10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

Commission file number 1-9700

THE CHARLES SCHWAB CORPORATION

(Exact name of Registrant as specified in its charter)

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

120 Kearny Street, San Francisco, CA 94108

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (415) 636-7000

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

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

Large accelerated filer	x	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  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

1,151,716,028 shares of $.01 par value Common Stock

Outstanding on July 24, 2008

THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2008

Index

			Page
Part I - Financial Information
	Item 1.	Condensed Consolidated Financial Statements (Unaudited):
		Statements of Income	1
		Balance Sheets	2
		Statements of Cash Flows	3
		Notes	4 – 14
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15 – 32
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33 – 34
	Item 4.	Controls and Procedures	34
Part II - Other Information
	Item 1.	Legal Proceedings	34
	Item 1A.	Risk Factors	34
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
	Item 3.	Defaults Upon Senior Securities	35
	Item 4.	Submission of Matters to a Vote of Security Holders	36
	Item 5.	Other Information	36
	Item 6.	Exhibits	37
Signature			38

Part I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Income

(In millions, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net Revenues
Asset management and administration fees	$	618		$	586		$	1,231		$	1,120
Interest revenue		478			553			988			1,104
Interest expense		(51	)		(164	)		(142	)		(331	)
Net interest revenue		427			389			846			773
Trading revenue		230			198			476			400
Other		33			32			62			65
Total net revenues		1,308			1,205			2,615			2,358
Expenses Excluding Interest
Compensation and benefits		438			449			875			879
Professional services		84			81			168			155
Occupancy and equipment		72			70			146			138
Advertising and market development		58			52			134			118
Communications		52			51			104			100
Depreciation and amortization		37			39			75			78
Other		53			39			91			75
Total expenses excluding interest		794			781			1,593			1,543
Income from continuing operations before taxes on income		514			424			1,022			815
Taxes on income		(201	)		(168	)		(404	)		(323	)
Income from continuing operations		313			256			618			492
(Loss) income from discontinued operations, net of tax		(18	)		36			(18	)		73
Net Income	$	295		$	292		$	600		$	565
Weighted-Average Common Shares Outstanding — Diluted		1,154			1,257			1,157			1,262
Earnings Per Share - Basic
Income from continuing operations	$	.27		$	.21		$	.54		$	.39
(Loss) income from discontinued operations, net of tax	$	(.01	)	$	.03		$	(.02	)	$	.06
Net income	$	.26		$	.24		$	.52		$	.45
Earnings Per Share - Diluted
Income from continuing operations	$	.27		$	.20		$	.53		$	.39
(Loss) income from discontinued operations, net of tax	$	(.01	)	$	.03		$	(.01	)	$	.06
Net income	$	.26		$	.23		$	.52		$	.45
Dividends Declared Per Common Share	$	.05		$	.05		$	.10		$	.10

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)

	June 30,     2008			December 31, 2007
Assets
Cash and cash equivalents	$	5,239		$	6,764
Cash and investments segregated and on deposit for regulatory purposes		9,354			8,803
Securities owned — at market value		13,280			8,201
Receivables from brokers, dealers, and clearing organizations		513			725
Receivables from brokerage clients — net		12,922			12,314
Loans to banking clients — net		4,891			3,443
Loans held for sale		74			44
Equipment, office facilities, and property — net		623			617
Goodwill		528			525
Deferred tax assets — net		345			254
Other assets		591			596
Total	$	48,360		$	42,286
Liabilities and Stockholders’ Equity
Deposits from banking clients	$	19,909		$	13,822
Payables to brokers, dealers, and clearing organizations		2,787			1,922
Payables to brokerage clients		19,502			20,290
Accrued expenses and other liabilities		1,389			1,621
Long-term debt		882			899
Total liabilities		44,469			38,554
Stockholders’ equity:
Preferred stock — 9,940,000 shares authorized; $.01 par value per share; none issued		—			—
Common stock — 3 billion shares authorized; $.01 par value per share; 1,392,091,544 shares issued		14			14
Additional paid-in capital		2,172			2,107
Retained earnings		6,261			5,776
Treasury stock — 240,719,577 and 231,274,906 shares in 2008 and 2007, respectively, at cost		(4,414	)		(4,148	)
Accumulated other comprehensive loss		(142	)		(17	)
Total stockholders’ equity		3,891			3,732
Total	$	48,360		$	42,286

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

	Six Months Ended June 30,
	2008			2007
Cash Flows from Operating Activities
Net income	$	600		$	565
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
Loss (income) from discontinued operations, net of tax		18			(73	)
Depreciation and amortization expense		75			78
Stock-based compensation expense		33			26
Excess tax benefits from stock-based compensation		(34	)		(59	)
Other		5			22
Originations of loans held for sale		(1,054	)		(418	)
Proceeds from sales of loans held for sale		1,019			406
Net change in:
Cash and investments segregated and on deposit for regulatory purposes		(551	)		1,714
Securities owned (excluding securities available for sale)		203			55
Receivables from brokers, dealers, and clearing organizations		212			(372	)
Receivables from brokerage clients		(614	)		(415	)
Other assets		15			(26	)
Payables to brokers, dealers, and clearing organizations		865			653
Payables to brokerage clients		(788	)		(1,863	)
Accrued expenses and other liabilities		(228	)		(41	)
Net cash provided by discontinued operations		—			389
Net cash (used for) provided by operating activities		(224	)		641
Cash Flows from Investing Activities
Purchases of securities available for sale		(6,294	)		(2,904	)
Principal payments on securities available for sale		826			997
Net increase in loans to banking clients		(1,461	)		(408	)
Purchase of equipment, office facilities, and property		(81	)		(83	)
Cash payments for business combinations, net of cash acquired		(5	)		(117	)
Net cash provided by discontinued operations		—			67
Net cash used for investing activities		(7,015	)		(2,448	)
Cash Flows from Financing Activities
Net change in deposits from banking clients		6,087			665
Repayment of long-term debt		(17	)		—
Excess tax benefits from stock-based compensation		34			59
Dividends paid		(115	)		(125	)
Purchase of treasury stock		(350	)		(624	)
Proceeds from stock options exercised and other		75			233
Net cash provided by discontinued operations		—			563
Net cash provided by financing activities		5,714			771
Decrease in Cash and Cash Equivalents		(1,525	)		(1,036	)
Cash and Cash Equivalents at Beginning of Period		6,764			4,507
Cash and Cash Equivalents at End of Period	$	5,239		$	3,471
Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	142		$	331
Income taxes (amounts include discontinued operations)		428			222
Noncash financing activity:
Treasury stock purchased during the period, but settled after period end	$	—		$	18

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

1. Basis of Presentation

The Charles Schwab Corporation (CSC) is a savings and loan holding company engaged, through its subsidiaries, in securities brokerage, banking, and related financial services. Charles Schwab & Co., Inc. (Schwab) is a securities broker-dealer with 309 domestic branch offices in 45 states, as well as a branch in each of the Commonwealth of Puerto Rico and London, U.K. In addition, Schwab serves clients in Hong Kong through one of CSC’s subsidiaries. Other subsidiaries include Charles Schwab Bank (Schwab Bank), a federal savings bank, and Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds, which are referred to as the Schwab Funds^®. In January 2008, the Charles Schwab Trust Company, formerly a subsidiary of CSC, which served as a trustee for employee benefit plans, was merged into Schwab Bank.

The accompanying unaudited condensed consolidated financial statements include CSC and its majority-owned subsidiaries (collectively referred to as the Company). These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments necessary to present fairly the financial position, results of operations, and cash flows for the periods presented in conformity with generally accepted accounting principles in the U.S. (GAAP). All adjustments were of a normal recurring nature. All material intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The Company’s results for any interim period are not necessarily indicative of results for a full year or any other interim period.

On July 1, 2007, the Company completed the sale of all of the outstanding stock of U.S. Trust Corporation (USTC, and with its subsidiaries collectively referred to as U.S. Trust). U.S. Trust was a subsidiary that provided wealth management services. U.S. Trust is presented as a discontinued operation for all periods prior to the completion of the sale. All other information contained in this Form 10-Q is presented on a continuing operations basis unless otherwise noted.

2. New Accounting Standards

Statement of Financial Accounting Standards No. 157 – Fair Value Measurements (SFAS No. 157) was effective beginning January 1, 2008. This statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. The adoption of SFAS No. 157 did not have a material impact on the Company’s financial position, results of operations, earnings per share (EPS), or cash flows, but expanded the disclosures in the Company’s condensed consolidated financial statements. See note “3—Fair Value of Financial Instruments,” for disclosures pursuant to SFAS No. 157.

SFAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities was effective beginning January 1, 2008. This statement permits entities to elect to measure eligible financial instruments, commitments, and certain other arrangements at fair value at specified election dates with changes in fair value recognized in earnings at each subsequent reporting period. The Company made no such election on January 1, 2008 or during the first half of 2008. The adoption of SFAS No. 159 did not have any impact on the Company’s financial position, results of operations, EPS, or cash flows.

SFAS No. 141R – Business Combinations, was issued in December 2007 and is effective for all business acquisitions with an acquisition date on or after January 1, 2009. This statement generally requires an acquirer to recognize the assets acquired, the liabilities assumed, contingent purchase consideration, and any noncontrolling interest in the acquiree, at fair value on the date of acquisition. SFAS No. 141R also requires an acquirer to expense most transaction and restructuring costs as incurred, and not include such items in the cost of the

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

acquired entity. The Company is currently evaluating the impact of the adoption of SFAS No. 141R on its financial position, results of operations, EPS, and cash flows.

