as a
percentage of net revenues						41	%		41	%		42	%		43	%		42	%
Net interest revenue as a percentage of net revenues						44	%		40	%		38	%		36	%		36	%
Trading revenue as a percentage of net revenues						11	%		14	%		15	%		17	%		18	%
Effective income tax rate						36.9	%		36.5	%		37.5	%		37.2	%		36.0	%
Performance Measures
Net revenue growth						17	%		5	%		11	%		11	%		4	%
Pre-tax profit margin						40.0	%		35.7	%		34.9	%		31.4	%		29.7	%
Return on average common stockholders’ equity						14	%		12	%		12	%		11	%		11	%
Financial Condition (at year end)
Total assets (2)	14	%	22	%	$	223,383		$	183,705		$	154,635		$	143,633		$	133,609
Long-term debt (2)	15	%	-		$	2,876		$	2,877		$	1,892		$	1,894		$	1,624
Preferred stock	34	%	91	%	$	2,783		$	1,459		$	872		$	869		$	865
Total stockholders’ equity	14	%	23	%	$	16,421		$	13,402		$	11,803		$	10,381		$	9,589
Assets to stockholders’ equity ratio						14			14			13			14			14
Debt to total capital ratio						15	%		18	%		14	%		15	%		14	%
Employee Information
Full-time equivalent employees (in thousands,
at year end)	4	%	6	%		16.2			15.3			14.6			13.8			13.8

(1)	The compounded 4-year growth rate is computed using the formula: Compound annual growth rate = (Ending Value / Beginning Value) .25 – 1 .
(2)	Adjusted for the retrospective adoption of ASU 2015-03. See Item 8 –Note 2.

- 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)


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,” “seek”, “could,” “would,” “continue,” 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 estimates based on the best judgment of the Company’s senior management. These statements relate to, among other things:

The Company’s aim to maximize its market valuation and stockholder returns over time; the Company’s belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline, generates earnings growth and builds stockholder value; and the Company’s ability to pursue its business strategy and maintain its market leadership position; (see Business Strategy and Competitive Environment in Part I, Item 1);

The impact of legal proceedings and regulatory matters (see Legal Proceedings in Part I, Item 3 and Item 8 – Note 14);

The adjustment of rates paid on client-related liabilities; the stability, rate sensitivity, and duration of client-related liabilities; the opportunity to migrate non-rate sensitive cash in sweep money market funds to Schwab Bank; increasing the duration of interest-earning assets; and the Company’s positioning to benefit from an increase in interest rates and limit its exposure to falling rates; (see Net Interest Revenue in Part II, Item 7);

Sources of liquidity, capital, and level of dividends (see Liquidity Risk in Part II, Item 7);

C apital ratios (see Capital Management in Part II, Item 7);

The impact of changes in management’s estimates on the Company’s results of operations (see Critical Accounting Estimates in Part II, Item 7);

The expected impact of new accounting standards not yet adopted (see Item 8 – Note 2); and

The impact of changes in the likelihood of indemnification and guarantee payment obligations on the Company’s results of operations (see Item 8 – Note 14).

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:

General market conditions, including the level of interest rates, equity valuations and trading activity;

The Company’s ability to attract and retain clients , develop trusted relationships, and grow client assets ;

Client use of the Company’s investment advisory services and other products and services;

The level of client assets, including cash balances;

Competitive pressure on rates and fees;

Client sensitivity to interest rates;

Regulatory guidance;

Timing , amount , and impact of the migration of certain balances from brokerage accounts and sweep money market funds into Schwab Bank;

Capital and liquidity needs and management;

The Company’s ability to manage expenses;

- 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)

The effect of adverse developments in litigation or regulatory matters and the extent of any related charges;

The availability and terms of external financing;

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

The Company’s ability to develop and launch new products, services and capabilities in a timely and successful manner.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in Risk Factors in Part I, Item 1A.

- 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)

GLOSSARY OF TERMS

Active brokerage accounts: Brokerage accounts with activity within the preceding eight months.

Asset-backed securities: Debt securities backed by financial assets such as loans or receivables.

Assets receiving ongoing advisory services: Client relationships under the guidance of independent advisors and assets enrolled in one of the Company’s retail or other advisory solutions.

Basel III: Global regulatory standards on bank capital adequacy and liquidity issued by the Basel Committee on Banking Supervision.

Basis point: One basis point equals 1/100 th of 1%, or 0.01%.

Cash and investments segregated and on deposit for regulatory purposes: Client cash or qualified securities balances not used for margin lending are segregated into investment accounts maintained for the exclusive benefit of clients, pursuant to Rule 15c3-3 of the Securities Exchange Act of 1934, by the Company’s broker-dealer subsidiaries.

Client assets: The market value of all client assets in the Company’s custody and in the Company’s proprietary products, which includes both cash and securities. Average client assets are the daily average client asset balance for the period.

Client cash as a percentage of client assets: Calculated as money market fund balances, bank deposits, Schwab One ® balances, and certain cash equivalents as a percentage of client assets.

Clients’ daily average trades: Includes daily average revenue trades by clients, trades by clients in asset-based pricing relationships, and all commission-free trades.

Commitments to extend credit: Legally binding agreement s to extend credit for unused HELOCs , PALs, and other lines of credit.

Common Equity Tier 1 Capital (CET1) : The sum of common stock and related surplus net of treasury stock, retained earnings, AOCI and qualifying minority interests, less applicable regulatory adjustments and deductions. The Company made a one-time election to opt-out of the requirement to include most components of AOCI in CET1 Capital.

Common Equity Tier 1 Risk-Based Capital Ratio: The ratio of CET1 Capital to total risk-weighted assets.

Core net new client assets: Net new client assets before significant one-time inflows or outflows, such as acquisitions/divestitures or extraordinary flows (generally greater than $10 billion) relating to a specific client .

Customer Protection Rule : Refers to Rule 15c3-3 of the Securities Exchange Act of 1934.

Daily average revenue trades: Total revenue trades during a certain period, divided by the number of trading days in that period. Revenue trades include all client trades that generate trading revenue (i.e., commission revenue or principal transaction revenue).

Debt to total capital ratio: Calculated as long-term debt divided by stockholders’ equity and long-term debt.

Delinquency roll rates: The rates at which loans transition through delinquency stages, ultimately resulting in a loss. The Company considers a loan to be delinquent if it is 30 days or more past due.

Dodd-Frank Wall Street Reform and Cons umer Protection Act : Regulatory reform legislation signed into federal law in 2010 containing numerous provisions which expanded prudential regulation of large financial services companies.

Duration: The change in value of a financial instrument for a modeled 1% change in interest rates , expressed in years .

- 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)

Final Regulatory Capital Rules: Refers to the regulatory capital rules issued by U.S. banking agencies in 2013 that implemented Basel III and relevant provisions of Dodd-Frank, which apply to savings and loan holding companies, as well as federal savings banks. Implementation began on January 1, 2015.

First Mortgages: Refers to first lien residential real estate mortgage loans.

Full-time equivalent employees: Represents the total number of hours worked divided by a 40-hour work week for the following categories: full-time, part-time and temporary employees and persons employed on a contract basis.

High Quality Liquid Assets (HQLA): Assets with a high potential to be converted easily and quickly into cash.

Interest-bearing liabilities: Includes bank deposits, payables to brokerage clients, short-term borrowings, and long-term debt on which the Company pays interest.

Interest-earning assets: Includes cash and cash equivalents, cash and investments segregated, broker-related receivables, receivables from brokerage clients, investment securit ies , and bank loans on which the Company earns interest.

Investment grade: Defined as a rating equivalent to a Moody’s Investors Service (Moody’s) rating of “Baa” or higher, or a Standard & Poor’s Rating Group (Standard & Poor’s) or Fitch Ratings, Ltd (Fitch) rating of “BBB-” or higher.

Liquidity Coverage Ratio ( LCR ) : The ratio of HQLA to projected net cash outflows during a 30-day stress scenario.

Loan-to-value (LTV) ratio: Calculated as the principal amount of a loan divided by the value of the collateral securing the loan.

Margin loans: Advances made to brokerage clients on a secured basis to purchase securities reflected in receivables from brokerage clients on the Company’s consolidated balance sheets.

Master netting arrangement: An agreement between two counterparties that have multiple contracts with each other that provides for net settlement of all contracts through a single cash payment in the event of default or termination of any one contract.

Mortgage-backed securities: A type of asset-backed security that is secured by a mortgage or group of mortgages.

Net interest margin: Net interest revenue divided by average interest-earning assets.

Net new client assets: Total inflows of client cash and securities to the Company less client outflows.

Net Stable Funding Ratio ( NSFR ) : M easures an organization’s “available” amount of stable funding relative to its “required” amount of stable funding over a one-year time horizon.

New brokerage accounts: All brokerage accounts opened during the period, as well as any accounts added via acquisition.

Nonperforming assets: The total of nonaccrual loans and other real estate owned.

Order flow revenue: Net compensation received from markets and firms to which Schwab and optionsXpress send equity and options orders. Reflects rebates received for certain types of orders, minus fees paid for types of orders for which exchange fees or other charges apply.

Pledged Asset Line (PAL) : A non-purpose revolving line of credit from Schwab Bank secured by eligible assets held in a separate pledged asset account maintained at Schwab.

Return on average common stockholders’ equity: Calculated as net income available to common stockholders annualized divided by average common stockholders’ equity.

- 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)

Risk-weighted assets: Primarily computed by assigning specific risk-weightings as specified by the U.S. federal banking agencies to assets and off-balance sheet instruments for capital adequacy calculations.

Tier 1 Capital: The sum of CET1 Capital and additional Tier 1 Capital instruments and related surplus, less applicable adjustments and deductions.

Tier 1 Leverage Ratio: Tier 1 Capital divided by adjusted average total consolidated assets for the quarter.

Trading days: Days in which the markets/exchanges are open for the buying and selling of securities. Early market closures are counted as half-days.

U.S. federal banking agencies: Refers to the Federal Reserve, the OCC, the FDIC, and the CFPB.

Uniform Net Capital Rule: Refers to Rule 15c3-1 under the Securities Exchange Act of 1934, which specifies minimum capital requirements that are intended to ensure the general financial soundness and liquidity of broker-dealers.

- 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)

OVERVIEW

Management of the Company focuses on several client activity and financial metrics in evaluating the Company’s financial position and operating performance. Management believes that metrics relating to net new and total client assets, as well as client cash levels and utilization of advisory services, offer perspective on the Company’s business momentum and client engagement. Data on new and total client brokerage accounts provides additional perspective on the Company’s ability to attract and retain new business. Management believes that net revenue growth, pre-tax profit margin, EPS, and return on average common stockholders’ equity provide broad indicators of the Company’s overall financial health, operating efficiency, and ability to generate acceptable returns. Management considers e xpenses , excluding interest , as a percentage of average client assets to be a measure of operating efficiency. Finally, management believes the Consolidated Tier 1 Leverage Ratio is the most restrictive capital constraint currently imposed by regulators. Results for the years ended December 31, 2016, 2015, and 2014 are:


	Growth Rate
	1-Year
	2015-2016				2016			2015			2014
Client Metrics:
Net new client assets (in billions)		(10)	%	$	125.5		$	139.4		$	124.8
Core net new client assets (in billions) (1)		(7)	%	$	125.5		$	134.7		$	124.8
Client assets (in billions, at year end)		11	%	$	2,779.5		$	2,513.8		$	2,463.6
Average client assets (in billions)		3	%	$	2,614.7		$	2,531.8		$	2,384.0
New brokerage accounts (in thousands)		2	%		1,093			1,070			972
Active brokerage accounts (in thousands, at year end)		4	%		10,155			9,769			9,386
Assets receiving ongoing advisory services
(in billions, at year end)		12	%	$	1,401.4		$	1,253.7		$	1,228.1
Client cash as a percentage of client assets
(at year end)					13.0	%		13.0	%		12.3	%
Company Financial Metrics:
Net revenues		17	%	$	7,478		$	6,380		$	6,058
Expenses excluding interest		9	%		4,485			4,101			3,943
Income before taxes on income		31	%		2,993			2,279			2,115
Taxes on income		33	%		1,104			832			794
Net income		31	%	$	1,889		$	1,447		$	1,321
Preferred stock dividends and other		72	%		143			83			60
Net income available to common stockholders		28	%	$	1,746		$	1,364		$	1,261
Earnings per common share – diluted		27	%	$	1.31		$	1.03		$	.95
Net revenue growth from prior year					17	%		5	%		11	%
Pre-tax profit margin					40.0	%		35.7	%		34.9	%
Return on average common stockholders’ equity					14	%		12	%		12	%
Expenses excluding interest as a percentage of
average client assets					0.17	%		0.16	%		0.17	%
Consolidated Tier 1 Leverage Ratio					7.2	%		7.1	%		N/A

(1)

2015 excludes an inflow of $6.1 billion to reflect the final impact of the consolidation of its retirement plan recordkeeping platforms, an inflow of $10.2 million relating to a mutual fund clearing services client, and an outflow of $11.6 billion relating to the Company’s planned resignation from an Advisor Services cash management relationship netting to an adjustment of ($4.7) billion.

N/A Not applicable.

The Company’s financial results are highly correlated to the general overall strength of economic conditions and, more specifically, to the direction of the U.S. equity and fixed income markets, interest rates, the mortgage lending markets and residential credit trends. These factors, as well as political and regulatory trends and industry competition , are unpredictable.

- 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)

2016 Compared to 2015

In 2016, net income available to common stockholders increased $382 million, or 28%, from the prior year, resulting in diluted EPS of $1.31 in 2016 compared to $1.03 in 2015. Net revenues improved by $1.1 billion, or 17%, while expenses excluding interest increased $384 million, or 9%, compared to 2015.

Strong client momentum continued as the Company’s innovative, full-service model resonated with clients and drove growth during the year. The Company added 1.1 million new brokerage accounts to its client base during 2016, which contributed to bringing the total active brokerage accounts to 10.2 million by year-end . Core net new assets from new and existing clients totaled $125.5 billion in 2016 , which helped grow total client assets to $2.78 trillion as of December 31, 2016. Also during 2016, investors increasingly turned to the Company’s advice offerings resulting in a 12% increase in client assets enrolled in one of the Company’s retail advisory solutions and those guided by independent advisors , to $1.40 trillion at the end of the year .

The Company expanded client assets by 11% during an environment that had periods of marked volatility, but ultimately included improving economic conditions. The Standard & Poor’s 500 Index ended 2016 10% higher than the prior year end. After years of ultra-low interest rates, the Federal Reserve’s move to increase the overnight federal funds target rate by 25 basis points in December 2015 helped throughout 2016; the Federal Reserve’s subsequent additional 25 basis point increase in December 2016 had little time to impact 2016 results. Other short-term rates also rose in 2016. The one-month London Interbank Offered Rate (LIBOR) improved 34 basis points to .77% at December 31, 2016 compared to December 31, 2015.

These external drivers and the solid client growth helped produce strong net revenue growth. The Company’s 17% net revenue growth was led by increased net interest revenue and asset management and administration fees, which more than offset lower revenue from trading and other revenue. Net interest revenue improved $797 million, or 32%, in 2016 compared to 2015 primarily due to a 21% increase in average interest earning assets and a 13 basis point improvement in the average net interest margin from year to year, to 1.73%. The lift in interest-earning assets was due to a combination of the Company’s ongoing asset gathering efforts, additional bulk transfers of client cash sweep balances from money market funds to Schwab Bank, and the designation of Schwab Bank as the default sweep option for virtually all new brokerage accounts as of June 2016. Asset management and administration fees improved $405 million, or 15%, primarily due to higher short-term interest rates affecting the yield on money market funds.

Strong net revenue growth provided room for increased investment in people and technology, resulting in a 9% expense growth for 2016. This increase allowed for a 780 basis point gap between net revenue and expense growth and a pre-tax profit margin of 40.0% in 2016, compared to 35.7% in 2015.

2015 Compared to 2014

In 2015, the Company’s net revenue and net income grew despite an environment that included significant equity market volatility and continued low interest rates. The Standard & Poor’s 500 Index declined as much as 9% during the year and ultimately ended the year down 1% when compared to the prior year. The overnight federal funds target rate increased 2 5 basis points in December 2015; however, the increase had limited effect on 2015 results. The year end 2015 one -month LIBOR yield improved 28 basis points to . 43 % compared to 2014. Long-term interest rates decreased in 2015 compared to the same period in 2014. The average 10-year U.S. Treasury yield during 2015 was 2.13%, 40 basis points lower than the average yield during 2014.

Core net new assets totaled $134.7 billion in 2015 compared to $124.8 billion in 2014. Total client assets ended 2015 at $2.51 trillion, up 2% from the year ended 2014, despite the $89.2 billion impact of reduced market valuation on client assets during the year.

The Company added 1.1 million new brokerage accounts to its client base during 2015, up 10% compared to 2014. Active brokerage accounts ended 2015 at 9.8 million, up 4% on a year-over-year basis. Faced with economic uncertainty and the resulting market volatility, investors increasingly turned to advice offerings throughout the year. Over 155,000 accounts enrolled in one of the Company’s retail advisory solutions during 2015, 60% more than the year-earlier period, and total accounts using these solutions reached 560,000, up 14% year-over-year.

- 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)

During 2015, the Company’s net revenues increased 5% compared to 2014 primarily due to increases in net interest revenue and asset management and administration fees, partially offset by a decrease in trading revenue.

Growth in expenses excluding interest was limited to a 4% increase in 2015 primarily reflecting business growth related increases in compensation, benefits and other expenses.

The combined effect of market conditions, strong business growth, and the Company’s overall spending discipline resulted in a pre-tax profit margin of 35.7% in 2015.

Subsequent Event

On January 26, 2017, the Company announced that Mr. Peter Crawford, Executive Vice President – Finance, will succeed Mr. Joseph R. Martinetto as the Company’s Chief Financial Officer, effective May 16, 2017.

Mr. Martinetto will continue as Senior Executive Vice President at CSC, maintaining oversight of several functions including the Company’s banking, technology and operations units .

Current Regulatory Environment and Other Developments

In September 2016, the OCC issued final guidelines for recovery planning by national banks and federal savings banks with total consolidated assets of $50 billion or more. The guidelines require each bank to develop and maintain a recovery plan that describes how the bank will restore itself to financial health and viability in response to a wide range of external and internal financial and operational stress scenarios. The guidelines went into effect on January 1, 2017, and Schwab Bank has until the end of 2017 to develop and prepare a recovery plan.

In May 2016, the Federal Reserve, the OCC and the FDIC jointly issued a notice of proposed rulemaking that would impose a minimum NSFR on certain banking organizations, including CSC. The effective date of the rule would be January 1, 2018. The comment period for the proposed rule ended on August 5, 2016 and the impact to the Company cannot be assessed until the final rule is released.

In October 2015, the Federal Reserve issued a notice of proposed rulemaking on T otal L oss- A bsorbing C apacity and long-term debt that, among other things, would have required certain financial institutions that are subject to the Federal Reserve’s capital rules to deduct from their regulatory capital the amount of any investments in or exposure to unsecured debt issued by U.S. bank holding companies identified as global systemically important banking organizations (GSIBs). In December 2016, the Federal Reserve issued a final rule that did not include this regulatory capital deduction proposal. At the same time, the Federal Reserve did indicate its intent to work with the OCC and FDIC to develop a proposed interagency approach towards the regulatory capital treatment of GSIB unsecured debt. The Company will evaluate any such proposal when it is issued.

- 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)

RESULTS OF OPERATIONS

Net Revenues



Year Ended December 31,			2016				2015				2014
					% of				% of				% of
	Growth Rate				Total Net				Total Net				Total Net
	2015-2016			Amount	Revenues			Amount	Revenues			Amount	Revenues
Asset management and administration fees
Mutual fund and ETF service fees	25	%	$	1,853	25	%	$	1,479	23	%	$	1,413	23	%
Advice solutions	2	%		915	12	%		898	14	%		840	14	%
Other	5	%		287	4	%		273	4	%		280	5	%
Asset management and administration fees	15	%		3,055	41	%		2,650	41	%		2,533	42	%
Net interest revenue
Interest revenue	31	%		3,493	46	%		2,657	42	%		2,374	39	%
Interest expense	30	%		(171)	(2)	%		(132)	(2)	%		(102)	(1)	%
Net interest revenue	32	%		3,322	44	%		2,525	40	%		2,272	38	%
Trading revenue
Commissions	(5)	%		779	10	%		822	13	%		857	14	%
Principal transactions	5	%		46	1	%		44	1	%		50	1	%
Trading revenue	(5)	%		825	11	%		866	14	%		907	15	%
Other	(17)	%		271	4	%		328	5	%		343	5	%
Provision for loan losses	(55)	%		5	-			11	-			4	-
Net impairment losses on securities	-			-	-			-	-			(1)	-
Total net revenues	17	%	$	7,478	100	%	$	6,380	100	%	$	6,058	100	%

Asset Management and Administration Fees

Asset management and administration fees include mutual fund and ETF service fees and fees for other asset-based financial services provided to individual and institutional clients. The Company earns mutual fund and ETF service fees for shareholder services, administration, and investment management provided to its proprietary funds, and recordkeeping and shareholder services provided to third-party funds. Asset management and administration fees are based upon the daily balances of client assets invested in these funds and do not include securities lending revenues earned by proprietary mutual funds and ETFs , as those amounts, net of program fees, are credited to the fund shareholders. The fair values of client assets included in proprietary and third-party mutual funds and ETFs are based on quoted market prices and other observable market data.

The Company also earns asset management fees for advice solutions, which include managed portfolios, specialized strategies and customized investment advice. Other asset management and administration fees include various asset-based fees such as trust fees, 401(k) recordkeeping fees, mutual fund clearing fees, collective trust fund fees, and non-balance based service and transaction fees.

Asset management and administration fees 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 Risk Management in Part II, Item 7.

- 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)

The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds and ETFs , and Mutual Fund OneSource ® :


		Schwab Money						Schwab Equity and						Mutual Fund
		Market Funds						Bond Funds and ETFs						OneSource ®
Year Ended December 31,		2016		2015		2014		2016		2015		2014		2016		2015		2014
Balance at beginning of period	$	166,148	$	167,909	$	167,738	$	102,112	$	88,450	$	71,249	$	207,654	$	234,381	$	234,777
Net inflows (outflows)		(2,765)		(1,947)		287		13,858		15,542		11,398		(22,469)		(23,014)		(8,925)
Net market gains (losses) and other		112		186		(116)		9,843		(1,880)		5,803		13,739		(3,713)		8,529
Balance at end of period	$	163,495	$	166,148	$	167,909	$	125,813	$	102,112	$	88,450	$	198,924	$	207,654	$	234,381

The following table presents asset management and administration fees, average client assets, and average fee yields:


Year Ended December 31,		2016					2015				2014
	Average Client Assets		Revenue		Average Fee	Average Client Assets		Revenue		Average Fee	Average Client Assets		Revenue		Average Fee
Schwab money market funds
before fee waivers	$	164,120	$	962	0.59%	$	161,381	$	947	0.59%	$	164,564	$	957	0.58%
Fee waivers				(224)					(672)					(751)
Schwab money market funds		164,120		738	0.45%		161,381		275	0.17%		164,564		206	0.13%
Schwab equity and bond funds and ETFs		115,849		217	0.19%		102,486		217	0.21%		83,916		192	0.23%
Mutual Fund OneSource ®		199,389		676	0.34%		225,347		764	0.34%		236,003		805	0.34%
Other third-party mutual funds and ETFs (1)		254,584		222	0.09%		251,491		223	0.09%		241,314		210	0.09%
Total mutual funds and ETFs (2)	$	733,942		1,853	0.25%	$	740,705		1,479	0.20%	$	725,797		1,413	0.19%
Advice solutions (2) :
Fee-based	$	177,409		915	0.52%	$	172,302		898	0.52%	$	160,721		840	0.52%
Intelligent Portfolios		8,377		-	-		3,274		-	-		-		-	-
Legacy Non-Fee		16,969		-	-		16,463		-	-		15,794		-	-
Total advice solutions	$	202,755		915	0.45%	$	192,039		898	0.47%	$	176,515		840	0.48%
Other balance-based fees (3)		339,071		235	0.07%		324,701		226	0.07%		297,499		234	0.08%
Other (4)				52					47					46
Total asset management
and administration fees			$	3,055				$	2,650				$	2,533


(1)	Includes Schwab ETF OneSource TM .
(2)	Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above.
(3)	Includes various asset-based fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.
(4)	Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based.

Asset management and administration fees increased by $405 million, or 15%, in 2016 from 2015, and by $117 million, or 5%, in 2015 from 2014 . The increases in both years were due to higher net yields on money market fund assets as short-term interest rates rose in 2016 and 2015 , and growth in client assets enrolled in advisory offers, partially offset by a reduction in client assets in Mutual Fund OneSource.

The average fee rate on advice solutions decreased in 2016 and 2015 from the prior years primarily due to the growth in Intelligent Portfolios, which do not charge advisory fees.

Net Interest Revenue

The Company’s primary interest-earning assets include cash and cash equivalents; segregated cash and investments; margin loans, which constitute the majority of receivables from brokerage clients; investment securities; and bank loans. Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates at the time of origination or purchase, changes in interest rates on floating rate securities, and changes in prepayment levels for mortgage- related securities and loans . Fees earned on securities borrowing and lending activities, which are conducted by the

- 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)

Company’s broker-dealer subsidiaries on assets held in client brokerage accounts, are included in other interest revenue and expense.

The Company’s interest-bearing liabilities include bank deposits, payables to brokerage clients, short-term borrowings, and long-term debt. The Company establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Client-related liabilities have historically been very stable and are largely expected to remain so. Given the stability and low rate sensitivity of these liabilities, management believes their duration is relatively long, somewhere in excess of three and a half years.

Management believes that the extended period of extraordinarily low interest rates running from the financial crisis to the present has likely resulted in certain sweep cash balances retaining some level of latent rate sensitivity. To the extent short-term rates increase, management expects some sweep cash balances to migrate to purchased money market funds or other higher-yielding alternatives. At the same time, the Company will retain the opportunity to migrate the remaining non-rate sensitive cash in sweep money market funds to Schwab Bank.

Management has positioned the Company to benefit from an increase in interest rates, especially short-term interest rates, by managing the duration of interest-earning assets to be shorter than that of interest-bearing liabilities, so that asset yields will move faster than liability costs.

In order to keep the Company’s interest-rate sensitivity within established limits, management monitors and responds to changes in the balance sheet. As the Company builds its client base, it attracts a significant amount of new client sweep cash, which, along with the bulk transfer of existing sweep cash balances from money market funds, is a primary driver of balance sheet growth. As the proportion of sweep cash balances to total liabilities has grown, the measured duration of liabilities has grown as well. By increasing the duration of interest-earning assets as necessary, management has kept the Company positioned to continue to gain from increasing rates while limiting its exposure to falling rates to an acceptable level. Management currently manages the balance sheet so that just over half of the Company’s investment securities and loans re-price or reset based on short-term interest rates such as one -month LIBOR.

Non-interest-bearing funding sources include certain cash balances, stockholders’ equity and other miscellaneous assets and liabilities.

- 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)

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


Year Ended December 31,	2016						2015						2014
			Interest		Average				Interest		Average				Interest		Average
	Average		Revenue/		Yield/		Average		Revenue/		Yield/		Average		Revenue/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate		Balance		Expense		Rate
Interest-earning assets:
Cash and cash equivalents	$	11,143	$	57	0.51	%	$	9,358	$	24	0.26	%	$	7,179	$	16	0.22	%
Cash and investments segregated		20,104		93	0.46	%		18,606		31	0.17	%		20,268		24	0.12	%
Broker-related receivables (1)		558		1	0.22	%		274		-	0.07	%		325		-	0.09	%
Receivables from brokerage clients		15,001		497	3.31	%		15,212		502	3.30	%		13,778		482	3.50	%
Available for sale securities (2)		72,586		883	1.22	%		62,249		629	1.01	%		52,057		546	1.05	%
Held to maturity securities		57,451		1,402	2.44	%		38,280		957	2.50	%		32,361		828	2.56	%
Bank loans		14,715		400	2.72	%		13,973		369	2.64	%		12,906		355	2.75	%
Total interest-earning assets		191,558		3,333	1.74	%		157,952		2,512	1.59	%		138,874		2,251	1.62	%
Other interest revenue				160						145						123
Total interest-earning assets	$	191,558	$	3,493	1.82	%	$	157,952	$	2,657	1.68	%	$	138,874	$	2,374	1.71	%
Funding sources:
Bank deposits	$	141,432	$	37	0.03	%	$	113,464	$	29	0.03	%	$	95,842	$	30	0.03	%
Payables to brokerage clients		26,311		3	0.01	%		25,651		2	0.01	%		26,731		2	0.01	%
Short-term borrowings (1,3)		1,864		9	0.48	%		21		-	0.27	%		5		-	0.15	%
Long-term debt (4)		2,876		104	3.62	%		2,717		92	3.39	%		1,893		73	3.86	%
Total interest-bearing liabilities (4)		172,483		153	0.09	%		141,853		123	0.09	%		124,471		105	0.08	%
Non-interest-bearing funding sources (3)		19,075						16,099						14,403
Other interest expense				18						9						(3)
Total funding sources	$	191,558	$	171	0.09	%	$	157,952	$	132	0.08	%	$	138,874	$	102	0.07	%
Net interest revenue			$	3,322	1.73	%			$	2,525	1.60	%			$	2,272	1.64	%

(1)	Interest revenue or expense was less than $500,000 in the period or periods presented.
(2)	Amounts calculated based on amortized cost.
(3)	Certain prior period amounts were reclassified to conform to the 2016 presentation.
(4)	Adjusted for the retrospective adoption of Accounting Standards Update (ASU) 2015-03. See Item 8 – Note 2.

Net interest revenue increased $797 million , or 32% , in 2016 from 2015 due primarily to higher interest-earning assets driven by growth in bank deposits. The Company has grown bank deposits through a combination of:

Gathering additional assets from new and current clients;

Transferring uninvested cash balances in certain client brokerage accounts to Schwab Bank; and

Establishing the Schwab Bank sweep feature as the default investment option for uninvested cash balances within all new brokerage accounts as of June 2016.

The Company has invested the cash from the growth in bank deposits and from recent short-term borrowings in investment securities. These incremental investments, coupled with an increase in short-term interest rates, have resulted in a 13 basis point improvement in the net interest margin to 1.73% in 2016.

Net interest revenue increased $253 million , or 11% , in 2015 from 2014 primarily due to higher average balances of interest-earning assets, partially offset by the effect of lower net interest margins. The growth in the average balances in bank deposits resulted from an increase in the uninvested cash balances in certain client brokerage accounts swept to Schwab Bank.

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 fixed income securities with clients. To accommodate clients’ fixed income trading activity, the Company maintains positions in fixed income securities, including U.S. state and municipal debt obligations, U.S. Government and corporate debt, and other securities. The difference between the price at which the

- 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)

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.

The following table presents trading revenue and the related drivers:


	Growth Rate
Year Ended December 31,	2015-2016			2016		2015		2014
Daily average revenue trades (in thousands)	-			291.6		292.0		298.2
Clients’ daily average trades (in thousands)	5	%		561.8		536.9		516.8
Number of trading days	-			251.5		251.0		250.5
Average revenue per revenue trade	(5)	%	$	11.23	$	11.83	$	12.13
Trading revenue	(5)	%	$	825	$	866	$	907

Trading revenue decreased in both 2016 and 2015 by $41 million primarily due to a decrease in commission revenue as a result of lower commissions per revenue trade.

Daily average revenue trades remained relatively flat in 2016 from 2015. Daily average revenue trades decreased in 2015 from 2014 primarily due to a lower volume of equity trades. Average revenue per revenue trade decreased 5% in 2016 compared to 2015, due to a higher proportion of trades from active traders, who typically pay a lower commission rate, as well as increased client utilization of discounted trade offers. Average revenue per revenue trade decreased 2% in 2015 compared to 2014. Over time, the percentage of trading revenue has declined from a peak of 50%-60% of total net revenue in the early 1990s to the current low of 11% at December 31, 2016.

Other Revenue

Other revenue includes order flow revenue, other service fees, software fees from the Company’s portfolio management solutions , exchange processing fees, and nonrecurring gains .

Other revenue decreased by $57 million, or 17%, in 2016 compared to 2015 , primarily due to lower litigation proceeds of $16 million in 2016 compared to $75 million in 2015 related to the Company’ s non-agency residential mortgage-backed securities (RMBS) portfolio. Order flow revenue was $103 million during both 2016 and 2015.

Other revenue decreased by $15 million, or 4%, in 2015 compared to 2014 primarily due to lower order flow revenue. Order flow revenue was $103 million during 2015 compared to $114 million during 2014. The decrease was primarily due to changes in the composition and volume of different types of orders and the fees and rebates for such orders. Other revenue in 2015 also includes net litigation proceeds of $75 million related to the Company’s non-agency RMBS portfolio. Other revenue in 2014 includes a net insurance settlement of $45 million and net litigation proceeds of $28 million related to the Company’s non-agency RMBS portfolio.

- 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)

Expenses Excluding Interest

The following table shows a comparison of expenses excluding interest:


	Growth Rate
Year Ended December 31,	2015-2016			2016			2015			2014
Compensation and benefits	10	%	$	2,466		$	2,241		$	2,184
Professional services	10	%		506			459			457
Occupancy and equipment	13	%		398			353			324
Advertising and market development	6	%		265			249			245
Communications	2	%		237			233			223
Depreciation and amortization	4	%		234			224			199
Other	11	%		379			342			311
Total expenses excluding interest	9	%	$	4,485		$	4,101		$	3,943
Expenses as a percentage of total net revenues:
Compensation and benefits				33	%		35	%		36	%
Advertising and market development				4	%		4	%		4	%

Compensation and Benefits

Compensation and benefits expense includes salaries and wages, incentive compensation, and related employee benefits. Incentive compensation includes variable compensation, discretionary bonuses, and share-based compensation. Variable compensation includes payments to certain individuals based on their sales performance. Discretionary bonuses are based on the Company’s overall performance as measured by EPS. Share-based compensation primarily includes employee and board of director stock options and restricted stock.

The following table shows a comparison of certain compensation and benefits components and employee data:


	Growth Rate
Year Ended December 31,	2015-2016			2016		2015		2014
Salaries and wages	9	%	$	1,368	$	1,258	$	1,245
Incentive compensation	11	%		689		618		605
Employee benefits and other	12	%		409		365		334
Total compensation and benefits expense	10	%	$	2,466	$	2,241	$	2,184
Full-time equivalent employees (in thousands)
At year end	6	%		16.2		15.3		14.6
Average	5	%		15.9		15.1		14.2

Salaries and wages increased in 2016 from 2015 primarily due to higher employee headcount to support the growth in the business and annual salary increases. Incentive compensation increased in 2016 from 2015 primarily due to higher discretionary bonus expenses, long-term incentive plan costs , and field incentive plan costs relating to increased net client asset flows. Employee benefits and other expense increased in 2016 from 2015 due to increases in healthcare costs and higher employee headcount.

Salaries and wages increased in 2015 from 2014 primarily due to higher employee headcount and annual salary increases, partially offset by a $68 million charge in 2014 for estimated future severance benefits resulting from changes in the Company’s geographic footprint. Incentive compensation increased in 2015 from 2014 primarily due to the earlier recognition of certain equity-based incentives due to plan changes offset by a reduction in long-term incentive plan expenses. Employee benefits and other expense increased in 2015 from 2014 due to increases in healthcare costs and higher employee headcount.

- 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)

Expenses Excluding Compensation and Benefits

Professional services expense increased in 2016 compared to 2015 primarily due to higher spending on technology services and an increase in fees paid to outsourced service providers and consultants as the Company continued to invest in the business. Professional services remained relatively flat in 2015 compared to 2014.

Occupancy and equipment expense increased in 2016 and 2015 from the prior year primarily due to increased software maintenance expense relating to the Company’s information technology systems and an increase in property taxes and rent attributable to the ongoing growth in the Company’s geographic footprint.

Advertising and market development, communication s , and depreciation and amortization expenses combined grew a modest 4% in 2016 and 6% in 2015, from the prior years as a result of growth in the business, new product media campaigns and higher amortization of internally developed software associated with the Company’s investment in software and technology enhancements.

The Company’s capital expenditures were $ 353 million, $285 million, and $405 million in 2016, 2015, and 2014, respectively. The increase in capital expenditures in 2016 from 2015 was primarily due to higher investment in land and internal-use software, partially offset by a decrease in investment in buildings. The decrease in capital expenditures in 2015 from 2014 was primarily due to lower investment in buildings and land relating to the growth in the Company’s geographic footprint beginning in 2014 . Capitalized costs for developing internal-use software were $130 million, $107 million, and $81 million in 2016, 2015, and 2014.

Other expense increased in 2016 and 2015 from the prior year primarily due to an increase in the Company’s FDIC insurance assessments which rose as a result of higher bank deposits and the effect of a new surcharge that commenced in the third quarter of 2016.

Taxes on Income

The Company’s effective income tax rate was 36.9% in 2016, 36.5% in 2015, and 37.5% in 2014. The 2016 effective income tax rate includes tax benefits on tax exempt income from investments in U.S. state and municipal securities.

The 2015 effective income tax rate includes the recognition of net tax benefits relating to certain current and prior-year matters.

Segment Information

The Company provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services. The Investor Services segment provides retail brokerage and banking services, retirement plan services, and other corporate brokerage services. The Advisor Services segment provides custodial, trading, banking, and support services as well as retirement business services. Revenues and expenses are attributed 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. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. Net revenues in both segments are generated from the underlying client assets and trading activity; differences in the composition of net revenues between the segments are based on the composition of client assets, client trading frequency, and pricing unique to each. While both segments leverage the scale and efficiency of the Company’s platforms, segment expenses reflect the dynamics of serving millions of clients in Investor Services versus the thousands of RIAs on the advisor platform.

- 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)

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


	Investor Services (1)								Advisor Services (1)
	Growth Rate								Growth Rate
Year Ended December 31,	2015-2016			2016		2015		2014	2015-2016			2016		2015		2014
Net Revenues
Asset management and
administration fees	14	%	$	2,093	$	1,837	$	1,742	18	%	$	962	$	813	$	791
Net interest revenue	21	%		2,591		2,133		2,028	86	%		731		392		244
Trading revenue	(6)	%		524		556		606	(3)	%		301		310		301
Other	(15)	%		199		234		218	(23)	%		72		94		74
Provision for loan losses	(64)	%		4		11		4	-			1		-		-
Net impairment losses
on securities	-			-		-		(1)	-			-		-		-
Total net revenues	13	%		5,411		4,771		4,597	28	%		2,067		1,609		1,410
Expenses Excluding
Interest	9	%		3,380		3,090		2,937	9	%		1,105		1,011		938
Income before taxes
on income	21	%	$	2,031	$	1,681	$	1,660	61	%	$	962	$	598	$	472


	Unallocated								Total
	Growth Rate								Growth Rate
Year Ended December 31,	2015-2016			2016		2015		2014	2015-2016			2016		2015		2014
Net Revenues
Asset management and
administration fees			$	-	$	-	$	-	15	%	$	3,055	$	2,650	$	2,533
Net interest revenue				-		-		-	32	%		3,322		2,525		2,272
Trading revenue				-		-		-	(5)	%		825		866		907
Other				-		-		51	(17)	%		271		328		343
Provision for loan losses				-		-		-	(55)	%		5		11		4
Net impairment losses
on securities				-		-		-	-			-		-		(1)
Total net revenues				-		-		51	17	%		7,478		6,380		6,058
Expenses Excluding
Interest				-		-		68	9	%		4,485		4,101		3,943
Income before taxes
on income			$	-	$	-	$	(17)	31	%	$	2,993	$	2,279	$	2,115


(1)	The Corporate Brokerage Retirement Services business was transferred from the Investor Services segment to the Advisor Services segment in the fourth quarter of 2015. Prior period information has been recast to reflect these changes.

Investor Services

Net revenues increased by $ 640 million, or 13 %, in 2016 from 2015 primarily due to increases in net interest revenue and asset management and administration fees. Net interest revenue increased primarily due to higher balances of interest-earning assets and higher interest rates on those assets . Asset management and administration fees increased primarily due to higher net yields on money market fund assets, partially offset by a reduction in client assets in Mutual Fund OneSource ® . Expenses excluding interest increased by $ 290 million, or 9 %, in 2016 from 2015 primarily due to growth in the business resulting in increases in compensation and benefits , depreciation and amortization, and occupancy and equipment expenses.

Net revenues increased by $174 million, or 4%, in 2015 from 2014 primarily due to increases in net interest revenue, asset management and administration fees, and other revenue, partially offset by a decrease in trading revenue. Net interest revenue increased mainly due to higher balances of interest-earning assets, partially offset by the effect of lower net interest margins.

- 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)

Asset management and administration fees increased primarily due to fees from advice solutions, which increased mainly due to growth in client assets enrolled in advisory offers. Other revenue increased primarily due to litigation proceeds relating to the Company’s non-agency RMBS portfolio. Trading revenue decreased in 2015 from 2014 largely due to lower commissions per revenue trade and lower daily average revenue trades. Expenses excluding interest increased by $153 million, or 5%, in 2015 from 2014 primarily due to growth in the business resulting in increases in compensation and benefits and other expenses.

Advisor Services

Net revenues increased by $ 458 million, or 28 %, in 2016 from 2015 primarily due to increases in net interest revenue and asset management and administration fees. Net interest revenue increased primarily due to higher balances of interest-earning assets and higher interest rates on those assets . This growth in assets was bolstered by the migration of more uninvested client cash balances in the segment to Schwab Bank. Asset management and administration fees increased primarily due to higher net yields on money market fund assets. Expenses excluding interest increased by $ 94 million, or 9 %, in 2016 from 2015 primarily due to increases in growth in the business resulting in increases in compensation and benefits, occupancy and equipment , and other expenses.

Net revenues increased by $199 million, or 14%, in 2015 from 2014 primarily due to increases in net interest revenue, asset management and administration fees, and other revenue. Net interest revenue increased primarily due to higher balances of interest-earning assets, partially offset by the effect of lower net interest margins. Interest-earning assets have grown due to growth in brokerage client cash swept to Schwab Bank. Asset management and administration fees increased primarily due to higher net yields on money market fund assets and growth in client assets in equity and bond funds. Other revenue increased primarily due to litigation proceeds relating to the Company’s non-agency RMBS portfolio. Expenses excluding interest increased by $73 million, or 8%, in 2015 from 2014 primarily due to increases in growth in the business resulting in increases in compensation and benefits, advertising and marketing, other expenses.

Unallocated

Other revenue decreased in 2015 from 2014 due to a net insurance settlement of $45 million in 2014.

Expenses excluding interest decreased in 2015 from 2014 as a result of a $68 million charge in 2014 for estimated future severance benefits resulting from changes in the Company’s geographic footprint.

Risk MANAGEMENT

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

Culture

The Board of Directors has approved an Enterprise Risk Management (ERM) framework that incorporates the Company’s purpose, vision , and values that form the bedrock of its corporate culture and set the tone for the organization.

The ERM Framework and governance structure constitute a comprehensive approach to managing risks encountered by the Company in its business activities. The framework incorporates key concepts commensurate with the size, risk profile, complexity, and continuing growth of the Company. Risk appetite, which is defined as the amount of risk the Company is

- 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)

willing to accept in pursuit of its corporate strategy, is developed by executive management and approved by the Board of Directors.

Risk Governance

Senior management takes an active role in the risk management process and has developed policies and procedures under which specific business and control units are responsible for identifying, measuring , and controlling risks.

The Global Risk Committee, which is comprised of senior executives from each major business and control 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 Company has established risk metrics and reporting that enable measurement of the 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.