SFAS No. 160 – Noncontrolling Interests in Consolidated Financial Statements, was issued in December 2007 and is effective beginning January 1, 2009. This statement amends Accounting Research Bulletin No. 51 – Consolidated Financial Statements by establishing financial statement presentation and disclosure requirements for reporting noncontrolling ownership interests. SFAS No. 160 also establishes consistent accounting methods for changes in ownership interest and for the valuation of retained noncontrolling investments upon deconsolidation. The Company is currently evaluating the impact of the adoption of SFAS No. 160 on its financial position, results of operations, EPS, and cash flows.

SFAS No. 161 – Disclosures about Derivative Instruments and Hedging Activities, was issued in March 2008 and is effective beginning January 1, 2009. This statement amends the disclosure requirements of SFAS No. 133 – Accounting for Derivative Instruments and Hedging Activities by requiring qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair values and gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. SFAS No. 161 does not require any new derivative or hedging measurements. The adoption of SFAS No. 161 will not impact the Company’s financial position, results of operations, EPS, or cash flows, but will expand the disclosures in the Company’s condensed consolidated financial statements.

FASB Staff Position (FSP) on Emerging Issues Task Force (EITF) Issue 03-6-1 (FSP EITF 03-6-1) – Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, was issued in June 2008 and is effective beginning January 1, 2009. This statement requires the inclusion of unvested share-based payment awards with non-forfeitable rights to dividends or dividend equivalents as participating securities in the computation of earnings per share under the two-class method described in SFAS No. 128—Earnings per Share. The requirements of this statement require retrospective adjustment to all prior-period earnings per share data presented. Early adoption is not permitted. The Company is currently evaluating the impact of the adoption of FSP EITF 03-6-1 on its disclosures of EPS. The adoption of FSP EITF 03-6-1 will not impact the Company’s financial position, results of operations, or cash flows.

3. Fair Value of Financial Instruments

SFAS No. 157 defines fair value 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. SFAS No. 157 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are based on market pricing data obtained from sources independent of the Company. Unobservable inputs reflect management’s judgment about the assumptions market participants would use in pricing the asset or liability. The fair value hierarchy includes three levels based on the objectivity of the inputs as follows:

• Level 1 inputs are quoted prices in active markets as of the measurement date for identical assets or liabilities that the Company has the ability to access. This category includes active exchange-traded money market funds, mutual funds, and equity securities.

• 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 and yield curves that are observable at commonly quoted intervals. This category includes mortgage-backed securities, asset-backed securities, corporate debt securities, long-term certificates of deposit, non-publicly traded mutual funds, U.S. agency and municipal debt securities, and derivative contracts.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

• 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 does not have any financial assets or liabilities utilizing Level 3 inputs as of June 30, 2008.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured on a recurring basis as of June 30, 2008:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at Fair Value
Assets
Investments segregated and on deposit for regulatory purposes	$	—	$	5,046	$	—	$	5,046
Securities owned:
Mortgage-backed securities:
Non-agency		—		3,080		—		3,080
U.S. agencies		—		7,701		—		7,701
Total mortgage-backed securities		—		10,781		—		10,781
Asset-backed securities		—		145		—		145
Corporate debt securities		—		923		—		923
U.S. agency notes		—		15		—		15
Certificates of deposit		—		944		—		944
Total available-for-sale securities		—		12,808		—		12,808
Schwab Funds® money market funds		278		—		—		278
Fixed income, equity, and other securities		96		78		—		174
Equity and bond mutual funds		20		—		—		20
Total securities owned		394		12,886		—		13,280
Other assets:
Derivative contracts		—		8		—		8
Total other assets		—		8		—		8
Total assets at fair value	$	394	$	17,940	$	—	$	18,334
Liabilities
Accrued expenses and other liabilities:
Deferred compensation liability	$	112	$	43	$	—	$	155
Securities sold, not yet purchased		2		—		—		2
Derivative contracts		—		1		—		1
Total accrued expenses and other liabilities		114		44		—		158
Total liabilities at fair value	$	114	$	44	$	—	$	158

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

4. Securities Owned

A summary of securities owned is as follows:

	June 30,       2008		December 31, 2007
Securities available for sale	$	12,808	$	7,526
Schwab Funds® money market funds		278		413
Fixed income, equity, and other securities		174		175
Equity and bond mutual funds		20		87
Total securities owned (1)	$	13,280	$	8,201

⁽¹⁾ Amounts include securities pledged of $3 million at June 30, 2008 and $6 million at December 31, 2007.

The amortized cost, fair value, and gross unrealized gains and losses on securities available for sale at June 30, 2008 are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Mortgage-backed securities:
Non-agency	$	3,294	$	—	$	214	$	3,080
U.S. agencies		7,704		32		35		7,701
Total mortgage-backed securities		10,998		32		249		10,781
Asset-backed securities		145		—		—		145
Corporate debt securities		942		1		20		923
U.S. agency notes		15		—		—		15
Certificates of deposit		945		—		1		944
Total	$	13,045	$	33	$	270	$	12,808

A summary of investments with unrealized losses, aggregated by category and period of continuous unrealized loss at June 30, 2008 is as follows:

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities:
Non-agency	$	2,487	$	141	$	416	$	73	$	2,903	$	214
U.S. agencies		4,317		33		117		2		4,434		35
Total mortgage-backed securities		6,804		174		533		75		7,337		249
Asset-backed securities		95		—		—		—		95		—
Corporate debt securities		657		13		89		7		746		20
Certificates of deposit		694		1		—		—		694		1
Total temporarily impaired securities	$	8,250	$	188	$	622	$	82	$	8,872	$	270

Management evaluates securities available for sale for other than temporary impairment on a quarterly basis. The evaluation of whether other-than-temporary impairment exists is a matter of judgment. The evaluation includes the assessment of several factors including: 1) whether the unrealized loss is solely due to changes in interest rates, 2) the length of time and the extent to which the fair value has been less than amortized cost, 3) the financial condition of the issuer, 4) the credit ratings of the issuer or security, 5) the collateral underlying the security, and 6) the Company’s intent and ability to hold the investment for a period of time sufficient to allow for

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

any anticipated recovery. If management determines other-than-temporary impairment exists, the cost basis of the security is adjusted to the then-current fair value, with a corresponding loss recognized in current earnings. If future evaluations conclude that an impairment now considered to be temporary is other-than-temporary, the Company would recognize a realized loss through earnings at that time.

Securities available for sale with unrealized losses of $270 million as of June 30, 2008 included U.S. agency and non-agency mortgage-backed securities, corporate debt securities, asset-backed securities, and long-term certificates of deposit. U.S. agency mortgage-backed securities do not have explicit credit ratings, however management considers these to be of the highest credit quality given the guarantee of principal and interest by the U.S. agencies. At June 30, 2008, the non-agency mortgage-backed securities were rated “AAA” (defined as a rating equivalent to a Moody’s rating of “Aaa” or a Standard and Poor’s rating of “AAA”). For non-agency mortgage-backed securities, management has reviewed the credit default experience of the underlying collateral and the extent of the unrealized losses to determine whether an other-than-temporary impairment existed. At June 30, 2008, the corporate debt securities were not rated lower than investment grade (defined as a rating equivalent to a Moody’s rating of “Baa” or higher, or a Standard and Poor’s rating of “BBB-” or higher). For corporate debt securities, management has reviewed the issuer’s financial condition and the extent and duration of the unrealized losses to determine whether an other-than-temporary impairment existed. Based on management’s evaluation and the Company’s intent and ability to hold such securities for a period of time sufficient to allow for anticipated recovery, management determined the unrealized losses were temporary as of June 30, 2008.

As of June 30, 2008, the number of investment positions with unrealized losses totaled 354.

The maturities of securities available for sale at June 30, 2008 are as follows:

	Within 1 Year			1-5 Years			5-10 Years		After 10 Years			Total
Mortgage-backed securities (1) :
Non-agency	$	—		$	—		$	13	$	3,067		$	3,080
U.S. agencies		—			—			170		7,531			7,701
Total mortgage-backed securities		—			—			183		10,598			10,781
Asset-backed securities		—			145			—		—			145
Corporate debt securities		337			586			—		—			923
U.S. agency notes		15			—			—		—			15
Certificates of deposit		794			150			—		—			944
Estimated fair value	$	1,146		$	881		$	183	$	10,598		$	12,808
Total amortized cost	$	1,152		$	895		$	182	$	10,816		$	13,045
Net unrealized (losses) gains	$	(6	)	$	(14	)	$	1	$	(218	)	$	(237	)

⁽¹⁾ Mortgage-backed securities have been allocated over maturity groupings based on contractual maturities. Expected maturities may differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

There were no gross proceeds or gross realized gains or losses on sales of securities available for sale during the second quarters or first halves of 2008 and 2007. Realized gains and losses, if any, of securities available for sale would be recorded in other revenue on the Company’s condensed consolidated statements of income.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

5. Loans to Banking Clients and Related Allowance for Credit Losses

An analysis of the composition of the loan portfolio is as follows:

	June 30,       2008			December 31, 2007
Residential real estate mortgages	$	2,992		$	2,101
Home equity lines of credit		1,724			1,234
Secured personal loans		170			102
Other		17			13
Total loans to banking clients		4,903			3,450
Less: allowance for credit losses		(12	)		(7	)
Loans to banking clients – net	$	4,891		$	3,443

The secured personal loan product allows clients to use eligible assets in a designated brokerage account at Schwab as collateral for a secured loan.

Included in the loan portfolio are nonaccrual loans totaling $5 million and $4 million at June 30, 2008 and December 31, 2007, respectively. Nonperforming assets which include nonaccrual loans and other real estate owned totaled $6 million and $4 million at June 30, 2008 and December 31, 2007, respectively. The Company did not have any impaired loans during the first halves of 2008 and 2007. At June 30, 2008 and December 31, 2007, there were no loans accruing interest that were contractually 90 days or more past due. For the first halves of 2008 and 2007, the amount of interest revenue which would have been earned on non-accrual loans versus interest revenue recognized on these loans was not material to the Company’s results of operations.

Changes in the allowance for credit losses are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2008			2007		2008			2007
Balance at beginning of period	$	9		$	5	$	7		$	4
Charge-offs		(1	)		—		(1	)		—
Recoveries		—			—		—			—
Provision for credit loss		4			—		6			1
Balance at end of period	$	12		$	5	$	12		$	5

- 9 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

6. Comprehensive Income

Comprehensive income includes net income and changes in equity except those resulting from investments by, or distributions to, stockholders. Comprehensive income is presented in the following table:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net income	$	295		$	292		$	600		$	565
Other comprehensive loss:
Net change in net unrealized gain on cash flow hedging instruments		—			2			—			1
Change in net unrealized loss on securities available for sale:
Unrealized loss		(11	)		(49	)		(207	)		(36	)
Income tax effect		4			20			82			15
Net		(7	)		(29	)		(125	)		(21	)
Total other comprehensive loss		(7	)		(27	)		(125	)		(20	)
Comprehensive income	$	288		$	265		$	475		$	545
7.      Earnings Per Share Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding for the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and unvested restricted stock awards. EPS under the basic and diluted computations are presented in the following table:
	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net income	$	295		$	292		$	600		$	565
Weighted-average common shares outstanding – basic		1,145			1,243			1,147			1,247
Common stock equivalent shares related to stock incentive plans		9			14			10			15
Weighted-average common shares outstanding – diluted (1)		1,154			1,257			1,157			1,262
Basic EPS:
Income from continuing operations	$	.27		$	.21		$	.54		$	.39
(Loss) income from discontinued operations, net of tax	$	(.01	)	$	.03		$	(.02	)	$	.06
Net income	$	.26		$	.24		$	.52		$	.45
Diluted EPS:
Income from continuing operations	$	.27		$	.20		$	.53		$	.39
(Loss) income from discontinued operations, net of tax	$	(.01	)	$	.03		$	(.01	)	$	.06
Net income	$	.26		$	.23		$	.52		$	.45

⁽¹⁾ Total antidilutive stock options and restricted stock awards excluded from the calculation of diluted earnings per share were 22 million and 24 million shares for the second quarters of 2008 and 2007, respectively, and 23 million and 27 million shares for the first halves of 2008 and 2007, respectively.

- 10 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

8. Regulatory Requirements

CSC is a savings and loan holding company and Schwab Bank is a federal savings bank. CSC and Schwab Bank are both subject to supervision and regulation by the Office of Thrift Supervision (OTS). CSC’s depository institution subsidiary is Schwab Bank.

As a savings and loan holding company, CSC is not subject to specific statutory capital requirements. CSC is required to maintain capital that is sufficient to support the holding company and its subsidiaries’ business activities, and the risks inherent in those activities. As CSC’s depository institution subsidiary, Schwab Bank is required to maintain a capital level that at least equals minimum capital levels specified in federal banking laws and regulations. Failure to meet the minimum levels will result in certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on Schwab Bank. At June 30, 2008, CSC and Schwab Bank met the capital level requirements.

The regulatory capital and ratios for Schwab Bank at June 30, 2008 are as follows:

	Actual				Minimum Capital Requirement				Minimum to be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 Capital	$	1,411	15.1	%	$	374	4.0	%	$	561	6.0	%
Total Capital	$	1,424	15.2	%	$	749	8.0	%	$	936	10.0	%
Leverage	$	1,411	6.5	%	$	870	4.0	%	$	1,088	5.0	%
Tangible Equity	$	1,411	6.5	%	$	435	2.0	%		N/A

N/A Not applicable.

Based on its regulatory capital ratios at June 30, 2008, Schwab Bank is considered well capitalized (the highest category) pursuant to banking regulatory guidelines. There are no conditions or events that management believes have changed Schwab Bank’s well-capitalized status.

Schwab is subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the Uniform Net Capital Rule). Schwab computes 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, which is based on the type of business conducted by the broker-dealer. At June 30, 2008, 2% of aggregate debits was $265 million, which exceeded the minimum dollar requirement for Schwab of $250,000. At June 30, 2008, Schwab’s net capital was $1.2 billion (9% of aggregate debit balances), which was $948 million in excess of its minimum required net capital and $551 million in excess of 5% of aggregate debit balances. Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.

9. Commitments and Contingent Liabilities

The Company has clients that sell (i.e., write) listed option contracts that are cleared by various clearing houses. The clearing houses establish margin requirements on these transactions. The Company satisfies the margin requirements by arranging standby letters of credit (LOCs), in favor of the clearing houses, which are issued by multiple banks. At June 30, 2008, the aggregate face amount of these outstanding LOCs totaled $850 million. Schwab pays a fee to maintain these arrangements. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. Schwab satisfies the collateral requirements by arranging LOCs, in favor of these brokerage clients, which are issued by multiple banks. Schwab also pays a fee to maintain these arrangements. At June 30, 2008, the aggregate face amount of these outstanding LOCs totaled $365 million. No funds were drawn under these LOCs at June 30, 2008.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

The Company also provides guarantees to securities clearing houses and exchanges under their standard membership agreement, which requires members to guarantee the performance of other members. Under the agreement, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, the potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these transactions.

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

The Company believes it has strong defenses in all significant matters currently pending and is contesting liability and the 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. Predicting the outcome of a matter is inherently difficult, particularly where claimants seek substantial or unspecified damages, or when investigations or legal proceedings are at an early stage. In many cases, including those matters described below, 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. However, based on current information and consultation with counsel, management believes that the resolution of matters currently pending will not have a material adverse impact on the financial condition or cash flows of the Company, but could be material to the Company’s operating results for a particular future period, depending on results for that period.

YieldPlus Fund Litigation: The Company is the subject of eight purported class action lawsuits filed in March and April 2008 on behalf of investors in the Schwab YieldPlus Fund^® alleging that the mutual fund’s registration statements and prospectuses were false and misleading in violation of federal securities laws. Defendants named in one or more of the lawsuits include the Company, Schwab, CSIM, the fund itself, Schwab Investments (registrant and issuer of the fund’s shares), Charles R. Schwab, Randall W. Merk (current president of the fund), and current and former trustees and officers of the fund and/or Schwab. Claimants seek unspecified compensatory and rescission damages, unspecified equitable and injunctive relief, and costs and attorneys fees. In May 2008, a ninth purported class action on behalf of fund investors was filed in the U.S. District Court for the Northern District of California. The lawsuit, which alleges violations of state law and federal securities law in connection with the fund’s investment policy and fund marketing, names the Company and many of the same defendants named in the prior eight lawsuits and seeks similar relief. On July 3, 2008, the U.S. District Court for the Northern District of California consolidated all nine lawsuits into a single action for purposes of pre-trial proceedings and appointed a group of fund investors as lead plaintiff.

SoundView Litigation: As part of the sale of Schwab Capital Markets L.P. and all of the outstanding capital stock of SoundView Technology Group, Inc. (SoundView), (collectively referred to as Schwab Soundview Capital Markets, or SSCM), to UBS Securities LLC and UBS Americas Inc. (collectively referred to as UBS), the Company agreed to indemnify UBS for certain litigation. SoundView and certain of its subsidiaries are among the numerous financial institutions named as defendants in multiple purported securities class actions filed in the United States District Court for the Southern District of New York (the IPO Allocation Litigation) between June and December 2001. The IPO Allocation Litigation was brought on behalf of persons who either directly or in the aftermarket purchased IPO securities between March 1997 and December 2000. The plaintiffs allege that SoundView entities and the other underwriters named as defendants required customers receiving allocations of IPO shares to pay excessive and undisclosed commissions on unrelated trades and to purchase shares in the aftermarket at prices higher than the IPO price, in violation of the federal securities laws. SoundView entities have been named in 31 of the actions, each involving a different company’s IPO, and had underwriting commitments in approximately 90 other IPOs that are the subject of lawsuits. SoundView entities have not been named as defendants in these cases, although the lead underwriters in those IPOs have asserted that depending on the

- 12 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

outcome of the cases, SoundView entities may have indemnification or contribution obligations based on underwriting commitments in the IPOs. The parties, with the assent of the District Court, selected 17 cases as focus cases for the purpose of case-specific discovery, and on October 13, 2004, the District Court allowed six of the focus cases to proceed as class actions. Defendants appealed that decision to the United States Court of Appeals for the Second Circuit, which issued an order on December 5, 2006 reversing the District Court’s decision to allow the six focus cases to proceed as class actions. On April 6, 2007, the Court of Appeals denied the plaintiffs’ request for rehearing. In August and September 2007, plaintiffs filed amended class action complaints and renewed motions for class certification, which again seek approval for the cases to proceed as class actions. On March 26, 2008, the District Court denied defendants’ motion to dismiss the amended class action complaints, except with respect to certain claims of a limited number of plaintiffs who sold securities at prices in excess of the initial offering price or who purchased securities outside the class period. Plaintiffs’ motion for class certification remains pending.