The Global Risk Committee reports regularly to the Risk Committee of the Board of Directors. The Risk Committee in turn assists the Board of Directors in fulfilling its oversight responsibilities with respect to the Company’s risk management program, including approving risk appetite statements and 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 to the Global Risk Committee. These sub-committees include the:

Asset-Liability Management and Pricing Committee – establishes strategies and policies for the management of corporate capital, liquidity, interest rate risk, and investments;

Compliance Risk Committee – provides oversight of compliance risk management programs and policies providing an aggregate view of compliance risk exposure;

Credit and Market Risk Oversight Committee – 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 – provides oversight of, and approves corporate policy and procedures relating to the risk governance of new products and services; and

Operational Risk Oversight Committee – provides oversight of and approves operational risk management policies, risk tolerance levels, and operational risk governance processes, and includes sub-committees covering Fiduciary, Data, Information Security, Model Governance, and Third-Party risk.

Senior management has also created an Incentive Compensation Risk Oversight Committee, which establishes policy and reviews and approves the Annual Risk Assessment of incentive compensation plans, and reports directly to the Board Compensation Committee.

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.

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

- 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)

Operational Risk

Operational risks arise due to potentially inadequate or failed internal processes, people, and systems or from external events and relationships impacting the Company and/or any of its key business partners and third-parties. While operational risk is inherent in all business activities, the Company relies on a system of internal controls and risk management practices designed to keep operational risk and operational losses within the Company’s risk appetite. The Company has specific policies and procedures to identify and manage operational risk, and uses periodic risk and control self-assessments, control testing programs, and internal audit reviews to evaluate the effectiveness of these internal controls. Where appropriate, the Company manages the impact of operational loss and litigation expense through the purchase of insurance. The insurance program is specifically designed to address the key operational risks of the Company, and to maintain compliance with local laws and regulation.

The Company’s operations are highly dependent on the integrity and resiliency of its critical business functions and technology systems. To the extent the Company experiences business or system interruptions, errors or downtime (which could result from a variety of causes, including natural disasters, terrorist attacks, technological failure, cyber attacks, changes to systems, linkages with third-party systems, and power failures), the Company’s business and operations could be negatively impacted. To minimize business interruptions, the Company maintains a backup and recovery infrastructure which includes facilities for backup and communications, a geographically dispersed workforce, and routine testing of business continuity and disaster recovery plans.

Information Security risk is the potential for unauthorized access, use, disclosure, disruption, modification, perusal, inspection, recording or destruction of the Company’s information or systems. The Company has designed and implemented an information security program that knits together complementary tools, controls and technologies to protect systems, client accounts and data. The Company continuously monitors the systems and works collaboratively with government agencies, law enforcement and other financial institutions to address potential threats. The Company uses advanced monitoring systems to identify suspicious activity and deter unauthorized access by internal or external actors. The Company limits the number of employees who have access to clients’ personal information and enforces internal authentication measures to protect against the potential for social engineering. All employees who handle sensitive information are trained in privacy and security. Schwab’s fraud and c yber security teams monitor activity looking for suspicious behavior. These capabilities allow the Company to identify and quickly act on any attempted intrusions.

The Company also faces 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.

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.

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

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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)

ratings depending on their potential financial, reputational, or regulatory impact to the Company. The model risk rating determines the scope of model governance activities.

Compliance Risk

The Company faces significant compliance risk in its business, that is, the risk of legal or regulatory sanctions, fines or penalties, financial loss, or damage to reputation resulting from the failure to comply with laws, regulations, rules, or other regulatory requirements. Among other things, 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. The Company and its affiliates are subject to extensive regulation by federal, state and foreign regulatory authorities, including SROs. Such regulation is becoming increasingly extensive and complex, and regulatory proceedings and sanctions against financial services firms continue to increase.

The Company attempts to manage compliance risk through policies, procedures and controls reasonably designed to achieve and/or 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. 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.

Credit and Concentration Risk

Credit risk is the potential for loss due to a borrower, counterparty, or issuer failing to perform on its contractual obligations. The Company’s exposure to credit risk mainly results from margin lending and client option and futures activities, securities lending activities, mortgage lending activities, pledged asset lending, 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, PAL, option, and futures requirements for certain securities. Collateral arrangements relating to margin loans, PALs, option positions, securities lending agreements, and resale agreements include provisions that require additional collateral in the event market fluctuations result in declines in the value of collateral received. Additionally, for margin loan, PAL and securities lending agreements, collateral arrangements require that the fair value of such collateral exceeds the amounts loaned.

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 clients or a counterparty fail to meet their obligations to Schwab.

The Company’s bank loan portfolio includes First Mortgages, HELOCs, PALs and other loans. The credit risk exposure related to loans is actively managed through individual loan and portfolio reviews. 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.

The Company’s residential loan underwriting guidelines include maximum LTV ratios, cash out limits, and minimum Fair Isaac Corporation (FICO) credit scores. The specific guidelines are dependent on the individual characteristics of a loan (for example, whether the property is a primary or secondary residence, whether the loan is for investment property, whether the loan is for an initial purchase of a home or refinance of an existing home, and whether the loan size is conforming or jumbo).

The Company does not originate or purchase residential loans that allow for negative amortization and does not originate or purchase subprime loans (generally defined as extensions of credit to borrowers with a FICO score of less than 620 at origination), unless the borrower has compensating credit factors.

The Company’s bank loans include $ 8.2 billion of adjustable rate First Mortgage loans at December 31, 2016. The Company’s adjustable rate mortgages have initial fixed interest rates for three to ten years and interest rates that adjust

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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)

annually thereafter. Approximately 36 % of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 58 % 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.

The Company’s HELOC product has a 30-year loan term with an initial draw period of ten years from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a 20-year amortizing loan. The interest rate during the initial draw period and the 20-year amortizing period is a floating rate based on the prime rate plus a margin. HELOCs that convert to an amortizing loan may experience higher delinquencies and higher loss rates than those in 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, 2016	Balance
Converted to amortizing loan by period end	$	469
Within 1 year		133
> 1 year – 3 years		855
> 3 years – 5 years		203
> 5 years		690
Total	$	2,350

At December 31, 2016, $ 1.8 billion of the HELOC portfolio was secured by second liens on the associated properties. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, the Company also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At December 31, 2016, approximately 39 % of the HELOC borrowers that had a balance only paid the minimum amount of interest due.

For more information on the Company’s credit quality indicators relating to its bank loans, see Item 8 – Note 6.

The Company has exposure to credit risk associated with its investment portfolios, which include U.S. agency, and non-agency mortgage-backed securities, asset-backed securities, corporate debt securities, U.S. agency notes, U.S. Treasury securities, certificates of deposit, U.S. state and municipal securities, and commercial paper.

At December 31, 2016, substantially all securities in the investment portfolios were rated investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government-sponsored enterprises.

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 or geographical area.

The fair value of the Company’s investments in asset-backed securities totaled $ 21.3 billion at December 31, 2016. Schwab holds $ 10.1 billion floating rate Federal Family Education Loan Program Asset-Backed Securities (FFELP ABS). Beginning in 2015, two Nationally Recognized Statistical Rating Organizations began placing a portion of FFELP ABS on review for downgrade. At December 31, 2016, five securities with an aggregate fair value of $1.2 billion were below investment grade. Both agencies have indicated that additional classes could be downgraded below investment grade due to the risk that some remainder of the securities could be outstanding after their legal final maturity dates. The timing of FFELP ABS principal payment is inherently uncertain given the variety of payment options available to student loan borrowers. Loans collateralizing these securities continue to be covered by a guarantee from the Department of Education of at least 97% of principal and interest. The Company holds only senior class notes that have additional credit enhancement of 3% or more

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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)

that, together with the Department of Education guarantee, provide 100% or more credit enhancement. The Company has an independent credit assessment function and does not consider these securities to be impaired because it expects full payment of principal and interest. Therefore, the Company continues to assign them the highest internal credit rating .

The fair value of the Company’s investments in corporate debt securities and commercial paper totaled $ 10.6 billion at December 31, 2016, with 48 % issued by institutions in the financial services industry. These securities are included in AFS securities, cash and cash equivalents, and other securities owned in the Company’s consolidated balance sheets. Issuer, geographic, and sector concentrations are controlled by established credit policy limits to each concentration type.

Foreign Holdings

At December 31, 2016, the Company had exposure to non-sovereign financial and non-financial institutions in foreign countries o f $6.8 billion, with the fair value of the top three exposures being to issuers and counterp arties domiciled in France at $1.9 billion, Sweden at $1.3 billion and Australia at $1.0 billion. The Company has no direct exposure to sovereign foreign governments. The Company does not have unfunded commitments to counterparties in foreign countries, nor does it have exposure as a result of credit default protection purchased or sold separately as of December 31, 2016.

In addition to the direct holdings in foreign companies, the Company has indirect exposure to foreign countries through its investments in CSIM money market funds (collectively, the Funds) resulting from brokerage clearing activities. At December 31, 2016, the Company had $ 108 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 foreign countries. Additionally, at December 31, 2016, the Company had outstanding margin loans to foreign residents of $ 366 million, which are fully collateralized.

Market Risk

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

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. The majority of the Company’s interest-earning assets and interest-bearing liabilities are sensitive to changes in short-term interest rates. A portion of the Company’s investment portfolios is sensitive to changes in long-term interest rates.

Net interest revenue is affected by various factors, such as the distribution and composition of interest-earning assets and interest-bearing liabilities, the spread between yields earned on interest-earning assets and rates paid on interest-bearing liabilities, which may reprice at different times or by different amounts, and the spread between short and long-term interest rates. Interest-earning assets primarily include investment securities, margin loans and bank loans. These assets are sensitive to changes in interest rates and changes in prepayment levels that tend to increase in a declining rate environment and decrease in a rising rate environment. Because the Company establishes the rates paid on certain brokerage client cash balances and bank deposits and the rates charged on certain margin loans and bank 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.

To mitigate the risk of declining interest revenue, 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.

Financial instruments held by the Company are also subject to the risk that valuations will be negatively affected by changes in demand and the underlying market for a financial instrument. The Company is indirectly exposed to option, futures, and equity market fluctuations in connection with client option and futures accounts, securities collateralizing margin loans to brokerage customers, and client securities loaned out as part of the Company’s brokerage securities lending activities. Equity market valuations may also affect the level of brokerage client trading activity, margin borrowing, and overall client

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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)

engagement with the Company. Additionally, the Company earns mutual fund and ETF 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.

The Company’s market risk related to financial instruments held for trading is not material.

Net Interest Revenue Simulation

For the Company’s net interest revenue sensitivity analysis, the Company uses net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulation includes all interest-sensitive assets and liabilities. Key variables in the simulation include the repricing of financial instruments, prepayment, reinvestment, and product pricing assumptions. The Company uses constant balances and market rates in the simulation 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 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.

If the Company’s guidelines for its net interest revenue sensitivity are breached, management must report the breach to the Company’s Corporate Asset-Liability Management and Pricing Committee and establish a plan to address the interest rate risk. There were no breaches of the Company’s net interest revenue sensitivity guidelines during the years ended December 31, 2016 or 2015.

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.

T he 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 additional interest rate exposure that could result from changes in the interest rate environment. The following table shows the simulated net interest revenue change over the next 12 months beginning December 31, 2016 and 2015 of a gradual 100 basis point increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period.



December 31,	2016		2015
Increase of 100 basis points	6.5	%	8.2	%
Decrease of 100 basis points	(9.8)	%	(9.5)	%

The change in net interest revenue sensitivities as of December 31, 2016 reflects the increase in interest rates across all terms. The low client deposit rates under current Federal fund levels limits the extent to which the Company can reduce interest expense paid on funding sources. A decline in interest rates could negatively impact the yield on the Company’s investment and loan portfolio to a greater degree than any offsetting reduction in interest expense, further compressing net interest margin. The increase of short-term interest rates positively impacts net interest revenue as yields on interest-earning assets rise faster than the cost of funding sources.

Liquidity Risk

Liquidity risk is the potential that the Company will be unable to sell assets or meet cash flow obligations when they come due without incurring unacceptable losses.

Due to its role as a source of financial strength, CSC’s liquidity needs are primarily driven by the liquidity and capital needs of the brokerage subsidiaries, the capital needs of Schwab Bank, the amount of dividend payments on CSC’s common and preferred stock and principal and interest due on corporate debt. The liquidity needs of its brokerage subsidiaries are

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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)

primarily driven by client activity including trading and margin borrowing activities and capital expenditures, and the capital needs of its bank subsidiary are primarily driven by client deposits.

The Company has established liquidity policies to support the successful execution of its business strategies, while ensuring ongoing and sufficient liquidity to meet its operational needs and satisfy applicable regulatory requirements under both normal and stress conditions. The Company seeks to maintain client confidence in its balance sheet and the safety of client assets by maintaining liquidity and diversity of funding sources to allow the Company to meet its obligations. To this end, the Company has established limits and contingency funding scenarios to support liquidity levels during both expected and stressed scenarios.

The Company employs a variety of methodologies to monitor and manage liquidity. The Company conducts regular liquidity stress testing to develop a consolidated view of liquidity risk exposures and to ensure the Company’s ability to maintain sufficient liquidity during market-related or company-specific liquidity stress events. Liquidity is also tested at key subsidiaries and results are reported on a monthly basis to the Company’s Corporate Asset-Liability Management and Pricing Committee. A number of early warning indicators are monitored to help identify emerging liquidity stresses in the market or within the Company and are reviewed with management as appropriate.

Beginning on January 1, 2016, the Company became subject to the modified LCR rule, which w as fully phased in on January 1, 2017 and require s CSC to hold HQLAs equal to at least 70% of projected net cash outflows over a 30-day period, as defined by the rule. At December 31, 2016, the Company was in compliance with the fully phased-in modified LCR rule.

Primary Funding Sources

The Company’s primary source of funds is cash generated by client activity: bank deposits and cash balances in client brokerage accounts. In 2016, bank deposits swept from brokerage accounts increased $ 33.0 billion . These funds were used to purchase investment securities, thereby funding a significant portion of the 22 % growth in the Company’s consolidated balance sheet.

Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, and cash provided by external financing or equity offerings.

To meet daily funding needs, the Company maintains liquidity in the form of overnight cash deposits and short-term investments. For unanticipated liquidity needs, the Company maintains a buffer of highly liquid investments, currently comprised of U.S. Treasury notes.

Additional Funding Sources

In addition to internal sources of liquidity, the Company has sources of external funding. CSC maintains a $750 million committed, unsecured credit facility with a group of banks that is scheduled to expire in June 2017. Other than an overnight borrowing to test the availability of this facility, it was unused during 2016. The funds under this facility are available for general corporate purposes. The financial covenants require Schwab to maintain a minimum net capital ratio, Schwab Bank to be well capitalized, and CSC to maintain a minimum level of stockholders’ equity, adjusted to exclude AOCI. At December 31, 2016, the minimum level of stockholders’ equity required under this facility was $ 10.2 billion (CSC’s stockholders’ equity, excluding AOCI, at December 31, 2016 was $ 16.6 billion). Management believes these restrictions will not have a material effect on CSC’s ability to meet foreseeable dividend or funding requirements.

CSC and Schwab also have access to uncommitted, unsecured bank credit lines with several banks. The need for short-term borrowings from these sources arises primarily from timing differences between cash flow requirements, scheduled liquidation of interest-earning investments, and movements of cash to meet regulatory brokerage client cash segregation requirements. These lines were not used by CSC during 2016. Schwab used such borrowings for one day in 2016, for $15 million and there were no borrowings outstanding under these lines at December 31, 2016.

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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 partially satisfy the margin requirement of client option transactions with the Options Clearing Corporation, the broker-dealer subsidiaries have unsecured standby letter of credit agreements (LOCs) with several banks in favor of the Options Clearing Corporation aggregating $ 295 million at December 31, 2016. There were no funds drawn under any of these LOCs during 2016 or 2015 . In connection with its securities lending activities, the Company is required to provide collateral to certain brokerage clients. The collateral requirements were satisfied by providing cash as collateral.

Schwab Bank has access to short-term secured funding through the Federal Reserve’s discount window. Amounts available under the Federal Reserve discount window are dependent on the fair value of certain of Schwab Bank’s investment securities that are pledged as collateral. Schwab Bank maintains policies and procedures necessary to access this funding and tests discount window borrowing procedures on a perio dic basis. At December 31, 2016, $ 849 million was available under this arrangement. Schwab Bank used such borrowings for one day during 2016 for $1 million and there were no borrowings outstanding under these lines at December 31, 2016.

Schwab Bank also maintains a secured credit facility with the Federal Home Loan Bank of San Francisco (FHLB). Amounts available under this facility are dependent on the amount of Schwab Bank’s First Mortgages, HELOCs, and the fair value of certain of Schwab Bank’s investment securities that are pledged as collateral. Schwab Bank maintains policies and procedures necessary to access this funding and tests borrowing procedures on a periodic basis. During 2016, Schwab Bank used borrowings under this agreement to purchase investment securities prior to bulk transfers. As the bulk transfers were completed, the proceeds were used to pay down advances. There were no amounts outstanding under this facility at December 31, 2016 with $16 .5 billion available based on the loans and securities currently pledged. This credit facility is also available as backup financing in the event of unexpected client cash outflow from Schwab Bank’s balance sheet.

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 not to exceed the amount of the committed, unsecured credit facility, which was $750 million at December 31, 2016. 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. CSC’s ratings for these short-term borrowings are P1 by Moody’s, A1 by Standard & Poor’s, and F1 by Fitch. CSC had no Commercial Paper Notes outstanding at December 31, 2016 or 2015.

CSC had long-term debt of $2.9 billion at December 31, 2016 and 2015 bearing a weighted-average interest rate of 3.37%. CSC has a universal automatic shelf registration statement (Shelf Registration Statement) on file with the SEC, which enables it to issue debt, equity, and other securities.

On March 10, 2015, CSC issued $625 million aggregate principal amount of Senior Notes that mature in 2018 and $375 million aggregate principal amount of Senior Notes that mature in 2025. The Senior Notes due 2018 and 2025 have a fixed interest rate of 1.50% and 3.00%, respectively, with interest payable semi-annually. Additionally, on November 13, 2015, CSC issued $350 million aggregate amount of 3.450% Senior Notes that mature in 2026, with interest payable semi-annually.

The following are details of CSC’s Senior and Medium-Term Notes:

Par

Weighted Average

Standard

December 31, 2016

Outstanding

Maturity

Interest Rate

Moody’s

& Poor’s

Fitch

Senior Notes

2,581

2018 - 2026

3.03% fixed

Medium-Term Notes

250

2017

6.375% fixed

On October 31, 2016, the Company issued and sold 600,000 depositary shares, each representing a 1/100 th ownership interest in a share of fixed-to-floating rate non-cumulative perpetual preferred stock (Series E Preferred Stock), $0.01 par value, with a liquidation preference of $100,000 per share (equivalent to $1,000 per depositary share). The Series E Preferred Stock has a fixed dividend rate of 4.625% through February 28, 2022, payable semi-annually, and thereafter at a floating rate of three-month LIBOR plus a fixed spread of 3.315%, payable quarterly. Net proceeds received from the sale were $591 million .

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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)

On March 7, 2016, CSC completed an equity offering of 30 million depositary shares, each representing a 1/40 th ownership interest in a share of 5.95% non-cumulative perpetual preferred stock (Series D Preferred Stock). The net proceeds from the sale were $725 million.

On August 3, 2015, CSC completed an equity offering of 24 million depositary shares, each representing a 1/40 th ownership interest in a share of 6.00% non-cumulative perpetual preferred stock (Series C Preferred Stock). The net proceeds from the sale were $581 million. CSC’s preferred stock is rated Baa2 by Moody’s, BBB by Standard & Poor’s and BB+ by Fitch.

For further discussion of CSC’s long-term debt and information on the equity offering s , see Item 8 – Note 13 and Note 17.

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 in the ordinary course of business. For information on each of these arrangements, see Item 8 – Note 6, Note 10, Note 13, Note 14, and Note 15.

Contractual Obligations

The Company’s principal contractual obligations as of December 31, 2016 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., bank deposits, payables to brokerage clients, and deferred compensation).


	Less than		1-3		3-5		More than
December 31, 2016	1 Year		Years		Years		5 Years		Total
Credit-related financial instruments (1)	$	1,047	$	2,543	$	3,597	$	1,904	$	9,091
Long-term debt (2)		344		1,036		795		1,084		3,259
Leases (3)		110		165		103		282		660
Purchase obligations (4)		211		132		41		200		584
Total	$	1,712	$	3,876	$	4,536	$	3,470	$	13,594

(1)	Represents Schwab Bank’s commitments to extend credit to banking clients and purchase mortgage loans.
(2)	Includes estimated future interest payments through 2017 for Medium-Term Notes and through 2026 for Senior Notes. 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.

CAPITAL MANAGEMENT

The Company seeks to manage capital to a level and composition sufficient to support execution of its business strategy, including anticipated balance sheet growth, providing financial support to its subsidiaries, and sustained access to the capital markets, while at the same time meeting its regulatory capital requirements and serving as a source of financial strength to Schwab Bank. The Company’s primary sources of capital are funds generated by the operations of its subsidiaries and securities issuances by CSC in the capital markets. To ensure that it has a sufficient amount of capital to absorb unanticipated losses or declines in asset values, the Company has adopted a policy to remain well capitalized even in stressed scenarios.

Internal guidelines are set, for both the Company and its regulated subsidiaries, to ensure capital levels are in line with the Company’s strategy and regulatory requirements, and capital forecasts are reviewed monthly at Capital Planning and Asset-

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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)

Liability Management and Pricing Committee meetings. A number of early warning indicators are monitored to help identify potential problems that could impact capital. In addition, the Company monitors its subsidiaries’ capital levels and requirements. Subject to regulatory capital requirements and any required approvals, any excess capital held by subsidiaries is transferred to CSC in the form of dividends and returns of capital. When subsidiaries have need of additional capital, funds are provided by CSC as equity investments and also as subordinated loans (in a form approved as regulatory capital by regulators) for Schwab. The details and method used for each cash infusion are based on an analysis of the particular entity’s needs and financing alternatives. The amounts and structure of infusions must take into consideration maintenance of regulatory capital requirements, debt/equity ratios, and equity double leverage ratios.

The Company conducts regular capital stress testing to assess the potential financial impacts of various adverse macroeconomic and company-specific events to which the Company could be subjected. The objective of the Company’s capital stress testing is (1) to explore various potential outcomes – including rare and extreme events and (2) to assess impacts of potential stressful outcomes on both capital and liquidity. Additionally, the Company has a comprehensive Capital Contingency Plan to provide action plans for certain low probability/high impact capital events 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. The results of the stress testing indicate there are two scenarios which could stress the Company’s capital: (1) inflows of balance sheet cash during a period of very low interest rates and (2) outflows of balance sheet cash when other sources of financing are not available and the Company is required to sell assets to fund the flows at a loss. The Capital Contingency Plan is reviewed annually and updated as appropriate.

For additional information, see Business – Regulation in Part I, Item 1.

Regulatory Capital Requirements

CSC is subject to capital requirements set by the Federal Reserve and is required to serve as a source of strength for Schwab Bank and to provide financial assistance if Schwab Bank experiences financial distress. The Company is required to maintain a Tier 1 Leverage Ratio for CSC of at least 4% ; however, management seeks to maintain the ratio of at least 6%. Due to the relatively low risk of the Company’s balance sheet assets and risk-based capital ratios at CSC and Schwab Bank that are well in excess of regulatory requirements, the Tier 1 Leverage Ratio is the most restrictive capital constraint on CSC’s asset growth.

Schwab Bank is subject to capital requirements set by the OCC that are substantially similar to those imposed on CSC by the Federal Reserve. Schwab Bank’s failure to remain well capitalized could result in certain mandatory and possibly additional discretionary actions by the regulators that could have a direct material effect on the bank. The Company is required to maintain a Tier 1 Leverage Ratio for Schwab Bank of at least 5% to be well capitalized, but seeks to maintain the ratio of at least 6.25%. Based on its regulatory capital ratios at December 31, 2016, Schwab Bank is considered well capitalized.

See Item 8 – Note 22 for a summary of both CSC and Schwab Bank’s capital ratios.

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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 following table details CSC’s and Schwab Bank’s capital ratios:


December 31, 2016		CSC			Schwab Bank
Total stockholders’ equity	$	16,421		$	11,726
Less:
Preferred Stock		2,783			-
Common Equity Tier 1 Capital before regulatory adjustments	$	13,638		$	11,726
Less:
Goodwill, net of associated deferred tax liabilities	$	1,175		$	11
Other intangible assets, net of associated deferred tax liabilities		52			-
AOCI adjustment (1)		(163)			(163)
Common Equity Tier 1 Capital	$	12,574		$	11,878
Tier 1 Capital	$	15,357		$	11,878
Total Capital		15,384			11,904
Risk-Weighted Assets		68,179			59,915
Common Equity Tier 1 Capital/Risk-Weighted Assets		18.4	%		19.8	%
Tier 1 Capital/Risk-Weighted Assets		22.5	%		19.8	%
Total Capital/Risk-Weighted Assets		22.6	%		19.9	%
Tier 1 Leverage Ratio		7.2	%		7.0	%


(1)	CSC and Schwab Bank have elected to opt-out of the requirement to include most components of AOCI in CET1 Capital.

Schwab Bank is also subject to regulatory requirements that restrict and govern the terms of affiliate transactions. In addition, Schwab Bank is required to provide notice to, and may be required to obtain approval from, the OCC and the Federal Reserve to declare dividends to CSC.

The Company’s broker-dealer subsidiaries (Schwab and optionsXpress) are subject to regulatory requirements of the Uniform Net Capital Rule. The rule is intended to ensure the general financial soundness and liquidity of broker-dealers. These regulations prohibit the broker-dealer subsidiaries from paying cash dividends, making unsecured advances and loans to their parent company and employees, and repaying subordinated borrowings from CSC 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. As such, the broker-dealer subsidiaries are required to maintain, at all times, at least the minimum level of net capital required under Rule 15c3-1. At December 31, 2016, Schwab and optionsXpress met and exceeded their net capital requirements.

In addition to the capital requirements above, the Company’s subsidiaries are subject to various regulatory requirements that are intended to ensure financial soundness and liquidity. See Item 8 – Note 22 for additional information on the components of stockholders’ equity and information on the capital requirements of each of the subsidiaries.

Dividends

Since the initial dividend in 1989, CSC has paid 111 consecutive quarterly dividends and has increased the quarterly dividend rate 20 times, resulting in a 2 0 % 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, CSC currently targets its common stock cash dividend at approximately 20% to 30% of net income.

On April 21, 2016 the Board of Directors of the Company declared a one cent, or 17%, increase in the quarterly cash dividend to $0.07 per common share. On January 26, 2017, the Board of Directors of the Company declared a one cent, or 14%, increase in the quarterly cash dividend to $0.08 per common share.

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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 following table details the CSC cash dividends paid and per share amounts:


Year Ended December 31,	2016				2015
				Per Share				Per Share
	Cash Paid		Amount		Cash Paid		Amount
Common Stock	$	360	$	0.27	$	318	$	0.24
Series A Preferred Stock (1)		28		70.00		28		70.00
Series B Preferred Stock (2)		29		60.00		29		60.00
Series C Preferred Stock (2)		36		60.00		12		19.67
Series D Preferred Stock (2,3)		33		43.65		-		-
Series E Preferred Stock (4)		-		-		-		-


(1)	Dividends paid semi-annually until February 1, 2022 and quarterly thereafter.
(2)	Dividends paid quarterly .
(3)	Series D Preferred Stock was issued on March 7, 2016.
(4)	Series E Preferred Stock was issued on October 31, 2016. Dividends paid semi-annually until March 1, 2022 and quarterly thereafter.

Share Repurchases

There were no repurchases of CSC’s common stock in 2016 or 2015. As of December 31, 2016, CSC had remaining authority from the Board of Directors to repurchase up to $596 million of its common stock, which is not subject to expiration.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses the market approach to determine the fair value of certain financial assets and liabilities recorded at fair value, and to determine fair value disclosures. See Item 8 – Note 2 and Note 16 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 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 generally obtains prices from at least three independent pricing sources for assets recorded at fair value. The Company’s primary independent pricing service provides prices based on observable trades and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. The Company compares the prices obtained from its primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. The Company does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in a material difference in the recorded amounts. At December 31, 2016 and 2015, the Company did not adjust prices received from the primary independent third-party pricing service.

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

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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)

reviews the estimates and assumptions used in the preparation of the Company’s financial statements for reasonableness and adequacy.

Other-than-Temporary Impairment of Investment Securities

The Company internally conducts pre-purchase analyses and ongoing, post-purchase monitoring of investments that it owns. The Company assigns a risk rating to each issuer of the securities in the Company’s investment securities portfolio based on these analyses. On an ongoing basis, the Company monitors credit indicators related to its securities portfolio and adjusts the internal ratings accordingly.

Management evaluates whether investment securities are 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 the amortized cost of the security. In this circumstance, the impairment recognized in earnings represents the 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.

The evaluation of whether the Company expects to recover the amortized cost of a security is inherently judgmental. The evaluation includes the consideration of multiple factors including: the magnitude and duration of the unrealized loss; the financial condition of the issuer; the payment structure of the security; external credit ratings; internal credit ratings; for asset-backed securities, the amount of credit support provided by the structure of the security to absorb credit losses on the underlying collateral; recent events specific to the issuer and the issuer’s industry; and whether the Company has received all scheduled principal and interest payments.

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 can elect to qualitatively assess goodwill for impairment if it is more likely than not that the fair value of a reporting unit exceeds its carrying value. A qualitative assessment considers macroeconomic and other industry-specific factors, such as trends in short-term and long-term interest rates and the ability to access capital, and 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 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 values. The estimated fair 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, a market approach which compares each reporting unit to comparable companies in their respective industries, as well as a market capitalization analysis.

The Company’s annual goodwill impairment testing date is April 1 st . In 2016, the Company elected to bypass the qualitative assessment. As of April 1, 2016, the Company determined through quantitative testing that the fair value significantly exceeded the carrying value of each of the Company’s reporting units, and concluded that goodwill was not impaired.

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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)

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 portfolios.

The methodology to establish an allowance for loan losses related to the First Mortgage and HELOC portfolios utilizes statistical models that estimate prepayments, defaults, and probable losses for the loan types based on predicted behavior of individual loans within the types . 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, and the adequacy of collateral. The methodology also evaluates concentrations in the loan types, including loan products within those types , 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 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 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. The estimated loss severity (i.e., loss given default) used in the allowance for loan loss for HELOCs is higher than that used 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. This methodology results in loss factors that are applied to the outstanding balances to determine the allowance for loan loss for each loan type .

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. 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.

See Item 8 – Note 2 for more information on critical accounting estimates .

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THE CHARLES SCHWAB CORPORATION


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk

For a discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Part II, Item 7.

THE CHARLES SCHWAB CORPORATION

Item 8.

Financial Statements and Supplementary Data

TABLE OF CONTENTS

Consolidated Statements of Income		53
Consolidated Statements of Comprehensive Income		54
Consolidated Balance Sheets		55
Consolidated Statements of Cash Flows		56
Consolidated Statements of Stockholders’ Equity		57
Notes to Consolidated Financial Statements		58
Note 1.	Introduction and Basis of Presentation	58
Note 2.	Summary of Significant Accounting Policies	58
Note 3.	Receivables from and Payables to Brokerage Clients	67
Note 4.	Other Securities Owned	67
Note 5.	Investment Securities	68
Note 6.	Bank Loans and Related Allowance for Loan Losses	71
Note 7.	Equipment, Office Facilities, and Property	75
Note 8.	Intangible Assets and Goodwill	75
Note 9.	Other Assets	76
Note 10.	Variable Interest Entities	76
Note 11.	Bank Deposits	77
Note 12.	Payables to Brokers, Dealers, and Clearing Organizations	77
Note 13.	Borrowings	78
Note 14.	Commitments and Contingencies	79
Note 15.	Financial Instruments Subject to Off-Balance Sheet Credit Risk or Concentration Risk	81
Note 16.	Fair Values of Assets and Liabilities	84
Note 17.	Stockholders' Equity	88
Note 18.	Accumulated Other Comprehensive Income	89
Note 19.	Employee Incentive, Retirement, Deferred Compensation, and Career Achievement Plans	90
Note 20.	Taxes on Income	93
Note 21.	Earnings Per Common Share	95
Note 22.	Regulatory Requirements	95
Note 23.	Segment Information	97
Note 24.	The Charles Schwab Corporation – Parent Company Only Financial Statements	98
Note 25.	Quarterly Financial Information (Unaudited)	101
Report of Independent Registered Public Accounting Firm		102
Management’s Report on Internal Control Over Financial Reporting		103

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THE CHARLES SCHWAB CORPORATION


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

Year Ended December 31,		2016		2015		2014
Net Revenues
Asset management and administration fees (1)	$	3,055	$	2,650	$	2,533
Interest revenue		3,493		2,657		2,374
Interest expense		(171)		(132)		(102)
Net interest revenue		3,322		2,525		2,272
Trading revenue		825		866		907
Other		271		328		343
Provision for loan losses		5		11		4
Net impairment losses on securities		-		-		(1)
Total net revenues		7,478		6,380		6,058
Expenses Excluding Interest
Compensation and benefits		2,466		2,241		2,184
Professional services		506		459		457
Occupancy and equipment		398		353		324
Advertising and market development		265		249		245
Communications		237		233		223
Depreciation and amortization		234		224		199
Other		379		342		311
Total expenses excluding interest		4,485		4,101		3,943
Income before taxes on income		2,993		2,279		2,115
Taxes on income		1,104		832		794
Net Income		1,889		1,447		1,321
Preferred stock dividends and other (2)		143		83		60
Net Income Available to Common Stockholders	$	1,746	$	1,364	$	1,261
Weighted-Average Common Shares Outstanding:
Basic		1,324		1,315		1,303
Diluted		1,334		1,327		1,315
Earnings Per Common Share:
Basic	$	1.32	$	1.04	$	.96
Diluted	$	1.31	$	1.03	$	.95
Dividends Declared Per Common Share	$	.27	$	.24	$	.24

(1)

Includes fee waivers of $224 , $672, and $751 during the years ended December 31, 2016, 2015 , and 2014, respectively,

relating to Schwab-sponsored money market funds.

(2)

Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.

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,		2016		2015		2014
Net income	$	1,889	$	1,447	$	1,321
Other comprehensive income (loss), before tax:
Change in net unrealized gain (loss) on available for sale securities:
Net unrealized gain (loss)		(44)		(477)		255
Reclassification of impairment charges included in net
impairment losses on securities		-		-		1
Other reclassifications included in other revenue		(4)		-		(7)
Other		1		-		-
Other comprehensive income (loss), before tax		(47)		(477)		249
Income tax effect		18		178		(93)
Other comprehensive income (loss), net of tax		(29)		(299)		156
Comprehensive Income	$	1,860	$	1,148	$	1,477

See Notes to Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION


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

December 31,	2016		2015 (1)
Assets
Cash and cash equivalents	$	10,828	$	11,978
Cash and investments segregated and on deposit for regulatory purposes
(including resale agreements o f $9,547 and $8,088 at December 31, 2016
and 2015, respectively)		22,174		19,598
Receivables from brokers, dealers, and clearing organizations		728		582
Receivables from brokerage clients — net		17,155		17,313
Other securities owned — at fair value		449		533
Available for sale securities		77,365		65,646
Held to maturity securities (fair value — $74,444 and $50,088 at December 31,
2016 and 2015, respectively)		75,203		50,007
Bank loans — net		15,403		14,334
Equipment, office facilities, and property — net		1,299		1,145
Goodwill		1,227		1,227
Intangible assets — net		144		181
Other assets		1,408		1,161
Total assets	$	223,383	$	183,705
Liabilities and Stockholders’ Equity
Bank deposits	$	163,454	$	129,502
Payables to brokers, dealers, and clearing organizations		2,407		2,588
Payables to brokerage clients		35,894		33,185
Accrued expenses and other liabilities		2,331		2,151
Long-term debt		2,876		2,877
Total liabilities		206,962		170,303
Stockholders’ equity:
Preferred stock — $.01 par value per share; aggregate liquidation preference
of $2,835 and $1,485 at December 31, 2016 and 2015, respectively		2,783		1,459
Common stock — 3 billion shares authorized; $.01 par value per share;
1,487,543,446 shares issued		15		15
Additional paid-in capital		4,267		4,152
Retained earnings		12,649		11,253
Treasury stock, at cost — 154,793,560 and 167,205,881 shares
at December 31, 2016 and 2015, respectively		(3,130)		(3,343)
Accumulated other comprehensive income		(163)		(134)
Total stockholders’ equity		16,421		13,402
Total liabilities and stockholders’ equity	$	223,383	$	183,705


(1)	Adjusted for the retrospective adoption of ASU 2015-03. See New Accounting Standards in Note 2 for additional information .

See Notes to Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION


Consolidated Statements of Cash Flows
(In Millions)

Year Ended December 31,		2016		2015		2014
Cash Flows from Operating Activities
Net income	$	1,889	$	1,447	$	1,321
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
Provision for loan losses		(5)		(11)		(4)
Net impairment losses on securities		-		-		1
Share-based compensation		141		135		115
Depreciation and amortization		234		224		199
(Benefit) provision for deferred income taxes		15		(7)		(25)
Premium amortization, net, on available for sale and held to maturity securities		266		162		125
Other		9		(4)		(7)
Net change in:
Cash and investments segregated and on deposit for regulatory purposes		(2,576)		1,183		2,772
Receivables from brokers, dealers, and clearing organizations		(147)		(108)		44
Receivables from brokerage clients		150		(1,652)		(1,725)
Other securities owned		84		(17)		1
Other assets		(93)		(98)		(30)
Payables to brokers, dealers, and clearing organizations		(181)		808		393
Payables to brokerage clients		2,709		(1,120)		(1,028)
Accrued expenses and other liabilities		167		304		196
Net cash provided by operating activities		2,662		1,246		2,348
Cash Flows from Investing Activities
Purchases of available for sale securities		(29,248)		(21,351)		(15,134)
Proceeds from sales of available for sale securities		5,537		2,424		6,556
Principal payments on available for sale securities		11,903		7,340		5,843
Purchases of held to maturity securities		(31,162)		(19,303)		(6,920)
Principal payments on held to maturity securities		5,747		3,540		2,687
Net increase in bank loans		(1,103)		(980)		(1,016)
Purchase of equipment, office facilities, and property		(346)		(266)		(400)
Purchases of Federal Home Loan Bank stock		(152)		-		-
Proceeds from sales of Federal Home Loan Bank stock		88		8		-
Other investing activities		(39)		(35)		(11)
Net cash used for investing activities		(38,775)		(28,623)		(8,395)
Cash Flows from Financing Activities
Net change in bank deposits		33,952		26,687		9,843
Proceeds from short-term Federal Home Loan Bank borrowings		8,504		-		-
Repayment of short-term Federal Home Loan Bank borrowings		(8,504)		-		-
Issuance of long-term debt		-		1,346		-
Repayment of long-term debt		(7)		(357)		(6)
Net proceeds from preferred stock offerings		1,316		581		-
Dividends paid		(486)		(387)		(373)
Proceeds from stock options exercised and other		144		90		189
Other financing activities		44		32		29
Net cash provided by financing activities		34,963		27,992		9,682
Increase (Decrease) in Cash and Cash Equivalents		(1,150)		615		3,635
Cash and Cash Equivalents at Beginning of Year		11,978		11,363		7,728
Cash and Cash Equivalents at End of Year	$	10,828	$	11,978	$	11,363

Supplemental Cash Flow Information
Cash paid during the year for:
Interest	$	160	$	121	$	103
Income taxes	$	991	$	810	$	778
Non-cash investing activity:
Securities purchased during the year but settled after year end	$	-	$	-	$	143

See Notes to Consolidated Financial Statements.

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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, 2013	$	869	1,488	$	15	$	3,951	$	9,253		$	(3,716)		$	9	$	10,381
Net income		-	-		-		-		1,321			-			-		1,321
Other comprehensive income (loss), 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
Share-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
Net income		-	-		-		-		1,447			-			-		1,447
Other comprehensive income (loss), net of tax		-	-		-		-		-			-			(299)		(299)
Issuance of preferred stock		581	-		-		-		-			-			-		581
Dividends declared on preferred stock		-	-		-		-		(69)			-			-		(69)
Dividends declared on common stock		-	-		-		-		(318)			-			-		(318)
Stock option exercises and other		-	-		-		(87)		-			177			-		90
Share-based compensation and
related tax effects		-	-		-		172		-			-			-		172
Other		6	-		-		17		(5)			(23)			-		(5)
Balance at December 31, 2015		1,459	1,488		15		4,152		11,253			(3,343)			(134)		13,402
Net income		-	-		-		-		1,889			-			-		1,889
Other comprehensive income (loss), net of tax		-	-		-		-		-			-			(29)		(29)
Issuance of preferred stock		1,316	-		-		-		-			-			-		1,316
Dividends declared on preferred stock		-	-		-		-		(126)			-			-		(126)
Dividends declared on common stock		-	-		-		-		(360)			-			-		(360)
Stock option exercises and other		-	-		-		(80)		-			224			-		144
Share-based compensation and
related tax effects		-	-		-		177		-			-			-		177
Other		8	-		-		18		(7)			(11)			-		8
Balance at December 31, 2016	$	2,783	1,488	$	15	$	4,267	$	12,649		$	(3,130)		$	(163)	$	16,421

See Notes to Consolidated Financial Statements.

- 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)

1. Introduction and Basis of Presentation

CSC is a savings and loan holding company engaged, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. Schwab is a securities broker-dealer with over 335 domestic branch offices in 46 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 Schwab Bank, a federal savings bank, and CSIM, the investment advisor for Schwab’s proprietary mutual funds, which are referred to as the Schwab Funds ® , and for Schwab’s exchange-traded funds, which are referred to as the Schwab ETFs™.

The accompanying 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 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 OTTI of investment securities, valuation of goodwill, allowance for loan losses, and legal and regulatory reserves. Actual results may differ from those estimates.

Principles of Consolidation

The Company evaluates for consolidation all entities in which it has financial interests, except for money market funds, which are specifically excluded from consolidation guidance. For an entity subject to consolidation, the Company evaluates whether the Company’s interest in the entity constitutes a controlling financial interest under either the variable interest entity (VIE) model or the voting interest entity (VOE) model. Based upon the Company’s assessments, the Company is not deemed to have a controlling financial interest in and, therefore, is not required to consolidate any VIEs. See Note 10 for further information about VIEs. The Company consolidates all VOEs in which it has majority voting interests.

For investments in entities in which the Company does not have a controlling financial interest, the Company accounts for those investments under the equity method of accounting when the Company has the ability to exercise significant influence over operating and financing decisions of the entity. Investments in entities for which the Company does not have the ability to exercise significant influence are generally carried at cost. Both equity method and cost method investments are included in other assets on the consolidated balance sheets.

2. Summary of Significant Accounting Policies

Asset management and administration fees

Asset management and administration fees include mutual fund and ETF 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 daily 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, 2016 and for all years presented. The Company earns mutual fund and ETF service fees for shareholder services, administration, and investment management provided to its proprietary funds, and recordkeeping and shareholder services provided to third-party funds. Asset management and administration fees are based upon the daily balances of client assets invested in these funds. The fair values of client assets included in proprietary and third-party mutual funds and ETFs are based on quoted market prices and other observable market data. The Company also earns asset management fees for advice solutions, which include managed portfolios, specialized strategies and customized investment advice. Other asset management and administration fees include various asset-based fees, such as trust fees, 401(k) recordkeeping fees, mutual fund clearing fees, collective trust fund fees, and non-balance based service and transaction fees.