10. Segment Information

The Company structures its segments according to its various types of clients and the services provided to those clients. The Company’s three reportable segments are Schwab Investor Services, Schwab Institutional^®, and Schwab Corporate and Retirement Services. The Company evaluates the performance of its segments on a pre-tax basis excluding items such as restructuring charges, impairment charges, discontinued operations, and extraordinary items. Segment assets are not disclosed because the balances are not used for evaluating segment performance and deciding how to allocate resources to segments. There are no revenues from transactions with other segments within the Company.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net revenues:
Schwab Investor Services	$	873		$	811		$	1,737		$	1,588
Schwab Institutional		302			270			612			531
Schwab Corporate and Retirement Services		130			127			259			237
Unallocated		3			(3	)		7			2
Total net revenues	$	1,308		$	1,205		$	2,615		$	2,358
Income from continuing operations before taxes on income:
Schwab Investor Services	$	332		$	291		$	654		$	543
Schwab Institutional		148			108			304			217
Schwab Corporate and Retirement Services		32			34			63			64
Unallocated		2			(9	)		1			(9	)
Income from continuing operations before taxes on income:		514			424			1,022			815
Taxes on income		(201	)		(168	)		(404	)		(323	)
(Loss) income from discontinued operations, net of tax		(18	)		36			(18	)		73
Net income	$	295		$	292		$	600		$	565

- 13 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

11. Discontinued Operations

On July 1, 2007, the Company completed the sale of all of the outstanding stock of U.S. Trust. The components of (loss) income from discontinued operations related to U.S. Trust are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net revenues	$	—		$	227		$	—		$	446
Income, before taxes	$	—		$	58		$	—		$	116
Taxes on income	$	(18	)	$	(21	)	$	(18	)	$	(43	)
(Loss) income, net of tax	$	(18	)	$	37		$	(18	)	$	73

When calculating the Company’s gain on the sale of U.S. Trust for income tax purposes, the acquisition date tax basis is the basis of U.S. Trust’s prior stockholders in their shares as of the date U.S. Trust was acquired by the Company, since the transaction qualified as a tax-free exchange. In 2006, the Company recorded a $205 million income tax benefit related to the estimated difference between the tax and book bases of the Company’s U.S. Trust stock. This amount was included in income from discontinued operations, net of tax on the Company’s condensed consolidated statements of income. This initial estimate of the tax benefit was based on publicly available information, including information on the composition of U.S. Trust’s stockholders at the acquisition date and the market price of U.S. Trust stock during relevant periods, and was subject to adjustment following a survey of former U.S. Trust stockholders. The Company completed the survey in the third quarter of 2007. Based upon the results of this survey, the Company recorded an additional $72 million income tax benefit in the third quarter of 2007. The IRS completed their examination of the acquisition date tax basis under a pre-filing agreement in the second quarter of 2008. In connection with the determination of the final income tax gain on the sale of U.S. Trust, the Company recorded additional tax expense of $18 million in the second quarter of 2008. This amount was recorded in loss from discontinued operations.

12. Restructuring Reserve

A summary of the activity in the facilities restructuring reserve related to the Company’s past restructuring initiatives, as well as certain retained restructuring-related obligations for the second quarter and first half of 2008 is as follows:

	Three Months Ended June 30, 2008			Six Months Ended June 30, 2008
Beginning balance	$	72		$	77
Restructuring credit		(3	)		(3	)
Cash payments - net		(5	)		(10	)
Other		1			1
Ending balance at June 30, 2008 (1)	$	65		$	65

⁽¹⁾ The Company expects to substantially utilize the remaining facilities restructuring reserve through cash payments for the net lease expense over the respective lease terms through 2017.

The actual costs of these restructuring initiatives could differ from the estimated costs, depending primarily on the Company’s sublease activities at the properties.

- 14 -

THE CHARLES SCHWAB CORPORATION

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

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Management of The Charles Schwab Corporation (CSC) and its subsidiaries (collectively referred to as the Company) focuses on several key financial and non-financial metrics in evaluating the Company’s financial position and operating performance. All information contained in this Form 10-Q is presented on a continuing operations basis unless otherwise noted. Results for the second quarters and first halves of 2008 and 2007 are shown in the following table:

	Three Months Ended June 30,						Percent Change		Six Months Ended June 30,						Percent Change
	2008			2007					2008			2007
Client Activity Metrics:
Net new client assets (in billions) (1,2)	$	26.0		$	29.0		(10	%)	$	67.3		$	83.4		(19	%)
Client assets (in billions, at quarter end)	$	1,396.9		$	1,383.6		1	%
Clients’ daily average trades (in thousands)		299.4			257.9		16	%		312.9			262.0		19	%
Company Financial Metrics:
Net revenue growth from prior year’s period		9	%		10	%				11	%		10	%
Pre-tax profit margin from continuing operations		39.3	%		35.2	%				39.1	%		34.6	%
Return on stockholders’ equity		32	%		23	%				31	%		22	%
Annualized net revenue per average full-time equivalent employee (in thousands)	$	390		$	371		5	%	$	391		$	369		6	%

⁽¹⁾ The first half of 2007 includes $17.8 billion related to the acquisition of The 401(k) Company. Effective in the second quarter of 2007, amount includes balances covered by 401(k) record keeping-only services, which totaled $5.2 billion at May 31, 2007, related to the March 2007 acquisition of The 401(k) Company.

⁽²⁾ Effective in the third quarter of 2007, amounts include the Company’s mutual fund clearing services business’ daily net settlements. All prior period amounts have been recast to reflect this change.

The significant disruption to the housing and credit markets, weak equity markets, and the slowing economic growth that existed in the first quarter of 2008 continued during the second quarter of 2008. The S&P 500 Index and the Dow Jones Industrial Average decreased 3% and 7%, respectively, while the Nasdaq Composite Index remained relatively unchanged during the second quarter of 2008. The Federal Reserve reduced the federal funds rate by 25 basis points during the second quarter of 2008 to 2.00% after lowering it by 200 basis points during the first quarter of 2008.

Despite the difficult economic environment, clients remained actively engaged with the Company in managing their investments. Although net new client assets decreased $3 billion, or 10%, on a year-over-year basis to $26.0 billion during the second quarter of 2008, the second quarter of 2007 included client assets of $5.2 billion obtained from the acquisition of The 401(k) Company as noted above. Excluding the effect of this one-time asset inflow, net new client assets in the second quarter of 2008 increased by 9% over the same period in 2007. Total client assets ended the second quarter of 2008 at $1.397 trillion, up 1% from the prior year. Additionally, clients’ daily average trades increased 16% to 299,400 in the second quarter of 2008.

The Company’s revenue growth and expense discipline in the first quarter of 2008 continued in the second quarter of 2008. Net revenues grew 9% on a year-over-year basis, as all major sources of revenue (asset management and administration fees, net interest revenue, and trading revenue) increased. Expenses excluding interest in the second quarter of 2008 increased $13 million, or 2%, compared to the second quarter of 2007, primarily due to increases in other expense, advertising and market development expense, and professional services expense, partially offset by a decrease in compensation and benefits expense. As a result of revenue growth and expense discipline, the Company achieved a pre-tax profit margin from continuing operations of

- 15 -

THE CHARLES SCHWAB CORPORATION

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

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

39.3% in the second quarter of 2008, up from 35.2% for the same period in 2007. Annualized net revenue per average full-time equivalent employee was $390,000 in the second quarter of 2008, up 5% from the second quarter of 2007 due to revenue growth. Return on stockholders’ equity increased to 32% in the second quarter of 2008, compared to 23% in the second quarter of 2007, reflecting earnings growth and the Company’s continued active management of its capital base.

Segment Information

The Company provides financial services to individuals and institutional and corporate clients through three segments—Schwab Investor Services, Schwab Institutional^®, and Schwab Corporate and Retirement Services. The Schwab Investor Services segment includes the Company’s retail brokerage and banking operations. The Schwab Institutional segment provides custodial, trading, and support services to independent investment advisors. The Schwab Corporate and Retirement Services segment provides retirement plan services, plan administrator services, stock plan services, and mutual fund clearing services. The Company evaluates the performance of its segments on a pre-tax basis excluding items such as restructuring charges, impairment charges, discontinued operations, and extraordinary items.

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

	Three Months Ended June 30,					Percent Change		Six Months Ended June 30,					Percent Change
	2008		2007					2008		2007
Schwab Investor Services:
Net revenues	$	873	$	811		8	%	$	1,737	$	1,588		9	%
Expenses excluding interest		541		520		4	%		1,083		1,045		4	%
Contribution margin		332		291		14	%		654		543		20	%
Schwab Institutional:
Net revenues		302		270		12	%		612		531		15	%
Expenses excluding interest		154		162		(5	%)		308		314		(2	%)
Contribution margin		148		108		37	%		304		217		40	%
Schwab Corporate and Retirement Services:
Net revenues		130		127		2	%		259		237		9	%
Expenses excluding interest		98		93		5	%		196		173		13	%
Contribution margin		32		34		(6	%)		63		64		(2	%)
Unallocated:
Net revenues		3		(3	)	N/M			7		2		N/M
Expenses excluding interest		1		6		N/M			6		11		N/M
Contribution margin		2		(9	)	N/M			1		(9	)	N/M
Total:
Net revenues	$	1,308	$	1,205		9	%	$	2,615	$	2,358		11	%
Expenses excluding interest	$	794	$	781		2	%	$	1,593	$	1,543		3	%
Contribution margin	$	514	$	424		21	%	$	1,022	$	815		25	%

N/M Not meaningful.