Interest revenue

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

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Trading revenue

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 U.S. 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 purposes include 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 financing 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 not used for margin lending are segregated into investment accounts maintained for the exclusive benefit of clients by the Company’s broker-dealer subsidiaries.

Receivables from brokerage clients

Receivables from brokerage clients includes margin loans to securities brokerage clients and other trading receivables from clients. Margin loans are collateralized by client securities and are carried at the amount receivable, net of an allowance for doubtful accounts. The Company monitors margin levels and requires clients to deposit additional collateral, or reduce margin positions to meet minimum collateral requirements if the fair value of the collateral changes. Receivables from brokerage clients that remain unsecured or partially secured for more than 30 days are fully reserved for in the allowance for doubtful accounts, except in the case of confirmed fraud, which is reserved immediately. Clients with margin loans have agreed to allow the Company to pledge collateralized securities in accordance with federal regulations. The collateral is not reflected in the consolidated financial statements.

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.

Investment Securities

AFS securities are recorded at fair value and unrealized gains and losses are reported, net of taxes, in AOCI included in stockholders’ equity. HTM securities 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 AFS securities are determined on a specific identification basis and are included in other revenue.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

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 the estimated credit loss, and is measured by the difference between the present value of expected cash flows and the amortized cost of the security. Where appropriate, management utilizes cash flow 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.

Securities borrowed and securities 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.

Bank loans and related allowance for loan losses

Bank loans are recorded at their contractual principal amounts and include unamortized direct origination costs or net purchase discounts or premiums. Direct origination costs and premiums and discounts are recognized in interest revenue using the effective interest method over the contractual life of the loan and are adjusted for actual prepayments. Additionally, loans are recorded net of an allowance for loan losses. The Company’s loan portfolio includes four loan types: First Mortgages, HELOCs, PALs and other loans. Loan segments are defined as the level to which the Company disaggregates its loan types when developing and documenting a methodology for determining the allowance for loan losses.

PALs are collateralized by marketable securities with liquid markets. Credit lines are over-collateralized dependent on the type of security pledged. Collateral market value is monitored on a daily basis and a borrower’s committed line may be reduced or collateral may be liquidated if the collateral is in danger of falling below specified levels. As such, the loss inherent within this portfolio is limited.

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

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

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Probable losses are forecast using a loan-level simulation of the delinquency status of the loans over the term of the loans. The simulation starts with the current relevant risk indicators, including the current delinquent status of each loan, the estimated current LTV ratio of each loan, the term and structure of each loan, current key interest rates including U.S. Treasury and LIBOR rates, and borrower FICO scores. The more significant variables 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. 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.

This methodology results in loss factors that are applied to the outstanding balances to determine the allowance for loan loss for each loan type.

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

Nonaccrual, Nonperforming and Impaired loans

First Mortgages, HELOCs, PALs, 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, 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 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 borrower demonstrates a sustained period of performance, or when the loan is both well-secured and in the process of collection and collectability is no longer doubtful. Loans on nonaccrual status and other real estate owned are considered nonperforming assets. Nonaccrual loans, other real estate owned, and TDRs are considered impaired assets, as it is probable the Company will not collect all amounts due.

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 loan losses and the loan balance. The Company’s charge-off policy for First Mortgage and HELOC loans is to assess the value of the property when the loan has been delinquent for 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 current value of the underlying property less estimated costs to sell.

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 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.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

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. The Company’s annual impairment testing date is April 1 st . The Company can elect to qualitatively assess goodwill for impairment if it is more likely than not that the fair value of a reporting unit exceeds its carrying value.

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 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 values. Based on the Company’s analysis, fair value significantly exceeded the carrying value for all reporting units as of its annual testing date.

Intangible assets

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.

Low-Income Housing Tax Credit (LIHTC) Investments

As part of the Company’s community reinvestment initiatives, the Company invests with other institutional investors in funds that make equity investments in multifamily affordable housing properties. The Company receives tax credits and other tax benefits for these investments. The Company accounts for investments in qualified affordable housing projects using the proportional amortization method if certain criteria are met. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized as a component of income tax expense attributable to continuing operations. The carrying value of LIHTC investments is included in other assets on the consolidated balance sheets. Unfunded commitments related to LIHTC investments are included in accrued expenses and other liabilities on the consolidated balance sheets.

Guarantees and 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 obligations relating to guarantees are estimated based on transactions for similar guarantees or expected present value measures.

Advertising and market development

Advertising and market development activities include the cost to produce and distribute marketing campaigns as well as client incentives and discounts. Such costs are generally expensed when incurred.

Income 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. Accrued interest relating to unrecognized tax benefits is recorded in income tax expense and penalties are recorded in other expense.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Share-based compensation

Share-based compensation includes employee and board of director stock options and restricted stock units. The Company measures compensation expense for these share-based payment arrangements based on their estimated fair values as of the unit’s grant date. The fair value of the share-based award is recognized over the vesting period as share-based compensation. Share-based compensation expense is based on units 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 units are recorded in additional paid-in capital.

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.

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates, benchmark yields, issuer spreads, new issue data, and collateral performance.

Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

The Company’s policy is to recognize transfers of financial instruments between levels as of the beginning of the reporting period in which a transfer occurs.

Assets and liabilities measured at fair value on a recurring basis

The Company’s assets and liabilities measured at fair value on a recurring basis include certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, other securities owned, and AFS securities. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets 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 generally obtains prices from at least three independent pricing sources for assets recorded at fair value.

The Company’s primary independent pricing service provides prices based on observable trades and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. The Company compares the prices obtained from its primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. The Company

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

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.

Fair value of other financial instruments

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

Cash and cash equivalents are short-term in nature and accordingly are recorded at amounts that approximate fair value.

Cash and investments segregated and on deposit for regulatory purposes include cash and securities purchased under resale agreements. Securities purchased under resale agreements are short-term in nature and are backed by collateral that both exceeds the carrying value of the resale agreement and is highly liquid in nature. Accordingly, the carrying values of these financial instruments approximate their fair values.

Receivables from/payables to brokers, dealers, and clearing organizations are short-term in nature, recorded at contractual amounts and historically have been settled at those values. Accordingly, the carrying values of these financial instruments approximate their fair values.

Receivables from/payables to brokerage clients — net are short-term in nature, recorded at contractual amounts and historically have been settled at those values. Accordingly, the carrying values of these financial instruments approximate their fair values.

HTM securities – The fair values of HTM securities are obtained using an independent third-party pricing service similar to investment assets recorded at fair value as discussed above.

Bank loans – The fair values of the Company’s First Mortgages and HELOCs are estimated based on prices of mortgage-backed securities collateralized by similar types of loans. PALs are non-purpose revolving lines of credit secured by eligible assets; accordingly, the carrying values of these loans approximate their fair values.

Financial instruments included in other assets primarily consist of LIHTC investments, cost method investments and FHLB stock, whose carrying values approximate their fair values. FHLB stock is recorded at par, which approximates its fair value.

Bank deposits have no stated maturity and are recorded at the amount payable on demand as of the balance sheet date. The Company considers the carrying values of these deposits to approximate their fair values.

Financial instruments included in accrued expenses and other liabilities consist of drafts payable and certain amounts due under contractual obligations, including unfunded LIHTC commitments. The carrying values of these instruments approximate their fair values.

Short-term borrowings consist of commercial paper and funds drawn on Schwab Bank’s secured credit facility with the Federal Home Loan Bank of San Francisco. Due to the short-term nature of these borrowings, carrying value approximates fair value.

Long-term debt – Except for the finance lease obligation, the fair values of long-term debt are estimated using indicative, non-binding quotes from independent brokers. The Company validates indicative prices for its debt through comparison to other independent non-binding quotes. The finance lease obligation is recorded at carrying value, which approximates fair value.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Firm commitments to extend credit – The Company extends credit to banking clients through HELOCs and PALs. The Company considers the fair value of these unused commitments to not be material because the interest rates earned on these balances are based on floating interest rates that reset monthly.

New Accounting Standards

Adoption of New Accounting Standards

On January 1, 2016, the Company adopted ASU 2015-02, “Consolidation (Topic 810),” which amends the analysis a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The new guidance is applicable to all entities but provides an exception for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The adoption of ASU 2015-02 did not have an impact on the Company’s consolidated financial statements or EPS, as the new guidance did not change any consolidation conclusions reached in accordance with the previous guidance.

On January 1, 2016, the Company adopted ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30).” ASU 2015-03 requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Previously, debt issuance costs were presented as a separate asset on the balance sheet. The guidance in ASU 2015-03 has been applied on a retrospective basis, which requires the adjustment of all prior period consolidated balance sheets. The effect of the adoption on the Company’s December 31, 2015 consolidated balance sheet was to decrease other assets and total assets by $13 million and to decrease long-term debt and total liabilities by $13 million. The Company considers the reclassifications immaterial.

On January 1, 2016, the Company also adopted ASU 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40),” which provides new guidance that clarifies customers’ accounting for fees paid in a cloud computing arrangement. Under the new guidance, if a cloud computing arrangement includes a software license, the customer shall account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the cloud computing arrangement does not include a software license, the customer shall account for the arrangement as a service contract. The guidance applies to all new arrangements entered into after January 1, 2016. The adoption of ASU 2015-05 did not have an impact on the Company’s financial statements or EPS.

New Accounting Standards Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides new guidance on revenue recognition. The guidance clarifies that revenue from contracts with customers should be recognized in a manner that depicts the timing of the related transfer of goods or performance of services at an amount that reflects the expected consideration. The FASB has subsequently issued several amendments to the standard, including deferral of the effective date until January 1, 2018, clarification of principal versus agent considerations, narrow scope improvements and other technical corrections. Entities may elect either full or modified retrospective transition. Full retrospective transition will require a cumulative effect adjustment to retained earnings as of the earliest comparative period presented. Modified retrospective transition will require a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance.

The Company plans to adopt the revenue recognition guidance in the first quarter of 2018. The guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP. Accordingly, the Company does not expect an impact to net interest revenue. While the Company has not yet identified any changes in the timing of revenue recognition, the Company’s review is ongoing. The Company is evaluating the impact the new standard will have on the presentation of certain revenue streams (gross versus net reporting) and the capitalization of contract costs. The Company has not yet selected a transition method and continues to evaluate the impact the new guidance will have on its financial statements and EPS.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10),” which will become effective January 1, 2018. This new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provisions of the guidance include (i) most equity investments are to be measured at fair value with changes in fair value recognized in net income, except for those accounted for under the equity method or those that do not have readily determinable fair values for which a practical expedient can be elected, (ii) requires

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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 use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes, and (iii) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial instrument on the balance sheet or in the accompanying notes. The Company does not expect the adoption of ASU 2016-01 will have a material impact on its financial statements and EPS.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” which amends the accounting for leases by lessees and lessors. The primary change as a result of the new standard is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. Additional changes include accounting for lease origination and executory costs, required lessee reassessments during the lease term due to changes in circumstances and expanded lease disclosures. ASU 2016-02 will become effective January 1, 2019, with early adoption permitted, and requires entities to apply the new guidance using a modified retrospective transition. Modified retrospective transition requires entities to apply the new guidance as of the beginning of the earliest comparative period presented in the financial statements in which the entity first applies the new standard. Certain transition reliefs are permitted if elected by the entity. The adoption of ASU 2016-02 will result in the Company recognizing a right-of-use asset and lease liability on the consolidated balance sheet based on the present value of remaining operating lease payments (see Note 14 for the undiscounted future annual minimum rental commitments for operating leases). The Company does not expect the adoption of ASU 2016-02 will have a material impact on its EPS.

In March 2016, the FASB issued ASU 2016-09, “Stock Compensation – Improvements to Employee Share-Based Payment Accounting (Topic 718)” which amends certain aspects of how an entity accounts for share-based payments to employees. The new guidance requires entities to recognize the income tax effects for the difference between GAAP and federal income tax treatment of share-based awards in the income statement when the awards vest or are settled, rather than recording such effects in additional paid-in capital. Entities will also be permitted to elect to account for forfeitures of share-based payments as they occur or continue with current practice, which requires estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change. ASU 2016-09 became effective January 1, 2017. The change in recognition of income tax effects of share-based awards will be applied prospectively. If an entity elects to account for forfeitures of share-based payments as they occur, such change will be applied using a modified retrospective transition method, with a cumulative-effect adjustment to retained earnings. The adoption of ASU 2016-09 will result in the Company recognizing the income tax effects of share-based awards in the income statement, thus impacting the Company’s EPS on a prospective basis. The impact of this new guidance is largely dependent on the Company’s future share price at the date of restricted stock unit vest or option exercise and, thus, is not practicable to estimate. The impact of ASU 2016-09 will likely disproportionately occur during the fourth quarter of each year due to the Company’s historic practice of granting the majority of equity compensation in that period. For historical perspective only, if ASU 2016-09 had been in effect for year ended 2016, the Company’s taxes on income as presented in the consolidated statements of income would have been reduced by $48 million and EPS increased by $0.04.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” which provides new guidance for recognizing impairment of most debt instruments measured at amortized cost, including loans and HTM debt securities. The new guidance will require estimating expected credit losses (CECL) over the remaining life of an instrument or a portfolio of instruments with similar risk characteristics based on relevant information about past events, current conditions and reasonable forecasts. The initial estimate of and the subsequent changes in CECL will be recognized as credit loss expense through current earnings and will be reflected as an allowance for credit losses offsetting the carrying value of the financial instrument(s) on the balance sheet. The new guidance also amends the OTTI model for AFS debt securities by requiring the use of an allowance, rather than directly reducing the carrying value of the security, and eliminating consideration of the length of time such security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. ASU 2016-13 will become effective January 1, 2020, with early adoption permitted as of January 1, 2019. The new guidance will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the entity applies the new guidance except that a prospective transition is required for AFS debt securities for which an OTTI had been recognized before the effective date. The Company is currently evaluating the impact of this new guidance on its financial statements and EPS.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

3. Receivables from and Payables to Brokerage Clients

Receivables from and payables to brokerage clients are detailed below:


December 31,		2016		2015
Receivables
Margin loans, net of allowance for doubtful accounts	$	15,257	$	15,818
Other brokerage receivables		1,898		1,495
Receivables from brokerage clients – net	$	17,155	$	17,313

Payables
Interest-bearing payables	$	28,336	$	26,584
Non-interest-bearing payables		7,558		6,601
Payables to brokerage clients	$	35,894	$	33,185

4. Other Securities Owned

A summary of other securities owned is as follows:


December 31,		2016		2015
Equity and bond mutual funds	$	272	$	205
Schwab Funds ® money market funds		108		261
State and municipal debt obligations		41		50
Equity, U.S. Government and corporate debt, and other securities		28		17
Total other securities owned	$	449	$	533

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

- 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)

5. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of AFS and HTM securities are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2016	Cost		Gains		Losses		Value
Available for sale securities:
U.S. agency mortgage-backed securities	$	33,167	$	120	$	92	$	33,195
Asset-backed securities		20,520		29		214		20,335
Corporate debt securities		9,850		20		18		9,852
U.S. Treasury securities		8,679		3		59		8,623
Certificates of deposit		2,070		2		1		2,071
U.S. agency notes		1,915		-		8		1,907
U.S. state and municipal securities		1,167		2		46		1,123
Commercial paper		214		-		-		214
Non-agency commercial mortgage-backed securities		45		-		-		45
Total available for sale securities	$	77,627	$	176	$	438	$	77,365
Held to maturity securities:
U.S. agency mortgage-backed securities	$	72,439	$	324	$	1,086	$	71,677
Non-agency commercial mortgage-backed securities		997		11		4		1,004
Asset-backed securities		941		-		-		941
Corporate debt securities		436		-		-		436
U.S. Treasury securities		223		-		4		219
Commercial paper		99		-		-		99
U.S. state and municipal securities		68		1		1		68
Total held to maturity securities	$	75,203	$	336	$	1,095	$	74,444


December 31, 2015
Available for sale securities:
U.S. agency mortgage-backed securities	$	22,014	$	183	$	48	$	22,149
Asset-backed securities		21,784		7		306		21,485
Corporate debt securities		10,764		14		31		10,747
U.S. Treasury securities		5,719		2		17		5,704
Certificates of deposit		1,685		1		3		1,683
U.S. agency notes		3,177		-		27		3,150
U.S. state and municipal securities		414		10		-		424
Non-agency commercial mortgage-backed securities		298		1		-		299
Other securities		5		-		-		5
Total available for sale securities	$	65,860	$	218	$	432	$	65,646
Held to maturity securities:
U.S. agency mortgage-backed securities	$	48,785	$	391	$	293	$	48,883
Non-agency commercial mortgage-backed securities		999		6		20		985
U.S. Treasury securities		223		-		3		220
Total held to maturity securities	$	50,007	$	397	$	316	$	50,088

- 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)

Schwab Bank pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $181 million at December 31, 2016.

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


	Less than				12 months
	12 months				or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2016	Value		Losses		Value		Losses		Value		Losses
Available for sale securities:
U.S. agency mortgage-backed securities	$	14,816	$	69	$	2,931	$	23	$	17,747	$	92
Asset-backed securities		1,670		13		9,237		201		10,907		214
Corporate debt securities		2,407		17		653		1		3,060		18
U.S. Treasury securities		6,926		59		-		-		6,926		59
Certificates of deposit		474		-		100		1		574		1
U.S. agency notes		1,907		8		-		-		1,907		8
U.S. state and municipal securities		956		46		-		-		956		46
Total	$	29,156	$	212	$	12,921	$	226	$	42,077	$	438
Held to maturity securities:
U.S. agency mortgage-backed securities	$	51,361	$	1,086	$	-	$	-	$	51,361	$	1,086
Non-agency commercial mortgage-backed
securities		591		4		-		-		591		4
U.S. Treasury securities		219		4		-		-		219		4
U.S. state and municipal securities		14		1		-		-		14		1
Total	$	52,185	$	1,095	$	-	$	-	$	52,185	$	1,095
Total securities with unrealized losses (1)	$	81,341	$	1,307	$	12,921	$	226	$	94,262	$	1,533


December 31, 2015
Available for sale securities:
U.S. agency mortgage-backed securities	$	8,541	$	47	$	813	$	1	$	9,354	$	48
Asset-backed securities		17,127		240		2,743		66		19,870		306
Corporate debt securities		5,433		25		942		6		6,375		31
U.S. Treasury securities		5,010		17		-		-		5,010		17
Certificates of deposit		773		2		599		1		1,372		3
U.S. agency notes		1,281		10		1,547		17		2,828		27
Total	$	38,165	$	341	$	6,644	$	91	$	44,809	$	432
Held to maturity securities:
U.S. agency mortgage-backed securities	$	24,219	$	253	$	1,842	$	40	$	26,061	$	293
Non-agency commercial mortgage-backed
securities		729		20		-		-		729		20
U.S. Treasury securities		220		3		-		-		220		3
Total	$	25,168	$	276	$	1,842	$	40	$	27,010	$	316
Total securities with unrealized losses (2)	$	63,333	$	617	$	8,486	$	131	$	71,819	$	748

(1)	The number of investment positions with unrealized losses totaled 627 for AFS securities and 612 for HTM securities.
(2)	The number of investment positions with unrealized losses totaled 409 for AFS securities and 286 for HTM securities.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Management evaluates whether investment securities are OTTI on a quarterly basis as described in Note 2.

The following table is a roll forward 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 reclassified from or recognized in other comprehensive income (loss):


Year Ended December 31,		2016		2015		2014
Balance at beginning of year	$	1	$	2	$	169
Credit losses recognized into current year earnings on debt securities for
which an OTTI was not previously recognized		-		-		1
Reductions due to sale of debt securities for which an OTTI was
previously recognized		(1)		(1)		(168)
Balance at end of year	$	-	$	1	$	2

The maturities of AFS and HTM securities are as follows:


			After 1 year		After 5 years
	Within		through		through		After
December 31, 2016	1 year		5 years		10 years		10 years		Total
Available for sale securities:
U.S. agency mortgage-backed securities (1)	$	47	$	3,475	$	16,847	$	12,826	$	33,195
Asset-backed securities		-		8,728		3,799		7,808		20,335
Corporate debt securities		2,332		7,520		-		-		9,852
U.S. Treasury securities		1,199		6,707		717		-		8,623
Certificates of deposit		651		1,420		-		-		2,071
U.S. agency notes		-		1,907		-		-		1,907
U.S. state and municipal securities		-		-		72		1,051		1,123
Commercial paper		214		-		-		-		214
Non-agency commercial mortgage-backed
securities (1)		-		-		-		45		45
Total fair value	$	4,443	$	29,757	$	21,435	$	21,730	$	77,365
Total amortized cost	$	4,440	$	29,741	$	21,519	$	21,927	$	77,627
Held to maturity securities:
U.S. agency mortgage-backed securities (1)	$	-	$	5,080	$	22,954	$	43,643	$	71,677
Non-agency commercial mortgage-backed
securities (1)		-		-		364		640		1,004
Asset-backed securities		-		150		791		-		941
Corporate debt securities		-		436		-		-		436
U.S. Treasury securities		-		-		219		-		219
Commercial paper		99		-		-		-		99
U.S. state and municipal securities		-		-		6		62		68
Total fair value	$	99	$	5,666	$	24,334	$	44,345	$	74,444
Total amortized cost	$	99	$	5,559	$	24,500	$	45,045	$	75,203

(1)	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.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Proceeds and gross realized gains and losses from sales of AFS securities are as follows:


Year Ended December 31,		2016		2015		2014
Proceeds	$	5,537	$	2,424	$	6,556
Gross realized gains		4		1		30
Gross realized losses		-		1		23

6 . Bank Loans and Related Allowance for Loan Losses

The composition of bank loans and delinquency analysis by loan type is as follows:


									>90 days past			Total past due					Allowance		Total
			30-59 days			60-89 days			due and other			and other			Total		for loan		bank
December 31, 2016	Current		past due			past due			nonaccrual loans			nonaccrual loans			loans		losses		loans - net
Residential real estate mortgages	$	9,100		$	15		$	3		$	16		$	34	$	9,134	$	17	$	9,117
Home equity loans and lines of credit		2,336			2			2			10			14		2,350		8		2,342
Pledged asset lines		3,846			4			1			-			5		3,851		-		3,851
Other		94			-			-			-			-		94		1		93
Total bank loans	$	15,376		$	21		$	6		$	26		$	53	$	15,429	$	26	$	15,403

December 31, 2015
Residential real estate mortgages	$	8,304		$	11		$	1		$	18		$	30	$	8,334	$	20	$	8,314
Home equity loans and lines of credit		2,720			4			1			10			15		2,735		11		2,724
Pledged asset lines		3,228			3			1			-			4		3,232		-		3,232
Other		64			-			-			-			-		64		-		64
Total bank loans	$	14,316		$	18		$	3		$	28		$	49	$	14,365	$	31	$	14,334

First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $78 million and $80 million at December 31, 2016 and 2015, respectively. The Company had commitments to extend credit related to unused HELOCs, PALs, and other lines of credit, which totaled $8.4 billion and $7.4 billion at December 31, 2016 and 2015, respectively. The Company had commitments to purchase First Mortgage loans of $466 million and $260 million at December 31, 2016 and 2015, respectively. All PALs were fully collateralized by securities with fair values in excess of borrowings at December 31, 2016 and 2015 .

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 $3.3 billion and $2.0 billion during 2016 and 2015, respectively. Schwab purchased HELOCs with commitments of $440 million and $573 million during 2016 and 2015, respectively.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Credit Quality

Changes in the allowance for loan losses were as follows:


	December 31, 2016												December 31, 2015										December 31, 2014
	Residential			Home equity										Residential			Home equity						Residential			Home equity
	real estate			loans and										real estate			loans and						real estate			loans and
	mortgages			lines of credit				Other		Total				mortgages			lines of credit			Total			mortgages			lines of credit			Total
Balance at beginning of year		$	20		$	11	$		-		$	31			$	29		$	13		$	42		$	34		$	14		$	48
Charge-offs			(1)			(1)			-			(2)				(1)			(2)			(3)			(3)			(2)			(5)
Recoveries			1			1			-			2				1			2			3			2			1			3
Provision for loan losses			(3)			(3)			1			(5)				(9)			(2)			(11)			(4)			-			(4)
Balance at end of year		$	17		$	8	$		1		$	26			$	20		$	11		$	31		$	29		$	13		$	42

Substantially all of the bank loans were collectively evaluated for impairment at both December 31, 2016 and 2015. There were no loans accruing interest that were contractually 90 days or more past due at December 31, 2016 or 2015. Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $31 million and $36 million at December 31, 2016 and 2015, respectively. Impaired assets, which include nonaccrual loans, other real estate owned and TDRs, totaled $45 million and $50 million at December 31, 2016 and 2015, respectively. TDRs were not material at December 31, 2016 or 2015.

In addition to monitoring delinquency, the Company monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following:

Year of origination;

Borrower FICO scores at origination (Origination FICO);

Updated borrower FICO scores (Updated FICO);

Loan-to-value ratios at origination (Origination LTV); and

Estimated current LTV ratios (Estimated Current LTV).

Borrowers’ FICO scores are provided by an independent third-party credit reporting service and were last updated in December 2016. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is estimated by reference to a home price appreciation index.

As of December 31, 2016 and 2015, 48 % of the Company’s HELOC and First Mortgage portfolio was concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole.

- 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)

The credit quality indicators of the Company’s bank loan portfolio are detailed below:


			Weighted				Percent of Loans
			Average		Utilization		that are on
December 31, 2016	Balance		Updated FICO		Rate (1)		Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
< 70%	$	8,350		774	N/A		0.04	%
>70% – < 90%		743		768	N/A		0.35	%
>90% – < 100%		21		747	N/A		2.08	%
>100%		20		709	N/A		14.50	%
Total	$	9,134		773	N/A		0.10	%
Home equity loans and lines of credit:
Estimated Current LTV (2)
< 70%	$	2,070		771	35	%	0.12	%
>70% – < 90%		234		757	50	%	0.40	%
>90% – < 100%		29		747	66	%	1.74	%
>100%		17		728	70	%	3.73	%
Total	$	2,350		769	36	%	0.20	%
Pledged asset lines:
Weighted Average LTV (2)
=70%	$	3,851		763	46	%	-

(1)	The Utilization Rate is calculated using the outstanding balance divided by the associated total line of credit.
(2)	Represents the LTV for the full line of credit (drawn and undrawn).

N/A Not applicable.


	Residential		Home equity
	real estate		loans and
December 31, 2016	mortgages		lines of credit
Year of origination
Pre-2012	$	1,010	$	1,660
2012		1,126		105
2013		1,746		193
2014		685		152
2015		1,458		146
2016		3,109		94
Total	$	9,134	$	2,350
Origination FICO
<620	$	8	$	-
620 – 679		92		13
680 – 739		1,427		432
> 740		7,607		1,905
Total	$	9,134	$	2,350
Origination LTV
< 70%	$	6,865	$	1,628
>70% – < 90%		2,260		709
>90% – < 100%		9		13
Total	$	9,134	$	2,350

- 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)


			Weighted				Percent of Loans
			Average		Utilization		that are on
December 31, 2015	Balance		Updated FICO		Rate (1)		Nonaccrual Status
Residential real estate mortgages:
Estimated Current LTV
< 70%	$	7,508		774	N/A		0.03	%
>70% – < 90%		759		764	N/A		0.31	%
>90% – < 100%		37		736	N/A		5.54	%
>100%		30		713	N/A		7.72	%
Total	$	8,334		773	N/A		0.11	%
Home equity loans and lines of credit:
Estimated Current LTV (2)
< 70%	$	2,277		772	37	%	0.09	%
>70% – < 90%		373		760	50	%	0.48	%
>90% – < 100%		48		748	63	%	1.02	%
>100%		37		739	67	%	1.79	%
Total	$	2,735		770	39	%	0.18	%
Pledged asset lines:
Weighted Average LTV (2)
=70%	$	3,232		764	49	%	-

(1)	The Utilization Rate is calculated using the outstanding balance divided by the associated total line of credit.
(2)	Represents the LTV for the full line of credit (drawn and undrawn).

N/A Not applicable.


	Residential		Home equity
	real estate		loans and
December 31, 2015	mortgages		lines of credit
Year of origination
Pre-2012	$	1,306	$	2,048
2012		1,644		125
2013		2,450		232
2014		1,021		188
2015		1,913		142
Total	$	8,334	$	2,735
Origination FICO
<620	$	10	$	-
620 – 679		88		16
680 – 739		1,381		498
> 740		6,855		2,221
Total	$	8,334	$	2,735
Origination LTV
< 70%	$	5,913	$	1,858
>70% – < 90%		2,408		860
>90% – < 100%		13		17
Total	$	8,334	$	2,735

- 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)

7. Equipment, Office Facilities, and Property

Equipment, office facilities, and property are detailed below:


December 31,		2016		2015
Software	$	1,335	$	1,183
Buildings		807		771
Leasehold improvements		342		322
Information technology equipment		299		273
Furniture and equipment		190		177
Telecommunications equipment		67		78
Construction in progress		26		18
Land		168		110
Total equipment, office facilities, and property		3,234		2,932
Accumulated depreciation and amortization		(1,935)		(1,787)
Total equipment, office facilities, and property – net	$	1,299	$	1,145

Depreciation and amortization expense for equipment, office facilities, and property was $197 million, $179 million, and $155 million in 2016, 2015, and 2014, respectively.

8. Intangible Assets and Goodwill

Intangible assets and goodwill are detailed below:


	December 31, 2016							December 31, 2015
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Value		Amortization			Value		Value		Amortization			Value
Client relationships	$	274		$	169	$	105	$	274		$	144	$	130
Technology		89			56		33		89			47		42
Trade name		16			10		6		16			7		9
Total intangible assets	$	379		$	235	$	144	$	379		$	198	$	181

Amortization expense for intangible assets was $37 million, $45 million, and $44 million, in 2016, 2015, and 2014, respectively.

Estimated future annual amortization expense for intangible assets as of December 31, 2016, is as follows:


2017	$	37
2018		30
2019		27
2020		22
2021		15
Thereafter		13
Total intangible assets	$	144

- 75 -

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 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		Advisor
	Services		Services		Total
Balance at December 31, 2014	$	1,127	$	100	$	1,227
Goodwill acquired and other changes during the period (1)		(31)		31		-
Balance at December 31, 2015		1,096		131		1,227
Goodwill acquired and other changes during the period		-		-		-
Balance at December 31, 2016	$	1,096	$	131	$	1,227

(1)	During 2015, the Corporate Brokerage Retirement Services business was transferred from the Investor Services segment to the Advisor Services segment. Related goodwill amounts were transferred from the Investor Services segment to the Advisor Services segment.

In testing for potential impairment of goodwill on April 1, 2016, 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 2016 , 2015 , or 2014 .

9. Other Assets

The components of other assets are as follows :


December 31,		2016		2015
Accounts receivable (1)	$	451	$	388
Interest and dividends receivable		325		241
Other investments (2)		324		180
Deferred tax asset – net		143		145
Prepaid expenses		90		101
Other (3)		75		106
Total other assets	$	1,408	$	1,161

(1)	Accounts receivable includes accrued service fee income and a receivable from the Company’s loan servicer.
(2)	Other investments include LIHTC investments and investments in stock of the Federal Home Loan Bank of San Francisco. FHLB stock can only be sold to the issuer at its par value. Any cash dividends received from these investments are recognized as interest income in the Consolidated Statements of Income.
(3)	Adjusted for retrospective adoption of ASU 2015-03. See New Accounting Standards in Note 2 for additional information.

10. Variable Interest Entities

A VIE requires consolidation by the entity’s primary beneficiary. The Company evaluates all entities in which it has a financial interest to determine if the entity is a VIE and if so, whether the Company is the primary beneficiary. See “ Principles of Consolidation ” in Note 1 for discussion of the Company’s evaluations of VIEs and whether it is deemed to be the primary beneficiary of any VIEs in which it holds an interest. The Company was not the primary beneficiary of, and therefore, not required to consolidate any VIEs during 2016, 2015, or 2014.

Community Reinvestment Act investments

Schwab Bank is subject to the CRA. The CRA is intended to encourage banks to help meet the credit needs of the communities in which they operate, including low and moderate income neighborhoods, consistent with safe and sound banking operations. As part of Schwab Bank’s community reinvestment initiatives, Schwab Bank invests with other institutional investors in funds that make equity investments in multifamily affordable housing properties. Schwab Bank receives tax credits and other tax benefits for these investments. Schwab Bank’s LIHTC investments are accounted for using

- 76 -

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 proportional amortization method. See Note 2 for discussion of the application of the proportional amortization method. Amortization, tax credits, and other tax benefits recognized in relation to LIHTC investments are included in taxes on income on the consolidated statements of income. As of December 31, 2016 and 2015, the majority of the Company’s VIEs related to Schwab Bank’s LIHTC investments.

The carrying value of the LIHTC investments was $189 million and $104 million as of December 31, 2016 and 2015, respectively, which is included in other assets on the consolidated balance sheets. Schwab Bank recorded liabilities of $135 million and $84 million for unfunded commitments related to LIHTC investments at December 31, 2016 and 2015, respectively, which are included in accrued expenses and other liabilities on the consolidated balance sheets. Schwab Bank’s funding of these remaining commitments is dependent upon the occurrence of certain conditions and Schwab Bank expects to pay substantially all of these commitments between 2017 and 2020 .

Aggregate assets, liabilities and maximum exposure to loss

The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which the Company holds a variable interest, but as to which the Company has concluded it is not the primary beneficiary, are summarized in the table below:


		December 31, 2016						December 31, 2015
						Maximum						Maximum
		Aggregate		Aggregate		exposure		Aggregate		Aggregate		exposure
		assets		liabilities		to loss		assets		liabilities		to loss
LIHTC Investments	$	189	$	135	$	189	$	104	$	84	$	104
Other CRA Investments (1)		60		-		80		57		-		66
Total	$	249	$	135	$	269	$	161	$	84	$	170


(1)	Other CRA investments are recorded using either the cost method or the equity method. Aggregate assets are included in either other assets or bank loans – net on the consolidated balance sheets.

The Company’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. During the years ended December 31, 2016 and 2015, the Company did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide.

11. Bank Deposits

Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows:


December 31,		2016		2015
Interest-bearing deposits:
Deposits swept from brokerage accounts	$	141,146	$	108,137
Checking		13,842		12,822
Savings and other		7,792		7,896
Total interest-bearing deposits		162,780		128,855
Non-interest-bearing deposits		674		647
Total bank deposits	$	163,454	$	129,502

12. Payables to Brokers, Dealers, and Clearing Organizations

Payables to brokers, dealers, and clearing organizations include securities loaned of $2.0 billion and $2.2 billion at December 31, 2016 and 2015, 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, 2016 and 2015.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

13. Borrowings

Long-term debt was net of unamortized debt discounts/premiums and debt issuance costs of $24 million and $29 million at December 31, 2016 and 2015, respectively.


December 31,			2016		2015
Senior Notes		$	2,558	$	2,553	(1)
Medium-Term Notes, Series A			250		249	(1)
Finance lease obligation			68		75
Total long-term debt		$	2,876	$	2,877

(1)	Balances as of December 31, 2015 have been recast as a result of the adoption of ASU 2015-03, to present debt issuance costs of $13 million as a direct deduction from the carrying amount of the associated debt liability, consistent with the recording of debt discounts.

CSC has a Shelf Registration Statement on file with the SEC, which enables CSC to issue debt, equity, and other securities.

The Senior Notes outstanding at December 31, 2016, have maturities ranging from 2018 to 2026 and bear interest at a weighted-average rate of 3.03% with interest payable semi-annually.

On November 13, 2015, CSC issued $350 million aggregate principal amount of Senior Notes that mature in 2026. The Senior Notes have a fixed interest rate of 3.450% with interest payable semi-annually.

The Medium-Term Notes, Series A (Medium-Term Notes) outstanding at December 31, 2016, 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 $68 million at December 31, 2016, is being reduced by a portion of the lease payments over the remaining lease term of eight years.

Annual maturities on long-term debt outstanding at December 31, 2016, are as follows:


2017	$	258
2018		908
2019		8
2020		709
2021		9
Thereafter		1,008
Total maturities		2,900
Unamortized discount, net		(14)
Debt issuance costs		(10)
Total long-term debt	$	2,876

Short-term borrowings: Schwab Bank maintains a secured credit facility with the FHLB. Amounts available under this facility are dependent on the amount of Schwab Bank’s First Mortgages, HELOCs, and the fair value of certain of Schwab Bank’s investment securities that are pledged as collateral. During 2016, Schwab Bank used borrowings under this agreement to purchase investment securities prior to bulk transfers. No amounts were outstanding under this facility as of December 31, 2016 or 2015. As a condition of the borrowings, Schwab Bank purchased $152 million of FHLB stock, recorded at par, and sold $88 million of FHLB stock in 2016, with the net investment recorded in other assets on the consolidated balance sheets. Schwab Bank sold $8 million of FHLB stock during 2015.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

CSC has authorization from its Board of Directors to issue Commercial Paper Notes not to exceed $1.5 billion. Management has set a current limit for the commercial paper program not to exceed the amount of the committed, unsecured credit facility, which was $750 million at December 31, 2016. 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. CSC had no borrowings of Commercial Paper Notes outstanding at December 31, 2016 or 2015.

CSC maintains a $750 million committed, unsecured credit facility with a group of banks, which is scheduled to expire in June 2017. This facility replaced a similar facility that expired in June 2016. The funds under this facility are available for general corporate purposes. The financial covenants 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, adjusted to exclude AOCI. At December 31, 2016, the minimum level of stockholders’ equity required under this facility was $10.2 billion (CSC’s stockholders’ equity, excluding AOCI, at December 31, 2016, was $16.6 billion). There were no borrowings outstanding under these facilities at December 31, 2016 or 2015.

To manage short-term liquidity, Schwab maintains uncommitted, unsecured bank credit lines with several banks. There were no borrowings outstanding under these lines at December 31, 2016 or 2015.

14. Commitments and Contingencies

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 are as follows:


	Operating
December 31, 2016	Leases		Subleases		Net
2017	$	137	$	29	$	108
2018		109		8		101
2019		84		4		80
2020		73		4		69
2021		64		5		59
Thereafter		318		2		316
Total	$	785	$	52	$	733

Certain leases contain provisions for renewal options, purchase options, and rent escalations based on increases in certain costs incurred by the lessor. Rent expense relating to operating leases was $123 million, $116 million, and $114 million in 2016, 2015, and 2014, respectively.

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


December 31, 2016
2017	$	211
2018		88
2019		44
2020		21
2021		20
Thereafter		200
Total	$	584

Guarantees and indemnifications: 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

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Corporation, which are issued by several banks. At December 31, 2016, the aggregate face amount of these LOCs totaled $295 million. There were no funds drawn under any of these LOCs at December 31, 2016. 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.

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. 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.

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. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter.

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. 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.

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 alleged violations of state law and federal securities law in connection with the fund’s investment policy, named CSIM, Schwab Investments (registrant and issuer of the fund’s shares) and certain current and former fund trustees 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. Plaintiff seeks unspecified compensatory and rescission damages, unspecified equitable and injunctive relief, costs and attorneys’ fees. Plaintiff’s federal securities law claim and certain of plaintiff’s state law claims were dismissed. On August 8, 2011, the court dismissed plaintiff’s remaining claims with prejudice. Plaintiff appealed to the Ninth Circuit, which issued a ruling on March 9, 2015 reversing the district court’s dismissal of the case and remanding the case for further proceedings. Plaintiff filed a fourth amended complaint on June 25, 2015, and in decisions issued October 6, 2015 and February 23, 2016, the court dismissed all claims with prejudice. Plaintiff has appealed to the Ninth Circuit, where the case is again pending.

Other Matters : On April 16, 2012, optionsXpress was charged by the SEC in an administrative proceeding alleging violations of its close-out obligations under Regulation SHO (short sale delivery rules) in connection with certain customer trading

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

activity. Following trial, in a decision issued June 7, 2013, the judge held that optionsXpress had violated Regulation SHO and aided and abetted fraudulent trading activity by its customer, and ordered optionsXpress and the customer to pay disgorgement and penalties in an amount that would not be material. The Company appealed to the SEC, and in a decision issued August 18, 2016 and amended September 13, 2016, the SEC dismissed all fraud charges but affirmed the violations of Regulation SHO and the financial sanctions imposed by its administrative law judge. This matter is now concluded.

15. Financia l Inst ruments Subject to Off-Balance Sheet Credit Risk or Concentration Risk

Off-Balance Sheet Credit 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 at or 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. 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 brokerage 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 Company borrows securities from other broker-dealers to fulfill short sales by brokerage clients and delivers cash to the lender in exchange for the securities. The fair value of these borrowed securities was $213 million and $72 million at December 31, 2016 and 2015, 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. Therefore, the Company’s securities loaned and securities borrowed are presented gross in the consolidated balance sheets.

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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 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, 2016 and 2015.


							Gross Amounts Not Offset in the
			Gross Amounts		Net Amounts		Consolidated Balance Sheets
		Gross	Offset in the		Presented in the
		Assets/	Consolidated		Consolidated		Counterparty						Net
		Liabilities	Balance Sheets		Balance Sheets		Offsetting		Collateral				Amount
December 31, 2016
Assets:
Resale agreements (1)	$	9,547	$	-	$	9,547	$	-	$	(9,547)	(2)	$	-
Securities borrowed (3)		393		-		393		(200)		(189)			4
Total	$	9,940	$	-	$	9,940	$	(200)	$	(9,736)		$	4
Liabilities:
Securities loaned (4,5)	$	1,996	$	-	$	1,996	$	(200)	$	(1,660)		$	136
Total	$	1,996	$	-	$	1,996	$	(200)	$	(1,660)		$	136

December 31, 2015
Assets:
Resale agreements (1)	$	8,088	$	-	$	8,088	$	-	$	(8,088)	(2)	$	-
Securities borrowed (3)		198		-		198		(70)		(127)			1
Total	$	8,286	$	-	$	8,286	$	(70)	$	(8,215)		$	1
Liabilities:
Securities loaned (4,5)	$	2,233	$	-	$	2,233	$	(70)	$	(1,990)		$	173
Total	$	2,233	$	-	$	2,233	$	(70)	$	(1,990)		$	173

(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 or equal to 102% of the related assets. At December 31, 2016 and 2015, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $9.8 billion and $8.2 billion, respectively.
(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.
(5)	Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities.

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 .

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Margin lending: Clients with margin loans have agreed to allow the Company to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities available, under such regulations, for the Company to utilize as collateral, and the amounts pledged by the Company.


December 31,		2016		2015
Fair value of client securities available to be pledged	$	21,516	$	22,385
Fair value of client securities pledged for:
Securities lending to other broker-dealers		1,626		1,935
Fulfillment of client short sales		2,048		1,344
Fulfillment of requirements with the Options Clearing Corporation (1)		1,519		1,450
Total collateral pledged	$	5,193	$	4,729

Note:	Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $58 million as of December 31, 2016 and $43 million as of December 31, 2015.
(1)	Client securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.

Financial Guarantees: See Note 14 for additional information.

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.

The fair value of the Company’s investments in mortgage-backed securities totaled $105.9 billion at December 31, 2016. Of these, $104.9 billion were issued by U.S. agencies and $1.0 billion were issued by private entities (non-agency securities). The fair value of the Company’s investments in mortgage-backed securities totaled $72.3 billion at December 31, 2015. Of these, $71.0 billion were issued by U.S. agencies and $1.3 billion were non-agency securities. These U.S. agency and non-agency securities are included in investment securities in the consolidated balance sheets.

The fair value of the Company’s investments in corporate debt securities and commercial paper totaled $10.6 billion and $11.1 billion at December 31, 2016 and 2015, respectively . At December 31, 2016, approximately 48% of these investments were issued by institutions in the financial services industry. These securities are include d in investment securities, cash and cash equivalents, and other securities owned.

The Company’s bank loans include $8.2 billion and $7.5 billion of adjustable rate First Mortgages at December 31, 2016 and 2015, respectively. At December 31, 2016, approximately 36% of these mortgages consisted of loans with interest-only payment terms. At December 31, 2016, the interest rates on approximately 58% of these interest-only loans are not scheduled to reset for three or more years. For additional detail on concentrations in bank loans, see Note 6.

Fees received from Schwab’s proprietary mutual funds and ETFs represented 13% , 8% , and 7% of the Company’s net revenues in 2016, 2015, and 2014, respectively. Except for Schwab’s proprietary mutual funds and ETFs, 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 2016, 2015, or 2014. 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 23% at December 31, 2016, 2015, and 2014.

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.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

16. Fair Values of Assets and Liabilities

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. The Company did not transfer any assets or liabilities between Level 1, Level 2, or Level 3 during 2016 or 2015. In addition, the Company did not adjust prices received from the primary independent third-party pricing service at December 31, 2016 or 2015.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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


	Quoted Prices
	in Active Markets			Significant			Significant
	for Identical			Other Observable			Unobservable
	Assets			Inputs			Inputs		Balance at
December 31, 2016	(Level 1)			(Level 2)			(Level 3)		Fair Value
Cash equivalents:
Money market funds		$	1,514		$	-	$	-	$	1,514
Total cash equivalents			1,514			-		-		1,514
Investments segregated and on deposit for
regulatory purposes:
Certificates of deposit			-			2,525		-		2,525
U.S. Government securities			-			6,111		-		6,111
Total investments segregated and on deposit for
regulatory purposes			-			8,636		-		8,636
Other securities owned:
Equity and bond mutual funds			272			-		-		272
Schwab Funds ® money market funds			108			-		-		108
State and municipal debt obligations			-			41		-		41
Equity, U.S. Government and corporate debt, and
other securities			2			26		-		28
Total other securities owned			382			67		-		449
Available for sale securities:
U.S. agency mortgage-backed securities			-			33,195		-		33,195
Asset-backed securities			-			20,335		-		20,335
Corporate debt securities			-			9,852		-		9,852
U.S. Treasury securities			-			8,623		-		8,623
Certificates of deposit			-			2,071		-		2,071
U.S. agency notes			-			1,907		-		1,907
U.S. state and municipal securities			-			1,123		-		1,123
Commercial paper			-			214		-		214
Non-agency commercial mortgage-backed securities			-			45		-		45
Total available for sale securities			-			77,365		-		77,365
Total		$	1,896		$	86,068	$	-	$	87,964

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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


	Quoted Prices
	in Active Markets			Significant				Significant
	for Identical			Other Observable				Unobservable
	Assets			Inputs				Inputs	Balance at
December 31, 2015	(Level 1)			(Level 2)				(Level 3)	Fair Value
Cash equivalents:
Money market funds		$	1,968		$	-	$	-	$	1,968
Commercial paper			-			360		-		360
Total cash equivalents			1,968			360		-		2,328
Investments segregated and on deposit for
regulatory purposes:
Certificates of deposit			-			3,430		-		3,430
U.S. Government securities			-			4,517		-		4,517
Total investments segregated and on deposit for
regulatory purposes			-			7,947		-		7,947
Other securities owned:
Equity and bond mutual funds			205			-		-		205
Schwab Funds ® money market funds			261			-		-		261
State and municipal debt obligations			-			50		-		50
Equity, U.S. Government and corporate debt, and
other securities			1			16		-		17
Total other securities owned			467			66		-		533
Available for sale securities:
U.S. agency mortgage-backed securities			-			22,149		-		22,149
Asset-backed securities			-			21,485		-		21,485
Corporate debt securities			-			10,747		-		10,747
U.S. Treasury securities			-			5,704		-		5,704
Certificates of deposit			-			1,683		-		1,683
U.S. agency notes			-			3,150		-		3,150
U.S. state and municipal securities			-			424		-		424
Non-agency commercial mortgage-backed securities			-			299		-		299
Other securities			-			5		-		5
Total available for sale securities			-			65,646		-		65,646
Total		$	2,435		$	74,019	$	-	$	76,454

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Fair Value of Other Financial Instruments

Descriptions of the valuation methodologies and assumptions used to estimate the fair value of other financial instruments are also described in Note 2. There were no significant changes in these methodologies or assumptions during 2016. The following tables present the fair value hierarchy for other financial instruments:


			Quoted Prices
			in Active Markets			Significant			Significant
			for Identical			Other Observable			Unobservable
	Carrying		Assets			Inputs			Inputs			Balance at
December 31, 2016	Amount		(Level 1)			(Level 2)			(Level 3)			Fair Value
Assets:
Cash and cash equivalents	$	9,314		$	-		$	9,314		$	-	$	9,314
Cash and investments segregated and
on deposit for regulatory purposes		13,533			-			13,533			-		13,533
Receivables from brokers, dealers, and
clearing organizations		728			-			728			-		728
Receivables from brokerage clients – net		17,151			-			17,151			-		17,151
Held to maturity securities:
U.S. agency mortgage-backed securities		72,439			-			71,677			-		71,677
Non-agency commercial mortgage-backed
securities		997			-			1,004			-		1,004
Asset-backed securities		941			-			941			-		941
Corporate debt securities		436			-			436			-		436
U.S. Treasury securities		223			-			219			-		219
Commercial paper		99			-			99			-		99
U.S. state and municipal securities		68			-			68			-		68
Total held to maturity securities		75,203			-			74,444			-		74,444
Bank loans: (1)
Residential real estate mortgages		9,134			-			9,064			-		9,064
Home equity loans and lines of credit		2,350			-			2,458			-		2,458
Pledged asset lines		3,851			-			3,851			-		3,851
Other		94			-			94			-		94
Total bank loans		15,429			-			15,467			-		15,467
Other assets		328			-			328			-		328
Total	$	131,686		$	-		$	130,965		$	-	$	130,965
Liabilities:
Bank deposits	$	163,454		$	-		$	163,454		$	-	$	163,454
Payables to brokers, dealers, and clearing
organizations		2,407			-			2,407			-		2,407
Payables to brokerage clients		35,894			-			35,894			-		35,894
Accrued expenses and other liabilities		1,169			-			1,169			-		1,169
Long-term debt		2,876			-			2,941			-		2,941
Total	$	205,800		$	-		$	205,865		$	-	$	205,865

(1)	The carrying value of bank loans excludes the allowance for loan losses of $26 million at December 31, 2016.

- 86 -

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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


			Quoted Prices
			in Active Markets			Significant			Significant
			for Identical			Other Observable			Unobservable
	Carrying		Assets			Inputs			Inputs			Balance at
December 31, 2015	Amount		(Level 1)			(Level 2)			(Level 3)			Fair Value
Assets:
Cash and cash equivalents	$	9,650		$	-		$	9,650		$	-	$	9,650
Cash and investments segregated and
on deposit for regulatory purposes		11,647			-			11,647			-		11,647
Receivables from brokers, dealers, and
clearing organizations		582			-			582			-		582
Receivables from brokerage clients – net		17,310			-			17,310			-		17,310
Held to maturity securities:
U.S. agency mortgage-backed securities		48,785			-			48,883			-		48,883
Non-agency commercial mortgage-backed
securities		999			-			985			-		985
U.S. Treasury securities		223			-			220			-		220
Total held to maturity securities		50,007			-			50,088			-		50,088
Bank loans: (1)
Residential real estate mortgages		8,334			-			8,347			-		8,347
Home equity loans and lines of credit		2,735			-			2,857			-		2,857
Pledged asset lines		3,232			-			3,232			-		3,232
Other		64			-			64			-		64
Total bank loans		14,365			-			14,500			-		14,500
Other assets		184			-			184			-		184
Total	$	103,745		$	-		$	103,961		$	-	$	103,961
Liabilities:
Bank deposits	$	129,502		$	-		$	129,502		$	-	$	129,502
Payables to brokers, dealers, and clearing
organizations		2,588			-			2,588			-		2,588
Payables to brokerage clients		33,185			-			33,185			-		33,185
Accrued expenses and other liabilities		1,115			-			1,115			-		1,115
Long-term debt (2)		2,877			-			2,967			-		2,967
Total	$	169,267		$	-		$	169,357		$	-	$	169,357

(1)	The carrying value of bank loans excludes the allowance for loan losses of $31 million at December 31, 2015.
(2)	The amounts as of December 31, 2015 have been recast as a result of the adoption of ASU 2015-03, to present debt issuance costs of $13 million as a direct deduction from the carrying amount of the associated debt liability, consistent with the recording of debt discounts.

- 87 -

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. Stockholders’ Equity

The Company did not issue any shares of common stock during 2016, 2015, and 2014, respectively.

The Company was authorized to issue 9,940,000 shares of preferred stock, $0.01 par value, at December 31, 2016 and 2015. The Company’s preferred stock issued and outstanding is as follows:


December 31,	2016							2015
	Shares							Shares
	Issued and	Liquidation						Issued and	Liquidation
	Outstanding	Preference		Liquidation		Carrying		Outstanding	Preference		Liquidation		Carrying
	(In thousands)	Per Share		Preference		Value		(In thousands)	Per Share		Preference		Value
Series A	400	$	1,000	$	400	$	397	400	$	1,000	$	400	$	396
Series B	485		1,000		485		482	485		1,000		485		480
Series C	600		1,000		600		585	600		1,000		600		583
Series D	750		1,000		750		728	-		-		-		-
Series E	6		100,000		600		591	-		-		-		-
Total Preferred Stock	2,241			$	2,835	$	2,783	1,485			$	1,485	$	1,459

The Series A Preferred Stock has no stated maturity and has a fixed dividend rate of 7.000% until February 2022 and a floating rate equal to three-month LIBOR plus 4.820% thereafter. During the fixed rate period, dividends, if declared, will be payable semi-annually in arrears. During the floating rate period, dividends, if declared, will be payable quarterly in arrears. Dividends are not cumulative. Under the terms of the Series A Preferred Stock, the Company’s ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire its common stock or any preferred stock ranking on parity with or junior to the Series A Preferred Stock, is subject to restrictions in the event that the Company does not declare and either pay or set aside a sum sufficient for payment of dividends on the Series A Preferred Stock for the immediately preceding dividend period. The Series A Preferred Stock is redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after February 1, 2022 or, in whole but not in part, within 90 days following a regulatory capital treatment event as defined in its Certificate of Designations.

The Series B Preferred Stock has no stated maturity and has a fixed dividend rate of 6.00%. Dividends, if declared, will be payable quarterly in arrears. Dividends are not cumulative. Under the terms of the Series B Preferred Stock, the Company’s ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire its common stock or any preferred stock ranking on parity with or junior to the Series B Preferred Stock, is subject to restrictions in the event that the Company does not declare and either pay or set aside a sum sufficient for payment of dividends on the Series B Preferred Stock for the immediately preceding dividend period. The Series B Preferred Stock is redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after September 1, 2017 or, in whole but not in part, within 90 days following a regulatory capital treatment event as defined in its Certificate of Designations.

On August 3, 2015, the Company issued and sold 24 million depositary shares, each representing a 1/40 th ownership interest in a share of 6.00% non-cumulative perpetual preferred stock, Series C, $0.01 par value, with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share).

The Series C Preferred Stock has no stated maturity and a fixed dividend rate of 6.00%. Dividends, if declared, will be payable quarterly in arrears. Dividends are not cumulative. Under the terms of the Series C Preferred Stock, the Company’s ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire its common stock or any preferred stock ranking on parity with or junior to the Series C Preferred Stock, is subject to restrictions in the event that the Company does not declare and either pay or set aside a sum sufficient for payment of dividends on the Series C Preferred Stock for the immediately preceding dividend period. The Series C Preferred Stock is redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after December 1, 2020 or, in whole but not in part, within 90 days following a regulatory capital treatment event as defined in its Certificate of Designations.

On March 7, 2016, the Company issued and sold 30 million depositary shares, each representing a 1/40 th ownership interest in a share of 5.95% non-cumulative perpetual preferred stock, Series D, $0.01 par value, with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share).

- 88 -

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 Series D Preferred Stock has no stated maturity and a fixed dividend rate of 5.95%. Dividends, if declared, will be payable quarterly in arrears. Dividends are not cumulative. Under the terms of the Series D Preferred Stock, the Company’s ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire its common stock or any preferred stock ranking on parity with or junior to the Series D Preferred Stock, is subject to restrictions in the event that the Company does not declare and either pay or set aside a sum sufficient for payment of dividends on the Series D Preferred Stock for the immediately preceding dividend period. The Series D Preferred Stock is redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after June 1, 2021 or, in whole but not in part, within 90 days following a regulatory capital treatment event as defined in its Certificate of Designations.

The Series E Preferred Stock has no stated maturity and a fixed dividend rate of 4.625% through February 28, 2022, payable semi-annually in arrears, and thereafter at a floating rate of three-month LIBOR plus a fixed spread of 3.315%, payable quarterly in arrears. Dividends are not cumulative. Under the terms of the Series E Preferred Stock, the Company’s ability to pay dividends on, make distributions with respect to, or to repurchase, redeem or acquire its common stock or any preferred stock ranking on parity with or junior to the Series E Preferred Stock, is subject to restrictions in the event that the Company does not declare and either pay or set aside a sum sufficient for payment of dividends on the Series E Preferred Stock for the immediately preceding dividend period. The Series E Preferred Stock is redeemable at the Company’s option, in whole or in part, on any dividend payment date on or after March 1, 2022 or, in whole but not in part, within 90 days following a regulatory capital treatment event as defined in its Certificate of Designations.

18. Accumulated Other Comp rehensive Income

AOCI represents cumulative gains and losses that are not reflected in earnings. The components of other comprehensive income (loss) are as follows:


Year Ended December 31,	2016						2015						2014
	Before		Tax		Net of		Before		Tax		Net of		Before		Tax		Net of
	tax		effect		tax		tax		effect		tax		tax		effect		tax
Change in net unrealized gain (loss) on
available for sale securities:
Net unrealized gain (loss)	$	(44)	$	16	$	(28)	$	(477)	$	178	$	(299)	$	255	$	(95)	$	160
Reclassification of impairment charges
included in net impairment losses on
securities		-		-		-		-		-		-		1		(1)		-
Other reclassifications included in
other revenue		(4)		2		(2)		-		-		-		(7)		3		(4)
Change in net unrealized gain (loss) on
available for sale securities		(48)		18		(30)		(477)		178		(299)		249		(93)		156
Other		1		-		1		-		-		-		-		-		-
Other comprehensive income (loss)	$	(47)	$	18	$	(29)	$	(477)	$	178	$	(299)	$	249	$	(93)	$	156

- 89 -

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

AOCI balances are as follows:


	Total
	Accumulated Other
	Comprehensive Income
Balance at December 31, 2013		$	9
Net unrealized gain (loss) on available for sale securities			156
Balance at December 31, 2014		$	165
Net unrealized gain (loss) on available for sale securities			(299)
Balance at December 31, 2015		$	(134)
Net unrealized gain (loss) on available for sale securities			(30)
Other			1
Balance at December 31, 2016		$	(163)

19. Employee Incentive, Retirement, Deferred Compensation, and Career Achievement Plans

The Company’s share-based incentive plans provide for granting options and restricted stock units 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 share-based compensation expense and related income tax benefit is as follows:


Year Ended December 31,		2016		2015		2014
Stock option expense	$	45	$	46	$	44
Restricted stock unit expense		89		83		66
Employee stock purchase plan expense		7		6		5
Total share-based compensation expense	$	141	$	135	$	115
Income tax benefit on share-based compensation expense	$	(53)	$	(51)	$	(43)

The Company issues shares for stock options and restricted stock units from treasury stock. At December 31, 2016, the Company was authorized to grant up to 50 million common shares under its existing stock incentive plans. Additionally, at December 31, 2016, the Company had 38 million shares reserved for future issuance under its employee stock purchase plan.

As of December 31, 2016, there was $254 million of total unrecognized compensation cost related to outstanding stock options and restricted stock units, which is expected to be recognized through 2020 with a remaining weighted-average service period of 1.9 years for stock options, 2.5 years for restricted stock units, and 0.5 years for performance stock units.

Stock Option Plan

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.

- 90 -

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’s stock option activity is summarized below:


						Weighted-
			Weighted-			Average
	Number		Average			Remaining		Aggregate
	of Options		Exercise Price			Contractual		Intrinsic
	(In millions)		per Share			Life (in years)		Value
Outstanding at December 31, 2015		40		$	19.82
Granted		6			30.05
Exercised		(9)			16.77
Forfeited		-			26.59
Expired		-			22.57
Outstanding at December 31, 2016		37		$	22.12		6.50	$	649
Vested and expected to vest at December 31, 2016		37		$	22.03		6.47	$	646
Vested and exercisable at December 31, 2016		23		$	17.94		5.21	$	505

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.

Information on stock options granted and exercised is presented below:


Year Ended December 31,		2016		2015		2014
Weighted-average fair value of options granted per share	$	8.73	$	8.56	$	7.82
Cash received from options exercised		144		90		189
Tax benefit realized on options exercised		38		22		8
Aggregate intrinsic value of options exercised		149		90		86

Management uses an option pricing model to estimate the fair value of options granted. The 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 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. The assumptions used to value the Company’s options granted during the years presented and their expected lives were as follows:


Year Ended December 31,	2016		2015		2014
Weighted-average expected dividend yield	1.22	%	1.22	%	1.20	%
Weighted-average expected volatility	30	%	28	%	28	%
Weighted-average risk-free interest rate	1.8	%	2.2	%	2.4	%
Expected life (in years)	4.7-7.3		4.7 - 7.5		4.4 - 7.2

Restricted Stock Units

Restricted stock units are awards that entitle the holder to receive shares of CSC’s common stock following a vesting period. Restricted stock units are restricted from transfer or sale and generally vest annually over a three- to five-year period, while performance-based restricted stock units also require the Company achieve certain financial or other measures prior to vesting. The fair value of restricted stock 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 fair value of the restricted stock units that vested during each of the years 2016, 2015, and 2014 was $105 million, $126 million, and $116 million, respectively.

- 91 -

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’s restricted stock units activity is summarized below:


		Weighted-
	Number	Average Grant
	of Units	Date Fair Value
	(In millions)	per Unit
Outstanding at December 31, 2015	8	$	25.84
Granted	3		30.64
Vested	(3)		22.53
Forfeited	-		25.80
Outstanding at December 31, 2016	8	$	29.41

Retirement Plan

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 $83 million, $78 million, and $68 million in 2016, 2015, and 2014, respectively.

Deferred Compensation Plans

The Company’s deferred compensation plan for officers permits participants to defer the receipt of certain cash compensation. 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 $135 million and $129 million at December 31, 2016 and 2015, respectively.

FC Career Achievement Plan

The Company’s FC career achievement plan was implemented in January 2014 and is a noncontributory, unfunded, nonqualified plan for eligible FCs. An FC is eligible for earned cash payments after retirement contingent upon meeting certain performance levels, tenure, age and client transitioning requirements. Allocations to the plan are completed annually by the Company and are subject to general creditors of the Company. Based on the performance level achieved, an FC will receive an award calculated as a percentage of eligible compensation. Full vesting occurs when an FC reaches 60 years of age and has at least ten years of service with the Company. The Company is using the Society of Actuaries MP-2016 mortality improvement scale for its mortality assumptions.

The following table presents the changes in projected benefit obligation:



December 31,		2016		2015
Projected benefit obligation at beginning of year	$	17	$	8
Service and interest cost		7		8
Actuarial (gain)/loss		2		1
Projected benefit obligation at end of year (1)	$	26	$	17

(1)	This amount is recognized as a liability on the consolidated balance sheets and also depicts the accumulated benefit obligation.

- 92 -

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 presents the net benefit cost and assumptions used to determine the net benefit cost:



December 31,		2016			2015			2014
Service and interest cost	$	7		$	8		$	6
Net benefit cost	$	7		$	8		$	6

Assumptions used to determine net benefit cost:
Discount rate		4.62	%		4.19	%		5.30	%
Rate of compensation increase		3.00	%		3.00	%		3.00	%
Investment crediting rate for notional account balances		6.50	%		6.50	%		6.50	%

The following table presents the components and amounts impacting AOCI:



December 31,		2016		2015
Net (gain)/loss	$	1	$	-
Amount recognized in AOCI	$	1	$	-

20. Taxes on Income

The components of income tax expense are as follows:


Year Ended December 31,		2016		2015		2014
Current:
Federal	$	980	$	740	$	747
State		109		99		72
Total current		1,089		839		819
Deferred:
Federal		13		(6)		(23)
State		2		(1)		(2)
Total deferred		15		(7)		(25)
Taxes on income	$	1,104	$	832	$	794

- 93 -

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


December 31,		2016		2015
Deferred tax assets:
Employee compensation, severance, and benefits	$	216	$	221
Net unrealized loss on available for sale securities		97		80
Facilities lease commitments		25		28
Reserves and allowances		25		28
State and local taxes		17		14
Net operating loss carryforwards		5		6
Other		-		1
Total deferred tax assets		385		378
Valuation allowance		(3)		(4)
Deferred tax assets – net of valuation allowance		382		374
Deferred tax liabilities:
Depreciation and amortization		(114)		(115)
Capitalized internal-use software development costs		(118)		(97)
Other		(7)		(17)
Total deferred tax liabilities		(239)		(229)
Deferred tax asset – net (1)	$	143	$	145

(1)	Amounts are included in other assets at December 31, 2016 and 2015, respectively .

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


Year Ended December 31,	2016		2015		2014
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.4		2.6		2.3
Other (1)	(0.5)		(1.1)		0.2
Effective income tax rate	36.9	%	36.5	%	37.5	%

(1)	Includes the impact of the recognition of net tax benefits attributable to changes in estimates for positions taken for tax years 2011 to 2014 in 2015 and 2016.

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


December 31,		2016		2015
Balance at beginning of year	$	48	$	11
Additions for tax positions related to the current year		16		15
Additions for tax positions related to prior years		32		26
Reductions for tax positions related to prior years		(2)		-
Reductions due to lapse of statute of limitations		-		(4)
Reductions for settlements with tax authorities		(1)		-
Balance at end of year	$	93	$	48

At December 31, 2016 and 2015, there are $85 million and $41 million, respectively, of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.

The Company recognizes interest accrued related to unrecognized tax benefits in tax expense and penalties in other expense. The Company had approximately $8 million and $6 million for the payment of interest and penalties accrued at December 31, 2016 and 2015, respectively.

The Company and its subsidiaries are subject to routine examinations by the respective federal, state and applicable local jurisdictions’ taxing authorities. Federal returns for 2011 through 2015 remain subject to examination. The years open to examination by state and local governments vary by jurisdiction.

- 94 -

THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

21. Earnings Per Common Share

EPS is computed using the two-class method. Preferred stock dividends, and undistributed earnings and dividends allocated to participating securities are subtracted from net income in determining net income available to common stockholders. 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 non-vested restricted stock units. EPS under the basic and diluted computations is as follows:


Year Ended December 31,		2016		2015		2014
Net income	$	1,889	$	1,447	$	1,321
Preferred stock dividends and other (1)		(143)		(83)		(60)
Net income available to common stockholders	$	1,746	$	1,364	$	1,261
Weighted-average common shares outstanding — basic		1,324		1,315		1,303
Common stock equivalent shares related to stock incentive plans		10		12		12
Weighted-average common shares outstanding — diluted (2)		1,334		1,327		1,315
Basic EPS	$	1.32	$	1.04	$	.96
Diluted EPS	$	1.31	$	1.03	$	.95

(1)	Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.
(2)	Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 26 million, 23 million, and 24 million shares in 2016, 2015, and 2014, respectively.

22. Regulatory Requirements

CSC is a savings and loan holding company and Schwab Bank, CSC’s depository institution subsidiary, is a federal savings bank. CSC is subject to examination, supervision, and regulation by the Federal Reserve. Schwab Bank is subject to examination, supervision, and regulation by the OCC, as its primary regulator, the FDIC as its deposit insurer, and the CFPB. CSC is required to serve as a source of strength for Schwab Bank.

Schwab Bank is subject to various requirements and restrictions under federal and state laws, including regulatory capital requirements and requirements that restrict and govern the terms of affiliate transactions, such as extensions of credit to, or asset purchases from CSC or its other subsidiaries by Schwab Bank. 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. 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 are required to maintain minimum capital levels as specified in federal banking 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, 2016, both CSC and Schwab Bank met all of their respective capital requirements. Certain events, such as growth in bank deposits and regulatory discretion, could adversely affect CSC’s or Schwab Bank’s ability to meet future capital requirements.

- 95 -

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 regulatory capital and ratios for CSC and Schwab Bank are as follows:


					Minimum to be				Minimum Capital
	Actual				Well Capitalized				Requirement
December 31, 2016	Amount		Ratio		Amount		Ratio		Amount		Ratio
CSC
Common Equity Tier 1 Risk-Based Capital	$	12,574	18.4	%		N/A			$	3,068	4.5	%
Tier 1 Risk-Based Capital		15,357	22.5	%		N/A				4,091	6.0	%
Total Risk-Based Capital		15,384	22.6	%		N/A				5,454	8.0	%
Tier 1 Leverage		15,357	7.2	%		N/A				8,516	4.0	%
Schwab Bank
Common Equity Tier 1 Risk-Based Capital	$	11,878	19.8	%	$	3,894	6.5	%	$	2,696	4.5	%
Tier 1 Risk-Based Capital		11,878	19.8	%		4,793	8.0	%		3,595	6.0	%
Total Risk-Based Capital		11,904	19.9	%		5,992	10.0	%		4,793	8.0	%
Tier 1 Leverage		11,878	7.0	%		8,456	5.0	%		6,765	4.0	%
December 31, 2015
CSC
Common Equity Tier 1 Risk-Based Capital	$	10,851	18.2	%		N/A			$	2,681	4.5	%
Tier 1 Risk-Based Capital		12,310	20.7	%		N/A				3,575	6.0	%
Total Risk-Based Capital		12,342	20.7	%		N/A				4,766	8.0	%
Tier 1 Leverage		12,310	7.1	%		N/A				6,912	4.0	%
Schwab Bank
Common Equity Tier 1 Risk-Based Capital	$	9,314	18.1	%	$	3,349	6.5	%	$	2,318	4.5	%
Tier 1 Risk-Based Capital		9,314	18.1	%		4,121	8.0	%		3,091	6.0	%
Total Risk-Based Capital		9,345	18.1	%		5,152	10.0	%		4,121	8.0	%
Tier 1 Leverage		9,314	7.1	%		6,594	5.0	%		5,275	4.0	%

N/A Not Applicable.

Based on its regulatory capital ratios at December 31, 2016, Schwab Bank is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since December 31, 2016 that management believes have changed Schwab Bank’s capital category.

The Federal Reserve requires Schwab Bank to maintain reserve balances at the Federal Reserve based on its deposits that are considered to be transaction accounts. Schwab Bank’s average reserve requirements were $1.5 billion and $1.4 billion in 2016 and 2015, respectively.

Beginning on January 1, 2016, CSC and Schwab Bank became subject to a new capital conservation buffer requirement of .625% of risk-weighted assets, increasing each year by .625% until fully implemented at 2.5% of risk-weighted assets in January 2019. The capital conservation buffer is in addition to the minimum risk-based capital requirements described above. Failure to maintain the capital conservation buffer would limit an entity’s ability to make capital distributions and discretionary bonus payments to executive officers. At December 31, 2016, both CSC’s and Schwab Bank’s capital levels exceeded the fully implemented capital conservation buffer requirement.

CSC’s principal broker-dealers are Schwab and optionsXpress. Schwab and optionsXpress are both subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the Uniform Net Capital Rule). Schwab and optionsXpress 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), 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 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.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

optionsXpress 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, 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 are as follows:


								Net Capital
			Minimum				2% of	in Excess of
			Net Capital				Aggregate	Required
December 31, 2016	Net Capital		Required		Debit Balances			Net Capital
Schwab	$	1,846	$	0.250		$	355	$	1,491
optionsXpress		269		1			8		261
December 31, 2015
Schwab	$	1,746	$	0.250		$	358	$	1,388
optionsXpress		244		1			7		237

Schwab and optionsXpress are also subject to Rule 15c3-3 under the Securities Exchange Act of 1934 and other applicable regulations, which require them to maintain cash or qualified securities in a segregated reserve account for the exclusive benefit of clients. In accordance with Rule 15c3-3, Schwab and optionsXpress had portions of their cash and investments segregated for the exclusive benefit of clients at December 31, 2016. 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, 2016 for Schwab and optionsXpress totaled $23.3 billion. On January 4, 2017, Schwab and optionsXpress deposited a net amount of $1.6 billion of cash into their segregated reserve bank accounts. Cash and investments required to be segregated and on deposit for regulatory purposes at December 31, 2015 for Schwab and optionsXpress totaled $20.5 billion. On January 5, 2016, Schwab and optionsXpress deposited a net amount of $1.4 billion of cash into their segregated reserve bank accounts.

23. Segment Information

The Company’s two reportable segments are Investor Services and Advisor Services. The Company structures its operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage and banking services, retirement plan services, and other corporate brokerage services. The Advisor Services segment provides custodial, trading, banking, and support services as well as retirement business services. 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. 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. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

(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:


	Investor Services (1)						Advisor Services (1)						Unallocated						Total
Year Ended December 31,	2016		2015		2014		2016		2015		2014		2016		2015		2014		2016		2015		2014
Net Revenues:
Asset management and
administration fees	$	2,093	$	1,837	$	1,742	$	962	$	813	$	791	$	-	$	-	$	-	$	3,055	$	2,650	$	2,533
Net interest revenue		2,591		2,133		2,028		731		392		244		-		-		-		3,322		2,525		2,272
Trading revenue		524		556		606		301		310		301		-		-		-		825		866		907
Other (2)		199		234		218		72		94		74		-		-		51		271		328		343
Provision for loan losses		4		11		4		1		-		-		-		-		-		5		11		4
Net impairment losses
on securities		-		-		(1)		-		-		-		-		-		-		-		-		(1)
Total net revenues		5,411		4,771		4,597		2,067		1,609		1,410		-		-		51		7,478		6,380		6,058
Expenses Excluding Interest (3)		3,380		3,090		2,937		1,105		1,011		938		-		-		68		4,485		4,101		3,943
Income before taxes on income	$	2,031	$	1,681	$	1,660	$	962	$	598	$	472	$	-	$	-	$	(17)	$	2,993	$	2,279	$	2,115

Capital expenditures	$	234	$	195	$	271	$	119	$	90	$	134	$	-	$	-	$	-	$	353	$	285	$	405
Depreciation and amortization	$	180	$	171	$	154	$	54	$	53	$	45	$	-	$	-	$	-	$	234	$	224	$	199

(1)	The Corporate Brokerage Retirement Services business was transferred from the Investor Services segment to the Advisor Services segment in the fourth quarter of 2015. Prior period information has been recast to reflect these changes.
(2)	Unallocated amount includes a net insurance settlement of $45 million in 2014.
(3)	Unallocated amount includes a charge of $68 million for estimated future severance benefits resulting from changes in the Company’s geographic footprint in 2014.

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

Condensed Statements of Income


Year Ended December 31,		2016		2015		2014
Interest revenue	$	22	$	12	$	2
Interest expense		(100)		(86)		(64)
Net interest expense		(78)		(74)		(62)
Other		1		4		1
Expenses excluding interest		(21)		(27)		(24)
Loss before income tax benefit and equity in net income of subsidiaries		(98)		(97)		(85)
Income tax benefit		34		41		32
Loss before equity in net income of subsidiaries		(64)		(56)		(53)
Equity in net income of subsidiaries:
Equity in undistributed net income of subsidiaries		1,690		1,287		1,157
Dividends from bank subsidiary		-		-		45
Dividends from non-bank subsidiaries		263		216		172
Net Income		1,889		1,447		1,321
Preferred stock dividends and other (1)		143		83		60
Net Income Available to Common Stockholders	$	1,746	$	1,364	$	1,261

(1)	Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Condensed Balance Sheets


December 31,		2016		2015 (1)
Assets
Cash and cash equivalents	$	1,189	$	1,007
Receivables from subsidiaries		503		419
Available for sale securities		569		569
Held to maturity securities		223		223
Other securities owned – at fair value		75		65
Loans to non-bank subsidiaries		-		468
Investment in non-bank subsidiaries		5,044		4,374
Investment in bank subsidiary		11,726		9,191
Other assets		124		88
Total assets	$	19,453	$	16,404
Liabilities and Stockholders’ Equity
Accrued expenses and other liabilities	$	219	$	189
Payables to subsidiaries		6		11
Long-term debt		2,807		2,802
Total liabilities		3,032		3,002
Stockholders’ equity		16,421		13,402
Total liabilities and stockholders’ equity	$	19,453	$	16,404

(1)	Adjusted for the retrospective adoption of ASU 2015-03. See New Accounting Standards in Note 2 for additional information.

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

Condensed Statements of Cash Flows


Year Ended December 31,		2016		2015		2014
Cash Flows from Operating Activities
Net income	$	1,889	$	1,447	$	1,321
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries		(1,690)		(1,287)		(1,157)
Other		(37)		(31)		(19)
Net change in:
Other securities owned		(10)		9		5
Other assets		(27)		(32)		(9)
Accrued expenses and other liabilities		30		4		(1)
Net cash provided by operating activities		155		110		140
Cash Flows from Investing Activities
Due from subsidiaries – net		95		93		607
Increase in investments in subsidiaries		(1,547)		(611)		(249)
Repayments (Advances) of subordinated loan to Schwab		465		(150)		-
Purchases of available for sale securities		(2)		(842)		-
Proceeds from sales of available for sale securities		2		200		-
Principal payments on available for sale securities		-		75		-
Purchases of held to maturity securities		-		(223)		-
Other investing activities		(4)		-		-
Net cash provided by (used for) investing activities		(991)		(1,458)		358
Cash Flows from Financing Activities
Issuance of long-term debt		-		1,346		-
Repayment of long-term debt		-		(350)		-
Net proceeds from preferred stock offerings		1,316		581		-
Dividends paid		(486)		(387)		(373)
Proceeds from stock options exercised and other		144		90		189
Other financing activities		44		32		29
Net cash provided by (used for) financing activities		1,018		1,312		(155)
Increase (Decrease) in Cash and Cash Equivalents		182		(36)		343
Cash and Cash Equivalents at Beginning of Year		1,007		1,043		700
Cash and Cash Equivalents at End of Year	$	1,189	$	1,007	$	1,043

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THE CHARLES SCHWAB CORPORATION

Notes to Consolidated Financial Statements

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

25. Quarterly Financial Information (Unaudited)


	Fourth		Third		Second		First
	Quarter		Quarter		Quarter		Quarter
Year Ended December 31, 2016:
Net Revenues	$	1,972	$	1,914	$	1,828	$	1,764
Expenses Excluding Interest	$	1,148	$	1,120	$	1,108	$	1,109
Net Income	$	522	$	503	$	452	$	412
Net Income Available to Common Stockholders	$	478	$	470	$	406	$	392
Weighted-Average Common Shares Outstanding – Basic		1,329		1,324		1,322		1,321
Weighted-Average Common Shares Outstanding – Diluted		1,341		1,334		1,333		1,330
Basic Earnings Per Common Share	$	.36	$	.36	$	.31	$	.30
Diluted Earnings Per Common Share	$	.36	$	.35	$	.30	$	.29
Dividends Declared Per Common Share	$	.07	$	.07	$	.07	$	.06
Range of Common Stock Price Per Share:
High	$	40.58	$	31.87	$	31.07	$	32.23
Low	$	30.66	$	23.83	$	24.02	$	21.51
Range of Price/Earnings Ratio (1) :
High		31		26		27		29
Low		24		20		21		20
Year Ended December 31, 2015:
Net Revenues	$	1,691	$	1,597	$	1,566	$	1,526
Expenses Excluding Interest	$	1,046	$	1,014	$	999	$	1,042
Net Income	$	416	$	376	$	353	$	302
Net Income Available to Common Stockholders	$	378	$	365	$	330	$	291
Weighted-Average Common Shares Outstanding – Basic		1,319		1,316		1,314		1,312
Weighted-Average Common Shares Outstanding – Diluted		1,330		1,328		1,326		1,323
Basic Earnings Per Common Share	$	.29	$	.28	$	.25	$	.22
Diluted Earnings Per Common Share	$	.28	$	.28	$	.25	$	.22
Dividends Declared Per Common Share	$	.06	$	.06	$	.06	$	.06
Range of Common Stock Price Per Share:
High	$	34.52	$	35.72	$	33.78	$	31.73
Low	$	26.40	$	27.10	$	29.12	$	25.43
Range of Price/Earnings Ratio (1) :
High		34		36		35		34
Low		26		27		30		27

(1)	Price/earnings ratio is computed by dividing the high and low market prices by diluted earnings per common share for the preceding 12-month period ending on the last day of the quarter presented.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of The Charles Schwab Corporation

San Francisco, California

We have audited the accompanying consolidated balance sheets of The Charles Schwab Corporation and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule of the Company on page F-2. We also have audited the Company’s internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) 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 financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Charles Schwab Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

February 23, 2017

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THE CHARLES SCHWAB CORPORATION

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, 2016 , management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal 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, 2016.

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, 2016, 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

None.

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, 2016. 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, 2016.

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, 2016, 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.

Item 9B. Other Information

None.

PART III

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, 2017 (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 at http s ://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

Schwab Executive Officers of the Registrant

The following table provides certain information about each of the Company’s executive officers as of December 31, 2016.



Executive Officers of the Registrant

	Name	Age	Title
	Charles R. Schwab	79	Chairman of the Board
	Walter W. Bettinger II	56	President and Chief Executive Officer
	Marie A. Chandoha	55	President and Chief Executive Officer – Charles Schwab Investment Management, Inc.
	Bernard J. Clark	58	Executive Vice President – Advisor Services
	David R. Garfield	60	Executive Vice President, General Counsel and Corporate Secretary
	Terri R. Kallsen	48	Executive Vice President – Investor Services
	Joseph R. Martinetto	54	Senior Executive Vice President and Chief Financial Officer
	Nigel J. Murtagh	53	Executive Vice President – Corporate Risk

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 Schwab and Schwab Bank.

Mr. Bettinger has been President and Chief Executive Officer of CSC since 2008. He also serves on the Board of Directors of CSC, Schwab, Schwab Bank, and as Chairman and trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus 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.

Ms. Chandoha has been President and Chief Executive Officer of CSIM since 2011. She serves as a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, and Schwab Strategic Trust, all registered investment companies. Prior to joining Schwab, Ms. Chandoha served as the global head of the fixed-income business at BlackRock (formerly Barclays Global Investors) from 2007 until 2010 and as co-head and senior portfolio manager in charge of the Montgomery fixed income division at Wells Capital Management from 1999 until 2007.

Mr. Clark has been Executive Vice President – Advisor Services of CSC since 2012. Mr. Clark has served as Executive Vice President – Advisor Services of Schwab since 2010. From 2006 until 2010, Mr. Clark served as Senior Vice President – Schwab Institutional Sales of Schwab. During 2005 and 2006, he served as Senior Vice President – Client Service of Schwab. Mr. Clark joined Schwab in 1998.

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

Ms. Kallsen has been Executive Vice President – Investor Services of CSC and Schwab since 2014. She served as Senior Vice President – Portfolio Consulting of Schwab from 2012 until 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. Martinetto has been Senior Executive Vice President and Chief Financial Officer of CSC and Schwab since 2015. He served as Executive Vice President and Chief Financial Officer of CSC and Schwab from 2007 until 2015. 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. He also serves on the Board of Directors of Schwab and Schwab Bank. Additionally, Mr. Martinetto is a trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust, and Schwab Strategic Trust, all registered investment companies. Mr. Martinetto joined Schwab in 1997.

Mr. Murtagh has been Executive Vice President – Corporate Risk of CSC and Schwab since 2012. He served as Senior Vice President and Chief Credit Officer of Schwab from 2002 until 2012 and of CSC from 2008 until 2012. Mr. Murtagh joined Schwab in 2000.

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 – 2016 Summary Compensation Table,” “Executive Compensation Tables – 2016 Grants of Plan-Based Awards Table,” “Executive Compensation Tables – Narrative to Summary Compensation and Grants of Plan-Based Awards Tables,” “Executive Compensation Tables – 2016 Termination and Change in Control Benefits Table,” “Executive Compensation Tables – Outstanding Equity Awards as of December 31, 2016 ,” “Executive Compensation Tables – 2016 Option Exercises and Stock Vested Table,” “Executive Compensation Tables – 2016 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

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

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.”

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. Exhibits and Financial Statement Schedule

(a) Documents filed as part of this Report

1. Financial Statements

The financial statements and independent auditors’ report are included in Item 8 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.

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THE CHARLES SCHWAB CORPORATION

(b) Exhibits

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


Exhibit Number	Exhibit

3.11	Fifth Restated Certificate of Incorporation, effective May 7, 2001, of the Registrant.

3.14	Fourth Restated Bylaws, as amended on January 27, 2010, of the Registrant.

3.15	Certificate of Designations of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A of The Charles Schwab Corporation.

3. 16	Certificate of Designations of 6.00% Non-Cumulative Perpetual Preferred Stock, Series B, of the Charles Schwab Corporation.

3.17	Certificate of Designations of 6.00% Non-Cumulative Perpetual Preferred Stock, Series C, of The Charles Schwab Corporation filed as Exhibit 3.1 to the Registrant’s Form 8-K dated August 3, 2015 , and incorporated herein by reference.

3.18	Certificate of Designations of 5.95% Non-Cumulative Perpetual Preferred Stock, Series D, of The Charles Schwab Corporation filed as Exhibit 3.1 to the Registrant’s Form 8-K dated March 7, 2016 , and incorporated herein by reference.

3.19	Certificate of Designations of 4.625% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, of The Charles Schwab Corporation filed as Exhibit 3.1 to the Registrant’s Form 8-K dated October 31, 2016 , 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).

4.2	Deposit Agreement, dated August 3, 2015, 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 August 3, 2015 and incorporated herein by reference.

4.3	Deposit Agreement, dated March 7, 2016, 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 March 7, 2016, and incorporated herein by reference.

4.4	Deposit Agreement, dated October 31, 2016, 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 October 31, 2016, and incorporated herein by reference.

4.5	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.

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THE CHARLES SCHWAB CORPORATION

Exhibit Number	Exhibit

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, and incorporated herein by reference.

10.271	The Charles Schwab Corporation Directors’ Deferred Compensation Plan, as amended through December 8, 2004, and incorporated herein by reference.	(2)

10.272	The Charles Schwab Corporation Deferred Compensation Plan, as amended through December 8, 2004, 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)

10.322	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)

10.338	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, 2016, 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)

10.352	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)

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THE CHARLES SCHWAB CORPORATION

Exhibit Number	Exhibit
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)

10.362	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)

10.364	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)

10.365	The Charles Schwab Corporation Corporate Executive Bonus Plan, restated to include amendments approved at the Annual Meeting of Stockholders on May 13, 2015 (supersedes Exhibit 10.331), and incorporated herein by reference.	(2)

10.366	Credit Agreement (364 – Day Commitment) dated as of June 5, 2015, between the Registrant and financial institutions therein (supersedes Exhibit 10.363), filed as Exhibit 10.366 to the Registrant’s Form 10-Q for the quarter ended June 30, 2015, and incorporated herein by reference.

10.367	Summary of Non-Employee Director Compensation (supersedes Exhibit 10.351), incorporated herein by reference .	(2)

10.368	Credit Agreement (364 – Day Commitment) dated as of June 5, 2016, between the Registrant and financial institutions therein (supersedes Exhibit 10.366), filed as Exhibit 10.368 to the Registrant’s Form 10-Q for the quarter ended June 30, 2016, and incorporated herein by reference.