- 16 -

THE CHARLES SCHWAB CORPORATION

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

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

Schwab Investor Services

Net revenues increased by $62 million, or 8%, and $149 million, or 9%, from the second quarter and first half of 2007, respectively, due to an increase in all major sources of revenue (asset management and administration fees, net interest revenue, and trading revenue). Asset management and administration fees increased as a result of higher balances of client assets in the Company’s proprietary and other third-party mutual funds. Net interest revenue increased due to higher levels of interest-earning assets, partially offset by the impact of a decrease in the average net yield earned on interest-earning assets. Trading revenue increased primarily due to higher daily average revenue trades. Expenses excluding interest increased by $21 million, or 4%, and $38 million, or 4%, from the second quarter and first half of 2007, respectively, primarily due to the charge for individual client complaints and arbitration claims relating to Schwab YieldPlus Fund investments in the second quarter of 2008 as well as increases in client servicing costs and marketing expense, partially offset by lower incentive compensation expense.

Schwab Institutional

Net revenues increased by $32 million, or 12%, and $81 million, or 15%, from the second quarter and first half of 2007, respectively, primarily due to increases in asset management and administration fees and trading revenues. Asset management and administration fees increased as a result of higher balances of client assets in the Company’s proprietary and other third-party mutual funds. Trading revenue increased primarily due to higher daily average revenue trades. Expenses excluding interest decreased by $8 million, or 5%, and $6 million, or 2% from the second quarter and first half of 2007, respectively, primarily due to lower incentive compensation expense.

Schwab Corporate and Retirement Services

Net revenues increased by $3 million, or 2%, and $22 million, or 9%, from the second quarter and first half of 2007, respectively, due to higher asset management and administration fees and trading revenues. Asset management and administration fees increased as a result of higher balances of client assets in the Company’s proprietary mutual funds. Expenses excluding interest increased by $5 million, or 5%, and $23 million, or 13%, from the second quarter and first half of 2007, respectively, primarily due to severance and relocation expenses and higher account servicing costs, partially offset by lower incentive compensation expense.

- 17 -

THE CHARLES SCHWAB CORPORATION

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

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

RESULTS OF OPERATIONS

	Three Months Ended June 30,						Percent Change		Six Months Ended June 30,						Percent Change
	2008			2007					2008			2007
Asset management and administration fees	$	618		$	586		5	%	$	1,231		$	1,120		10	%
Net interest revenue		427			389		10	%		846			773		9	%
Trading revenue		230			198		16	%		476			400		19	%
Other		33			32		3	%		62			65		(5	%)
Total net revenues		1,308			1,205		9	%		2,615			2,358		11	%
Expenses excluding interest		794			781		2	%		1,593			1,543		3	%
Income from continuing operations before taxes on income		514			424		21	%		1,022			815		25	%
Taxes on income		(201	)		(168	)	20	%		(404	)		(323	)	25	%
Income from continuing operations		313			256		22	%		618			492		26	%
(Loss) income from discontinued operations, net of tax		(18	)		36		N/M			(18	)		73		N/M
Net income	$	295		$	292		1	%	$	600		$	565		6	%
Earnings per share from continuing operations – diluted	$	.27		$	.20		35	%	$	.53		$	.39		36	%
Earnings per share – diluted	$	.26		$	.23		13	%	$	.52		$	.45		16	%
Pre-tax profit margin from continuing operations		39.3	%		35.2	%				39.1	%		34.6	%
Effective income tax rate on income from continuing operations		39.1	%		39.6	%				39.5	%		39.6	%

N/M Not meaningful.

Asset management and administration fees increased from the second quarter and first half of 2007 due to higher levels of client assets. Net interest revenue increased from the second quarter and first half of 2007 due to higher levels of interest earning assets, partially offset by the impact of a decrease in the average net yield earned on interest-earning assets in the second quarter and first half of 2008. The increase in trading revenue from the second quarter and first half of 2007 was primarily due to higher daily average revenue trades. The increase in expenses excluding interest from the second quarter and first half of 2007 was primarily due to increases in other expense, advertising and market development expense, and professional services expense, partially offset by a decrease in compensation and benefits expense. Income from continuing operations increased in the second quarter and first half of 2008 by $57 million, or 22%, and $126 million, or 26%, respectively, as compared to the same periods in 2007.

- 18 -

THE CHARLES SCHWAB CORPORATION

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

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

Net Revenues

The Company categorizes its revenues as either asset-based and other revenues or trading revenue. As shown in the following tables, both total asset-based and other revenues and total trading revenue increased in the second quarter and first half of 2008, as compared to the same periods in 2007.

Three Months Ended June 30,			2008				2007
	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Asset-based and other revenues:
Asset management and administration fees (1)
Mutual fund service fees:
Proprietary funds (Schwab Funds® and Laudus Funds® )	11	%	$	315	24	%	$	285	24	%
Mutual Fund OneSource®	—			155	12	%		155	13	%
Clearing and other	7	%		29	2	%		27	3	%
Investment management and trust fees	(3	%)		93	7	%		96	8	%
Other	13	%		26	2	%		23	1	%
Asset management and administration fees	5	%		618	47	%		586	49	%
Net interest revenue
Interest revenue	(14	%)		478	37	%		553	46	%
Interest expense	(69	%)		51	4	%		164	14	%
Net interest revenue	10	%		427	33	%		389	32	%
Other	3	%		33	2	%		32	3	%
Total asset-based and other revenues	7	%		1,078	82	%		1,007	84	%
Trading revenue:
Commissions	14	%		199	16	%		175	15	%
Principal transactions	35	%		31	2	%		23	1	%
Total trading revenue	16	%		230	18	%		198	16	%
Total net revenues	9	%	$	1,308	100	%	$	1,205	100	%

⁽¹⁾ Certain prior-year amounts have been reclassified to conform to the 2008 presentation.

- 19 -

THE CHARLES SCHWAB CORPORATION

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

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

Six Months Ended June 30,			2008				2007
	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Asset-based and other revenues:
Asset management and administration fees (1)
Mutual fund service fees:
Proprietary funds (Schwab Funds® and Laudus Funds® )	15	%	$	637	24	%	$	553	23	%
Mutual Fund OneSource®	2	%		303	12	%		297	13	%
Clearing and other	26	%		58	2	%		46	2	%
Investment management and trust fees	—			183	7	%		183	8	%
Other	22	%		50	2	%		41	1	%
Asset management and administration fees	10	%		1,231	47	%		1,120	47	%
Net interest revenue
Interest revenue	(11	%)		988	38	%		1,104	47	%
Interest expense	(57	%)		142	6	%		331	14	%
Net interest revenue	9	%		846	32	%		773	33	%
Other	(5	%)		62	3	%		65	3	%
Total asset-based and other revenues	9	%		2,139	82	%		1,958	83	%
Trading revenue:
Commissions	18	%		412	15	%		350	15	%
Principal transactions	28	%		64	3	%		50	2	%
Total trading revenue	19	%		476	18	%		400	17	%
Total net revenues	11	%	$	2,615	100	%	$	2,358	100	%

⁽¹⁾ Certain prior-year amounts have been reclassified to conform to the 2008 presentation.

Asset Management and Administration Fees

Asset management and administration fees include mutual fund service fees and fees for other asset-based financial services provided to individual and institutional clients. The Company earns mutual fund service fees for transfer agent services, shareholder services, administration, and investment management provided to its proprietary funds, and recordkeeping and shareholder services provided to third-party funds. These fees are based upon the daily balances of client assets invested in third-party funds and the Company’s proprietary funds. The Company also earns asset management fees for advisory and managed account services, which are based on the daily balances of client assets subject to the specific fee for service. The fair values of client assets, which include proprietary and third-party mutual funds, are based on quoted market prices and other observable market data. Asset management and administration fees may vary with changes in the balances of client assets due to market fluctuations and levels of net new client assets.

Mutual fund service fees increased by $32 million, or 7%, and $102 million, or 11%, from the second quarter and first half of 2007, respectively, primarily due to a 10% rise in the Company’s proprietary mutual fund asset balances.

Net Interest Revenue

Net interest revenue is the difference between interest earned on certain assets (mainly receivables from brokerage clients, cash and investments segregated, securities available for sale, cash and cash equivalents, and loans to banking clients) and interest paid on interest-bearing liabilities (mainly payables to brokerage clients, deposits from banking clients, and long-term debt). Net interest revenue is affected by changes in the volume and mix of these assets and liabilities, as well as by fluctuations in interest rates and portfolio management strategies.

- 20 -

THE CHARLES SCHWAB CORPORATION

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

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

The Company is positioned so that the consolidated balance sheet produces an increase in net interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall (i.e., interest-earning assets generally reprice more quickly than interest-bearing liabilities). In the event of falling interest rates, the Company might attempt to mitigate some of this negative impact by extending the maturities of assets in investment portfolios to lock-in asset yields as well as by lowering rates paid to clients on interest-bearing liabilities. The Company’s flexibility in repricing these liabilities is increasingly constrained as short-term rates approach zero.

In clearing its clients’ trades, Schwab holds cash balances payable to clients. In most cases, Schwab pays its clients interest on cash balances awaiting investment, and may invest these funds and earn interest revenue. Receivables from brokerage clients consist primarily of margin loans to brokerage clients. Margin loans are loans made by Schwab to clients on a secured basis to purchase securities. Pursuant to Securities and Exchange Commission (SEC) regulations, client cash balances that are not used for margin lending are generally segregated into investment accounts that are maintained for the exclusive benefit of clients.