10.369	Form of Notice and Performance-Based Restricted Stock Unit Agreement under The Charles Schwab Corporation 2013 Stock Incentive Plan and successor plans (supersedes Exhibit 10.353). Filed as Exhibit 10.369 to the Registrant’s Form 10-Q for the quarter ended September 30, 2016, and incorporated herein by reference.	(2)

10.370	Form of Notice and Nonqualified Stock Option Agreement under The Charles Schwab Corporation 2013 Stock Incentive Plan and successor plans (supersedes Exhibit 10.354). Filed as Exhibit 10.370 to the Registrant’s Form 10-Q for the quarter ended September 30, 2016, and incorporated herein by reference.	(2)

10.371	Form of Notice and Restricted Stock Unit Agreement under The Charles Schwab Corporation 2013 Stock Incentive Plan and successor plans (supersedes Exhibit 10.355). Filed as Exhibit 10.371 to the Registrant’s Form 10-Q for the quarter ended September 30, 2016, and incorporated herein by reference.	(2)

10.372	Form of Notice and Retainer Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation 2013 Stock Incentive Plan and successor plans (supersedes Exhibit 10.356). Filed as Exhibit 10.372 to the Registrant’s Form 10-Q for the quarter ended September 30, 2016, and incorporated herein by reference.	(2)

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THE CHARLES SCHWAB CORPORATION

Exhibit Number	Exhibit

10.373	Form of Notice and Retainer Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation 2013 Stock Incentive Plan and successor plans (supersedes Exhibit 10.357). Filed as Exhibit 10.373 to the Registrant’s Form 10-Q for the quarter ended September 30, 2016, and incorporated herein by reference.	(2)

10.374	Form of Notice and Stock Option Agreement for Non-Employee Directors under The Charles Schwab Corporation Directors’ Deferred Compensation Plan II and successor plans (supersedes Exhibit 10.358). Filed as Exhibit 10.374 to the Registrant’s Form 10-Q for the quarter ended September 30, 2016, and incorporated herein by reference.	(2)

10.375	Form of Notice and Restricted Stock Unit Agreement for Non-Employee Directors under The Charles Schwab Corporation Directors’ Deferred Compensation Plan II and successor plans (supersedes Exhibit 10.359). Filed as Exhibit 10.375 to the Registrant’s Form 10-Q for the quarter ended September 30, 2016, and incorporated herein by reference.	(2)

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, 2016, 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.

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THE CHARLES SCHWAB CORPORATION

S 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, 2017.

	THE CHARLES SCHWAB CORPORATION
	(Registrant)

	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, 2017.

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 and Director		Senior Executive Vice President and Chief Financial Officer (principal financial and accounting officer)


/s/ Charles R. Schwab		/s/ John K. Adams, Jr.
Charles R. Schwab, Chairman of the Board		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		/s/ Stephen T. McLin
Frank C. Herringer, Director		Stephen T. McLin, Director


/s/ Arun Sarin		/s/ Paula A. Sneed
Arun Sarin, Director		Paula A. Sneed, Director


/s/ Roger O. Walther		/s/ Robert N. Wilson
Roger O. Walther, Director		Robert N. Wilson, Director

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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-10
























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.

F- 1

THE CHARLES SCHWAB CORPORATION


								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, 2016:
Allowance for doubtful accounts of
brokerage clients (2)	$	1	$	6	$	1	$	(7)	$	1

For the year ended December 31, 2015:
Allowance for doubtful accounts of
brokerage clients (2)	$	2	$	5	$	3	$	(9)	$	1

For the year ended December 31, 2014:
Allowance for doubtful accounts of
brokerage clients (2)	$	-	$	6	$	1	$	(5)	$	2

(1)	Includes collections of previously written-off accounts.
(2)	Excludes banking-related valuation and qualifying accounts. See Item 8 – Note 6.

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 Schwab Bank, which is a subsidiary of 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,	2016						2015						2014
	Average				Average		Average				Average		Average				Average
	Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate
Assets:
Cash and cash equivalents (1)	$	9,579	$	51	0.53	%	$	8,028	$	22	0.27	%	$	5,871	$	15	0.26	%
Available for sale securities (2)		72,017		874	1.21	%		61,783		623	1.01	%		52,056		546	1.05	%
Held to maturity securities		57,228		1,398	2.44	%		38,099		953	2.50	%		32,361		828	2.56	%
Bank loans (3)		14,715		400	2.72	%		13,970		369	2.64	%		12,903		354	2.74	%
Other interest-earning assets		109		9	8.26	%		56		5	8.93	%		63		6	9.52	%
Total interest-earning assets		153,648		2,732	1.78	%		121,936		1,972	1.62	%		103,254		1,749	1.69	%
Net unrealized gain on
available for sale securities		(113)						187						229
Noninterest-earning assets		1,209						601						525
Total Assets	$	154,744					$	122,724					$	104,008
Liabilities and Stockholder’s Equity:
Interest-bearing bank deposits	$	141,432		37	0.03	%	$	113,464		29	0.03	%	$	95,842		30	0.03	%
Short-term borrowings		1,849		9	0.49	%		-		-	-			-		-	-
Total sources on which interest is paid		143,281		46	0.03	%		113,464		29	0.03	%		95,842		30	0.03	%
Noninterest-bearing liabilities		1,057						719						723
Stockholder’s equity		10,406						8,541						7,443
Total Liabilities and Stockholder’s Equity	$	154,744					$	122,724					$	104,008

Net interest revenue			$	2,686					$	1,943					$	1,719
Net yield on interest-earning assets					1.75	%					1.59	%					1.66	%

(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- 3

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

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:


		2016 Compared to 2015						2015 Compared to 2014
		Increase (Decrease) Due to						Increase (Decrease) Due to
	Change in:						Change in:
	Average		Average				Average		Average
	Volume		Rate		Total		Volume		Rate		Total
Interest-earning assets:
Cash and cash equivalents (1)	$	4	$	25	$	29	$	6	$	1	$	7
Available for sale securities (2)		103		148		251		102		(25)		77
Held to maturity securities		479		(34)		445		147		(22)		125
Bank loans (3)		20		11		31		29		(14)		15
Other interest-earning assets		4		-		4		(1)		-		(1)
Total interest-earning assets	$	610	$	150	$	760	$	283	$	(60)	$	223
Interest-bearing sources of funds:
Interest-bearing bank deposits	$	7	$	1	$	8	$	5	$	(6)	$	(1)
Short-term borrowings		14		(5)		9		-		-		-
Total sources on which interest is paid	$	21	$	(4)	$	17	$	5	$	(6)	$	(1)
Change in net interest revenue	$	589	$	154	$	743	$	278	$	(54)	$	224

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. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of AFS and HTM securities are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2016	Cost		Gains		Losses		Value
Available for sale securities:
U.S. agency mortgage-backed securities	$	33,167	$	120	$	92	$	33,195
Asset-backed securities		20,520		29		214		20,335
Corporate debt securities		9,850		20		18		9,852
U.S. Treasury securities		8,110		3		58		8,055
Certificates of deposit		2,070		2		1		2,071
U.S. agency notes		1,915		-		8		1,907
U.S. state and municipal securities		1,167		2		46		1,123
Commercial paper		214		-		-		214
Non-agency commercial mortgage-backed securities		45		-		-		45
Total available for sale securities	$	77,058	$	176	$	437	$	76,797
Held to maturity securities:
U.S. agency mortgage-backed securities	$	72,439	$	324	$	1,086	$	71,677
Non-agency commercial mortgage-backed securities		997		11		4		1,004
Asset-backed securities		941		-		-		941
Corporate debt securities		436		-		-		436
Commercial paper		99		-		-		99
U.S. state and municipal securities		68		1		1		68
Total held to maturity securities	$	74,980	$	336	$	1,091	$	74,225

F- 5

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2015	Cost		Gains		Losses		Value
Available for sale securities:
U.S. agency mortgage-backed securities	$	22,014	$	183	$	48	$	22,149
Asset-backed securities		21,784		7		306		21,485
Corporate debt securities		10,764		14		31		10,747
U.S. Treasury securities		5,150		1		16		5,135
Certificates of deposit		1,685		1		3		1,683
U.S. agency notes		3,177		-		27		3,150
U.S. state and municipal securities		414		10		-		424
Non-agency commercial mortgage-backed securities		298		1		-		299
Other securities		5		-		-		5
Total available for sale securities	$	65,291	$	217	$	431	$	65,077
Held to maturity securities:
U.S. agency mortgage-backed securities	$	48,785	$	391	$	293	$	48,883
Non-agency commercial mortgage-backed securities		999		6		20		985
Total held to maturity securities	$	49,784	$	397	$	313	$	49,868


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2014	Cost		Gains		Losses		Value
Available for sale securities:
U.S. agency mortgage-backed securities	$	18,487	$	242	$	12	$	18,717
Asset-backed securities		19,320		64		18		19,366
Corporate debt securities		8,023		30		8		8,045
U.S. Treasury securities		2,993		2		1		2,994
Certificates of deposit		1,533		1		-		1,534
U.S. agency notes		3,839		-		44		3,795
Non-agency commercial mortgage-backed securities		310		7		-		317
Other securities		15		-		-		15
Total available for sale securities	$	54,520	$	346	$	83	$	54,783
Held to maturity securities:
U.S. agency mortgage-backed securities	$	33,388	$	531	$	174	$	33,745
Non-agency commercial mortgage-backed securities		1,001		11		14		998
Total held to maturity securities	$	34,389	$	542	$	188	$	34,743

F- 6

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

The maturities and related weighted-average yields of AFS and HTM securitie s are as follows:


				After 1 year			After 5 years
	Within			through			through			After
December 31, 2016	1 year			5 years			10 years			10 years			Total
Available for sale securities:
U.S. agency mortgage-backed securities (1)	$	47		$	3,475		$	16,847		$	12,826		$	33,195
Asset-backed securities		-			8,728			3,799			7,808			20,335
Corporate debt securities		2,332			7,520			-			-			9,852
U.S. Treasury securities		1,199			6,332			524			-			8,055
Certificates of deposit		651			1,420			-			-			2,071
U.S. agency notes		-			1,907			-			-			1,907
U.S. state and municipal securities		-			-			72			1,051			1,123
Commercial paper		214			-			-			-			214
Non-agency commercial mortgage-backed
securities (1)		-			-			-			45			45
Total fair value	$	4,443		$	29,382		$	21,242		$	21,730		$	76,797
Total amortized cost	$	4,440		$	29,366		$	21,325		$	21,927		$	77,058
Weighted-average yield (2)		1.33	%		1.37	%		1.23	%		1.39	%		1.33	%
Held to maturity securities:
U.S. agency mortgage-backed securities (1)	$	-		$	5,080		$	22,954		$	43,643		$	71,677
Non-agency commercial mortgage-backed
securities (1)		-			-			364			640			1,004
Asset-backed securities		-			150			791			-			941
Corporate debt securities		-			436			-			-			436
Commercial paper		99			-			-			-			99
U.S. state and municipal securities		-			-			6			62			68
Total fair value	$	99		$	5,666		$	24,115		$	44,345		$	74,225
Total amortized cost	$	99		$	5,559		$	24,277		$	45,045		$	74,980
Weighted-average yield (2)		1.59	%		2.95	%		2.38	%		2.02	%		2.20	%

(1)	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 .
(2)	The weighted-average yield is computed using the amortized cost at December 31, 2016.

F- 7

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

4. Cross-border Holdings

The tables below set forth the amount of Schwab Bank’s cross-border holdings, based on carrying value, as of December 31, 2016, 2015, and 2014. 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 AFS securities.

As of December 31, 2016, there were no cross-border holdings that exceeded 0.75% of total assets.


	Banks and other			Commercial and						Exposure as a %
December 31, 2015	financial institutions			industrial institutions			Total			of total assets
Country:
Canada		$	1,499		$	-		$	1,499		1.1	%
Australia			1,376			60			1,436		1.0	%
Total		$	2,875		$	60		$	2,935


	Banks and other			Commercial and						Exposure as a %
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

5. Bank Loans and Related Allowance for Loan Losses

The composition of the loan portfolio is as follows:


December 31,	2016		2015		2014		2013		2012
Residential real estate mortgages	$	9,134	$	8,334	$	8,127	$	8,006	$	6,507
Home equity loans and lines of credit		2,350		2,735		2,955		3,041		3,287
Pledged asset lines		3,851		3,232		2,320		1,384		963
Other		91		61		36		34		22
Total bank loans	$	15,426	$	14,362	$	13,438	$	12,465	$	10,779

An analysis of nonaccrual loans is as follows:


December 31,	2016		2015		2014		2013		2012
Nonaccrual loans	$	26	$	28	$	35	$	48	$	48
Average nonaccrual loans	$	27	$	30	$	39	$	43	$	48

Changes in the allowance for loan losses were as follows:


December 31,	2016		2015		2014		2013		2012
Balance at beginning of year	$	31	$	42	$	48	$	56	$	54
Charge-offs		(2)		(3)		(5)		(11)		(16)
Recoveries		2		3		3		4		2
Provision for loan losses		(5)		(11)		(4)		(1)		16
Balance at end of year	$	26	$	31	$	42	$	48	$	56

F- 8

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

The maturities of the loan portfolio are as follows:


			After 1 year
	Within		through		After
December 31, 2016	1 year		5 years		5 years		Total
Residential real estate mortgages (1)	$	-	$	-	$	9,134	$	9,134
Home equity loans and lines of credit (2)		594		1,057		699		2,350
Pledged asset lines		212		3,635		4		3,851
Other		24		64		3		91
Total	$	830	$	4,756	$	9,840	$	15,426

(1)	Maturities are based upon the contractual terms of the loans.
(2)	Maturities are based on an initial draw period of ten years.

The interest sensitivity of loans with contractual maturities in excess of one year is as follows:


	After
December 31, 2016	1 year
Loans with floating or adjustable interest rates	$	13,633
Loans with predetermined interest rates		963
Total	$	14,596

6. Summary of Loan Loss on Banking Loans Experience


December 31,	2016			2015			2014			2013			2012
Average loans	$	14,716		$	13,972		$	12,904		$	11,756		$	10,050
Allowance to year end loans		.17	%		.21	%		.31	%		.39	%		.52	%
Allowance to nonperforming loans		101	%		110	%		120	%		100	%		117	%
Nonperforming assets to average loans
and real estate owned		.21	%		.26	%		.31	%		.45	%		.54	%

7. Bank Deposits

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:


	2016				2015				2014
	Amount		Rate		Amount		Rate		Amount		Rate
Analysis of average daily deposits:
Money market and other savings deposits	$	126,719	0.02	%	$	99,881	0.02	%	$	82,927	0.01	%
Interest-bearing demand deposits		14,713	0.07	%		13,583	0.07	%		12,915	0.09	%
Total	$	141,432			$	113,464			$	95,842

At December 31, 2016 , bank deposits did not include any domestic-issued certificates of deposit of $100,000 or more.

F- 9

THE CHARLES SCHWAB CORPORATION

Supplemental Financial Data for Charles Schwab Bank (Unaudited)

(Dollars in Millions)

8. Ratios


December 31,	2016		2015		2014
Return on average stockholder’s equity	14.27	%	12.85	%	12.71	%
Return on average total assets	0.96	%	0.89	%	0.91	%
Average stockholder’s equity as a percentage of average total assets	6.73	%	6.96	%	7.15	%

F- 10

Exhibit 3.11

FIFTH RESTATED CERTIFICATE OF INCORPORATION

THE CHARLES SCHWAB CORPORATION

(Effective May 7, 2001)

(Originally incorporated on November 25, 1986,

under the name CL Acquisition Corporation)

FIRST. The name of this corporation (hereinafter called the “Corporation”) is THE CHARLES SCHWAB CORPORATION.

SECOND. The address of the registered office of this Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, and its registered agent at that address is THE CORPORATION TRUST COMPANY.

THIRD. The purpose of this Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

FOURTH.

( A) This Corporation is authorized to issue two classes of stock, preferred stock and common stock. The authorized number of shares of capital stock is Three Billion, Nine Million, Nine Hundred Forty Thousand (3,009,940,000) shares, of which the authorized number of shares of preferred stock is Nine Million, Nine Hundred Forty Thousand (9,940,000) and the authorized number of shares of common stock is Three Billion (3,000,000,000). The stock, whether preferred stock or common stock, shall have a par value of one cent ($0.01) per share.

( B) Shares of preferred stock may be issued from time to time in one or more series. The Board of Directors of this Corporation is hereby authorized to fix or alter the voting rights, powers, preferences and privileges, and the relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of preferred stock; and to fix the number of shares constituting any such series and the designation thereof; and to increase or decrease the number of shares of any series of preferred stock (but not below the number of shares thereof then outstanding).

FIFTH. The Bylaws of the Corporation may be made, altered, amended, or repealed, and new Bylaws may be adopted, by the Board of Directors at any regular or special meeting by the affirmative vote of a majority of those directors present at any meeting of the directors; subject, however, to the right of the stockholders to alter, amend or repeal any Bylaws made or amended by the directors. Notwithsta nding the foregoing, after the 1996 Annual Meeting of Stockholders, Sections 2.06, 2.10, 3.02, 3.05, 3.06 and 8.04 of the Corporation's Bylaws may not be amended, altered or repealed, nor may any provision inconsistent with such

Sections be adopted, except by the affirmative vote of the holders of no less than 80% of the total voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

SIXTH.

(A) Number, Election and Terms . Except as otherwise fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect, additional directors under specified circumstances, the number of the directors of the Board of the Corporation shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies. Commencing with the 1996 annual meeting of stockholders, the directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as is reasonably possible, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1997, the second class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1998, and the third class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1999, with each director to hold office until his or her successor is duly elected and qualified. At each annual meeting of the stockholders of the Corporation, commencing with the 1997 annual meeting, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election, with each director to hold office until his or her director shall have been duly elected and qualified.

(B) Stockholder nomination of director candidates . Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the Bylaws of the Corporation.

(C) Vacancies . Subject to applicable law and except as otherwise provided for or fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board of Directors of the Corporation shall shorten the term of any incumbent director.

( D) Removal . Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class.

S EVENTH. Elections of directors shall be by written ballot.

EIGHTH. No director of this Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director. Notwithstanding the foregoing senten ce, a director shall be liable to the extent provided by applicable law (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article EIGHTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

NINTH. No stockholder shall be entitled to cumulate votes ( i.e., cast for any nominee for election to the Board of Directors of the Corporation a number of votes greater than the number of the stockholder's shares).

TENTH.

( A) In addition to any affirmative vote required by law, by this Restated Certificate of Incorporation, by a certificate filed under Section 151(g) of the General Corporation Law of the State of Delaware, or by the Bylaws, and except as otherwise expressly permitted in paragraph (B) of this Article TENTH, a Business Combination (as hereafter defined) with, for, or on behalf of, any Interested Stockholder (as hereafter defined) or any Affiliate or Associate (as hereafter defined) of such Interested Stockholder shall require the affirmative vote of at least 80% of the votes entitled to be cast by the holders of all the then outstanding Voting Stock (as hereafter defined), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage of a separate class vote may otherwise be specified, by law or by any agreement between this Corporation and any national securities exchange or otherwise.

(B) The provisions of paragraph (A) of this Article TENTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such vote, if any, as is required by law, or by any other provisions of this Restated Certificate of Incorporation, or by a certificate filed under Section 151(g) of the General Corporation Laws of the State of Delaware, or by the Bylaws, or by any agreement between this Corporation and any national securities exchange if (i) such Business Combination shall have been specifically approved by a majority of the Disinterested Directors (as hereafter defined) at

the time or (ii) all the conditions specified in each of the following subparagraphs (1), (2), (3), (4), (5) and (6) are satisfied.

(1) The aggregate amount of cash and the Fair Market Value (as hereafter defined) as of the Consummation Date (as hereafter defined) of any consideration other than cash to be received per share by holders of Voting Stock in such Business Combination, shall be at least equal to the highest amount determined under clauses (a) and (b) below:

( a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by or on behalf of such Interested Stockholder for any share of Voting Stock in connection with the acquisition by the Interested Stockholder of Beneficial Ownership (as hereafter defined) of shares of Voting Stock ( i) within the five-year period immediately prior to the Announcement Date (as hereafter defined) or (ii) in the transaction or series of transactions in which it became an Interested Stockholder, whichever is higher, in either case adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Voting Stock; or

( b) the Fair Market Value per share of Voting Stock on the Announcement Date or the Determination Date (as hereafter defined), whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Voting Stock.

( 2) The consideration to be received by holders of a particular class of series of outstanding Voting Stock shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Stockholder in connection with its direct or indirect acquisition of Beneficial Ownership of shares of such class or series of Voting Stock. If the consideration so paid for share of any class or series of Voting Stock varied as to form, the form of consideration for such class or series of Voting Stock shall either be cash or the form used to acquire Beneficial Ownership of the largest number of shares of such class or series of Voting Stock acquired by the Interested Stockholder during the five-year period prior to the Announcement Date. If non-cash consideration is to be paid, the Fair Market Value of such non- cash consideration shall be determined on and as of the Consummation Date.

( 3) After the Determination Date and prior to the Consummation Date there shall have been (a) no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Voting Stock; (b) no reduction in the annual rate of dividends paid on the Voting Stock (except as necessary to reflect any split or subdivision of the Voting Stock), except as approved by a majority of the Disinterested Directors; (c) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split or combination of shares), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Voting Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors; and (d) no transaction by which such Interested Stockholder has become the Beneficial Owner of any additional shares of Voting Stock except as part of the transaction that results in the Interested Stockholder becoming an Interested Stockholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Stockholder’s percentage Beneficial Ownership of any class or series of Voting Stock.

( 4) After the Determination Date, such Interest Stockholder shall not have received the benefit, directly or indirectly (except as a stockholder of this Corporation, in proportion to its stockholding), of any loans, advances, guarantees or similar financial assistance or any tax credits or tax advantages provided by this Corporation (collectively, “Financial Assistance”), whether in anticipation of or in connection with such Business Combination or otherwise.

( 5) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act, rules or regulations, or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent location, any statement as to the advisability or inadvisability of the Business Combination that the Disinterested Directors, or a ny of them, may desire to make, and, if deemed advisable by a majority of the Disinterested Directors, the proxy or information statement shall contain the opinion of an independent investment banking firm selected by a majority of the Disinterested Directors as to the fairness or lack of fairness of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Voting Stock other than the Interested Stockholder and its Affiliates or Associates, such investment banking firm to be paid a reasonable fee for its services by this Corporation.

( 6) Such Interested Stockholder shall not have made any major change in this Corporation’s business or equity capital structure without the approval of a majority of the Disinterested Directors.

( C) The following definitions shall apply with respect to this Article TENTH:

( 1) The terms “Affiliate” and “Associate” shall have the respective meanings ascribed to those terms in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, and as in effect on the date that this provision of the Restated Certificate of Incorporation of this Corporation is approved by the stockholders (the term “registrant” in said Rule 12b-2 meaning in this case the Corporation).

( 2) The term “Announcement Date” with respect to any Business Combination means the date of the first public announcement of the proposal of such Business Combination.

( 3) A person shall be a “Beneficial Owner” of, or have “Beneficial Ownership” of, or “Beneficially Own,” any Voting Stock over which such person or any of its Affiliates or Associates, directly or indirectly, through any contract, arrangement, understanding or relationship, has or shares or, upon the exercise of any conversion right, exchange right,

warrant, option or similar interest (whether or not then exercisable) would have or share, either (a) voting power (including the power to vote or to direct the voting) of such security or (b) investment power (including the power to dispose or direct the disposition) of such security. For the purposes of determining whether a person is an Interested Stockholder, the number of shares of Voting Stock deemed to be outstanding shall include any shares Beneficially Owned by such person even thought not actually outstanding, but shall not include any other shares of Voting Stock which are not outstanding but which may be issuable to other persons pursuant to any agreement, arrangement or understanding, or upon exercise of any conversion right, exchange right, warrant, option or similar interest.

( 4) The term “Business Combination” shall mean:

( a) any merger or consolidation of this Corporation or any Subsidiary (as hereafter defined) with (i) any Interested Stockholder (as hereafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder) which after such merger or consolidation would be an Affiliate or Associate of an Interested Stockholder; or

( b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition on or security agreement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of related transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder, involving any assets, securities, or commitments of this Corporation, any Subsidiary or any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder which, together with all other such arrangements (including all contemplated future events) have an aggregate Fair Market Value as hereafter defined) and/or involve aggregate commitments of $5,000,000 or more; or

( c) the issuance or transfer by this Corporation or any Subsidiary (in one transaction or a series of related transactions) to an Interested Stockholder or Associate or Affiliate of an Interested Stockholder of any securities of this Corporation or any Subsidiary in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value as of the Announcement Date of $5,000,000 or more, other than the issuance of securities upon the conversion or exchange of securities of this Corporation or in exchange for securities of any Subsidiary which were acquired by an Interested Stockholder from this Corporation or a Subsidiary in a Business Combination which was approved by a vote of the shareholders pursuant to this Article TENTH; or

( d) the adoption of any plan or proposal for the liquidation or dissolution of this Corporation; or

( e) any reclassification of any securities of this Corporation (including any reverse stock split), any recapitalization of the Voting Stock of this Corporation, any merger or consolidation of this Corporation with or into any of its Subsidiaries, or any other transaction (whether or not with or otherwise involving any Interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of Voting Stock or series thereof of the Corporation or of any Subsidiary Beneficially

Owned by any Interested Stockholder or Associate or Affiliate of any Interested Stockholder or as a result of which the stockholders of the Corporation would cease to be stockholders of a corporation having, as part of its certificate of incorporation, provisions to the same effect as this Article TENTH and the provisions of Article ELEVENTH of this Restated Certificate of Incorporation relating to the provisions of this Article TENTH; or

( f) any agreement, contract, or other arrangement providing for one or more of the actions specified in the foregoing paragraphs (a) through (e), or any series of transactions which, if taken together, would constitute one or more of the actions specified in the foregoing paragraphs (a) through (e).

( 5) The term “Consummation Date” means the date of the consummation of a Business Combination.

( 6) The term “Determination Date” in respect to an Interested Stockholder means the date on which such Interested Stockholder first became an Interested Stockholder.

( 7) The term “Disinterested Director” with respect to a Business Combination means any member of the Board of Directors of this Corporation who (a) is not an Interested Stockholder involved in such Business Combination; (b) is not an Affiliate or Associate of such Interested Stockholder; (c) is not a party to any agreement or arrangement with such Interested Stockholder to act in concert with such Interested Stockholder to direct the management or policies of this Corporation; and (d) either (i) was a member of the Board of Directors prior to the time that such Interested Stockholder became an Interested Stockholder, or (ii) is a successor of a Disinterested Director and was nominated to succeed a Disinterested Director by a majority of the Disinterested Directors at the time of his nomination; provided, however, that any member of the Board of Directors may be a Disinterested Director with respect to a Business Combination involving an Interested Stockholder who was an Interested Stockholder on the date that the second Restated Certificate of Incorporation of this Corporation filed by the Secretary of State of the State of Delaware was so filed, notwithstanding the failure of such member to satisfy the conditions set forth in clause (d) above. Any reference to “Distinterested Directors” shall refer to a single Disinterested Director if there be but one. Any matter referred to as requiring approval of, or having been approved by, a majority of the Disinterested Directors shall mean the matter requires the approval of, or has been approved by, the Board of Directors of this Corporation without giving effect to the vote of any Director who is not a Disinterested Director and with the affirmative vote of a majority of the Disinterested Directors.”

( 8) The term “Fair Market Value” as of any particular date means: (a) in the case of cash, the amount of such cash; (b) in the case of stock (including Voting Stock), the highest closing price per share of such stock during the thirty-day period immediately preceding the date in question on the largest United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed or, if such stock is not listed on any such exchange, the highest last sales price as reported by the National Association of Securities Dealers, Inc. Automated Quotation System (“NASDAQ”) during the

thirty-day period immediately preceding the date in question if the stock is a National Market System security or, if such stock is not a National Market System security, the highest reported closing bid quotation for a share of such stock during the thirty-day period preceding the date in question on NASDAQ or any successor quotation reporting system or, if quotations are not available in such system, as furnished by the National Quotation Bureau Incorporated or any similar organization furnishing quotations, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (c) in the case of stock of any class or series which is not traded on any securities exchange or in the over -the-counter market, or in the case of property other than cash or stock, or in the case of Financial Assistance, the fair market value of such stock, property or Financial Assistance, as the case may be, on the date in question as determined by a majority of the Disinterested Directors in good faith.

( 9) The term “Interested Stockholder” shall mean any person, other than this Corporation, any Subsidiary or any employee benefit plan of this Corporation or any Subsidiary, who or which:

( a) is, or has announced or publicly disclosed a plan or intention to become, the Beneficial Owner, directly or indirectly, of shares of Voting Stock representing 15% or more of the total votes which all of the then-outstanding shares of Voting Stock are entitled to cast in the election of directors; or

( b) is an Affiliate or Associate of any person described in Subparagraph 9(a) at any time during the five-year period immediately preceding the date in question; or

( c) acts with any other person as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding or disposing of securities of this Corporation, and such group is the Beneficial Owner, directly or indirectly, of shares of Voting Stock representing 15% or more of the total votes which all of the then- outstanding share of Voting Stock are entitled to cast in the election of directors.

Any reference to a particular Interested Stockholder involved in a Business Combination shall also refer to any Affiliate or Associate thereof, any predecessor thereto and any other person acting as a member of a partnership, limited partnership, syndicate group with such particular Interested Stockholder within the meaning of the foregoing clause (c) of this subparagraph (9).

( 10) A “person” shall mean any individual, firm, company, corporation, (which shall include a business trust), partnership, joint venture, trust or estate, association or other entity.

( 11) The term “Subsidiary” in respect of this Corporation means any corporation or partnership of which a majority of any class of its equity securities is owned, directly or indirectly, by this Corporation.

( 12) The term “Voting Stock” shall mean all shares of capital stock that entitle the holder to vote for the election of directors, including, without limitation, this Corporation’s common stock.

( D) A majority of the Disinterested Directors shall have the power and duty to determine, on the basis of information known to them after reasonably inquiry, all facts necessary to determine compliance with this Article TENTH, including, without limitation (1) whether a person is an Interested Stockholder, (2) the number of shares of Voting Stock Beneficially Owned by any person, (3) whether a person is an Affiliate or Associate of another person, (4) whether the requirements of paragraph (B) of this Article TENTH have been met with respect to any Business Combination, (5) whether the proposed transaction is with, or proposed by, or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder, and (6) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by this Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $5,000,000 or more. The good faith determination of a majority of the Disinterested Directors on such matters shall be conclusive and binding for all purposes of this Article TENTH.

( E) Nothing contained in this Article TENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

( F) The fact that any Business Combination complies with paragraph (B) of this Article TENTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of this Corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination.

( G) For purposes of this Article TENTH, a Business Combination or any proposal to amend, repeal or adopt any provision of this Restated Certificate of Incorporation inconsistent with this Article TENTH (collectively, “Proposed Action”) is presumed to have been proposed by, or on behalf of, an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder or a person who thereafter would become such if (1) after the Interested Stockholder became such, the Proposed Action is proposed following the election of any director of this Corporation who, with respect to such Interested Stockholder, would not qualify to serve as a Disinterested Director or (2) such Interested Stockholder, Affiliate, Associate or person votes for or consents to the adoption of any such Proposed Action, unless as to such Interested Stockholder, Affiliate, Associate or person, a majority of the Disinterested Directors makes a good faith determination that such Proposed Action is not proposed by or on behalf of such Interested Stockholder, Affiliate, Associate or person, based on information known to them after reasonably inquiry.

ELEVENTH. Except as otherwise fixed by or pursuant t o the provisions of Article FOURTH hereof relating to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation with respect to such class

or series of stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such stockholders.

TWELFTH.

( A) This Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provisions contained herein, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law, and all rights, preferences, and privileges of whatsoever nature conferred upon shareholders, directors, or any other person whomsoever by or pursuant to the Restated Certificate of Incorporation in its present form or as hereafter are granted, subject to the rights reserved in this Article TWELFTH.

( B) In addition to any requirements of law and any other provisions hereof (and notwithstanding the fact that approval by a lesser vote may be permitted by law or any other provision hereof), the affirmative vote of the holders of 80% or more of the combined voting power of the then-outstanding shares of Voting Stock, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision inconsistent with, this Article TWELFTH or Articles FIFTH, SIXTH, NINTH, TENTH and ELEVENTH hereof.

This Fifth Restated Certificate of Incorporation of The Charles Schwab Corporation amends paragraph A of Article FOURTH of the Fourth Restated Certificate of Incorporation of The Charles Schwab Corporation and restates said Certificate, as amended, pursuant to Sections 242 and 245 of the Delaware General Corporation Law.

E xhibit 3.1 4

FOURTH RESTATED BYLAWS OF

THE CHARLES SCHWAB CORPORATION

(As Amended on July 28, 2009)

(As Amended on January 27, 2010)

ARTICLE I

OFFICES

Section 1.01. Registered Office . The regis tered office of The Charles Schwab Corporation (the "Corporation") in the State of Delaware shall be at 1209 Orange Street , Wilmington , Del aware , and the name of the registered agent at that address shall be the Corporation Trust Com pany.

Section 1.02. Principal Office . The principal office for the transaction of the business of the Corporation shall be at 211 Main Street , San Francisco , California . The Board of Directors (hereafter called the “Board”) is hereby granted full power and authority to change said principal office from one location to another.

Section 1.03. Other Offices . The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware , as the Board may from time to time determine or as the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 2.01. Annual Meetings . Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings shall be held each year on a date and at a time designated by the Board.

Section 2.02. Special Meetings . Special meetings of the stockholders for any purpose or purposes may be called by the Chairman of the Board, the Board or a committee of the Board which has been duly designated by the Board and whose powers and authority, as provided in a resolution of the Board or in these Bylaws, include the power to call such meetings. Unless otherwise prescribed by statute, the Certificate of Incorporation or these Bylaws, special meetings may not be called by any other person or persons. No business may be transacted at any special meeting of stockholders other than such business as may be designated in the notice calling such meeting.

Section 2.03. Place of Meeting; Meetings by Remote Communication . The Board, the Chairman of the Board, or a com mittee of the Board, as the case may be, may designate the place of meeting for any annual meeting or for any special meet ing of the stock holders called by the Board, the Chairman of the Board, or a com mit tee of the Board. The Board may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held by means of remote communication in accordance with Delaware law.

Section 2.04. Notice of Meeting . Unless otherwise provided by law, written notice stat ing the place, if any, date and hour of the meet ing, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be de livered by the Corporation not less than ten (10) days nor more than sixty (60) days before the date of the meet ing, ei ther per sonally or by mail, to each stockholder of record en titled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, ad dressed to the stockholder at his address as it appears on the stock transfer books of the Corpora tion. Such further notice shall be given as may be re quired by law. Only such business shall be conducted at a special meeting of stock holders as shall have been brought be fore the meeting pursuant to the Corporation's notice of meet ing. Meetings may be held without notice if all stockholders entitled to vote are pre sent (unless any stockholder is present at the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened), or if notice is waived by those not present in accordance with Section 8.02 of these Bylaws. Any previ ously sched uled meeting of the stockholders may be postponed, and (unless the Cer tificate of In corporation other wise provides) any special meeting of the stock holders may be canceled, by resolution of the Board upon pub lic notice given prior to the date previously scheduled for such meet ing of stockholders.

Section 2.05. Quorum and Adjournment . Except in the case of any meeting for the election of directors summarily ordered as provided by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the shareholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all stockholders, any officer entitled to preside at, or to act as secretary of such meeting may adjourn such meeting from time to time. The Chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a quorum. No notice of the time and place, if any, of adjourned meetings (or the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting) need be given except as required by law. No business may be transacted at a meeting in the absence of a quorum other than the adjournment of such meeting, except that if a quorum is present at the commencement of a meeting, business may be transacted until the meeting is adjourned even though the withdrawal of stockholders results in less than a quorum.

Section 2.06. Notice of Stockholder Business and Nomina tions.

(a) Annual Meetings of Stockholders .

(i) Nom ina tions of persons for election to the Board and the pro posal of business to be consid ered by the stockholders may be made at an annual meet ing of stockholders (A) pursuant to the Corpora tion's notice of meet ing, (B) by or at the di rection of the Board or (C) by any stock holder of the Corporation who was a stock holder of re cord at the time of giving of notice pro vided for in this Bylaw, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw.

(ii) For nominations or other business to be prop erly brought before an annual meet ing by a stockholder pursu ant to clause (C) of paragraph (a)(i) of this Bylaw, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other bus iness must oth erwise be a proper matter for stockhold er action. To be timely, a stock hold er's notice shall be deliv ered to the Sec retary at the principal ex ecutive offices of the Corpo ration not later than the close of business on the 60th day nor ear lier than the close of busi ness on the 90th day prior to the first an niver sary of the preceding year's annual meet ing; pro vided, however, that in the event that the date of the an nual meeting is more than 30 days before or more than 60 days after such an niver sary date, notice by the stock holder to be time ly must be so delivered not earlier than the close of business on the 90th day prior to such an nual meeting and not later than the close of busi ness on the later of the 60th day prior to such an nual meet ing or the 10th day following the day on which public an nouncement of the date of such meeting is first made by the Corpora tion. In no event shall the public announce ment of an adjournment of an annual meeting com mence a new time pe riod for the giv ing of a stockhold er's notice as described above. Such stockhold er's notice shall set forth (A) as to each per son whom the stock holder proposes to nominate for election or re -election as a di rector all information re lating to such per son that is re quired to be disclosed in solicita tions of prox ies for election of directors in an election con test, or is otherwise re quired, in each case pur suant to Regu lation 14A under the Securi ties Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a ‑11 there under (in cluding such person's writ ten con sent to being named in the proxy state ment as a nominee and to serving as a director if elected); (B) as to any other busi ness that the stockholder proposes to bring be fore the meeting, a brief descrip tion of the busi ness de sired to be brought before the meet ing, the reasons for con duct ing such busi ness at the meeting and any mate rial interest in such business of such stock holder and the ben eficial owner, if any, on whose behalf the pro posal is made; and (C) as to the stockholder giving the notice and the ben eficial owner, if any, on whose behalf the nomination or pro posal is made (1) the name and ad dress of such stock holder, as they appear on the Corporation's books, and of such ben eficial owner and (2) the class and num ber of shares of the Corpora tion which are owned ben eficially and of record by such stock holder and such beneficial owner.

(iii) Notwithstanding anything in the sec ond sen tence of paragraph (a)(ii) of this Bylaw to the contrary, in the event that the number of di rectors to be elected to the Board of the Cor poration is in creased and there is no public

announcement by the Corporation nam ing all of the nomi nees for director or specifying the size of the in creased Board at least 70 days prior to the first an ni versary of the pre ceding year's annual meeting, a stock holder's notice re quired by this Bylaw shall also be consid ered timely, but only with respect to nomi nees for any new posi tions created by such increase, if it shall be deliv ered to the Secretary at the principal executive of fices of the Corporation not later than the close of business on the 10th day fol lowing the day on which such public an nounce ment is first made by the Cor po ra tion.

(b) Special Meetings of Stockholders . Only such busi ness shall be con ducted at a special meeting of stock holders as shall have been brought before the meeting pursu ant to the Cor poration's notice of meeting. Nominations of persons for elec tion to the Board may be made at a special meeting of stockholders at which di rectors are to be elected pursuant to the Corpo ration's notice of meeting (i) by or at the di rection of the Board or (ii) provided that the Board has determined that directors shall be elected at such meeting, by any stock holder of the Corpora tion who is a stockholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who com plies with the notice proce dures set forth in this Bylaw. In the event the Corporation calls a special meeting of stock holders for the pur pose of electing one or more directors to the Board, any such stock holder may nominate a per son or persons (as the case may be), for election to such position(s) as speci fied in the Cor po ra tion's notice of meet ing, if the stockholder's notice re quired by paragraph (a)(ii) of this Bylaw shall be de livered to the Sec retary at the principal executive offices of the Corpora tion not earlier than the close of business on the 90th day prior to such spe cial meeting and not later than the close of business on the later of the 60th day prior to such spe cial meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nomi nees pro posed by the Board to be elected at such meeting. In no event shall the public an nounce ment of an ad journment of a special meet ing com mence a new time pe riod for the giving of a stockholder's notice as de scribed above.

(c) General . (i) Only such persons who are nomi nated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in ac cor dance with the procedures set forth in this By law. Except as otherwise pro vided by law, the Chairman of the meet ing shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meet ing was made or pro posed, as the case may be, in ac cordance with the procedures set forth in this Bylaw and, if any proposed nomina tion or busi ness is not in compliance with this Bylaw, to declare that such defective proposal or nomina tion shall be disre garded.

(i) For purposes of this Bylaw, "public an nounce ment" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or compa rable national news service or in a docu ment publicly filed by the Corporation with the Securities and Exchange Commission pur suant to Section 13, 14 or 15(d) of the Exchange Act.

(ii) Notwithstanding the foregoing provi sions of this Bylaw, a stock holder shall also comply with all ap plic able require ments of the Ex change Act and the rules and reg u la tions thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (A) of stockholders to request in clusion of proposals in the Corporation's proxy statement pursuant to Rule 14a ‑8 un der the Ex change Act or (B) of the holders of any series of Pre ferred Stock to elect directors under speci fied circumstances.

Section 2.07. Voting .

(a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation:

(i) on the date fixed pursuant to Section 6.05 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or

(ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held.

(b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Nothing in this section shall be construed as limiting the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledging shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware.

(c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect

of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority of the shares present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any questions shall be by ballot and each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting.

Section 2.08. List of Stockholders . The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting or (ii) during ordinary business hours at the principal place of business of the Corporation. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting during the duration thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then such list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

Section 2.09. Inspectors of Election . The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to act at the meeting. If no inspector or alternate is able to act at a meeting of stockholders, the chairman of such meeting shall appoint one or more inspectors to act at the meeting. Each inspector so appointed shall first sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall ascertain the number of shares outstanding and the voting power of each, determine the shares represented at a meeting and the validity of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. Reports of the inspectors shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The inspectors may appoint or retain other persons or entities to assist them in the performance of their duties as inspectors. The inspectors need not be stockholders of the Corporation, and any officer of the Corporation may be an inspector on any question other than a vote for or against a proposal in which he shall have a material interest.

Section 2.10. No Stockholder Action by Written Consent . Except as otherwise fixed by or pursu ant to the provisions of Article FOURTH of the Certificate of Incor poration relating to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation with respect to such class or series of stock, any action required or permitted to be taken by the stock holders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writ ing by such stockholders.

Article iii

board of directors

Section 3.01. General Powers . The property, business and affairs of the Corporation shall be managed by or under the direction of the Board.

Section 3.02. Number, Election and Terms . Ex cept as otherwise fixed by or pursuant to the provisions of Arti cle FOURTH of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a prefer ence over the Common Stock as to dividends or upon liqui dation to elect additional direc tors under specified cir cumstances, the number of the directors of the Board of the Corporation shall be fixed from time to time exclu sively pursuant to a resolu tion adopted by a majority of the total number of directors which the Cor po ration would have if there were no vacan cies. Commencing with the 1996 annual meeting of stockholders, the directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquida tion, shall be clas sified, with respect to the time for which they severally hold of fice, into three classes, as nearly equal in number as is reason ably pos sible, one class to be originally elect ed for a term expiring at the annual meet ing of stockholders to be held in 1997, the second class to be originally elect ed for a term expiring at the annual meet ing of stockholders to be held in 1998, and the third class to be originally elected for a term expir ing at the annual meeting of stockholders to be held in 1999, with each director to hold of fice until his or her successor is duly elected and qualified. At each an nual meeting of the stockholders of the Corporation, com mencing with the 1997 annual meeting, the suc cessors of the class of directors whose term expires at that meet ing shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election, with each director to hold office until his or her successor shall have been duly elected and qualified.

Section 3.03. Procedure for Election of Direc tors; Required Vote . Election of directors at all meetings of the stockholders at which direc tors are to be elected shall be by ballot, and, except as otherwise fixed by or pursuant to the provisions of Article FOURTH of the Certificate of Incorporation relating to the rights to the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, each director to be elected by stockholders shall be elected by the vote of the majority of the votes cast at any meeting for the election of directors at which a quorum is present. For purposes of this Bylaw, a majority of votes cast shall mean that the number of shares voted “for” a director’s election exceeds 50% of the number of votes cast with respect to that director’s election. Votes cast shall exclude

abstentions with respect to that director’s election. Notwithstanding the foregoing, in the event of a contested election of directors, directors shall be elected by the vote of a plurality of the votes cast at any meeting for the election of directors at which a quorum is present. For purposes of this Bylaw, a contested election shall mean any election of directors in which the number of candidates for election as directors exceeds the number of directors to be elected, with the determination thereof being made by the Secretary within 30 days following the close of the applicable notice of nomination period set forth in Section 2.06 based on whether one or more notices of nomination were timely filed in accordance with said Section 2.06 (provided that the determination that an election is a “contested election” shall be determinative only as to the timeliness of a notice of nomination and not otherwise as to its validity). If, prior to the time the Company mails its initial proxy statement in connection with such election of directors, one or more notices of nomination are withdrawn such that the number of candidates for election as director no longer exceeds the number of directors to be elected, the election shall not be considered a contested election .

Section 3.04. Resignations . Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 3.05. Removal . Subject to the rights of any class or series of stock having a prefer ence over the Common Stock as to dividends or upon liquidation to elect directors under speci fied circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of 80% of the combined voting power of the then outstand ing shares of stock entitled to vote generally in the election of direc tors, voting to gether as a single class.

Section 3.06. Vacancies . Subject to applicable law and except as otherwise provided for or fixed by or pursuant to the provisions of Arti cle FOURTH of the Certificate of Incorpora tion relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under speci fied circumstances, and unless the Board of Directors oth erwise determines, vacancies resulting from death, resignation, retirement, disqualifica tion, removal from office or other cause, and newly created direc torships resulting from any increase in the autho rized number of directors, may be filled only by the affirmative vote of a majority of the remaining di rectors, though less than a quorum of the Board of Directors, and directors so chosen shall hold office for a term expiring at the annual meeting of stock holders at which the term of office of the class to which they have been elected ex pires and until such director's successor shall have been duly elected and qualified. No de crease in the number of authorized directors constituting the Board of Directors of the Cor poration shall shorten the term of any incumbent director.

Section 3.07. Place of Meeting, Etc . The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to

time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting.

Section 3.08. First Meeting . The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required.

Section 3.09. Regular Meetings . Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given.

Section 3.10. Special Meetings . Special meetings of the Board may be called by the Chairman of the Board of Directors or the Chief Executive Officer. Notice of any special meet ing of directors shall be given to each director at his busi ness or residence in writing by hand delivery, first-class or overnight mail or courier service, telegram or fac simile transmission, electronic mail or electronic messaging system, or orally by telephone. If mailed by first-class mail, such no tice shall be deemed adequately delivered when deposited in the United States mails so ad dress ed, with postage thereon prepaid, at least five (5) days before such meet ing. If by tele gram, overnight mail or courier service, such notice shall be deemed adequately deliv ered when the telegram is delivered to the telegraph com pany or the notice is delivered to the overnight mail or cou rier service com pany at least twenty-four (24) hours before such meet ing. If by fac simile transmission, electronic mail, or electronic messaging system, such notice shall be deemed ade quate ly delivered when the notice is trans mitted at least twelve (12) hours before such meeting. If by telephone or by hand de livery, the notice shall be given at least twelve (12) hours prior to the time set for the meet ing. Such notice may be waived by any director and any meeting shall be a legal meeting without notice having been given if all the directors shall be present thereat or if those not present shall, either before or after the meeting, sign a written waiver of notice of, or a consent to, such meeting or shall after the meeting sign the approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or be made a part of the minutes of the meeting.

Section 3.11. Quorum and Manner of Acting . Except as otherwise provided in the Certificate of Incorporation or these Bylaws or by law, the presence of a majority of the total number of directors then in office shall be required to constitute a quorum for the transaction of business at any meeting of the Board. Except as otherwise provided in the Certificate of Incorporation or these Bylaws or by law, all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of

any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such.

Section 3.12. Action by Consent . Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee.

Section 3.13. Compensation . The directors shall receive only such compensation for their services as directors as may be allowed by resolution of the Board. The Board may also provide that the Corporation shall reimburse each such director for any expense incurred by him on account of his attendance at any meetings of the Board or Committees of the Board. Neither the payment of such compensation nor the reimbursement of such expenses shall be construed to preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving compensation therefor.

Section 3.14. Executive Committee . There may be an Executive Committee of two or more directors appointed by the Board, who may meet at stated times, or in notice to all by any of their own number, during the intervals between the meetings of the Board; they shall advise and aid the officers of the Corporation in all matters concerning its interest and the management of its business, and generally perform such duties and exercise such powers as may be directed or delegated by the Board from time to time. The Board of Directors may also designate, if it desires, other directors as alternate members who may replace any absent or disqualified member of the Executive Committee at any meeting thereof. To the full extent permitted by law, the Board may delegate to such committee authority to exercise all the powers of the Board while the Board is not in session. Vacancies in the membership of the committee shall be filled by the Board at a regular meeting or at a special meeting for that purpose. In the absence or disqualification of any member of the Executive Committee and any alternate member in his or her place, the member or members of the Executive Committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may, by unanimous vote, appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. The Executive Committee shall keep written minutes of its meeting and report the same to the Board when required. The provisions of Sections 3.09, 3.10, 3.11 and 3.12 of these Bylaws shall apply, mutatis mutandis , to any Executive Committee of the Board.

Section 3.15. Other Committees . The Board may, by resolution passed by a majority of the whole Board, designate one or more other committees, each such committee to consist of one or more of the directors of the Corporation. The Board of Directors may also designate, if it desires, other directors as alternate members who may replace any absent or disqualified member of any such committee at any meeting thereof. To the full extent permitted by law, any such committee shall have and may exercise such powers and authority as the Board may designate in such resolution. Vacancies in the membership of a committee shall be filled by the Board at a regular meeting or a special

meeting for that purpose. Any such committee shall keep written minutes of its meeting and report the same to the Board when required. In the absence or disqualification of any member of any such committee and any alternate member or members of any such committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may, by unanimous vote, appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. The provisions of Section 3.09, 3.10, 3.11 and 3.12 of these Bylaws shall apply, mutatis mutandis , to any such committee of the Board.

article iv

officers

Section 4.01. Number . The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary and a Treasurer. The Board may also elect one or more Assistant Secretaries and Assistant Treasurers. A person may hold more than one office providing the duties thereof can be consistently performed by the same person.

Section 4.02. Other Officers . The Board may appoint such other officers as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board.

Section 4.03. Election . Each of the officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 4.02 or Section 4.05 of this Article, shall be chosen annually by the Board and shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified.

Section 4.04. Salaries . The salaries of all executive officers of the Corporation shall be fixed by the Board or by such committee of the Board as may be designated from time to time by a resolution adopted by a majority of the Board.

Section 4.05. Removal; Vacancies . Subject to the express provisions of a contract authorized by the Board, any officer may be removed, either with or without cause, at any time by the Board or by any officer upon whom such power of removal may be conferred by the Board. Any vacancy occurring in any office of the Corporation shall be filled by the Board.

Section 4.06. Chairman of the Board. The Chairman of the Board shall be an officer of the Corporation, subject to the control of the Board, and shall report directly to the Board. The Chairman of the Board shall play an active role in helping to build and lead the Corporation, working closely with the Chief Executive Officer to set the Corporation’s strategy, and shall be the co-spokesman for the Corporation along with the Chief Executive Officer. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board and shall have such other powers and duties as may be prescribed by the Board or by applicable law.

Section 4.07. Chief Executive Officer. The Chief Executive Officer shall be an officer of the Corporation and shall have general supervision and direction over the business and affairs of the Corporation, subject to the control of the Board and the provisions of Section 4.06 of this Article IV, and shall report directly to the Board. The Chief Executive Officer shall see that all orders and resolutions of the Board are carried into effect; shall, if present and in the absence of the Chairman of the Board, preside at meetings of the stockholders and of the Board; and in general shall exercise all powers and perform all duties as may from time to time be assigned to the Chief Executive Officer by the Board or as may be prescribed in these Bylaws.

Section 4.08. The President . The President shall perform such senior duties in connection with the operations of the Corporation as the Chief Executive Officer of the Corporation, or, if the President and the Chief Executive Officer are the same person, the Board, shall from time to time determine. The President shall report directly to the Chief Executive Officer unless the President and the Chief Executive Officer are the same person, in which case the President shall report directly to the Board. In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, the President shall perform the duties of the Chief Executive Officer and, when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer.

Section 4.09. The Vice Presidents . In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Board may from time to time prescribe.

Section 4.10. The Secretary and Assistant Secretary . The Secretary shall attend all meetings of the Board and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board in a book to be kept for that purpose and shall perform like duties for the standing and special committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board, and shall perform such other duties as may be prescribed by the Board or Chief Executive Officer, under whose supervision he shall act. He shall have custody of the corporate seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature.

The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or his refusal to act, perform the duties and exercise the powers of the Secretary and shall perform

such other duties and have such other powers as the Board may from time to time prescribe.

Section 4.11. The Treasurer . The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board.

He shall disburse the funds of the Corporation as may be ordered by the Board, making proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board, at its regular meetings, or when the Board so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation.

If required by the Board, he shall give the Corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the Board for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation.

Section 4.12. The Assistant Treasurer . The Assistant Treasurer, or if there be more than one, the assistant treasurers in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board may from time to time prescribe.

article v

contracts, checks, drafts, bank accounts, etc.

Section 5.01. Checks, Drafts, Etc . All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness payable by the Corporation and all contracts or agreements shall be signed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person or persons shall give such bond, if any, as the Board may require.

Section 5.02. Deposits . All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chief Executive Officer or President, any Vice President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver

checks, drafts and other orders for the payment of money which are payable to the order of the Corporation.

Section 5.03. General and Special Bank Accounts . The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient.

article vi

shares and their transfer

Section 6.01. Certificates for Stock . Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman, Vice Chairman, Chief Executive Officer or President or a Vice President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.04.

Section 6.02. Transfers of Stock . Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or

certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.

Section 6.03. Regulations . The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them.

Section 6.04. Lost, Stolen, Destroyed, and Mutilated Certificates . In any case of loss, theft, destruction or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do.

Section 6.05. Fixing Date for Determination of Stockholders of Record . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action except for consenting to corporate action in writing without a meeting, the Board of Directors may fix a record date, which shall not precede the date the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as herein before described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or any other lawful action except for consenting to corporate action in writing without a meeting, the record date shall be the close of business on the day on which the Board of Directors adopts a resolution relating thereto.

For purposes of determining the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted, as of which shall be determined the stockholders of record entitled to consent to corporate action in writing without a meeting. If no record date has been fixed by the Board of Directors and no prior action by the Board of Directors is required by the Delaware General Corporation Law, the record date shall be the first date on which a signed written consent setting forth the action taken or proposed to

be taken is delivered to the Corporation in the manner prescribed in Section 2.09 hereof. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the Delaware General Corporation Law with respect to the proposed action, the record date for determining stockholders entitled to consent to corporate action in writing shall be the close of business on the day in which the Board of Directors adopts the resolutions taking such prior action.

article vii

indemnification

Section 7.01. Indemnification of Officers, Directors, Employees and Agents; Insurance .

(a) Right to Indemnification . Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, trustee, agent or fiduciary of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, trustee, agent, fiduciary, or in any other capacity, while serving as a director, officer, employee, agent, trustee or fiduciary of another corporation shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitees in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee, trustee, agent, fiduciary or in any other capacity, and shall inure to the benefit of the indemnitee’s heirs, executors and administrators; provided , however , that except as provided in paragraph (c) hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized or is subsequently ratified by the Board of Directors of the Corporation. The Corporation shall not be liable to indemnify the indemnitee with regard to any award in any proceeding if the Corporation was not given a reasonable and timely opportunity, at its expense, to meaningfully participate in the defense of such proceeding.

(b) Right to Advancement of Expenses . The right to indemnification conferred in paragraph (a) of this Section shall include the right to be paid by the Corporation the expenses (including attorneys’ fees) incurred in defending any proceeding for which such right to indemnification is applicable in advance of its final disposition (hereinafter an “advancement of expenses”); provided , however , that, if the Delaware

General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise.

(c) To obtain indemnification under this Bylaw, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this paragraph (c), a determination, if required by applicable law, with respect to the claimant’s entitlement thereto shall be made as follows: (1) if requested by the claimant, by Independent Counsel (as hereinafter defined), or (2) if no request is made by the claimant for a determination by Independent Counsel, (i) by the Board by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (ii) if a quorum of the Board consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the stockholders of the Corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the Board unless there shall have occurred within two years prior to the date of the commencement of the action, suit or proceeding for which indemnification is claimed a “Change of Control” as defined in the Senior Executive Severance Policy, in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Board. If is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination.

(d) Right of Indemnitee to Bring Suit . The rights to indemnification and to the advancement of expenses conferred in paragraphs (a) and (b) of this Section shall be a contract between the Corporation and each director or officer of the Corporation who serves or served in such capacity at any time while this Article VII is in effect. Any repeal or modification of this Article VII or any repeal or modification of relevant provisions of the Delaware General Corporation Law or any other applicable laws shall not in any way diminish any rights to indemnification of such director or officer or the obligations of the Corporation hereunder. If a claim under paragraph (a) or (b) of this Section is not paid in full by the Corporation within thirty (30) days after a written claim pursuant to paragraph (c) has been received by the Corporation, or in the case of a claim for advancement of expenses, in which case the applicable period shall also be thirty (30) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount

of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its board of directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section or otherwise shall be on the Corporation.

(e) Non-Exclusivity of Rights . The rights to indemnification and to the advancement of expenses conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation’s certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise.

(f) Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law, provided that such insurance is available on acceptable terms, which determination shall be made by the Board of Directors or by a committee thereof.

(g) Indemnification of Employees and Agents of the Corporation . The Corporation may, to the extent and in accordance with the terms authorized from time to time by the board of directors, grant rights to indemnification, and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Section with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.

(h) For purposes of this Section, references to “the Corporation” shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Section with respect to the Corporation as he would have with respect to such constituent corporation if its separate existence had continued.

(i) For purposes of this Section, references to “serving at the request of the Corporation” shall include any service as director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Section.

(j) Notwithstanding anything else in this Article VII, in the event that the express provisions of the Delaware General Corporation Law relating to indemnification of, or advancement of expenses by the Corporation to, persons eligible for indemnification or advancement of expenses under this Article VII are amended to permit broader indemnification or advancement of expenses, then the Corporation will provide such indemnification and advancement of expenses to the maximum extent permitted by the Delaware General Corporation Law.

(k) If this Article VII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each indemnitee of the Corporation as to costs, charges and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article VII that shall not have been invalidated and to the full extent permitted by applicable law.

(l) Notwithstanding anything else in this Article VII, at any and all times at which the Corporation is subject to the provisions of the California Corporations Code by virtue of the operation of Section 2115 thereof or otherwise, the indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall be in all respects limited by the provisions of the California Corporations Code made applicable by such Section 2115 (or such other provision of California law).

(m) If a determination shall have been made pursuant to paragraph (c) of this Bylaw that the claimant is entitled to indemnification, the Corporation shall be bound

by such determination in any judicial proceeding commenced pursuant to paragraph (d) of this Bylaw.

(n) The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to paragraph (d) of this Bylaw that the procedures and presumptions are not valid, binding and enforceable and shall stipulate in such proceeding that the Corporation is bound by all the provisions of this Bylaw.

(o) For purposes of this Bylaw:

(i) “Disinterested Director” means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.

(ii) “Independent Counsel” means a law firm, a member of a law firm, or and independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Corporation or the claimant in an action to determine the claimant’s rights under this Bylaw.

article viii

miscellaneous

Section 8.01. Seal . The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation.

Section 8.02. Waiver of Notices . Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice.

Section 8.03. Fiscal Year . The fiscal year of the Corporation shall be fixed by resolution of the Board.

Section 8.04. Amendments . These Bylaws may be al tered, amended or repealed at any meeting of the Board or of the stockholders, provided no tice of the proposed change was given in the notice of the meeting and, in the case of a meet ing of the Board, in a notice given not less than two days pri or to the meeting; provided, however, that, in the case of amendments by stockholders, notwithstanding any other provi sions of these Bylaws or any provision of law which might oth erwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or se ries of the capital stock of the Corporation required by law, the Certificate of Incorporation of these Bylaws, the affirma tive vote of the holders of at least 80% of the total voting power of all the then outstanding shares of Voting Stock of the Corporation, voting together as a single class,

shall be re quired to alter, amend or re peal this Section 8.04 or any provision of Sec tions 2.06, 2.10, 3.02, 3.05 and 3.06 of these Bylaws.

Section 8.05. Voting Stock . Any person so authorized by the Board, and in the absence of such authorization, the Chairman of the Board, the Chief Executive Officer or President or any Vice President, shall have full power and authority on behalf of the Corporation to attend and to act and vote at any meeting of the stockholders of any corporation in which the Corporation may hold stock and at any such meeting shall possess and may exercise any and all rights and powers which are incident to the ownership of such stock and which as the owner thereof the Corporation might have possessed and exercised if present. The Board by resolution from time to time may confer like powers upon any other person or persons.

Exhibit 3.15

CERTIFICATE OF DESIGNATIONS

FIXED-TO-FLOATING RATE NON-CUMULATIVE PERPETUAL
PREFERRED STOCK, SERIES A

THE CHARLES SCHWAB CORPORATION

_________________________________

Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
_________________________________

THE CHARLES SCHWAB CORPORATION, a Delaware corporation (the “Corporation”), HEREBY CERTIFIES that the following resolution was duly adopted by a duly authorized committee (the “Pricing Committee”) of the board of directors of the Corporation (the “Board of Directors”) in accordance with Section 151(g) of the General Corporation Law of the State of Delaware pursuant to the authority conferred upon the Board of Directors by the provisions of the Fifth Restated Certificate of Incorporation of the Corporation (as such may be amended, modified or restated from time to time, the “Certificate of Incorporation”), and pursuant to the authority conferred upon the Pricing Committee by the duly adopted resolutions of the Board of Directors and the bylaws of the Corporation (as such may be amended, modified or restated from time to time, the “Bylaws”):

RESOLVED, that pursuant to Article Fourth of the Certificate of Incorporation (which authorizes 9,940,000 shares of preferred stock, par value $0.01 per share (the “Preferred Stock”)), the Pricing Committee hereby fixes the voting rights, powers, preferences and privileges, and the relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of the series of Preferred Stock provided for below.

RESOLVED, that each share of such series of Preferred Stock shall rank equally in all respects and shall be subject to the following provisions:

1. Designation and Number . The series of Preferred Stock shall be designated as the “Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A” (the “Series A Preferred Stock”) and the number of shares so designated shall be 400,000. Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series A Preferred Stock then outstanding) by the Board of Directors. Shares of Series A Preferred Stock that are redeemed, purchased or otherwise acquired by the Corporation shall be cancelled and shall revert to authorized but unissued shares of Preferred Stock undesignated as to series. The Corporation may in the future from time to time, without notice to or consent of the holders of the Series A Preferred Stock, issue additional shares of the Series A Preferred Stock; provided , that any such additional shares are not treated as “disqualified preferred stock” within the meaning of Section

019557-0114-13979-12718900

1059(f)(2) of the Internal Revenue Code and such additional shares are otherwise treated as fungible with the Series A Preferred Stock for U.S. federal income tax purposes. In the event that the Corporation issues additional Series A Preferred Stock after the original issue date, dividends on such additional shares may accrue from the original issue date or any other date the Corporation specifies at the time such additional shares are issued. Each share of Series A Preferred Stock shall have a liquidation preference of $1,000 per share (the “Liquidation Preference”).

2 . Definitions .

As used herein with respect to the Series A Preferred Stock, the following terms shall have the following meaning:

“ Authorized Committee ” shall have the meaning set forth in Section 3(a).

“ Board of Directors ” shall have the meaning set forth in the preamble.

“ Business Day ” means any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in San Francisco, California or New York, New York are authorized or obligated by law or executive order to close.

“ Bylaws ” shall have the meaning set forth in the preamble.

“ Calculation Agent ” shall mean Wells Fargo Bank, National Association acting in its capacity as calculation agent for the Series A Preferred Stock, and its successors and assigns or any other calculation agent appointed by the Corporation.

“ Certificate of Incorporation ” shall have the meaning set forth in the preamble.

“ Corporation ” shall have the meaning set forth in the preamble.

“ Dividend Determination Date ” shall have the meaning set forth in Section 3(e).

“ Dividend Payment Date ” shall have the meaning set forth in Section 3(b).

“ Dividend Period ” means the period from, and including, a Dividend Payment Date to, but excluding, the next Dividend Payment Date, except that the initial Dividend Period shall commence on, and include, the original issue date of the Series A Preferred Stock.

“ DTC ” means The Depository Trust Company.

“ Federal Reserve ” means the Board of Governors of the Federal Reserve System.

“ Fixed Rate Period ” shall have the meaning set forth in Section 3(a)(i).

“ Floating Rate Period ” shall have the meaning set forth in Section 3(a)(ii).

“ Junior Stock ” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which the Series A Preferred Stock has

preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

“ Liquidation Distribution ” shall have the meaning set forth in Section 4(a).

“ Liquidation Preference ” shall have the meaning set forth in Section 1.

“ London Banking Day ” is any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market.

“ Parity Stock ” means any other class or series of stock of the Corporation that ranks on parity with the Series A Preferred Stock in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

“ Paying Agent ” shall mean Wells Fargo Bank, National Association acting in its capacity as paying agent for the payment of dividends for the Series A Preferred Stock, and its successors and assigns or any other paying agent appointed by the Corporation.

“ Pricing Committee ” shall have the meaning set forth in the preamble.

“ Redemption Price ” shall have the meaning set forth in Section 6(b).

“ Registrar ” shall mean Wells Fargo Bank, National Association acting in its capacity as registrar for the Series A Preferred Stock, and its successors and assigns or any other registrar appointed by the Corporation.

“ Regulatory Capital Treatment Event ” means the good faith determination by the Corporation that, as a result of:

(i) any amendment to, or change in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective after the initial issuance of any share of Series A Preferred Stock;

(ii) any proposed change in those laws or regulations that is announced after the initial issuance of any share of Series A Preferred Stock; or

(iii) any official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial issuance of any share of Series A Preferred Stock,

there is more than an insubstantial risk that the Corporation will not be entitled to treat the full Liquidation Preference of the shares of Series A Preferred Stock then outstanding as “Tier 1 Capital” (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the Federal Reserve (or any successor bank regulatory authority that may become the Corporation’s applicable federal banking agency), as then in effect and applicable, for as long as any share of Series A Preferred Stock is outstanding.

“ Reuters Screen LIBOR01 Page ” means the display designated on the Reuters Screen LIBOR01 Page (or such other page as may replace Reuters Screen LIBOR01 Page on the service or such other service as may be nominated by the British Bankers’ Association for the purpose of displaying London interbank offered rates for United States dollar deposits).

“ Senior Stock ” means any other class or series of stock of the Corporation ranking senior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation.

“ Series A Preferred Stock ” shall have the meaning set forth in Section 1.

“ Three-Month LIBOR ” means the London interbank offered rate for deposits in U.S. dollars having an index maturity of three months in amounts of at least $1,000,000, as that rate appears on the “Reuters Screen LIBOR01 Page” at approximately 11:00 a.m., London time, on the relevant Dividend Determination Date. If no offered rate appears on the “Reuters Screen LIBOR01 Page” on the relevant Dividend Determination Date at approximately 11:00 a.m., London time, then the Calculation Agent, after consultation with the Corporation, will select four major banks in the London interbank market and will request each of their principal London offices to provide a quotation of the rate at which three-month deposits in U.S. dollars in amounts of at least $1,000,000 are offered by it to prime banks in the London interbank market, on that date and at that time, that is representative of single transactions at that time. If at least two quotations are provided, Three-Month LIBOR will be the arithmetic average (rounded upward if necessary to the nearest .00001 of 1%) of the quotations provided. Otherwise, the Calculation Agent will select three major banks in New York City and will request each of them to provide a quotation of the rate offered by it at approximately 11:00 a.m., New York City time, on the Dividend Determination Date for loans in U.S. dollars to leading European banks having an index maturity of three months for the applicable Dividend Period in an amount of at least $1,000,000 that is representative of single transactions at that time. If three quotations are provided, Three-Month LIBOR will be the arithmetic average (rounded upward if necessary to the nearest .00001 of 1%) of the quotations provided. Otherwise, Three-Month LIBOR for the next Dividend Period will be equal to Three-Month LIBOR in effect for the then-current Dividend Period.

“ Transfer Agent ” shall mean Wells Fargo Bank, National Association acting in its capacity as transfer agent for the Series A Preferred Stock, and its successors and assigns or any other transfer agent appointed by the Corporation.

“ Voting Parity Securities ” shall have the meaning set forth in Section 5(b).

3. Dividends .

(a) Holders of Series A Preferred Stock shall be entitled to receive, when, as, and if declared by the Board of Directors or a duly authorized committee of the Board of Directors (an “Authorized Committee”), out of assets legally available for the payment of dividends under Delaware law, non-cumulative cash dividends based on the Liquidation Preference of the Series A Preferred Stock at a rate equal to:

(i) 7.000% per annum for each semi-annual Dividend Period from the issue date of the Series A Preferred Stock to, but excluding, February 1, 2022 (the “Fixed Rate Period”); and

(ii) Three-Month LIBOR plus a spread of 4.820 % per annum, for each quarterly Dividend Period beginning on February 1, 2022 and continuing indefinitely thereafter or until such Series A Preferred Stock is redeemed or repurchased (the “Floating Rate Period”).

(b) If declared by the Board of Directors or an Authorized Committee, dividends shall be payable, in arrears, on the Series A Preferred Stock on the following dates ( each, a “Dividend Payment Date”) :

(i) during the Fixed Rate Period and February 1, 2022, semi-annually on February 1 and August 1 of each year, beginning on August 1, 2012 and ending on February 1, 2022; and

(ii) during the Floating Rate Period, quarterly on February 1, May 1, August 1 and November 1 of each year, beginning on May 1, 2022.

If any date on which dividends would otherwise be payable is not a Business Day, then the Dividend Payment Date shall be the next Business Day without any adjustment to the amount of dividends paid.

(c) Dividends shall be payable to holders of record of Series A Preferred Stock as they appear on the Corporation’s stock register at 5:00 p.m., New York City time, on the applicable record date, which shall be the 15th calendar day before the applicable Dividend Payment Date, or such other record date, not exceeding 30 days before the applicable Dividend Payment Date, as shall be fixed by the Board of Directors or an Authorized Committee.

(d) Dividends payable on the Series A Preferred Stock for the Fixed Rate Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series A Preferred Stock for the Floating Rate Period shall be computed based on the actual number of days in a Dividend Period and a 360-day year. Dollar amounts resulting from that calculation shall be rounded to the nearest cent, with one-half cent being rounded upwards. Dividends on the Series A Preferred Stock shall cease to accrue on the redemption date, if any, as described in Section 6, unless the Corporation defaults in the payment of the Redemption Price of the shares of the Series A Preferred Stock called for redemption.

(e) The dividend rate for each Dividend Period in the Floating Rate Period shall be determined by the Calculation Agent using Three-Month LIBOR as in effect on the second London Banking Day prior to the beginning of the Dividend Period, which date is the “Dividend Determination Date” for the Dividend Period. The Calculation Agent shall add the spread of 4.820% per annum to the Three-Month LIBOR rate as determined on the Dividend Determination Date. Absent manifest error, the Calculation Agent’s determination of the dividend rate for a Dividend Period will be binding and conclusive on the holders of Series A Preferred Stock, the Transfer Agent and the Corporation.

(f) Dividends on the Series A Preferred Stock shall not be cumulative. If the Board of Directors or an Authorized Committee does not declare a dividend on the Series A Preferred Stock in respect of a Dividend Period, then no dividend shall be deemed to have accrued for such Dividend Period, be payable on the applicable Dividend Payment Date, or be cumulative, and the Corporation shall have no obligation to pay any dividend for that Dividend Period, whether or not the Board of Directors or an Authorized Committee declares a dividend on the Series A Preferred Stock for any future Dividend Period.

(g) During each Dividend Period while the Series A Preferred Stock is outstanding, unless the full dividends for the immediately preceding Dividend Period on all outstanding shares of Series A Preferred Stock have been declared and paid or declared and a sum sufficient for the payment thereof has been set aside:

(i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than (1) a dividend payable solely in such Junior Stock or (2) any dividend in connection with the implementation of a stockholders’ rights plan, or the redemption or repurchase of any rights under any such plan; and

(ii) no shares of Junior Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation) other than:

(1) as a result of a reclassification of Junior Stock for or into other Junior Stock;

(2) the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock;

(3) through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock;

(4) purchases, redemptions or other acquisitions of shares of Junior Stock in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors or consultants;

(5) purchases of shares of Junior Stock pursuant to a contractually binding requirement to buy Junior Stock existing prior to the preceding Dividend Period, including under a contractually binding stock repurchase plan; or

(6) the purchase of fractional interests in shares of Junior Stock pursuant to the conversion or exchange provisions of such stock or the security being converted or exchanged.

(iii) no shares of Parity Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers

to purchase all, or a pro rata portion, of the Series A Preferred Stock and such Parity Stock, unless such Parity Stock is repurchased, redeemed or acquired for consideration by the Corporation in connection with any of the following:

(1) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock;

(2) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock; or

(3) through the use of the proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock.

(h) When dividends are not paid in full upon the shares of Series A Preferred Stock and any Parity Stock, all dividends declared upon shares of Series A Preferred Stock and any such Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share shall bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series A Preferred Stock, and accrued dividends, including any accumulations, on any such Parity Stock, bear to each other.

(i) Dividends on the Series A Preferred Stock will be subject to the Corporation’s receipt of required prior approval by the Federal Reserve (or any successor bank regulatory authority that may become the Corporation’s applicable federal banking agency), if any, and to the satisfaction of conditions set forth in the capital adequacy guidelines or regulations of the Federal Reserve (or any successor bank regulatory authority that may become the Corporation’s applicable federal banking agency) applicable to dividends on the Series A Preferred Stock, if any.

(j) Subject to the foregoing restrictions, dividends (payable in cash, stock or otherwise), as may be determined by the Board of Directors or an Authorized Committee, may be declared and paid on the Corporation’s common stock and any other stock ranking equally with or junior to the Series A Preferred Stock from time to time out of any assets legally available for such payment, and the holders of Series A Preferred Stock shall not be entitled to participate in any such dividend.

4. Liquidation Rights .

(a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive a liquidation distribution of $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends (the “Liquidation Distribution”), before the Corporation makes any distribution of assets to the holders of the Corporation’s common stock or any other class or series of stock ranking junior to the Series A Preferred Stock as to such distribution. The holders of Series A Preferred Stock shall not be entitled to any other amounts from the Corporation after they have received their Liquidation Distribution in full.

(b) In any such distribution, if the assets of the Corporation are not sufficient to pay the Liquidation Distribution in full to all holders of Series A Preferred Stock and all holders of

any class or series of stock ranking on parity with the Series A Preferred Stock as to such distribution, the amounts paid to the holders of Series A Preferred Stock and all holders of such parity stock shall be paid pro rata in accordance with the respective aggregate Liquidation Distribution owed to those holders. If the Liquidation Distribution has been paid in full to all holders of Series A Preferred Stock and such parity stock, the holders of any other class or series of stock ranking junior to the Series A Preferred Stock as to such distribution shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

For purposes of this Section 4, the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

5. Voting Rights .

(a) The holders of Series A Preferred Stock shall have no voting rights, except as provided herein or as required by law.

(b) Whenever dividends payable on the shares of Series A Preferred Stock have not been paid for three semi-annual Dividend Periods or six quarterly Dividend Periods, as applicable, or their equivalent, whether or not consecutive, then the holders of Series A Preferred Stock shall have the right, with holders of any other equally ranked series of preferred stock that have similar voting rights and on which dividends likewise have not been paid (the “Voting Parity Securities”), voting together as a class, at a special meeting called at the request of the holders of at least 20% of the voting power of the Series A Preferred Stock and any Voting Parity Securities (unless such request for a special meeting is received less than 90 calendar days before the date fixed for the next annual or special meeting of the Corporation’s stockholders, in which event such election shall be held only at such next annual or special meeting of the Corporation’s stockholders) or at the Corporation’s next annual or special meeting of the Corporation’s stockholders, to elect two additional directors to the Board of Directors; provided, that the election of any such director does not cause the Corporation to violate the applicable corporate governance requirements of the exchange or trading market where the Corporation’s common stock is then listed or quoted, as the case may be. At any meeting held for the purpose of electing such directors, the presence in person or by proxy of the holders of shares representing at least a majority of the voting power of the Series A Preferred Stock and any Voting Parity Securities, voting together as a class, shall be required to constitute a quorum of such shares. The affirmative vote of the holders of the Series A Preferred Stock and the holders of any Voting Parity Securities, voting together as a class, representing a majority of the voting power of such shares present at such meeting, in person or by proxy, shall be sufficient to elect any such director.

(c) Immediately prior to the election of any such directors, the number of directors that comprise the Board of Directors shall be increased by two. Such voting rights and the term of the additional directors so elected shall continue until:

(i) continuous non-cumulative dividends for at least two consecutive semi-annual dividend periods or four consecutive quarterly dividend periods, as applicable, or their equivalent; and

(ii) cumulative dividends, if any, payable for all past dividend periods,

shall have been paid, or declared and set aside for payment, in full, on all outstanding shares of the Series A Preferred Stock or the Voting Parity Securities entitled thereto . At that point, the right to elect additional directors shall terminate and the terms of office of the two additional directors so elected shall terminate immediately, and the number of directors shall be reduced by two and such voting rights of the holders of the Series A Preferred Stock and any Voting Parity Securities shall cease, subject to any increase in the number of directors as described above due to the revesting of such voting rights in the event of each and every additional failure in the payment of dividends for three semi-annual Dividend Periods or six quarterly Dividend Periods , as applicable, or their equivalent, whether or not consecutive, as described above.

(d) Holders of Series A Preferred Stock, together with holders of any Voting Parity Securities, voting together as a class, may remove any director they elected. Any vacancy created by the removal of any such director may be filled only by the vote of the holders of the Series A Preferred Stock and any Voting Parity Securities, voting together as a class. If the office of either such director becomes vacant for any reason other than removal, the remaining director may choose a successor who will hold office for the unexpired term of the vacant office. In the event that both offices are vacant, the holders of Series A Preferred Stock and any Voting Parity Securities may, as set forth in Section 5(b), call a special meeting and elect such directors at such special meeting, or elect such directors at the Corporation’s next annual or special meeting of the Corporation’s stockholders.

(e) The number of votes that each share of Series A Preferred Stock and any stock ranking equally with the Series A Preferred Stock participating in the votes described above shall be in proportion to the Liquidation Preference of such share.

(f) So long as any shares of Series A Preferred Stock remain outstanding, the affirmative vote or consent of the holders of at least two-thirds of all outstanding shares of the Series A Preferred Stock voting separately as a class, shall be required to:

(i) amend, alter or repeal the provisions of the Certificate of Incorporation (including this Certificate of Designations), or the Bylaws, whether by merger, consolidation or otherwise, so as to adversely affect the powers, preferences, privileges or special rights of the Series A Preferred Stock; provided , that any of the following will not be deemed to adversely affect such powers, preferences, privileges or special rights:

(1) increases in the amount of the authorized common stock or, except as provided in Section 5(f)(ii), preferred stock;

(2) increases or decreases in the number of shares of any series of preferred stock ranking equally with or junior to the Series A Preferred Stock; or

(3) the authorization, creation and issuance of other classes or series of capital stock (or securities convertible or exchangeable into such capital stock) ranking equally with or junior to the Series A Preferred Stock;

(ii) amend or alter the Certificate of Incorporation to authorize or increase the authorized amount of or issue shares of any class or series of Senior Stock, or reclassify any of the Corporation’s authorized capital stock into any such shares of Senior Stock or issue any obligation or security convertible into or evidencing the right to purchase any such shares of Senior Stock; or

(iii) consummate a binding share exchange, a reclassification involving the Series A Preferred Stock or a merger or consolidation of the Corporation with or into another entity; provided , however, that the holders of Series A Preferred Stock shall have no right to vote under this provision or otherwise under Delaware law if in each case:

(1) the Series A Preferred Stock remains outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, is converted into or exchanged for preferred securities of the surviving or resulting entity (or its ultimate parent) that is an entity organized and existing under the laws of the United States, any state thereof or the District of Columbia; and

(2) the Series A Preferred Stock remaining outstanding or the new preferred securities, as the case may be, have such powers, preferences and special rights as are not materially less favorable to the holders thereof than the powers, preferences and special rights of the Series A Preferred Stock.

The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of the Series A Preferred Stock shall have been redeemed or called for redemption in accordance with Section 6 upon proper notice and sufficient funds shall have been set aside by the Corporation for the benefit of the holders of the Series A Preferred Stock to effect such redemption.

6. Redemption .

(a) No Mandatory Redemption . The Series A Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar provisions. The holders of Series A Preferred Stock have no right to require the redemption or repurchase of the Series A Preferred Stock.

(b) Optional Redemption . The Corporation may redeem the Series A Preferred Stock at the Corporation’s option, in whole or in part, from time to time, on any Dividend Payment Date on or after February 1, 2022, at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends (the “Redemption Price”).

(c) Redemption Following a Regulatory Capital Treatment Event . The Corporation may redeem shares of the Series A Preferred Stock at any time within 90 days following a Regulatory Capital Treatment Event, in whole but not in part, at the Redemption Price.

(d) Redemption Procedures .

(i) If shares of the Series A Preferred Stock are to be redeemed, the notice of redemption shall be given by first class mail to the holders of record of the Series A Preferred Stock to be redeemed, mailed not less than 30 days nor more than 60 days prior to the date fixed for redemption thereof (provided that, if the holder of record is DTC, notice may be given in any manner permitted by DTC). Each notice of redemption shall include a statement setting forth:

(1) the redemption date;

(2) the number of shares of the Series A Preferred Stock to be redeemed and, if less than all the shares held by the holder are to be redeemed, the number of shares of Series A Preferred Stock to be redeemed from the holder;

(3) the Redemption Price;

(4) the place or places where the certificates evidencing shares of Series A Preferred Stock are to be surrendered for payment of the Redemption Price; and

(5) that dividends on the shares to be redeemed shall cease to accrue on the redemption date.

If notice of redemption of any shares of Series A Preferred Stock has been duly given and if the funds necessary for such redemption have been set aside by the Corporation for the benefit of the holders of any shares of Series A Preferred Stock so called for redemption, then, on and after the redemption date, dividends shall cease to accrue on such shares of Series A Preferred Stock, such shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares shall terminate, except the right to receive the Redemption Price.

(e) Partial Redemption . In case of any redemption of only part of the shares of the Series A Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata , by lot or in such other manner as the Corporation may determine to be equitable. Subject to the provisions hereof, the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series A Preferred Stock shall be redeemed from time to time.

(f) Regulatory Approval . Any redemption of the Series A Preferred Stock is subject to the Corporation’s receipt of required prior approval by the Federal Reserve (or any successor bank regulatory authority that may become the Corporation’s applicable federal banking agency), if any, and to the satisfaction of conditions set forth in the capital adequacy guidelines or regulations of the Federal Reserve (or any successor bank regulatory authority that may

become the Corporation’s applicable federal banking agency) applicable to redemption of the Series A Preferred Stock, if any.

[ Remainder of page intentionally left blank ]

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations to be executed and acknowledged this 24th day of January, 20 12 .


			THE CHARLES SCHWAB CORPORATION


			By:	/s/ Joseph R. Martinetto
				Name:	Joseph R. Martinetto
				Title:	Chief Financial Officer




ACKNOWLEDGED:


By:	/s/ Susan L. Stapleton
	Name:	Susan L. Stapleton
	Title:	Assistant Corporate Secretary

EXHIBIT A

FORM OF FIXED-TO-FLOATING RATE NON-CUMULATIVE

PERPETUAL PREFERRED STOCK, SERIES A

[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (“DTC”) TO THE CORPORATION OR THE REGISTRAR NAMED ON THE FACE OF THIS CERTIFICATE, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE CERTIFICATE OF DESIGNATIONS. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR NAMED ON THE FACE OF THIS CERTIFICATE SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.] 1


Number: [ ]	CUSIP NO.: 808513 AE5

Fixed-to-Floating Rate Non-Cumulative Perp etual Preferred Stock, Series A

[ ] Shares

THE CHARLES SCHWAB CORPORATION

FACE OF SECURITY

________________________

1 To be included if the certificate is in global form, otherwise to be removed.

A- 1

019557-0114-13979-12718900

This certifies that [Cede & Co.] 2 is the owner of [ ] fully paid and non-assessable shares of the Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, of The Charles Schwab Corporation, a Delaware corporation (hereinafter called the “Corporation”), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation, as amended, of the Corporation and all amendments thereto (copies of which are on file at the office of the Registrar) to all of which the holder of this certificate by acceptance hereof assents. This certificate is not valid until countersigned by the Registrar.

________________________

2 To be included if the certificate is in global form, otherwise to be the name of the holder of the certificated shares.

A- 2

019557-0114-13979-12718900

IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed.


				THE CHARLES SCHWAB CORPORATION


				By:
					Name:
					Title:


				By:
					Name:
					Title:

REGISTRAR’S COUNTERSIGNATURE

This is one of the certificates representing shares of the Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, referred to in the within mentioned Certificate of Designations.


				Wells Fargo Bank, National
				Association
				as Registrar


				By:
					Name:
					Title:

					Dated:

A- 3

019557-0114-13979-12718900

REVERSE OF SECURITY

THE CHARLES SCHWAB CORPORATION

The shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) have the preferences and privileges, dividend rights, liquidation preferences and such other rights and qualifications, limitations and restrictions as provided in the Certificate of Designations relating to the Series A Preferred Stock (the “Certificate of Designations”), in addition to those set forth in the Certificate of Incorporation of the Corporation, as amended, and the Corporation’s bylaws, copies of which shall be furnished by the Corporation to any holder without charge upon the request addressed to the Secretary of the Corporation at its principal office in San Francisco, California or to the Registrar named on the face of this certificate.

A statement of the rights, preferences, privileges and restrictions granted to or imposed upon the respective classes or series of stock of the Corporation, and upon the holders thereof as established by the Certificate of Incorporation, the Certificate of Designations or any other certificate of determination of preferences, and the number of shares constituting each series or class and the designations thereof, may be obtained by any stockholder of the Corporation upon request and without charge from the Secretary of the Corporation at the principal office of the Corporation, 211 Main Street, San Francisco, California 94105.

A- 4

019557-0114-13979-12718900

ASSIGNMENT

For value received, _______________ hereby sell, assign and transfer unto

Please Insert Social Security or Other Identifying Number of Assignee

____________________________________

(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)

shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

Dated _______________



	NOTICE:	The Signature to this Assignment Must Correspond with the Name As Written Upon the Face of the Certificate in Every Particular, Without Alteration or Enlargement or Any Change Whatever.