The amount of excess cash held in certain Charles Schwab & Co., Inc. (Schwab) brokerage client accounts that is swept into money market deposit accounts at Charles Schwab Bank (Schwab Bank) and (through May 2007) at U.S. Trust Corporation (USTC, and with its subsidiaries collectively referred to as U.S. Trust) has increased significantly since the program’s inception in 2003. Average interest-bearing banking deposits increased $6.7 billion, or 57%, to $18.5 billion from the second quarter of 2007, and $5.0 billion, or 44%, to $16.6 billion from the first half of 2007. As a result, the average balance of securities available for sale increased $3.9 billion, or 55%, to $10.9 billion from the second quarter of 2007, and $2.6 billion, or 38%, to $9.5 billion from the first half of 2007, while the average balance of loans to banking clients increased $1.9 billion, or 75%, to $4.5 billion from the second quarter of 2007, and $1.6 billion, or 65%, to $4.1 billion from the first half of 2007.

- 21 -

THE CHARLES SCHWAB CORPORATION

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

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

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

Three Months Ended June 30,	2008						2007 (1)
	Average Balance		Interest Revenue/ Expense		Average Yield/ Rate		Average Balance		Interest Revenue/ Expense		Average Yield/ Rate
Interest-earning assets:
Cash and cash equivalents	$	4,935	$	32	2.61	%	$	3,692	$	45	4.89	%
Cash and investments segregated		10,247		68	2.67	%		10,382		135	5.22	%
Securities available for sale (2)		10,860		116	4.30	%		6,995		96	5.50	%
Receivables from brokers, dealers and clearing organizations		510		2	1.58	%		656		7	4.28	%
Receivables from brokerage clients		11,709		168	5.77	%		10,390		212	8.18	%
Loans to banking clients		4,535		54	4.79	%		2,590		39	6.04	%
Total interest-earning assets		42,796		440	4.14	%		34,705		534	6.17	%
Other interest revenue				38						19
Total interest-earning assets	$	42,796	$	478	4.49	%	$	34,705	$	553	6.39	%
Funding sources:
Deposits from banking clients	$	18,507	$	21	0.46	%	$	11,759	$	63	2.15	%
Payables to brokerage clients		15,031		9	0.24	%		14,758		89	2.42	%
Short-term borrowings (3)		95		—	2.17	%		—		—	—
Long-term debt		894		15	6.75	%		386		7	7.27	%
Total interest-bearing liabilities		34,527		45	0.52	%		26,903		159	2.37	%
Non-interest bearing funding sources		8,269						7,802
Other interest expense				6						5
Total funding sources	$	42,796	$	51	0.48	%	$	34,705	$	164	1.90	%
Net interest revenue			$	427	4.01	%			$	389	4.50	%

⁽¹⁾ Prior to 2008 the Company presented tabular information of net interest revenue based on selected client balance and other activity. Prior period information has been recast to conform to the current presentation which is based on all interest-earning assets and funding sources on the condensed consolidated balance sheet.

⁽²⁾ Amounts have been calculated based on amortized cost.

⁽³⁾ Interest expense on short-term borrowings was less than $500,000 in the second quarter of 2008.

- 22 -

THE CHARLES SCHWAB CORPORATION

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

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

Six Months Ended June 30,	2008						2007 (1)
	Average Balance		Interest Revenue/ Expense		Average Yield/ Rate		Average Balance		Interest Revenue/ Expense		Average Yield/ Rate
Interest-earning assets:
Cash and cash equivalents	$	5,048	$	81	3.23	%	$	3,776	$	96	5.13	%
Cash and investments segregated		10,271		167	3.27	%		10,759		274	5.14	%
Securities available for sale (2)		9,537		215	4.53	%		6,920		187	5.45	%
Receivables from brokers, dealers and clearing organizations		534		6	2.26	%		610		14	4.63	%
Receivables from brokerage clients		11,456		349	6.13	%		10,287		419	8.21	%
Loans to banking clients		4,116		102	4.98	%		2,491		77	6.23	%
Total interest-earning assets		40,962		920	4.52	%		34,843		1,067	6.18	%
Other interest revenue				68						37
Total interest-earning assets	$	40,962	$	988	4.85	%	$	34,843	$	1,104	6.39	%
Funding sources:
Deposits from banking clients	$	16,570	$	57	0.69	%	$	11,521	$	122	2.14	%
Payables to brokerage clients		15,174		44	0.58	%		15,200		185	2.45	%
Short-term borrowings (3)		48		—	2.17	%		—		—	—
Long-term debt		898		30	6.72	%		387		14	7.30	%
Total interest-bearing liabilities		32,690		131	0.81	%		27,108		321	2.39	%
Non-interest bearing funding sources		8,272						7,735
Other interest expense				11						10
Total funding sources	$	40,962	$	142	0.70	%	$	34,843	$	331	1.92	%
Net interest revenue			$	846	4.15	%			$	773	4.47	%

⁽¹⁾ Prior to 2008 the Company presented tabular information of net interest revenue based on selected client balance and other activity. Prior period information has been recast to conform to the current presentation which is based on all interest-earning assets and funding sources on the condensed consolidated balance sheet.

⁽²⁾ Amounts have been calculated based on amortized cost.

⁽³⁾ Interest expense on short-term borrowings was less than $500,000 in the first half of 2008.

The increase in net interest revenue from the second quarter and first half of 2007 was due to higher average interest-earning assets, partially offset by the impact of a decrease in the net interest yield from 4.50% in the second quarter of 2007 to 4.01% in the second quarter of 2008 and from 4.47% in the first half of 2007 to 4.15% in the first half of 2008. Consistent with declines in general market interest rates prevalent in the first half of 2008, the Company experienced declines in the yields of all interest-earning assets during the second quarter and first half of 2008 compared to the second quarter and first half of 2007. Accordingly, the rates on deposits to banking clients and payables to brokerage clients also decreased during the second quarter and first half of 2008 compared to the second quarter and first half of 2007. The decline in the average interest rate on long-term debt was due to the additional debt issued at lower interest rates as part of the capital restructuring in 2007.

- 23 -

THE CHARLES SCHWAB CORPORATION

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

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

Trading Revenue

Trading revenue includes commission revenue (generated by executing client trades) and principal transaction revenues (from client fixed income securities trading activity). The increase in trading revenue from the second quarter and first half of 2007 was primarily due to a 15% and 17% increase, respectively, in daily average revenue trades. The increase in daily average revenue trades was due to higher volumes of equity and option trades.

	Three Months Ended June 30,				Percent Change		Six Months Ended June 30,				Percent Change
	2008		2007				2008		2007
Daily average revenue trades (in thousands) (1)		254.7		221.4	15	%		264.4		225.8	17	%
Number of trading days		64.0		63.0	2	%		125.0		124.0	1	%
Average revenue earned per revenue trade	$	14.38	$	14.27	1	%	$	14.42	$	14.30	1	%

⁽¹⁾ Includes all client trades that generate trading revenue (i.e., commission revenue or revenue from fixed income securities trading).

Expenses Excluding Interest

As shown in the table below, total expenses excluding interest increased in the second quarter and first half of 2008 primarily due to increases in other expense, advertising and market development expense, and professional services expense, partially offset by a decrease in compensation and benefits expense.

	Three Months Ended June 30,						Percent Change		Six Months Ended June 30,						Percent Change
	2008			2007					2008			2007
Compensation and benefits	$	438		$	449		(2	%)	$	875		$	879		—
Professional services		84			81		4	%		168			155		8	%
Occupancy and equipment		72			70		3	%		146			138		6	%
Advertising and market development		58			52		12	%		134			118		14	%
Communications		52			51		2	%		104			100		4	%
Depreciation and amortization		37			39		(5	%)		75			78		(4	%)
Other		53			39		36	%		91			75		21	%
Total expenses excluding interest	$	794		$	781		2	%	$	1,593		$	1,543		3	%
Expenses as a percentage of total net revenues:
Total expenses excluding interest		60.7	%		64.8	%				60.9	%		65.4	%
Advertising and market development		4.4	%		4.3	%				5.1	%		5.0	%

- 24 -

THE CHARLES SCHWAB CORPORATION

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

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

Compensation and Benefits

The decrease in compensation and benefits expense from the second quarter and first half of 2007 was primarily due to decreases in incentive compensation expense and employee benefits and other expense, partially offset by an increase in salaries and wages expense. The following table shows a comparison of certain compensation and benefits components and employee data:

	Three Months Ended June 30,						Percent Change		Six Months Ended June 30,						Percent Change
	2008			2007					2008			2007
Salaries and wages	$	255		$	240		6	%	$	505		$	477		6	%
Incentive compensation (1)		117			137		(15	%)		233			253		(8	%)
Employee benefits and other		66			72		(8	%)		137			149		(8	%)
Total compensation and benefits expense	$	438		$	449		(2	%)	$	875		$	879		—
Compensation and benefits expense as a percentage of total net revenues:
Salaries and wages		19.5	%		19.9	%				19.3	%		20.2	%
Incentive compensation		8.9	%		11.4	%				8.9	%		10.7	%
Employee benefits and other		5.1	%		6.0	%				5.3	%		6.4	%
Total compensation and benefits expense		33.5	%		37.3	%				33.5	%		37.3	%
Full-time equivalent employees (in thousands) (2)
At quarter end		13.4			12.9		4	%
Average		13.4			13.0		3	%		13.4			12.8		5	%

⁽¹⁾ Includes incentives, discretionary bonus costs, long-term incentive plan compensation, stock-based compensation, and employee stock purchase plan expense.

⁽²⁾ Includes full-time, part-time and temporary employees, and persons employed on a contract basis, and excludes employees of outsourced service providers.