SIGNATURE GUARANTEED


(Signature Must Be Guaranteed by a Member
of a Medallion Signature Program)

A- 5

019557-0114-13979-12718900

Exhibit 3.1 6

CERTIFICATE OF DESIGNATIONS

6.00% NON-CUMULATIVE PERPETUAL
PREFERRED STOCK, SERIES B

THE CHARLES SCHWAB CORPORATION

_________________________________

Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
_________________________________

RESOLVED, that each share of such series of Preferred Stock shall rank equally in all respects and shall be subject to the following provisions:

1. Designation and Number . The series of Preferred Stock shall be designated as the “6.00% Non-Cumulative Perpetual Preferred Stock, Series B” (the “Series B Preferred Stock”) and the number of shares so designated shall be 488,750. Such number may from time to time be increased (but not in excess of the total number of authorized shares of Preferred Stock) or decreased (but not below the number of shares of Series B Preferred Stock then outstanding) by the Board of Directors. Shares of Series B Preferred Stock that are redeemed, purchased or otherwise acquired by the Corporation shall be cancelled and shall revert to authorized but unissued shares of Preferred Stock undesignated as to series. The Corporation may in the future from time to time, without notice to or consent of the holders of the Series B Preferred Stock,

issue additional shares of the Series B Preferred Stock; provided , that any such additional shares are not treated as “disqualified preferred stock” within the meaning of Section 1059(f)(2) of the Internal Revenue Code and such additional shares are otherwise treated as fungible with the Series B Preferred Stock for U.S. federal income tax purposes. In the event that the Corporation issues additional Series B Preferred Stock after the original issue date, dividends on such additional shares may accrue from the original issue date or any other date the Corporation specifies at the time such additional shares are issued. Each share of Series B Preferred Stock shall have a liquidation preference of $1,000 per share (the “Liquidation Preference”).

2. Definitions .

As used herein with respect to the Series B Preferred Stock, the following terms shall have the following meaning:

“ Authorized Committee ” shall have the meaning set forth in Section 3(a).

“ Board of Directors ” shall have the meaning set forth in the preamble.

“ Bylaws ” shall have the meaning set forth in the preamble.

“ Certificate of Incorporation ” shall have the meaning set forth in the preamble.

“ Corporation ” shall have the meaning set forth in the preamble.

“ Dividend Payment Date ” shall have the meaning set forth in Section 3(b).

“ DTC ” means The Depository Trust Company.

“ Federal Reserve ” means the Board of Governors of the Federal Reserve System.

“ Junior Stock ” means the Corporation’s common stock and any other class or series of stock of the Corporation hereafter authorized over which the Series B Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

“ Liquidation Distribution ” shall have the meaning set forth in Section 4(a).

“ Liquidation Preference ” shall have the meaning set forth in Section 1.

“ Parity Stock ” means any other class or series of stock of the Corporation that ranks on parity with the Series B Preferred Stock in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

“ Pricing Committee ” shall have the meaning set forth in the preamble.

“ Redemption Price ” shall have the meaning set forth in Section 6(b).

“ Regulatory Capital Treatment Event ” means the good faith determination by the Corporation that, as a result of:

(ii) any proposed change in those laws or regulations that is announced after the initial issuance of any share of Series B Preferred Stock; or

there is more than an insubstantial risk that the Corporation will not be entitled to treat the full Liquidation Preference of the shares of Series B Preferred Stock then outstanding as “Tier 1 Capital” (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the Federal Reserve (or any successor bank regulatory authority that may become the Corporation’s applicable federal banking agency), as then in effect and applicable, for as long as any share of Series B Preferred Stock is outstanding.

“ Senior Stock ” means any other class or series of stock of the Corporation ranking senior to the Series B Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation.

“ Series B Preferred Stock ” shall have the meaning set forth in Section 1.

“ Voting Parity Securities ” shall have the meaning set forth in Section 5(b).

3. Dividends .

(a) Holders of Series B Preferred Stock shall be entitled to receive, when, as, and if declared by the Board of Directors or a duly authorized committee of the Board of Directors (an “Authorized Committee”), out of assets legally available for the payment of dividends under Delaware law, non-cumulative cash dividends based on the Liquidation Preference of the Series B Preferred Stock at a rate equal to 6.00% per annum for each quarterly Dividend Period from the date of initial issuance and continuing indefinitely thereafter or until such Series B Preferred Stock is redeemed or repurchased.

(b) If declared by the Board of Directors or an Authorized Committee, dividends shall be payable, in arrears, on the Series B Preferred Stock quarterly on March 1, June 1, September 1 and December 1 of each year, beginning on September 1, 2012 ( each, a “Dividend Payment Date”).

If any date on which dividends would otherwise be payable is not a Business Day, then the Dividend Payment Date shall be the next Business Day without any adjustment to the amount of dividends paid.

(c) Dividends shall be payable to holders of record of Series B Preferred Stock as they appear on the Corporation’s stock register at 5:00 p.m., New York City time, on the applicable record date, which shall be the 15th calendar day before the applicable Dividend Payment Date, or such other record date, not exceeding 30 days before the applicable Dividend Payment Date, as shall be fixed by the Board of Directors or an Authorized Committee.

(d) Dividends payable on the Series B Preferred Stock shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Dollar amounts resulting from that calculation shall be rounded to the nearest cent, with one-half cent being rounded upwards. Dividends on the Series B Preferred Stock shall cease to accrue on the redemption date, if any, as described in Section 6, unless the Corporation defaults in the payment of the Redemption Price of the shares of the Series B Preferred Stock called for redemption.

(e) Dividends on the Series B Preferred Stock shall not be cumulative. If the Board of Directors or an Authorized Committee does not declare a dividend on the Series B Preferred Stock in respect of a Dividend Period, then no dividend shall be deemed to have accrued for such Dividend Period, be payable on the applicable Dividend Payment Date, or be cumulative, and the Corporation shall have no obligation to pay any dividend for that Dividend Period, whether or not the Board of Directors or an Authorized Committee declares a dividend on the Series B Preferred Stock for any future Dividend Period.

(f) During each Dividend Period while the Series B Preferred Stock is outstanding, unless the full dividends for the immediately preceding Dividend Period on all outstanding shares of Series B Preferred Stock have been declared and paid or declared and a sum sufficient for the payment thereof has been set aside:

(1) as a result of a reclassification of Junior Stock for or into other Junior Stock;

(2) the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock;

(3) through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock;

(6) the purchase of fractional interests in shares of Junior Stock pursuant to the conversion or exchange provisions of such stock or the security being converted or exchanged.

(iii) no shares of Parity Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series B Preferred Stock and such Parity Stock, unless such Parity Stock is repurchased, redeemed or acquired for consideration by the Corporation in connection with any of the following:

(1) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock;

(2) the exchange or conversion of one share of Parity Stock for or into another share of Parity Stock or Junior Stock; or

(3) through the use of the proceeds of a substantially contemporaneous sale of other shares of Parity Stock or Junior Stock.

(g) When dividends are not paid in full upon the shares of Series B Preferred Stock and any Parity Stock, all dividends declared upon shares of Series B Preferred Stock and any such Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share shall bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series B Preferred Stock, and accrued dividends, including any accumulations, on any such Parity Stock, bear to each other.

(h) Dividends on the Series B Preferred Stock will be subject to the Corporation’s receipt of required prior approval by the Federal Reserve (or any successor bank regulatory authority that may become the Corporation’s applicable federal banking agency), if any, and to the satisfaction of conditions set forth in the capital adequacy guidelines or regulations of the Federal Reserve (or any successor bank regulatory authority that may become the Corporation’s applicable federal banking agency) applicable to dividends on the Series B Preferred Stock, if any.

(i) Subject to the foregoing restrictions, dividends (payable in cash, stock or otherwise), as may be determined by the Board of Directors or an Authorized Committee, may be declared and paid on the Corporation’s common stock and any other stock ranking equally with or junior to the Series B Preferred Stock from time to time out of any assets legally available for such payment, and the holders of Series B Preferred Stock shall not be entitled to participate in any such dividend.

4. Liquidation Rights .

(a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive a liquidation distribution of $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends (the “Liquidation Distribution”), before the Corporation makes any distribution of assets to the holders of the Corporation’s common stock or any other class or series of stock ranking junior to the Series B Preferred Stock as to such distribution. The holders of Series B Preferred Stock shall not be entitled to any other amounts from the Corporation after they have received their Liquidation Distribution in full.

(b) In any such distribution, if the assets of the Corporation are not sufficient to pay the Liquidation Distribution in full to all holders of Series B Preferred Stock and all holders of any class or series of stock ranking on parity with the Series B Preferred Stock as to such distribution, the amounts paid to the holders of Series B Preferred Stock and all holders of such parity stock shall be paid pro rata in accordance with the respective aggregate Liquidation Distribution owed to those holders. If the Liquidation Distribution has been paid in full to all holders of Series B Preferred Stock and such parity stock, the holders of any other class or series of stock ranking junior to the Series B Preferred Stock as to such distribution shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.

5. Voting Rights .

(a) The holders of Series B Preferred Stock shall have no voting rights, except as provided herein or as required by law.

(b) Whenever dividends payable on the shares of Series B Preferred Stock have not been paid for six quarterly Dividend Periods, whether or not consecutive, then the holders of Series B Preferred Stock shall have the right, with holders of any other equally ranked series of preferred stock that have similar voting rights and on which dividends likewise have not been paid (the “Voting Parity Securities”), voting together as a class, at a special meeting called at the request of the holders of at least 20% of the voting power of the Series B Preferred Stock and

any Voting Parity Securities (unless such request for a special meeting is received less than 90 calendar days before the date fixed for the next annual or special meeting of the Corporation’s stockholders, in which event such election shall be held only at such next annual or special meeting of the Corporation’s stockholders) or at the Corporation’s next annual or special meeting of the Corporation’s stockholders, to elect two additional directors to the Board of Directors; provided, that the election of any such director does not cause the Corporation to violate the applicable corporate governance requirements of the exchange or trading market where the Corporation’s common stock is then listed or quoted, as the case may be. At any meeting held for the purpose of electing such directors, the presence in person or by proxy of the holders of shares representing at least a majority of the voting power of the Series B Preferred Stock and any Voting Parity Securities, voting together as a class, shall be required to constitute a quorum of such shares. The affirmative vote of the holders of the Series B Preferred Stock and the holders of any Voting Parity Securities, voting together as a class, representing a majority of the voting power of such shares present at such meeting, in person or by proxy, shall be sufficient to elect any such director.

(i) continuous non-cumulative dividends for at least four consecutive quarterly dividend periods; and

(ii) cumulative dividends, if any, payable for all past dividend periods,

shall have been paid, or declared and set aside for payment, in full, on all outstanding shares of the Series B Preferred Stock or the Voting Parity Securities entitled thereto . At that point, the right to elect additional directors shall terminate and the terms of office of the two additional directors so elected shall terminate immediately, and the number of directors shall be reduced by two and such voting rights of the holders of the Series B Preferred Stock and any Voting Parity Securities shall cease, subject to any increase in the number of directors as described above due to the revesting of such voting rights in the event of each and every additional failure in the payment of dividends for six quarterly Dividend Periods , whether or not consecutive, as described above.

(d) Holders of Series B Preferred Stock, together with holders of any Voting Parity Securities, voting together as a class, may remove any director they elected. Any vacancy created by the removal of any such director may be filled only by the vote of the holders of the Series B Preferred Stock and any Voting Parity Securities, voting together as a class. If the office of either such director becomes vacant for any reason other than removal, the remaining director may choose a successor who will hold office for the unexpired term of the vacant office. In the event that both offices are vacant, the holders of Series B Preferred Stock and any Voting Parity Securities may, as set forth in Section 5(b), call a special meeting and elect such directors at such special meeting, or elect such directors at the Corporation’s next annual or special meeting of the Corporation’s stockholders.

(e) The number of votes that each share of Series B Preferred Stock and any stock ranking equally with the Series B Preferred Stock participating in the votes described above shall be in proportion to the Liquidation Preference of such share.

(f) So long as any shares of Series B Preferred Stock remain outstanding, the affirmative vote or consent of the holders of at least two-thirds of all outstanding shares of the Series B Preferred Stock voting separately as a class, shall be required to:

(i) amend, alter or repeal the provisions of the Certificate of Incorporation (including this Certificate of Designations), or the Bylaws, whether by merger, consolidation or otherwise, so as to adversely affect the powers, preferences, privileges or special rights of the Series B Preferred Stock; provided , that any of the following will not be deemed to adversely affect such powers, preferences, privileges or special rights:

(1) increases in the amount of the authorized common stock or, except as provided in Section 5(f)(ii), preferred stock;

(2) increases or decreases in the number of shares of any series of preferred stock ranking equally with or junior to the Series B Preferred Stock; or

(iii) consummate a binding share exchange, a reclassification involving the Series B Preferred Stock or a merger or consolidation of the Corporation with or into another entity; provided , however, that the holders of Series B Preferred Stock shall have no right to vote under this provision or otherwise under Delaware law if in each case:

(1) the Series B Preferred Stock remains outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, is converted into or exchanged for preferred securities of the surviving or resulting entity (or its ultimate parent) that is an entity organized and existing under the laws of the United States, any state thereof or the District of Columbia; and

(2) the Series B Preferred Stock remaining outstanding or the new preferred securities, as the case may be, have such powers, preferences and special rights as are not materially less favorable to the holders thereof than the powers, preferences and special rights of the Series B Preferred Stock.

The foregoing voting provisions shall not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of the Series B Preferred Stock shall have been redeemed or called for redemption in accordance with Section 6 upon proper notice and sufficient funds shall have been set aside by the Corporation for the benefit of the holders of the Series B Preferred Stock to effect such redemption.

6. Redemption .

(a) No Mandatory Redemption . The Series B Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar provisions. The holders of Series B Preferred Stock have no right to require the redemption or repurchase of the Series B Preferred Stock.

(b) Optional Redemption . The Corporation may redeem the Series B Preferred Stock at the Corporation’s option, in whole or in part, from time to time, on any Dividend Payment Date on or after September 1, 2017, at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends (the “Redemption Price”).

(c) Redemption Following a Regulatory Capital Treatment Event . The Corporation may redeem shares of the Series B Preferred Stock at any time within 90 days following a Regulatory Capital Treatment Event, in whole but not in part, at the Redemption Price.

(d) Redemption Procedures .

(i) If shares of the Series B Preferred Stock are to be redeemed, the notice of redemption shall be given by first class mail to the holders of record of the Series B Preferred Stock to be redeemed, mailed not less than 30 days nor more than 60 days prior to the date fixed for redemption thereof (provided that, if the holder of record is DTC, notice may be given in any manner permitted by DTC). Each notice of redemption shall include a statement setting forth:

(1) the redemption date;

(2) the number of shares of the Series B Preferred Stock to be redeemed and, if less than all the shares held by the holder are to be redeemed, the number of shares of Series B Preferred Stock to be redeemed from the holder;

(3) the Redemption Price;

(4) the place or places where the certificates evidencing shares of Series B Preferred Stock are to be surrendered for payment of the Redemption Price; and

(5) that dividends on the shares to be redeemed shall cease to accrue on the redemption date.

If notice of redemption of any shares of Series B Preferred Stock has been duly given and if the funds necessary for such redemption have been set aside by the Corporation for the benefit of the holders of any shares of Series B Preferred Stock so called for redemption, then, on and after the redemption date, dividends shall cease to accrue on such shares of Series B Preferred Stock, such shares of Series B Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares shall terminate, except the right to receive the Redemption Price.

(e) Partial Redemption . In case of any redemption of only part of the shares of the Series B Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata , by lot or in such other manner as the Corporation may determine to be equitable. Subject to the provisions hereof, the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series B Preferred Stock shall be redeemed from time to time.

(f) Regulatory Approval . Any redemption of the Series B Preferred Stock is subject to the Corporation’s receipt of required prior approval by the Federal Reserve (or any successor bank regulatory authority that may become the Corporation’s applicable federal banking agency), if any, and to the satisfaction of conditions set forth in the capital adequacy guidelines or regulations of the Federal Reserve (or any successor bank regulatory authority that may become the Corporation’s applicable federal banking agency) applicable to redemption of the Series B Preferred Stock, if any.

7. Form of Certificate . Attached as Exhibit A is the form of certificate representing the Series B Preferred Stock.

[ Remainder of page intentionally left blank ]

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations to be executed and acknowledged this 31 st day of May, 20 12 .


			THE CHARLES SCHWAB CORPORATION


			THE CHARLES SCHWAB CORPORATION


			By:	/s/ Joseph R. Martinetto
				Name:	Joseph R. Martinetto
				Title:	Executive Vice President and Chief Financial Officer




ACKNOWLEDGED:


By:	/s/ Susan L. Stapleton
	Name:	Susan L. Stapleton
	Title:	Assistant Corporate Secretary

Exhibit A

FORM OF 6.00% NON-CUMULATIVE

PERPETUAL PREFERRED STOCK, SERIES B


Number: [ ]	CUSIP NO.: 808513 303

6.00% Non-Cumulative Perp etual Preferred Stock, Series B

[ ] Shares

THE CHARLES SCHWAB CORPORATION

FACE OF SECURITY

________________________

1 To be included if the certificate is in global form, otherwise to be removed.

A- 1

Edgarized Version of Certificate of Designations with Exhibit A.doc

This certifies that [Cede & Co.] 2 is the owner of [ ] fully paid and non-assessable shares of the 6.00% Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 per share, of The Charles Schwab Corporation, a Delaware corporation (hereinafter called the “Corporation”), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation, as amended, of the Corporation and all amendments thereto (copies of which are on file at the office of the Registrar) to all of which the holder of this certificate by acceptance hereof assents. This certificate is not valid until countersigned by the Registrar.

________________________

2 To be included if the certificate is in global form, otherwise to be the name of the holder of the certificated shares.

A- 2

Edgarized Version of Certificate of Designations with Exhibit A.doc

IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed.


				THE CHARLES SCHWAB CORPORATION


				By:
					Name:
					Title:


				By:
					Name:
					Title:

REGISTRAR’S COUNTERSIGNATURE

This is one of the certificates representing shares of the 6.00% Non-Cumulative Perpetual Preferred Stock, Series B, referred to in the within mentioned Certificate of Designations.


				Wells Fargo Bank, National
				Association
				as Registrar


				By:
					Name:
					Title:

					Dated:

A- 3

Edgarized Version of Certificate of Designations with Exhibit A.doc

REVERSE OF SECURITY

THE CHARLES SCHWAB CORPORATION

The shares of 6.00% Non-Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”) have the preferences and privileges, dividend rights, liquidation preferences and such other rights and qualifications, limitations and restrictions as provided in the Certificate of Designations relating to the Series B Preferred Stock (the “Certificate of Designations”), in addition to those set forth in the Certificate of Incorporation of the Corporation, as amended, and the Corporation’s bylaws, copies of which shall be furnished by the Corporation to any holder without charge upon the request addressed to the Secretary of the Corporation at its principal office in San Francisco, California or to the Registrar named on the face of this certificate.

A- 4

Edgarized Version of Certificate of Designations with Exhibit A.doc

ASSIGNMENT

For value received, _______________ hereby sell, assign and transfer unto

Please Insert Social Security or Other Identifying Number of Assignee

____________________________________

(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)

Dated _______________



	NOTICE:	The Signature to this Assignment Must Correspond with the Name As Written Upon the Face of the Certificate in Every Particular, Without Alteration or Enlargement or Any Change Whatever.


SIGNATURE GUARANTEED


(Signature Must Be Guaranteed by a Member
of a Medallion Signature Program)

A- 5

Edgarized Version of Certificate of Designations with Exhibit A.doc

Exhibit 4.1

DEPOSIT AGREEMENT

among

The Charles Schwab Corporation,

as Issuer

Wells Fargo Bank, N.A.

as Depositary,

and

THE HOLDERS FROM TIME TO TIME OF

THE DEPOSITARY RECEIPTS DESCRIBED HEREIN

Dated as of June 6, 2012

31610639v8

TABLE OF CONTENTS


		Page
ARTICLE I D efined terms		1
Section 1.1.	Definitions.	1
ARTICLE II F orm of R eceipts, D eposit of S tock, E xecution and D elivery, T ransfer, S urrender and R edemption of R eceipts		3
Section 2.1.	Form and Transfer of Receipts.	3
Section 2.2.	Deposit of Stock; Execution and Delivery of Receipts in Respect Thereof.	4
Section 2.3.	Registration of Transfer of Receipts.	5
Section 2.4.	Split-ups and Combinations of Receipts; Surrender of Receipts and Withdrawal of Stock.	5
Section 2.5.	Limitations on Execution and Delivery, Transfer, Surrender and Exchange of Receipts.	6
Section 2.6.	Lost Receipts, etc.	6
Section 2.7.	Cancellation and Destruction of Surrendered Receipts.	7
Section 2.8.	Redemption of Stock.	7
Section 2.9.	Receipts Issuable in Global Registered Form.	8
ARTICLE III C ertain O bligations of H olders of R eceipts and the C orporation		9
Section 3.1.	Filing Proofs, Certificates and Other Information.	9
Section 3.2.	Payment of Taxes or Other Governmental Charges.	10
Section 3.3.	Warranty as to Stock.	10
Section 3.4.	Warranty as to Receipts.	10
ARTICLE IV T he D eposited S ecurities; N otices		10
Section 4.1.	Cash Distributions.	10
Section 4.2.	Distributions Other than Cash, Rights, Preferences or Privileges.	11
Section 4.3.	Subscription Rights, Preferences or Privileges.	11

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31610639v8

Section 4.4.	Notice of Dividends, etc.; Fixing Record Date for Holders of Receipts.	12
Section 4.5.	Voting Rights.	12
Section 4.6.	Changes Affecting Deposited Securities and Reclassifications, Recapitalizations, etc.	13
Section 4.7.	Delivery of Reports.	14
Section 4.8.	Lists of Receipt Holders.	14
ARTICLE V T he D epositary, the D epositary’s A gents, the R egistrar and the C orporation		14
Section 5.1.	Maintenance of Offices, Agencies and Transfer Books by the Depositary; Registrar.	14
Section 5.2.	Prevention of or Delay in Performance by the Depositary, the Depositary’s Agents, the Registrar or the Corporation.	15
Section 5.3.	Obligations of the Depositary, the Depositary’s Agents, the Registrar and the Corporation.	15
Section 5.4.	Resignation and Removal of the Depositary; Appointment of Successor Depositary.	16
Section 5.5.	Corporate Notices and Reports.	17
Section 5.6.	Indemnification by the Corporation.	18
Section 5.7.	Fees, Charges and Expenses.	18
ARTICLE VI A mendment and T ermination		18
Section 6.1.	Amendment.	18
Section 6.2.	Termination.	19
ARTICLE VII M iscellaneous		20
Section 7.1.	Counterparts.	20
Section 7.2.	Exclusive Benefit of Parties .	20
Section 7.3.	Invalidity of Provisions.	20
Section 7.4.	Notices.	20
Section 7.5.	Depositary’s Agents.	21

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31610639v8

Section 7.6.	Appointment of Registrar and Transfer Agent in Respect of the Receipts.	21
Section 7.7.	Holders of Receipts Are Parties.	21
Section 7.8.	Governing Law.	22
Section 7.9.	Inspection of Deposit Agreement.	22
Section 7.10.	Headings.	22
Section 7.11.	Confidentiality.	22

Exhibit A	Form of Receipt	A-1
Exhibit B	Certificate of Designations	B-1

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31610639v8

DEPOSIT AGREEMENT dated as of June 6, 2012, among (i) The Charles Schwab Corporation, a Delaware corporation, (ii) Wells Fargo Bank, N.A., a national banking association formed under the laws of the United States, as Depositary and (iii) the holders from time to time of the Receipts described herein.

WHEREAS, it is desired to provide, as hereinafter set forth in this Deposit Agreement, for the deposit of shares of 6.00% Non-Cumulative Perpetual Preferred Stock, Series B, of the Corporation with the Depositary for the purposes set forth in this Deposit Agreement and for the issuance hereunder of Depositary Shares representing a fractional interest in the Stock deposited and for the execution and delivery of Receipts evidencing Depositary Shares;

WHEREAS, the Receipts are to be substantially in the form of Exhibit A annexed hereto, with appropriate insertions, modifications and omissions, as hereinafter provided in this Deposit Agreement; and

WHEREAS, the terms and conditions of the 6.00% Non-Cumulative Perpetual Preferred Stock, Series B, of the Corporation are substantially set forth in the Certificate of Designations attached hereto as Exhibit B;

NOW, THEREFORE, in consideration of the premises, the parties hereto agree as follows:

ARTICLE I

D efined terms

Section 1.1. Definitions .

The following definitions shall for all purposes, unless otherwise indicated, apply to the respective terms (in the singular and plural forms of such terms) used in this Deposit Agreement and the Receipts:

“ Certificate of Designations ” shall mean the Certificate of Designations filed with the Secretary of State of the State of Delaware establishing the Stock as a series of preferred stock of the Corporation, and setting forth the rights, preferences and privileges of the Stock, and attached hereto as Exhibit B, and as such certificate may be amended or restated from time to time.

“ Corporation ” shall mean The Charles Schwab Corporation, a Delaware corporation, and its successors.

“ Deposit Agreement ” shall mean this Deposit Agreement, as the same may be amended, modified or supplemented from time to time in accordance with the terms hereof.

“ Depositary ” shall mean Wells Fargo Bank, N.A., a national banking association formed under the laws of the United States and any successor as Depositary hereunder.

“ Depositary Share Redemption Price ” shall have the meaning set forth in Section 2.8.

31610639v8

“ Depositary Shares ” shall mean the security representing a 1/40th fractional interest in a share of the Stock, and the same proportionate interest in any and all other property received by the Depositary in respect of such share of Stock and held under this Deposit Agreement, all as evidenced by the Receipts issued hereunder. Subject to the terms of this Deposit Agreement, each owner of a Depositary Share is entitled, proportionately, to all the rights, preferences and privileges of the Stock represented by such Depositary Share (including the dividend, voting, redemption and liquidation rights contained in the Certificate of Designations).

“ Depositary’s Agent ” shall mean an agent appointed by the Depositary pursuant to Section 7.5.

“ Depositary’s Office ” shall mean the principal office of the Depositary, at which at any particular time its depositary receipt business in respect of matters governed by this Deposit Agreement shall be administered.

“ Exchange Event ” shall mean with respect to any Global Registered Receipt:

(1) (A) the Global Receipt Depository which is the holder of such Global Registered Receipt or Receipts notifies the Corporation that it is no longer willing or able to properly discharge its responsibilities under any Letter of Representations or that it is no longer eligible or in good standing under the Securities Exchange Act of 1934, as amended, and (B) the Corporation has not appointed a qualified successor Global Receipt Depository within ninety (90) calendar days after the Corporation received such notice, or

(2) the Corporation in its sole discretion notifies the Depositary in writing that the Receipts or portion thereof issued or issuable in the form of one or more Global Registered Receipts shall no longer be represented by such Global Receipt or Receipts.

“ Global Receipt Depository ” shall mean, with respect to any Receipt issued hereunder, The Depository Trust Company (“DTC”) or such other entity designated as Global Receipt Depository by the Corporation in or pursuant to this Deposit Agreement, which Person must be, to the extent required by any applicable law or regulation, a clearing agency registered under the Securities Exchange Act of 1934, as amended.

“ Global Registered Receipts ” shall mean a global registered Receipt registered in the name of a nominee of DTC.

“ Letter of Representations ” shall mean any applicable agreement among the Corporation, the Depositary and a Global Receipt Depository with respect to such Global Receipt Depository’s rights and obligations with respect to any Global Registered Receipts, as the same may be amended, supplemented, restated or otherwise modified from time to time and any successor agreement thereto.

“ Receipt ” shall mean a receipt issued hereunder to evidence one or more Depositary Shares held of record by the record holder of such Depositary Shares, whether in definitive or temporary form, substantially in the form set forth as Exhibit A.

“ record holder ” or “ holder ” as applied to a Receipt shall mean the person in whose name a Receipt is registered on the books of the Depositary maintained by the Depositary for such purpose.

“ Redemption Date ” shall have the meaning set forth in Section 2.8.

“ Redemption Price ” shall have the meaning set forth in the Certificate of Designations.

“ Registrar ” shall mean the Depositary or such other successor bank or trust company which shall be appointed by the Corporation to register ownership and transfers of Receipts as herein provided and if a successor Registrar shall be so appointed, references herein to “the books” of or maintained by the Depositary shall be deemed, as applicable, to refer as well to the register maintained by such Registrar for such purpose.

“ Securities Act ” shall mean the Securities Act of 1933, as amended.

“ Stock ” shall mean shares of the Corporation’s 6.00% Non-Cumulative Perpetual Preferred Stock, Series B, $0.01 par value, $1,000 liquidation preference per share, designated and described in the Certificate of Designations.

ARTICLE II

F orm of R eceipts, D eposit of S tock,

E xecution and D elivery, T ransfer,

S urrender and R edemption of R eceipts

Section 2.1. Form and Transfer of Receipts .

Definitive Receipts shall be substantially in the form set forth in Exhibit A annexed to this Deposit Agreement, in each case with appropriate insertions, modifications and omissions, as hereinafter provided and shall be engraved or otherwise prepared so as to comply with applicable rules of the New York Stock Exchange Inc.

Receipts shall be executed by the Depositary by the manual signature of a duly authorized officer of the Depositary; provided, that such signature may be a facsimile if a Registrar for the Receipts (other than the Depositary) shall have been appointed and such Receipts are countersigned by a duly authorized officer of the Registrar. No Receipt shall be entitled to any benefits under this Deposit Agreement or be valid or obligatory for any purpose unless it shall have been executed manually by a duly authorized officer of the Depositary or, if a Registrar for the Receipts (other than the Depositary) shall have been appointed, by manual or facsimile signature of a duly authorized officer of the Depositary and countersigned by a duly authorized officer of such Registrar. The Depositary shall record on its books each Receipt so signed and delivered as hereinafter provided.

Receipts shall be in denominations of any number of whole Depositary Shares. All receipts shall be dated the date of their issuance.

Receipts may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Deposit Agreement all as may be required by the Depositary and approved by the Corporation or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange upon which the Stock, the Depositary Shares or the Receipts may be listed or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Receipts are subject.

Title to Depositary Shares evidenced by a Receipt which is properly endorsed or accompanied by a properly executed instrument of transfer, shall be transferable by delivery with the same effect as in the case of a negotiable instrument; provided, however, that until transfer of any particular Receipt shall be registered on the books of the Depositary as provided in Section 2.3, the Depositary may, notwithstanding any notice to the contrary, treat the record holder thereof at such time as the absolute owner thereof for the purpose of determining the person entitled to distributions of dividends or other distributions or to any notice provided for in this Deposit Agreement and for all other purposes.

Section 2.2. Deposit of Stock; Execution and Delivery of Receipts in Respect Thereof .

Subject to the terms and conditions of this Deposit Agreement, the Corporation may from time to time deposit shares of the Stock under this Deposit Agreement by delivery to the Depositary of (i) a certificate or certificates for the Stock to be deposited, properly endorsed or accompanied, if required by the Depositary, by a duly executed instrument of transfer or endorsement or (ii) an instruction letter from the Corporation authorizing the Depositary to register such shares of the Stock in book-entry form, each in form satisfactory to the Depositary, together with all such certifications as may be required by the Depositary in accordance with the provisions of this Deposit Agreement and all other information required to be set forth, and together with a written order of the Corporation directing the Depositary to execute and deliver to, or upon the written order of, the person or persons stated in such order a Receipt or Receipts evidencing in the aggregate the number of Depositary Shares representing such deposited Stock.

Deposited Stock shall be held by the Depositary at the Depositary’s Office or at such other place or places as the Depositary shall determine. The Depositary shall not lend any Stock deposited hereunder.

Upon receipt by the Depositary of (i) a certificate or certificates for Stock deposited in accordance with the provisions of this Section or (ii) an instruction letter from the Corporation in accordance with the provisions of this Section, together with the other documents required as above specified, and upon recordation of the Stock on the books of the Corporation (or its duly appointed transfer agent) in the name of the Depositary or its nominee, the Depositary, subject to the terms and conditions of this Deposit Agreement, shall execute and deliver to or upon the order of the person or persons named in the written order delivered to the Depositary referred to in the first paragraph of this Section, a Receipt or Receipts evidencing in the aggregate the number of Depositary Shares representing the Stock so deposited and registered in such name or names as may be requested by such person or persons. The Depositary shall execute and deliver such Receipt or Receipts at the Depositary’s Office or such other offices, if any, as the

Depositary may designate. Delivery at other offices shall be at the risk and expense of the person requesting such delivery.

Section 2.3. Registration of Transfer of Receipts .

Subject to the terms and conditions of this Deposit Agreement, the Depositary shall register on its books from time to time transfers of Receipts upon any surrender thereof by the holder in person or by duly authorized attorney, properly endorsed or accompanied by a properly executed instrument of transfer. Thereupon, the Depositary shall execute a new Receipt or Receipts evidencing the same aggregate number of Depositary Shares as those evidenced by the Receipt or Receipts surrendered and deliver such new Receipt or Receipts to or upon the order of the person entitled thereto.

The Depositary shall not be required (a) to issue, transfer or exchange any Receipts for a period beginning at the opening of business fifteen days next preceding any selection of Depositary Shares and Stock to be redeemed and ending at the close of business on the day of the mailing of notice of redemption, or (b) to transfer or exchange for another Receipt any Receipt called or being called for redemption in whole or in part except as provided in Section 2.8.

Section 2.4. Split-ups and Combinations of Receipts; Surrender of Receipts and Withdrawal of Stock .

Upon surrender of a Receipt or Receipts at the Depositary’s Office or at such other offices as it may designate for the purpose of effecting a split-up or combination of such Receipt or Receipts, and subject to the terms and conditions of this Deposit Agreement, the Depositary shall execute a new Receipt or Receipts in the authorized denomination or denominations requested, evidencing the aggregate number of Depositary Shares evidenced by the Receipt or Receipts surrendered, and shall deliver such new Receipt or Receipts to or upon the order of the holder of the Receipt or Receipts so surrendered.

Any holder of a Receipt or Receipts may withdraw the number of whole shares of Stock and all money and other property, if any, represented thereby by surrendering such Receipt or Receipts, at the Depositary’s Office or at such other offices as the Depositary may designate for such withdrawals. Thereafter, without unreasonable delay, the Depositary shall deliver to such holder, or to the person or persons designated by such holder as hereinafter provided, the number of whole shares of Stock and all money and other property, if any, represented by the Receipt or Receipts so surrendered for withdrawal, but holders of such whole shares of Stock will not thereafter be entitled to deposit such Stock hereunder or to receive a Receipt evidencing Depositary Shares therefor. If a Receipt delivered by the holder to the Depositary in connection with such withdrawal shall evidence a number of Depositary Shares in excess of the number of Depositary Shares representing the number of whole shares of Stock to be so withdrawn, the Depositary shall at the same time, in addition to such number of whole shares of Stock and such money and other property, if any, to be so withdrawn, deliver to such holder, or subject to Section 2.3 upon such holder’s order, a new Receipt evidencing such excess number of Depositary Shares.

Except as provided in Section 6.2, in no event will fractional shares of Stock (or any cash payment in lieu thereof) be delivered by the Depositary. Delivery of the Stock and money and other property, if any, being withdrawn may be made by the delivery of such certificates, documents of title and other instruments as the Depositary may deem appropriate.

If the Stock and the money and other property, if any, being withdrawn are to be delivered to a person or persons other than the record holder of the Receipt or Receipts being surrendered for withdrawal of Stock, such holder shall execute and deliver to the Depositary a written order so directing the Depositary and the Depositary may require that the Receipt or Receipts surrendered by such holder for withdrawal of such shares of Stock be properly endorsed in blank or accompanied by a properly executed instrument of transfer in blank.

Delivery of the Stock and the money and other property, if any, represented by Receipts surrendered for withdrawal shall be made by the Depositary at the Depositary’s Office, except that, at the request, risk and expense of the holder surrendering such Receipt or Receipts and for the account of the holder thereof, such delivery may be made at such other place as may be designated by such holder.

Section 2.5. Limitations on Execution and Delivery, Transfer, Surrender and Exchange of Receipts .

As a condition precedent to the execution and delivery, registration of transfer, split-up, combination, surrender or exchange of any Receipt, the Depositary, any of the Depositary’s Agents or the Corporation may require payment to it of a sum sufficient for the payment (or, in the event that the Depositary or the Corporation shall have made such payment, the reimbursement to it) of any charges or expenses payable by the holder of a Receipt pursuant to Section 5.7, may require the production of evidence satisfactory to it as to the identity and genuineness of any signature, and any other reasonable evidence of authority that may be required by the Depositary and may also require compliance with such regulations, if any, as the Depositary or the Corporation may establish consistent with the provisions of this Deposit Agreement and/or applicable law.

The deposit of Stock may be refused, the delivery of Receipts against Stock may be suspended, the registration of transfer of Receipts may be refused and the registration of transfer, surrender or exchange of outstanding Receipts may be suspended (i) during any period when the register of stockholders of the Corporation is closed or (ii) if any such action is deemed necessary or advisable by the Depositary, any of the Depositary’s Agents or the Corporation at any time or from time to time because of any requirement of law or of any government or governmental body or commission or under any provision of this Deposit Agreement.

Section 2.6. Lost Receipts, etc .

In case any Receipt shall be mutilated, destroyed, lost or stolen, the Depositary in its discretion may execute and deliver a Receipt of like form and tenor in exchange and substitution for such mutilated Receipt, or in lieu of and in substitution for such destroyed, lost or stolen Receipt, upon (i) the filing by the holder thereof with the Depositary of evidence satisfactory to the Depositary of such destruction or loss or theft of such Receipt, of the authenticity thereof and

of such holder’s ownership thereof and (ii) the holder thereof furnishing of the Depositary with reasonable indemnification satisfactory to the Depositary.

Section 2.7. Cancellation and Destruction of Surrendered Receipts .

All Receipts surrendered to the Depositary or any Depositary’s Agent shall be cancelled by the Depositary. Except as prohibited by applicable law or regulation, the Depositary is authorized and directed to destroy all Receipts so cancelled.

Section 2.8. Redemption of Stock .

Whenever the Corporation shall be permitted and shall elect to redeem shares of Stock in accordance with the provisions of the Certificate of Designations (including on account of a Regulatory Capital Treatment Event, as described therein), it shall (unless otherwise agreed to in writing with the Depositary) give or cause to be given to the Depositary, not less than 30 days and not more than 60 days prior to the Redemption Date (as defined below), notice of the date of such proposed redemption of Stock and of the number of such shares held by the Depositary to be so redeemed and the Depositary Share Redemption Price, which notice shall be accompanied by a certificate from the Corporation stating that such redemption of Stock is in accordance with the provisions of the Certificate of Designations. On the date of such redemption, provided that the Corporation shall then have paid or caused to be paid in full to the Depositary the Redemption Price (as defined in the Certificate of Designations) per share of Stock to be redeemed, in accordance with and as required by the provisions of the Certificate of Designations, the Depositary shall redeem the number of Depositary Shares representing such Stock. The Depositary shall mail notice of the Corporation’s redemption of Stock and the proposed simultaneous redemption of the number of Depositary Shares representing the Stock to be redeemed by first-class mail, postage prepaid, not less than 30 days and not more than 60 days prior to the date fixed for redemption of such Stock and Depositary Shares (the “ Redemption Date ”), to the record holders of the Receipts evidencing the Depositary Shares to be so redeemed at the addresses of such holders as they appear on the records of the Depositary; but neither failure to mail any such notice of redemption of Depositary Shares to one or more such holders nor any defect in any notice of redemption of Depositary Shares to one or more such holders shall affect the sufficiency of the proceedings for redemption as to the other holders. Each such notice shall be prepared by the Corporation and shall state: (i) the Redemption Date; (ii) the number of Depositary Shares to be redeemed and, if less than all the Depositary Shares held by any such holder are to be redeemed, the number of such Depositary Shares held by such holder to be so redeemed; (iii) the Depositary Share Redemption Price; (iv) the place or places where Receipts evidencing Depositary Shares are to be surrendered for payment of the Depositary Share Redemption Price and (v) that dividends on such shares of Stock represented by the Depositary Shares to be redeemed will cease to accrue on such Redemption Date. In case less than all the outstanding Depositary Shares are to be redeemed, the Depositary Shares to be so redeemed shall be selected either pro rata , by lot or in such other manner as the Corporation may determine to be equitable.

Notice having been mailed by the Depositary as aforesaid, from and after the Redemption Date (unless the Corporation shall have failed to provide the funds necessary to redeem the Stock evidenced by the Depositary Shares called for redemption) (i) all shares of Stock called for

redemption shall cease to be outstanding and any rights with respect to such shares shall cease and terminate (except for the right to receive the Preferred Stock Redemption Price without interest), (ii) the Depositary Shares being redeemed from such proceeds shall cease to be outstanding and all rights of the holders of Receipts evidencing such Depositary Shares shall, to the extent of such Depositary Shares, cease and terminate (except the right to receive the Depositary Share Redemption Price without interest), and (iii) upon surrender in accordance with such redemption notice of the Receipts evidencing any such Depositary Shares called for redemption (properly endorsed or assigned for transfer, if the Depositary or applicable law shall so require), such Depositary Shares shall be redeemed by the Depositary at a redemption price per Depositary Share (the “ Depositary Share Redemption Price ”) equal to one-fortieth of the Preferred Stock Redemption Price per share of Stock so redeemed plus all money and other property, if any, represented by such Depositary Shares.

If fewer than all of the Depositary Shares evidenced by a Receipt are called for redemption, the Depositary will deliver to the holder of such Receipt upon its surrender to the Depositary, together with the redemption payment, a new Receipt evidencing the Depositary Shares evidenced by such prior Receipt and not called for redemption.

Section 2.9. Receipts Issuable in Global Registered Form .

If the Corporation shall determine in a writing delivered to the Depositary that the Receipts are to be issued in whole or in part in the form of one or more Global Registered Receipts, then the Depositary shall, in accordance with the other provisions of this Deposit Agreement, execute and deliver one or more Global Registered Receipts evidencing such Receipts, which (i) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, the Receipts to be represented by such Global Registered Receipt or Receipts, and (ii) shall be registered in the name of the Global Receipt Depository therefor or its nominee.

Notwithstanding any other provision of this Deposit Agreement to the contrary, unless otherwise provided in the Global Registered Receipt, a Global Registered Receipt may only be transferred in whole and only by the applicable Global Receipt Depository for such Global Registered Receipt to a nominee of such Global Receipt Depository, or by a nominee of such Global Receipt Depository to such Global Receipt Depository or another nominee of such Global Receipt Depository, or by such Global Receipt Depository or any such nominee to a successor Global Receipt Depository for such Global Registered Receipt selected or approved by the Corporation or to a nominee of such successor Global Receipt Depository. Except as provided below, owners solely of beneficial interests in a Global Registered Receipt shall not be entitled to receive physical delivery of the Receipts represented by such Global Registered Receipt. Neither any such beneficial owner nor any direct or indirect participant of a Global Receipt Depository shall have any rights under this Deposit Agreement with respect to any Global Registered Receipt held on their behalf by a Global Receipt Depository and such Global Receipt Depository may be treated by the Corporation, the Depositary and any director, officer, employee or agent of the Corporation or the Depositary as the holder of such Global Registered Receipt for all purposes whatsoever.

Unless and until definitive Receipts are delivered to the owners of the beneficial interests in a Global Registered Receipt, (1) the applicable Global Receipt Depository will make book-entry transfers among its participants and receive and transmit all payments and distributions in respect of the Global Registered Receipts to such participants, in each case, in accordance with its applicable procedures and arrangements, and (2) whenever any notice, payment or other communication to the holders of Global Registered Receipts is required under this Deposit Agreement, the Depositary shall give all such notices, payments and communications specified herein to be given to such holders to the applicable Global Receipt Depository.