The increase in salaries and wages expense from the second quarter and first half of 2007 was due to an increase in full-time employees and higher severance and relocation expenses during the second quarter of 2008. The decrease in incentive compensation expense from the second quarter and first half of 2007 was primarily due to lower long-term incentive compensation expense. The decrease in employee benefits and other expense from the second quarter and first half of 2007 was primarily due to a decrease in deferred compensation expense.

For the second quarter and first half of 2008, net revenue growth exceeded compensation and benefits expense growth, resulting in a declining ratio of compensation and benefits expense as a percentage of total net revenues.

Expenses Excluding Compensation and Benefits

The increase in professional services expense from the second quarter and first half of 2007 was primarily due to increases in fees paid to outsourced service providers and consultants. The increase in occupancy and equipment expense from the first half of 2007 was primarily due to increases in data processing equipment expense of $3 million and occupancy expense of $4 million. The increase in advertising and marketing development expense from the second quarter and first half of 2007 was due to higher media spending related to the Company’s “Talk to Chuck™” national advertising campaign and higher marketing expenses related to the Schwab Bank High Yield Investor Checking^® product. The increase in communications expense from the first half of 2007 was due to higher levels of postage and printing costs. Other expense increased from the second quarter and first half of 2007 primarily due to a charge of $16 million for individual client complaints and arbitration claims relating to Schwab YieldPlus Fund investments in the second quarter of 2008.

- 25 -

THE CHARLES SCHWAB CORPORATION

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

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

LIQUIDITY AND CAPITAL RESOURCES

CSC conducts substantially all of its business through its wholly-owned subsidiaries. The capital structure among CSC and its subsidiaries is designed to provide each entity with capital and liquidity to meet its operational needs and regulatory requirements.

CSC is a savings and loan holding company and Schwab Bank is a federal savings bank. CSC and Schwab Bank are both subject to supervision and regulation by the Office of Thrift Supervision. CSC’s depository institution subsidiary is Schwab Bank.

As a savings and loan holding company, CSC is not subject to specific statutory capital requirements. CSC is required to maintain capital that is sufficient to support the holding company and its subsidiaries’ business activities, and the risks inherent in those activities. To manage capital adequacy, CSC currently utilizes a target Tier 1 Leverage Ratio, as defined by the Board of Governors of the Federal Reserve System, of at least 6%. As CSC’s depository institution subsidiary, Schwab Bank is required to maintain a capital level that at least equals minimum capital levels specified in federal banking laws and regulations. Failure to meet the minimum levels will result in certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct effect on Schwab Bank. Based on its regulatory capital ratios at June 30, 2008, Schwab Bank is considered well capitalized.

Liquidity

CSC

CSC’s liquidity needs are generally met through cash generated by its subsidiaries, as well as cash provided by external financing. Schwab and Schwab Bank are subject to regulatory requirements that may restrict them from certain transactions with CSC. Management believes that funds generated by the operations of CSC’s subsidiaries will continue to be the primary funding source in meeting CSC’s liquidity needs, providing adequate liquidity to meet Schwab Bank’s capital guidelines, and maintaining Schwab’s net capital.

CSC has liquidity needs that arise from its Senior Medium-Term Notes, Series A (Medium-Term Notes), as well as from the funding of cash dividends, acquisitions, and other investments. The Medium-Term Notes, of which $458 million was outstanding at June 30, 2008, have maturities ranging from 2009 to 2017 and fixed interest rates ranging from 6.38% to 8.05% with interest payable semiannually. The Medium-Term Notes are rated A2 by Moody’s Investors Service (Moody’s), A by Standard & Poor’s Ratings Group (S&P), and A by Fitch Ratings, Ltd. (Fitch).

CSC has a prospectus supplement on file with the SEC enabling CSC to issue up to $750 million in Senior or Senior Subordinated Medium-Term Notes, Series A. At June 30, 2008, $500 million of these notes remained unissued.

CSC has a Registration Statement under the Securities Act of 1933 on Form S-3 on file with the SEC relating to a universal shelf registration for the issuance of up to $1.0 billion aggregate amount of various securities, including common stock, preferred stock, debt securities, and warrants. At June 30, 2008, $300 million of junior subordinated notes under this registration statement were outstanding and have a fixed interest rate of 7.50% until 2017 and a floating rate thereafter. At June 30, 2008, $700 million of these securities remained unissued.

CSC has authorization from its Board of Directors to issue unsecured commercial paper notes (Commercial Paper Notes) not to exceed $1.5 billion. Management has set a current limit for the commercial paper program of $800 million. The maturities of the Commercial Paper Notes may vary, but are not to exceed 270 days from the date of issue. The commercial paper is not redeemable prior to maturity and is not subject to voluntary prepayment. The proceeds of the commercial paper program are to be used for general corporate purposes.

- 26 -

THE CHARLES SCHWAB CORPORATION

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

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

CSC commenced issuing Notes on April 22, 2008, and there were none outstanding at June 30, 2008. CSC’s ratings for these short-term borrowings are P-1 by Moody’s, A-1 by S&P, and F1 by Fitch.

CSC maintains an $800 million committed, unsecured credit facility with a group of 14 banks which is scheduled to expire in June 2009. This facility replaced a similar facility that expired in June 2008. These facilities were unused during the first half of 2008. The funds under this facility are available for general corporate purposes, including repayment of the Commercial Paper Notes discussed above, and CSC pays a commitment fee on the unused balance of this facility. The financial covenants in this facility require CSC to maintain a minimum level of stockholders’ equity, Schwab to maintain a minimum net capital ratio, as defined, and Schwab Bank to be well capitalized, as defined. Management believes that these restrictions will not have a material effect on CSC’s ability to meet foreseeable dividend or funding requirements.

CSC also has direct access to $1.1 billion of the $1.2 billion uncommitted, unsecured bank credit lines provided by eight banks that are primarily utilized by Schwab to manage short-term liquidity. The amount available to CSC under these lines is lower than the amount available to Schwab because the credit line provided by one of these banks is only available to Schwab. These lines were not used by CSC during the first half of 2008.

In addition, Schwab provides CSC with a $1.0 billion credit facility maturing in 2009. No funds were drawn under this facility at June 30, 2008.

Schwab

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $18.7 billion and $19.5 billion at June 30, 2008 and December 31, 2007, respectively. Management believes that brokerage client cash balances and operating earnings will continue to be the primary sources of liquidity for Schwab in the future.

The Company has a lease financing liability related to an office building and land under a 20-year lease. The remaining lease financing liability of $119 million at June 30, 2008 is being reduced by a portion of the lease payments over the remaining lease term of approximately 16 years.

To manage short-term liquidity, Schwab maintains uncommitted, unsecured bank credit lines with a group of eight banks totaling $1.2 billion at June 30, 2008. The need for short-term borrowings arises primarily from timing differences between cash flow requirements, scheduled liquidation of interest-bearing investments, and movements of cash to meet segregation requirements. Schwab used such borrowings for five days during the first half of 2008, with daily amounts borrowed averaging $248 million. There were no borrowings outstanding under these lines at June 30, 2008.

To satisfy the margin requirement of client option transactions with the Options Clearing Corporation (OCC), Schwab has unsecured standby letter of credit (LOCs) agreements with 11 banks in favor of the OCC aggregating $850 million at June 30, 2008. Schwab pays a fee to maintain these arrangements. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. Schwab satisfies the collateral requirements by arranging LOCs, in favor of these brokerage clients, which are issued by multiple banks. Schwab also pays a fee to maintain these arrangements. At June 30, 2008, the aggregate face amount of these outstanding LOCs totaled $365 million. No funds were drawn under these LOCs at June 30, 2008.

Schwab is subject to regulatory requirements that are intended to ensure the general financial soundness and liquidity of broker-dealers. These regulations prohibit Schwab from repaying subordinated borrowings to CSC, paying cash dividends, or making unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement of $250,000. At June 30, 2008, Schwab’s net capital was $1.2 billion (9% of aggregate debit

- 27 -

THE CHARLES SCHWAB CORPORATION

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

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

balances), which was $948 million in excess of its minimum required net capital and $551 million in excess of 5% of aggregate debit balances.

To manage Schwab’s regulatory capital requirement, CSC provides Schwab with a $1.4 billion subordinated revolving credit facility, which is scheduled to expire in March 2010. The amount outstanding under this facility at June 30, 2008 was $220 million. Borrowings under this subordinated lending arrangement qualify as regulatory capital for Schwab.

In addition, CSC provides Schwab with a $1.5 billion credit facility maturing in 2011. Borrowings under this facility do not qualify as regulatory capital for Schwab. No funds were drawn under this facility at June 30, 2008.

Schwab Bank

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

The excess cash held in certain Schwab brokerage client accounts is swept into a money market deposit account at Schwab Bank. At June 30, 2008, these balances totaled $17.3 billion.

Schwab Bank has access to traditional funding sources such as deposits, federal funds purchased, and repurchase agreements. Additionally, CSC provides Schwab Bank with a $100 million short-term credit facility maturing in December 2009. Borrowings under this facility do not qualify as regulatory capital for Schwab Bank. No funds were drawn under this facility at June 30, 2008.

Schwab Bank maintains a credit facility with the Federal Home Loan Bank System (FHLB). At June 30, 2008, $589 million was available, and no funds were drawn under this facility.

Capital Resources

The Company monitors both the relative composition and absolute level of its capital structure. Management is focused on limiting the Company’s use of capital and currently targets a long-term debt to total financial capital ratio of less than 30%. The Company’s total financial capital (long-term debt plus stockholders’ equity) at June 30, 2008 was $4.8 billion, up $142 million, or 3%, from December 31, 2007.