If an Exchange Event has occurred with respect to any Global Registered Receipt, then, in any such event, the Depositary shall, upon receipt of a written order from the Corporation for the execution and delivery of individual definitive registered Receipts in exchange for such Global Registered Receipt, execute and deliver, individual definitive registered Receipts, in authorized denominations and of like tenor and terms in an aggregate principal amount equal to the principal amount of the Global Registered Receipt surrendered in exchange for such Global Registered Receipt.

Definitive registered Receipts issued in exchange for a Global Registered Receipt pursuant to this Section shall be registered in such names and in such authorized denominations as the Global Receipt Depository for such Global Registered Receipt, pursuant to instructions from its participants, shall instruct the Depositary in writing. The Depositary shall deliver such Receipts to the persons in whose names such Receipts are so registered.

Notwithstanding anything to the contrary in this Deposit Agreement, should the Corporation determine that the Receipts should be issued as a Global Registered Receipt, the parties hereto shall comply with the terms of each Letter of Representations, if applicable.

ARTICLE III

C ertain O bligations of

H olders of R eceipts and the C orporation

Section 3.1. Filing Proofs, Certificates and Other Information .

Any holder of a Receipt may be required from time to time to file such proof of residence, or other matters or other information, to execute such certificates and to make such representations and warranties as the Depositary or the Corporation may reasonably deem necessary or proper. The Depositary or the Corporation may withhold the delivery, or delay the registration of transfer or redemption, of any Receipt or the withdrawal of the Stock represented by the Depositary Shares evidenced by any Receipt or the distribution of any dividend or other distribution or the sale of any rights or of the proceeds thereof until such proof or other information is filed or such certificates are executed or such representations and warranties are made.

Section 3.2. Payment of Taxes or Other Governmental Charges .

Holders of Receipts shall be obligated to make payments to the Depositary of certain charges and expenses, as provided in Section 5.7. Registration of transfer of any Receipt or any withdrawal of Stock and all money or other property, if any, represented by the Depositary Shares evidenced by such Receipt may be refused until any such payment due is made, and any dividends or other distributions may be withheld or any part of or all the Stock or other property represented by the Depositary Shares evidenced by such Receipt and not theretofore sold may be sold for the account of the holder thereof (after attempting by reasonable means to notify such holder prior to such sale), and such dividends or other distributions or the proceeds of any such sale may be applied to any payment of such charges or expenses, the holder of such Receipt remaining liable for any deficiency.

Section 3.3. Warranty as to Stock .

The Corporation hereby represents and warrants that the Stock, when issued, will be duly authorized, validly issued, fully paid and nonassessable (subject to 12 U.S.C. § 55). Such representation and warranty shall survive the deposit of the Stock and the issuance of Receipts.

Section 3.4. Warranty as to Receipts .

The Corporation hereby represents and warrants that the Receipts, when issued, will represent legal and valid interests in the Stock. Such representation and warranty shall survive the deposit of the Stock and the issuance of Receipts.

ARTICLE IV

T he D eposited S ecurities; N otices

Section 4.1. Cash Distributions .

Whenever the Depositary shall receive any cash dividend or other cash distribution on Stock, the Depositary shall, subject to Sections 3.1 and 3.2, distribute to record holders of Receipts on the record date fixed pursuant to Section 4.4 such amounts of such dividend or distribution as are, as nearly as practicable, in proportion to the respective numbers of Depositary Shares evidenced by the Receipts held by such holders; provided, however, that in case the Corporation or the Depositary shall be required to withhold and shall withhold from any cash dividend or other cash distribution in respect of the Stock an amount on account of taxes, the amount made available for distribution or distributed in respect of Depositary Shares shall be reduced accordingly. The Depositary shall distribute or make available for distribution, as the case may be, only such amount, however, as can be distributed without attributing to any holder of Depositary Shares a fraction of one cent, and any balance not so distributable shall be held by the Depositary (without liability for interest thereon) and shall be added to and be treated as part of the next sum received by the Depositary for distribution to record holders of Receipts then outstanding. Each holder of a Receipt shall provide the Depositary with its certified tax identification number on a properly completed Form W-8 or W-9, as may be applicable. Each holder of a Receipt acknowledges that, in the event of non-compliance with the preceding

sentence, the Internal Revenue Code of 1986, as amended, may require withholding by the Depositary of a portion of any of the distributions to be made hereunder.

Section 4.2. Distributions Other than Cash, Rights, Preferences or Privileges .

Whenever the Depositary shall receive any distribution other than cash, rights, preferences or privileges upon Stock, the Depositary shall, at the direction of the Corporation, subject to Sections 3.1 and 3.2, distribute to record holders of Receipts on the record date fixed pursuant to Section 4.4 such amounts of the securities or property received by it as are, as nearly as practicable, in proportion to the respective numbers of Depositary Shares evidenced by the Receipts held by such holders, in any manner that the Corporation may deem equitable and practicable for accomplishing such distribution. If in the opinion of the Depositary such distribution cannot be made proportionately among such record holders in accordance with the direction of the Corporation, or if for any other reason (including any requirement that the Corporation or the Depositary withhold an amount on account of taxes) the Depositary deems, after consultation with the Corporation, such distribution not to be feasible, the Depositary may, with the approval of the Corporation, adopt such method as it deems equitable and practicable for the purpose of effecting such distribution, including the sale (at public or private sale) of the securities or property thus received, or any part thereof, in a commercially reasonable manner. The net proceeds of any such sale shall, subject to Sections 3.1 and 3.2, be distributed or made available for distribution, as the case may be, by the Depositary to record holders of Receipts as provided by Section 4.1 in the case of a distribution received in cash. The Corporation shall not make any distribution of such securities or property to the Depositary and the Depositary shall not make any distribution of such securities or property to the holders of Receipts unless the Corporation shall have provided an opinion of counsel stating that such securities or property have been registered under the Securities Act or do not need to be registered in connection with such distributions.

Section 4.3. Subscription Rights, Preferences or Privileges .

If the Corporation shall at any time offer or cause to be offered to the persons in whose names Stock is recorded on the books of the Corporation any rights, preferences or privileges to subscribe for or to purchase any securities or any rights, preferences or privileges of any other nature, such rights, preferences or privileges shall in each such instance be made available by the Depositary to the record holders of Receipts in such manner as the Corporation shall instruct the Depositary in writing, either by the issue to such record holders of warrants representing such rights, preferences or privileges or by such other method as may be approved by the Corporation; provided, however, that (i) if at the time of issue or offer of any such rights, preferences or privileges the Depositary determines that it is not lawful or (after consultation with the Corporation) not feasible to make such rights, preferences or privileges available to holders of Receipts by the issue of warrants or otherwise, or (ii) if and to the extent so instructed by holders of Receipts who do not desire to exercise such rights, preferences or privileges, then the Depositary, in its discretion (with approval of the Corporation, in any case where the Depositary has determined that it is not feasible to make such rights, preferences or privileges available), may, if applicable laws or the terms of such rights, preferences or privileges permit such transfer, sell such rights, preferences or privileges at public or private sale, at such place or places and upon such terms as it may deem proper. The net proceeds of any such sale shall, subject to

Sections 3.1 and 3.2, be distributed by the Depositary to the record holders of Receipts entitled thereto as provided by Section 4.1 in the case of a distribution received in cash.

The Corporation shall notify the Depositary whether registration under the Securities Act of the securities to which any rights, preferences or privileges relate is required in order for holders of Receipts to be offered or sold the securities to which such rights, preferences or privileges relate, and the Corporation agrees with the Depositary that it will file promptly a registration statement pursuant to such Act with respect to such rights, preferences or privileges and securities and use its reasonable best efforts and take all steps available to it to cause such registration statement to become effective sufficiently in advance of the expiration of such rights, preferences or privileges to enable such holders to exercise such rights, preferences or privileges. In no event shall the Depositary make available to the holders of Receipts any right, preference or privilege to subscribe for or to purchase any securities unless and until such registration statement shall have become effective, or the Corporation shall have provided to the Depositary an opinion of counsel to the effect that the offering and sale of such securities to such holders are exempt from registration under the provisions of the Securities Act.

The Corporation shall notify the Depositary whether any other action under the laws of any jurisdiction or any governmental or administrative authorization, consent or permit is required in order for such rights, preferences or privileges to be made available to holders of Receipts, and the Corporation agrees with the Depositary that the Corporation will use its reasonable best efforts to take such action or obtain such authorization, consent or permit sufficiently in advance of the expiration of such rights, preferences or privileges to enable such holders to exercise such rights, preferences or privileges.

Section 4.4. Notice of Dividends, etc.; Fixing Record Date for Holders of Receipts .

Whenever any cash dividend or other cash distribution shall become payable or any distribution other than cash shall be made, or if rights, preferences or privileges shall at any time be offered, with respect to Stock, or whenever the Depositary shall receive notice of any meeting at which holders of Stock are entitled to vote or of which holders of Stock are entitled to notice, or whenever the Depositary and the Corporation shall decide it is appropriate, the Depositary shall in each such instance fix a record date (which shall be the same date as the record date fixed by the Corporation with respect to, or otherwise in accordance with the terms of, the Stock, as identified in a written notice to the Depositary of such record date) for the determination of the holders of Receipts who shall be entitled to receive such dividend, distribution, rights, preferences or privileges or the net proceeds of the sale thereof, or to give instructions for the exercise of voting rights at any such meeting, or who shall be entitled to notice of such meeting or for any other appropriate reasons.

Section 4.5. Voting Rights .

Subject to the provisions of the Certificate of Designations, upon receipt of notice of any meeting at which the holders of Stock are entitled to vote, the Depositary shall, as soon as practicable thereafter, mail or transmit by such other method approved by the Depositary, in its reasonable discretion, to the record holders of Receipts a notice prepared by the Corporation which shall contain (i) such information as is contained in such notice of meeting and (ii) a

statement that the holders may, subject to any applicable restrictions, instruct the Depositary as to the exercise of the voting rights pertaining to the amount of Stock represented by their respective Depositary Shares (including an express indication that instructions may be given to the Depositary to give a discretionary proxy to a person designated by the Corporation) and a brief statement as to the manner in which such instructions may be given. Upon the written request of the holders of Receipts on the relevant record date, the Depositary shall endeavor insofar as practicable to vote or cause to be voted, in accordance with the instructions set forth in such requests, the maximum number of whole shares of Stock represented by the Depositary Shares evidenced by all Receipts as to which any particular voting instructions are received. The Corporation hereby agrees to take all reasonable action which may be deemed necessary by the Depositary in order to enable the Depositary to vote such Stock or cause such Stock to be voted. In the absence of specific instructions from holders of Receipts, the Depositary will vote the Series B Preferred Stock represented by the Depositary Shares evidenced by the Receipts of such holders proportionately with votes cast pursuant to instructions received from the other holders.

Section 4.6. Changes Affecting Deposited Securities and Reclassifications, Recapitalizations, etc .

Upon any change in par or stated value, split-up, combination or any other reclassification of the Stock, subject to the Certificate of Designations, or upon any recapitalization, reorganization, merger or consolidation affecting the Corporation or to which it is a party, the Depositary may in its discretion with the approval of, and shall upon the instructions of, the Corporation, and (in either case) in such manner as the Depositary may deem equitable, (i) make such adjustments as are certified by the Corporation in the fraction of an interest represented by one Depositary Share in one share of Stock and in the ratio of the Redemption Price to the Preferred Stock Redemption Price, in each case as may be necessary fully to reflect the effects of such change in par or stated value, split-up, combination or other reclassification of Stock, or of such recapitalization, reorganization, merger or consolidation and (ii) treat any securities which shall be received by the Depositary in exchange for or upon conversion of or in respect of the Stock as new deposited securities so received in exchange for or upon conversion or in respect of such Stock. In any such case the Depositary may in its discretion, with the approval of the Corporation, execute and deliver additional Receipts or may call for the surrender of all outstanding Receipts to be exchanged for new Receipts specifically describing such new deposited securities. Anything to the contrary herein notwithstanding, holders of Receipts shall have the right from and after the effective date of any such change in par or stated value, split-up, combination or other reclassification of the Stock or any such recapitalization, reorganization, merger or consolidation to surrender such Receipts to the Depositary with instructions to convert, exchange or surrender the Stock represented thereby only into or for, as the case may be, the kind and amount of shares of stock and other securities and property and cash into which the Stock represented by such Receipts might have been converted or for which such Stock might have been exchanged or surrendered immediately prior to the effective date of such transaction.

Section 4.7. Delivery of Reports .

The Depositary shall furnish to holders of Receipts any reports and communications received from the Corporation which are received by the Depositary and which the Corporation is required to furnish to the holders of the Stock.

Section 4.8. Lists of Receipt Holders .

Promptly upon request from time to time by the Corporation, the Depositary shall furnish to it a list, as of the most recent practicable date, of the names, addresses and holdings of Depositary Shares of all record holders of Receipts.

ARTICLE V

T he D epositary, the D epositary’s

A gents, the R egistrar and the C orporation

Section 5.1. Maintenance of Offices, Agencies and Transfer Books by the Depositary; Registrar .

Upon execution of this Deposit Agreement, the Depositary shall maintain at the Depositary’s Office, facilities for the execution and delivery, registration and registration of transfer, surrender and exchange of Receipts, and at the offices of the Depositary’s Agents, if any, facilities for the delivery, registration of transfer, surrender and exchange of Receipts, all in accordance with the provisions of this Deposit Agreement.

The Depositary shall keep books at the Depositary’s Office for the registration and registration of transfer, surrender and exchange of Receipts, which books at all reasonable times shall be open for inspection by the record holders of Receipts; provided that any such holder requesting to exercise such right shall certify to the Depositary that such inspection shall be for a proper purpose reasonably related to such person’s interest as an owner of Depositary Shares evidenced by the Receipts.

The Depositary may close such books, at any time or from time to time, when deemed expedient by it in connection with the performance of its duties hereunder.

The Corporation may appoint a Registrar for registration of the Receipts or the Depositary Shares evidenced thereby. If the Receipts or the Depositary Shares evidenced thereby or the Stock represented by such Depositary Shares shall be listed on one or more national stock exchanges, the Corporation will appoint a Registrar for registration of such Receipts or Depositary Shares in accordance with any requirements of such exchange. Such Registrar (which may be the Depositary if so permitted by the requirements of any such exchange) may be removed and a substitute Registrar appointed by the Depositary upon the request or with the approval of the Corporation. If the Receipts, such Depositary Shares or such Stock are listed on one or more other stock exchanges, the Depositary will, at the request of the Corporation, arrange such facilities for the delivery, registration, registration of transfer, surrender and exchange of such Receipts, such Depositary Shares or such Stock as may be required by law or applicable stock exchange regulation.

Section 5.2. Prevention of or Delay in Performance by the Depositary, the Depositary’s Agents, the Registrar or the Corporation .

Neither the Depositary nor any Depositary’s Agent nor any Registrar nor the Corporation shall incur any liability to any holder of any Receipt if by reason of any provision of any present or future law, or regulation thereunder, of the United States of America or of any other governmental authority or, in the case of the Depositary, the Depositary’s Agent or the Registrar, by reason of any provision, present or future, of the Corporation’s Fifth Restated Certificate of Incorporation, as amended (including the Certificate of Designations), or by reason of any act of God or war or other circumstance beyond the control of the relevant party, the Depositary, the Depositary’s Agent, the Registrar or the Corporation shall be prevented or forbidden from, or subjected to any penalty on account of, doing or performing any act or thing which the terms of this Deposit Agreement provide shall be done or performed; nor shall the Depositary, any Depositary’s Agent, any Registrar or the Corporation incur liability to any holder of a Receipt (i) by reason of any nonperformance or delay, caused as aforesaid, in the performance of any act or thing which the terms of this Deposit Agreement shall provide shall or may be done or performed, or (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in this Deposit Agreement except as otherwise explicitly set forth in this Deposit Agreement.

Section 5.3. Obligations of the Depositary, the Depositary’s Agents, the Registrar and the Corporation .

Neither the Depositary nor any Depositary’s Agent nor any Registrar nor the Corporation assumes any obligation or shall be subject to any liability under this Deposit Agreement to holders of Receipts other than for its negligence, willful misconduct or bad faith. Notwithstanding anything in this Deposit Agreement to the contrary, neither the Depositary, nor the Depositary’s Agent nor any Registrar nor the Corporation shall be liable in any event for special, punitive, incidental, indirect or consequential losses or damages of any kind whatsoever (including but not limited to lost profits).

Neither the Depositary nor any Depositary’s Agent nor any Registrar nor the Corporation shall be under, any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of the Stock, the Depositary Shares or the Receipts which in its opinion may involve it in expense or liability unless indemnity satisfactory to it against all expense and liability be furnished as often as may be required.

Neither the Depositary nor any Depositary’s Agent nor any Registrar nor the Corporation shall be liable for any action or any failure to act by it in reasonable reliance upon the written advice of legal counsel or accountants, or information from any person presenting Stock for deposit, any holder of a Receipt or any other person believed by it in good faith to be competent to give such information. The Depositary, any Depositary’s Agent, any Registrar and the Corporation may each rely and shall each be protected in acting upon or omitting to act upon any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.

The Depositary will indemnify the Corporation against any liability which may directly arise out of acts performed or omitted by the Depositary due to its gross negligence, willful

misconduct or bad faith, however, in no event shall the Depositary be liable for consequential, special or indirect damages of any kind regardless of whether the Depositary is put on notice of the possibility of such damages. The Depositary shall not be liable for the acts or omissions due to the gross negligence, willful misconduct or bad faith of any Depositary’s Agent, so long as such Depositary’s Agent was appointed with due care.

The Depositary shall not be responsible for any failure to carry out any instruction to vote any of the shares of Stock or for the manner or effect of any such vote made, as long as any such action or non-action is not taken in bad faith. The Depositary undertakes, and any Registrar shall be required to undertake, to perform such duties and only such duties as are specifically set forth in this Deposit Agreement, and no implied covenants or obligations shall be read into this Deposit Agreement against the Depositary or any Registrar.

The Depositary, the Depositary’s Agents, and any Registrar may own and deal in any class of securities of the Corporation and its affiliates and in Receipts. The Depositary may also act as transfer agent or registrar of any of the securities of the Corporation and its affiliates.

The Depositary shall not be under any liability for interest on any monies at any time received by it pursuant to any of the provisions of this Deposit Agreement or of the Receipts, the Depositary Shares or the Stock nor shall it be obligated to segregate such monies from other monies held by it, except as required by law. The Depositary shall not be responsible for advancing funds on behalf of the Corporation and shall have no duty or obligation to make any payments if it has not timely received sufficient funds to make timely payments.

In the event the Depositary believes any ambiguity or uncertainty exists hereunder or in any notice, instruction, direction, request or other communication, paper or document received by the Depositary hereunder, or in the administration of any of the provisions of this Deposit Agreement, the Depositary shall deem it necessary or desirable that a matter be proved or established prior to taking, omitting or suffering to take any action hereunder, the Depositary may, in its sole discretion upon written notice to the Corporation, refrain from taking any action and shall be fully protected and shall not be liable in any way to the Corporation, any holders of Receipts or any other person or entity for refraining from taking such action, unless the Depositary receives written instructions or a certificate signed by the Corporation which eliminates such ambiguity or uncertainty to the satisfaction of the Depositary or which proves or establishes the applicable matter to the satisfaction of the Depositary. The Depositary shall not be liable to the Corporation or any holder of Receipts, for any action taken by it in accordance with the written instruction of the Corporation.

Section 5.4. Resignation and Removal of the Depositary; Appointment of Successor Depositary .

The Depositary may at any time resign as Depositary hereunder by delivering notice of its election to do so to the Corporation, such resignation to take effect upon the appointment of a successor Depositary and its acceptance of such appointment as hereinafter provided.

The Depositary may at any time be removed by the Corporation by notice of such removal delivered to the Depositary, such removal to take effect upon the appointment of a successor Depositary hereunder and its acceptance of such appointment as hereinafter provided.

In case at any time the Depositary acting hereunder shall resign or be removed, the Corporation shall, within 60 days after the delivery of the notice of resignation or removal, as the case may be, appoint a successor Depositary, which shall be a bank or trust Corporation having its principal office in the United States of America and having a combined capital and surplus of at least $50,000,000. If no successor Depositary shall have been so appointed and have accepted appointment within 60 days after delivery of such notice, the resigning or removed Depositary may petition any court of competent jurisdiction for the appointment of a successor Depositary. Every successor Depositary shall execute and deliver to its predecessor and to the Corporation an instrument in writing accepting its appointment hereunder, and thereupon such successor Depositary, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor and for all purposes shall be the Depositary under this Deposit Agreement, and such predecessor, upon payment of all sums due it and on the written request of the Corporation, shall promptly execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder, shall duly assign, transfer and deliver all right, title and interest in the Stock and any moneys or property held hereunder to such successor, and shall deliver to such successor a list of the record holders of all outstanding Receipts and such records, books and other information in its possession relating thereto. Any successor Depositary shall promptly mail or transmit by such other method approved by such successor Depositary, in its reasonable discretion, notice of its appointment to the record holders of Receipts.

Any entity into or with which the Depositary may be merged, consolidated or converted shall be the successor of such Depositary without the execution or filing of any document or any further act, and notice thereof shall not be required hereunder. Such successor Depositary may authenticate the Receipts in the name of the predecessor Depositary or in the name of the successor Depositary.

Section 5.5. Corporate Notices and Reports .

The Corporation agrees that it will deliver to the Depositary, and the Depositary will, promptly after receipt thereof, transmit to the record holders of Receipts, in each case at the addresses recorded in the Depositary’s books, copies of all notices and reports (including without limitation financial statements) required by law, by the rules of any national securities exchange upon which the Stock, the Depositary Shares or the Receipts are listed or by the Corporation’s Fifth Restated Certificate of Incorporation, as amended (including the Certificate of Designations), to be furnished to the record holders of Receipts. Such transmission will be at the Corporation’s expense and the Corporation will provide the Depositary with such number of copies of such documents as the Depositary may reasonably request. In addition, the Depositary will transmit to the record holders of Receipts at the Corporation’s expense such other documents as may be requested by the Corporation.

Section 5 .6. Indemnification by the Corporation .

Notwithstanding Section 5.3 to the contrary, the Corporation shall indemnify the Depositary, any Depositary's Agent and any Registrar (including each of their officers, directors, agents and employees) against, and hold each of them harmless from, any loss, damage, cost, penalty, liability or expense (including the reasonable out-of-pocket costs and expenses of defending itself) which may arise out of acts performed, suffered or omitted to be taken in connection with this Deposit Agreement and the Receipts by the Depositary, any Registrar or any of their respective agents (including any Depositary's Agent) and any transactions or documents contemplated hereby, except for any liability arising out of negligence, willful misconduct or bad faith on the respective parts of any such person or persons. The obligations of the Corporation set forth in this Section 5.6 shall survive any succession of any Depositary, Registrar or Depositary's Agent.

Section 5.7. Fees, Charges and Expenses .

The Corporation agrees promptly to pay the Depositary the compensation to be agreed upon with the Corporation for all services rendered by the Depositary hereunder and to reimburse the Depositary for its reasonable out-of-pocket expenses (including reasonable counsel fees and expenses) incurred by the Depositary without negligence, willful misconduct or bad faith on its part (or on the part of any Depositary’s Agent) in connection with the services rendered by it (or such Depositary’s Agent) hereunder. The Corporation shall pay all charges of the Depositary in connection with the initial deposit of the Stock and the initial issuance of the Depositary Shares, all withdrawals of shares of the Stock by owners of Depositary Shares, and any redemption or exchange of the Stock at the option of the Corporation. The Corporation shall pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangements. All other transfer and other taxes and governmental charges shall be at the expense of holders of Depositary Shares evidenced by Receipts. If, at the request of a holder of Receipts, the Depositary incurs charges or expenses for which the Corporation is not otherwise liable hereunder, such holder will be liable for such charges and expenses; provided, however, that the Depositary may, at its sole option, require a holder of a Receipt to prepay the Depositary any charge or expense the Depositary has been asked to incur at the request of such holder of Receipts. The Depositary shall present its statement for charges and expenses to the Corporation at such intervals as the Corporation and the Depositary may agree.

ARTICLE VI

A mendment and T ermination

Sect ion 6.1. Amendment .

The form of the Receipts and any provisions of this Deposit Agreement may at any time and from time to time be amended by agreement between the Corporation and the Depositary in any respect which they may deem necessary or desirable; provided, however, that no such amendment which shall materially and adversely alter the rights of the holders of Receipts shall be effective unless such amendment shall have been approved by holders of Receipts representing in the aggregate at least a two-thirds majority of the Depositary Shares then

outstanding. Every holder of an outstanding Receipt at the time any such amendment becomes effective shall be deemed, by continuing to hold such Receipt, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right, subject to the provisions of Sections 2.5 and 2.6 and Article III, of any owner of Depositary Shares to surrender any Receipt evidencing such Depositary Shares to the Depositary with instructions to deliver to the holder the Stock and all money and other property, if any, represented thereby, except in order to comply with mandatory provisions of applicable law or the rules and regulations of any governmental body, agency or commission, or applicable stock exchange.

Sect ion 6.2. Termination .

This Deposit Agreement may be terminated by the Corporation at any time upon not less than 60 days prior written notice to the Depositary, in which case, at least 30 days prior to the date fixed in such notice for such termination, the Depositary will mail notice of such termination to the record holders of all Receipts then outstanding.

If any Receipts shall remain outstanding after the date of termination of this Deposit Agreement, the Depositary thereafter shall discontinue the transfer of Receipts, shall suspend the distribution of dividends to the holders thereof and shall not give any further notices (other than notice of such termination) or perform any further acts under this Deposit Agreement, except that the Depositary shall continue to collect dividends and other distributions pertaining to Stock, shall sell rights, preferences or privileges as provided in this Deposit Agreement and shall deliver the number of whole or fractional shares of Stock and any money and other property, if any, represented by Receipts upon surrender thereof by the holders thereof. At any time after the expiration of two years from the date of termination, the Depositary may sell Stock then held hereunder at public or private sale, at such places and upon such terms as it deems proper and may thereafter hold the net proceeds of any such sale, together with any money and other property held by it hereunder, without liability for interest, for the benefit, pro rata in accordance with their holdings, of the holders of Receipts that have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under this Deposit Agreement except to account for such net proceeds and money and other property; provided, that Sections 5.3 and 5.6 shall survive the termination of this Deposit Agreement.

This Deposit Agreement will terminate automatically if (i) all outstanding Depositary Shares have been redeemed pursuant to Section 2.8 or (ii) there shall have been made a final distribution in respect of the Stock in connection with any liquidation, dissolution or winding up of the Corporation and such distribution shall have been distributed to the holders of Depositary Shares pursuant to Section 4.1 or 4.2, as applicable.

Upon the termination of this Deposit Agreement, the Corporation shall be discharged from all obligations under this Deposit Agreement except for its obligations to the Depositary, any Depositary’s Agent and any Registrar under Sections 5.6 and 5.7.

ARTICLE VII

M iscellaneous

Section 7.1. Counterparts .

This Deposit Agreement may be executed in any number of counterparts, and by each of the parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed an original, but all such counterparts taken together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Deposit Agreement by facsimile or electronic mail shall be effective as delivery of a manually executed counterpart of this Deposit Agreement.

Section 7.2. Exclusive Benefit of Parties .

This Deposit Agreement is for the exclusive benefit of the parties hereto, and their respective successors hereunder, and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever.

Section 7.3. Invalidity of Provisions .

In case any one or more of the provisions contained in this Deposit Agreement or in the Receipts should be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall in no way be affected, prejudiced or disturbed thereby.

Section 7.4. Notices .

Any and all notices to be given to the Corporation hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if personally delivered or sent by mail, or by telegram, facsimile transmission or electronic mail confirmed by letter, addressed to the Corporation at

The Charles Schwab Corporation
211 Main Street
San Francisco, California 94105
Attention: Chief Financial Officer
Facsimile: (415) 667-9731
Email: Joseph.Martinetto@schwab.com,
Attention: Treasurer
Facsimile: 415-667-8565
Email: bill.quinn@schwab.com
Attention: General Counsel
Facsimile: (415) 667-9814
Email: carrie.dwyer@schwab.com

or at any other addresses of which the Corporation shall have notified the Depositary in writing.

Any and all notices to be given to the Depositary hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if personally delivered or sent by mail, or by facsimile transmission confirmed by letter, addressed to the Depositary at the Depositary’s Office at

Wells Fargo Bank, N.A.
161 North Concord Exchange
South St. Paul, MN 55075

Attention: Relationship Manager
Facsimile No.: 651-450-4078

or at any other address of which the Depositary shall have notified the Corporation in writing.

Any and all notices to be given to any record holder of a Receipt hereunder or under the Receipts shall be in writing and shall be deemed to have been duly given if personally delivered or sent by mail or facsimile transmission confirmed by letter, addressed to such record holder at the address of such record holder as it appears on the books of the Depositary, or if such holder shall have timely filed with the Depositary a written request that notices intended for such holder be mailed to some other address, at the address designated in such request.

Delivery of a notice sent by mail or by facsimile transmission shall be deemed to be effected at the time when a duly addressed letter containing the same (or a confirmation thereof in the case of a facsimile transmission) is deposited, postage prepaid, in a post office letter box. The Depositary or the Corporation may, however, act upon any facsimile transmission received by it from the other or from any holder of a Receipt, notwithstanding that such facsimile transmission shall not subsequently be confirmed by letter or as aforesaid.

S ection 7.5. Depositary’s Agents .

The Depositary may from time to time appoint Depositary’s Agents to act in any respect for the Depositary for the purposes of this Deposit Agreement and may at any time appoint additional Depositary’s Agents and vary or terminate the appointment of such Depositary’s Agents. The Depositary will promptly notify the Corporation in advance of any such action.

Section 7.6. Appointment of Registrar in Respect of the Receipts .

The Corporation hereby appoints the Depositary as Registrar in respect of the Receipts and the Depositary hereby accepts such appointments.

Section 7.7. Holders of Receipts Are Parties .

The holders of Receipts from time to time shall be parties to this Deposit Agreement and shall be bound by all of the terms and conditions hereof and of the Receipts by acceptance of delivery thereof.

Section 7.8. Governing Law .

This Deposit Agreement and the Receipts and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by, and construed in accordance with, the laws of the State of New York, not including the conflict or choice of law rules other than Section 5-1401 of the General Obligations Law. Each party hereby agrees that any action, suit or proceeding arising out of or relating to this Deposit Agreement or the Receipts, or such rights or provisions, may be brought in or removed to the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, any state court located in The City and County of New York. Each party hereby accepts, for itself and in respect of its property, generally and unconditionally, to submit to the non-exclusive jurisdiction of, and venue in, such courts (and courts of appeals therefrom) with respect to any such action, suit or proceeding, and hereby waives the defenses of improper venue or inconvenient forum with respect thereto.

Section 7.9. Inspection of Deposit Agreement .

Copies of this Deposit Agreement shall be filed with the Depositary and the Depositary’s Agents and shall be open to inspection during business hours at the Depositary’s Office and the respective offices of the Depositary’s Agents, if any, by any holder of a Receipt.

Section 7.10. Headings .

The headings of articles and sections in this Deposit Agreement and in the form of the Receipt set forth in Exhibit A hereto have been inserted for convenience only and are not to be regarded as a part of this Deposit Agreement or the Receipts or to have any bearing upon the meaning or interpretation of any provision contained herein or in the Receipts.

Section 7.11. Confidentiality .

The Depositary and the Corporation agree that all books, records, information and data pertaining to the business of the other party, including, inter alia, personal, non-public holder information, which are exchanged or received pursuant to the negotiation or the carrying out of this Deposit Agreement, shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law or legal process.

IN WITNESS WHEREOF, the Corporation and the Depositary have duly executed this Deposit Agreement as of the day and year first above set forth, and all holders of Receipts shall become parties hereto by and upon acceptance by them of delivery of Receipts issued in accordance with the terms hereof.


	The Charles Schwab Corporation

	By: ______________________ Name: Title:


	WELLS FARGO BANK, N.A.

	By: ______________________ Name: Title:

Exhibit A

[FORM OF FACE OF RECEIPT]

Unless this receipt is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to The Charles Schwab Corporation or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

DEPOSITARY SHARES

[ ]

DEPOSITARY RECEIPT FOR DEPOSITARY SHARES EACH

REPRESENTING 1/40TH OF ONE SHARE OF 6.00% Non-Cumulative Perpetual

Preferred Stock, Series B

The Charles Schwab Corporation

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

CUSIP 808513 204
SEE REVERSE FOR CERTAIN DEFINITIONS

Dividend Payment Dates: Beginning September 1, 2012, each March 1, June 1, September 1 and December 1.

Wells Fargo Bank, N.A., a national banking association formed under the laws of the United States , as Depositary (the “Depositary”), hereby certifies that Cede & Co. is the registered owner of [ ][( )] DEPOSITARY SHARES (“Depositary Shares”), each Depositary Share representing 1/40th of one share of 6.00% Non-Cumulative Perpetual Preferred Stock, Series B, $0.01 par value, liquidation preference $1,000 per share, (the “ Stock ”), of The Charles Schwab Corporation, a Delaware corporation (the “ Corporation ”), on deposit with the Depositary, subject to the terms and entitled to the benefits of the Deposit Agreement dated as of June 6, 2012 (the “ Deposit Agreement ”), among the Corporation, the Depositary and the holders from time to time of the Depositary Receipts. By accepting this Depositary Receipt, the holder hereof becomes a party to and agrees to be bound by all the terms and conditions of the Deposit Agreement. This Depositary Receipt shall not be valid or obligatory for any purpose or entitled to any benefits under the Deposit Agreement unless it shall have been executed by the Depositary by the manual signature of a duly authorized officer or, if executed in facsimile by the Depositary, countersigned by a Registrar in respect of the Depositary Receipts by the manual signature of a duly authorized officer thereof.

This Depositary Receipt is transferable in New York, New York and Saint Paul, Minnesota.

A- 1

31610639v8

Dated: ________________________

Wells Fargo Bank, N.A., Depositary

By: _________________________
Authorized Officer

A- 2

31610639v8

[FORM OF REVERSE OF RECEIPT]

The Charles Schwab Corporation

The Charles Schwab Corporation WILL FURNISH WITHOUT CHARGE TO EACH HOLDER OF A RECEIPT WHO SO REQUESTS A COPY OF THE DEPOSIT AGREEMENT AND A COPY OR SUMMARY OF THE CERTIFICATE OF DESIGNATIONS ESTABLISHING THE 6.00% Non-Cumulative PERPETUAL PREFERRED STOCK, SERIES B, OF The Charles Schwab Corporation. ANY SUCH REQUEST IS TO BE ADDRESSED TO THE DEPOSITARY NAMED ON THE FACE OF THIS RECEIPT.

_____________________________

The Corporation will furnish without charge to each holder of a receipt who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof of the Corporation, and the qualifications, limitations or restrictions of such preferences and/or rights. Such request may be made to the Corporation or to the Registrar.

EXPLANATION OF ABBREVIATIONS

The following abbreviations when used in the form of ownership on the face of this certificate shall be construed as though they were written out in full according to applicable laws or regulations. Abbreviations in addition to those appearing below may be used.


Abbreviation	Equivalent Phrase	Abbreviation	Equivalent Phrase
JT TEN	As joint tenants, with right of survivorship and not as tenants in common	TEN BY ENT	As tenants by the entireties
TEN IN COM	As tenants in common	UNIF GIFT MIN ACT	Uniform Gifts to Minors Act

Abbreviation	Equivalent Word	Abbreviation	Equivalent Word	Abbreviation	Equivalent Word
ADM	Administrator(s), Administratrix	EX	Executor(s), Executrix	PAR	Paragraph
AGMT	Agreement	FBO	For the benefit of	PL	Public Law
ART	Article	FDN	Foundation	TR	(As) trustee(s), for, of
CH	Chapter	GDN	Guardian(s)	U	Under
CUST	Custodian for	GDNSHP	Guardianship	UA	Under agreement
DEC	Declaration	MIN	Minor(s)	UW	Under will of, Of will of, Under last will & testament
EST	Estate, of Estate of

A- 3

31610639v8

For value received, _______________________ hereby sell(s), assign(s) and transfer(s) unto

______________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE

Depositary Shares represented by the within Receipt, and do(es) hereby irrevocably constitute and appoint __________________________________________________ Attorney to transfer the said Depositary Shares on the books of the within named Depositary with full power of substitution in the premises.

Dated: _____________________________

NOTICE: The signature to the assignment must correspond with the name as written upon the face of this Receipt in every particular, without alteration or enlargement or any change whatsoever.

SIGNATURE GUARANTEED

NOTICE: The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations, and credit unions with membership in an approved signature guarantee medallion program), pursuant to Rule 17Ad ‑15 under the Securities Exchange Act of 1934.

A- 4

31610639v8

Exhibit B

[Certificate of Designations]

[See attached]

31610639v8

THE CHARLES SCHWAB CORPORATION

EXHIBIT 12.1

Computation of Ratio of Earnings to Fixed Charges and

Ratio of Earnings to Fixed Charges and Preferred Stock Dividends

(Dollar amounts in millions)

(Unaudited)


Year Ended December 31,		2016		2015		2014		2013		2012
Earnings before taxes on earnings	$	2,993	$	2,279	$	2,115	$	1,705	$	1,450
Fixed charges
Interest expense:
Bank deposits		37		29		30		31		42
Payables to brokerage clients		3		2		2		3		3
Short-term borrowings		9		-		-		-		-
Long-term debt		104		92		73		69		103
Other		18		9		(3)		2		2
Total		171		132		102		105		150
Interest portion of rental expense		88		77		71		69		68
Total fixed charges (A)		259		209		173		174		218
Earnings before taxes on earnings and fixed charges (B)	$	3,252	$	2,488	$	2,288	$	1,879	$	1,668

Ratio of earnings to fixed charges (B) ÷ (A) (1)		12.6		11.9		13.2		10.8		7.7

Ratio of earnings to fixed charges, excluding bank deposits
and payables to brokerage clients interest expense (2)		14.7		13.8		16.0		13.2		9.4

Total fixed charges	$	259	$	209	$	173	$	174	$	218
Preferred stock dividends and other (3)		227		131		96		97		70
Total fixed charges and preferred stock dividends and other (C)	$	486	$	340	$	269	$	271	$	288

Ratio of earnings to fixed charges and preferred stock
dividends and other (B) ÷ (C) (1)		6.7		7.3		8.5		6.9		5.8

Ratio of earnings to fixed charges and preferred stock dividends
and other, excluding bank deposits and payables to brokerage
clients interest expense (2)		7.2		8.0		9.5		7.8		6.7

(1)	The ratios of earnings to fixed charges and earnings to fixed charges and preferred stock dividends and other are calculated in accordance with SEC requirements. For such purposes, “earnings” consist of earnings before taxes on earnings and fixed charges. “Fixed charges” consist of interest expense as listed above, and one-third of property, equipment and software rental expense, which is estimated to be representative of the interest factor.

(2)	Because interest expense incurred in connection with both bank deposits and payables to brokerage clients is completely offset by interest revenue on related investments and loans, the Company considers such interest to be an operating expense. Accordingly, the ratio of earnings to fixed charges, excluding bank deposits and payables to brokerage clients interest expense, and the ratio of earnings to fixed charges and preferred stock dividends and other , excluding bank deposits and payables to brokerage clients interest expense, reflect the elimination of such interest expense as a fixed charge.



(3)	The preferred stock dividend and other amounts represent the pre-tax earnings that would be required to pay the dividends on outstanding preferred stock.

THE CHARLES SCHWAB CORPORATION

EXHIBIT 21.1

Subsidiaries of the Registrant

Pursuant to Item 601 (b)(21)(ii) of Regulation S-K, certain subsidiaries of the Registrant have been omitted which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary (as defined in Rule 1-02(w) of Regulation S-X) as of December 31, 2016 .

The following is a listing of the significant subsidiaries of the Registrant:

Schwab Holdin gs , Inc. (holding company for Charles Schwab & Co., Inc.), a Delaware corporation

Charles Schwab & Co., Inc., a California corporation

Charles Schwab Bank, a Federal Savings Association

Charles Schwab Investment Management, Inc., a Delaware corporation

THE CHARLES SCHWAB CORPORATION

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements of our report dated February 23, 2017 , relating to the consolidated financial statements and financial statement schedule of The Charles Schwab Corporation , and the effectiveness of The Charles Schwab Corporation’s internal c ontrol over financial reporting , appearing in this Annual Report on Form 10-K of The Charles Schwab Corporation for the year ended December 31, 2016 :

Filed on Form S-3:


Registration Statement No. 333- 200939	(Debt Securities, Preferred Stock, Deposit a ry Shares, Common Stock, Purchase Contracts, Warrants, and Units Consisting of Two or More Securities)

Filed on Form S-8:


Registration Statement No. 333-205862	(The Charles Schwab Corporation 2013 Stock Incentive Plan)

Registration Statement No. 333-1 92893	(The Charles Schwab Corporation Financial Consultant Career Achievement Award Program)

Registration Statement No. 333-1 89553	(The Charles Schwab Corporation 2013 Stock Incentive Plan)

Registration Statement No. 333-175862	(The Charles Schwab Corporation 2004 Stock Incentive Plan)

Registration Statement No. 333-173635	(optionsXpress Holdings, Inc. 2008 Equity Incentive Plan, optionsXpress Holdings, Inc. 2005 Equity Incentive Plan, and optionsXpress, Inc. 2001 Equity Incentive Plan)

Registration Statement No. 333-144303	(The Charles Schwab Corporation Employee Stock Purchase Plan)

Registration Statement No. 333-131502	(The Charles Schwab Corporation Deferred Compensation Plan II)

Registration Statement No. 333-101992	(The Charles Schwab Corporation 2004 Stock Incentive Plan)

Registration Statement No. 333-71322	(The SchwabPlan Retirement Savings and Investment Plan)

Registration Statement No. 333-63448	(The Charles Schwab Corporation 2004 Stock Incentive Plan)

Registration Statement No. 333-47107	(The Charles Schwab Corporation 2004 Stock Incentive Plan)

Registration Statement No. 333-44793	(Charles Schwab Profit Sharing and Employee Stock Ownership Plan)

/s/ Deloitte & Touche LLP
San Francisco, California
February 23, 2017

THE CHARLES SCHWAB CORPORATION

EXHIB I T 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Walter W. Bettinger II, certify that:

I have reviewed this Annual Report on Form 10-K of The Charles Schwab Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	February 23, 2017	/s/ Walter W. Bettinger II
		Walter W. Bettinger II
		President and Chief Executive Officer

THE CHARLES SCHWAB CORPORATION

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph R. Martinetto, certify that:

I have reviewed this Annual Report on Form 10-K of The Charles Schwab Corporation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	February 23, 2017	/s/ Joseph R. Martinetto
		Joseph R. Martinetto
		Senior Executive Vice President and Chief Financial Officer

THE CHARLES SCHWAB CORPORATION

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Charles Schwab Corporation (the Company) on Form 10-K for the year ended December 31, 2016 (the Report), I, Walter W. Bettinger II, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

/s/ Walter W. Bettinger II	Date:	February 23, 2017
Walter W. Bettinger II
President and Chief Executive Officer

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

THE CHARLES SCHWAB CORPORATION

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Charles Schwab Corporation (the Company) on Form 10-K for the year ended December 31, 2016 (the Report), I, Joseph R. Martinetto, Senior Executive Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:


	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

/s/ Joseph R. Martinetto	Date:	February 23, 2017
Joseph R. Martinetto
Senior Executive Vice President
and Chief Financial Officer