At June 30, 2008, the Company had long-term debt of $882 million, or 18% of total financial capital, that bears interest at a weighted-average rate of 7.03%. At December 31, 2007, the Company had long-term debt of $899 million, or 19% of total financial capital. The Company repaid $17 million of long-term debt in the first half of 2008.

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

- 28 -

THE CHARLES SCHWAB CORPORATION

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

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

Capital Expenditures

In the first halves of 2008 and 2007, the Company’s capital expenditures were $81 million and $83 million, respectively. Capital expenditures in the first halves of 2008 and 2007 were primarily for software and equipment relating to the Company’s information technology systems. Capital expenditures include capitalized costs for developing internal-use software of $25 million in the first half of 2008 and $29 million in the first half of 2007.

Dividends

During the first halves of 2008 and 2007, CSC paid common stock cash dividends of $115 million and $125 million, respectively.

Share Repurchases

During the first half of 2008, CSC repurchased 17 million shares of its common stock for $350 million. CSC repurchased 33 million shares of its common stock for $642 million in the first half of 2007. As of June 30, 2008, CSC had remaining authority from the Board of Directors to repurchase up to $596 million of its common stock.

Off-Balance-Sheet Arrangements

The Company enters into various off-balance-sheet arrangements in the ordinary course of business, primarily to meet the needs of its clients. These arrangements include firm commitments to extend credit. Additionally, the Company enters into guarantees and other similar arrangements as part of transactions in the ordinary course of business. For discussion on the Company’s off-balance-sheet arrangements, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and note “9 – Commitments and Contingent Liabilities” in the Notes to Condensed Consolidated Financial Statements.

RISK MANAGEMENT

For discussion on the Company’s principal risks and some of the policies and procedures for risk identification, assessment, and management, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. For updated information on the Company’s credit risk and concentration risk exposures, see below. For a discussion on liquidity risk, see “Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. See “Item 3 – Quantitative and Qualitative Disclosures About Market Risk” for additional information relating to market risk.

Given the nature of the Company’s net revenues, expenses, and risk profile, the Company’s earnings and CSC’s common stock price have been and may continue to be subject to significant volatility from period to period. The Company’s results for any interim period are not necessarily indicative of results for a full year or any other interim period. Risk is inherent in the Company’s business. Consequently, despite the Company’s efforts to identify areas of risk, oversee operational areas involving risk, and implement policies and procedures designed to manage risk, there can be no assurance that the Company will not suffer unexpected losses due to operating or other risks.

Credit Risk Exposures

The Company has exposure to credit risk associated with the Company’s loans to banking clients held at Schwab Bank. The Company’s loans to banking clients primarily include portfolios of first lien 3-, 5- and 7- year adjustable rate mortgage loans (First Mortgage portfolio) of $3.0 billion and home equity lines of credit (HELOC portfolio) of $1.7 billion at June 30, 2008. The Company does not offer loans that allow for negative amortization. The

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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, and as Noted)

Company maintains credit underwriting standards that have limited the exposure to the types of loans that experienced high foreclosures and loss rates elsewhere in the industry during 2007 and the first half of 2008. The Company does not originate or purchase subprime loans (generally defined as extensions of credit to borrowers with a Fair Isaac & Company (FICO) credit score of less than 620 at origination), unless the borrower has compensating credit factors. At June 30, 2008, approximately 1% of both the First Mortgage and HELOC portfolios consisted of loans to borrowers with FICO credit scores of less than 620.

The following table presents certain of the Company’s loan quality metrics as a percentage of total outstanding loans:

	June 30, 2008		December 31, 2007
Loan delinquencies (1)	0.32	%	0.80	%
Nonaccrual loans	0.10	%	0.12	%
Allowance for credit losses	0.24	%	0.20	%

⁽¹⁾ Loan delinquencies are defined as loans that are 30 days or more past due.

The Company has exposure to credit risk associated with its securities available for sale portfolio. This portfolio includes U.S. agency and non-agency mortgage-backed securities, corporate debt securities, asset-backed securities, and long-term certificates of deposit, and U.S. agency notes. The securities available for sale portfolio totaled $12.8 billion as of June 30, 2008. U.S. agency mortgage-backed securities do not have explicit credit ratings, however management considers these to be of the highest credit quality given the guarantee of principal and interest by the U.S. agencies. At June 30, 2008, the non-agency mortgage-backed securities were rated “AAA” (defined as a rating equivalent to a Moody’s rating of “Aaa” or a Standard and Poor’s rating of “AAA”). At June 30, 2008, the corporate debt securities were not rated lower than investment grade (defined as a rating equivalent to a Moody’s rating of “Baa” or higher, or a Standard and Poor’s rating of “BBB-” or higher).

Concentration Risk Exposures

The Company has concentration risk exposure when holding large positions in financial instruments collateralized by assets with similar economic characteristics or in securities of a single issuer or industry. The Company’s investments in mortgage-backed securities totaled $10.8 billion at June 30, 2008. Of these, $7.7 billion were U.S. agency securities. At June 30, 2008, $635 million of the mortgage-backed securities portfolio was collateralized by loans that are considered to be “Alt-A” (defined as loans with reduced documentation at origination) and were rated “AAA”, as defined above. The Company’s investments in corporate debt securities totaled $923 million at June 30, 2008, with the majority issued by institutions in the financial services industry. The Company’s balance of loans to banking clients, net, totaled $4.9 billion at June 30, 2008. Approximately 80% of the First Mortgage portfolio consisted of loans with interest-only payment terms. The interest rates on approximately 80% of these interest-only loans are not scheduled to reset for three or more years. All interest-only loans are underwritten based on underwriting standards that do not include interest terms described as temporary introductory rates below current market rates. At June 30, 2008, 33% of the residential real estate mortgages and 45% of the home equity lines of credit balances were secured by properties which are located in California. The Company is also subject to concentration risk from its margin and securities lending activities collateralized by securities of a single issuer or industry.

The Company is subject to indirect exposure to U.S. Government and agency securities held as collateral to secure its resale agreements. The Company’s primary credit exposure on these resale transactions is with its counterparty. The Company would have exposure to the U.S. Government and agency securities only in the event of the counterparty’s default on the resale agreements. U.S. Government and agency securities held as collateral for resale agreements at June 30, 2008 totaled $3.4 billion.

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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, and as Noted)

CRITICAL ACCOUNTING ESTIMATES

Certain of the Company’s accounting policies that involve a higher degree of judgment and complexity are discussed in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. There have been no material changes to these critical accounting estimates during the first half of 2008.

As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, the Company’s annual goodwill impairment testing date is April 1. In testing for a potential impairment of goodwill on April 1, 2008, management estimated the fair value of each of the Company’s reporting units (generally defined as the Company’s businesses for which financial information is available and reviewed regularly by management) and compared this value to the carrying value of the reporting unit. The estimated fair value of each reporting unit was greater than its carrying value, and therefore management concluded that no amount of goodwill was impaired.

SUBSEQUENT EVENTS

On July 22, 2008, the Board of Directors appointed Walter W. Bettinger II as President and Chief Executive Officer of CSC and a member of the Board of Directors effective October 1, 2008. Mr. Bettinger had previously served as President and Chief Operating Officer of CSC. Charles R. Schwab, who is currently Chairman of the Board and Chief Executive Officer of CSC, will continue to serve as Chairman of the Board of CSC after October 1, 2008.

Additionally, on July 22, 2008, the Board of Directors increased the quarterly cash dividend from $.05 per share to $.06 per share, payable on August 22, 2008 to stockholders of record on August 8, 2008.

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “aim,” “target,” and other similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are necessarily estimates based on the best judgment of the Company’s senior management. These statements relate to, among other things:

• the impact of changes in the likelihood of guarantee payment obligations (see note “9 – Commitments and Contingent Liabilities” in the Notes to Condensed Consolidated Financial Statements);

• the impact of legal proceedings and regulatory matters (see note “9 – Commitments and Contingent Liabilities” in the Notes to Condensed Consolidated Financial Statements and Part II – Other Information, Item 1 – Legal Proceedings);

• the impact of changes in estimated costs related to past restructuring initiatives (see note “12 – Restructuring Reserve” in the Notes to Condensed Consolidated Financial Statements);

• target capital ratios (see Liquidity and Capital Resources); and

• sources of liquidity and capital (see Liquidity and Capital Resources – Liquidity).

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

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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, and as Noted)

statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents incorporated by reference, as of the date of those documents.

Important factors that may cause such differences are noted in this interim report and include, but are not limited to:

• unanticipated adverse developments in litigation or regulatory matters;

• the Company’s ability to sublease certain properties;

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

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

• changes in general economic and financial market conditions.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in “Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

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THE CHARLES SCHWAB CORPORATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential for loss due to a change in the value of a financial instrument held by the Company as a result of fluctuations in interest rates or equity prices.

For the Company’s market risk related to its interest rate risk, a sensitivity analysis, referred to as a net interest revenue simulation model, is shown below. The Company is exposed to interest rate risk primarily from changes in the interest rates on its interest-earning assets (cash and cash equivalents, cash and investments segregated, securities available for sale, receivables from brokers, dealers, and clearing organizations, receivables from brokerage clients, and loans to banking clients) and its funding sources (including deposits from banking clients, payables to brokerage clients, short-term borrowings, and long-term debt) which finance these assets. To mitigate the risk of loss, the Company has established policies and procedures which include setting guidelines on the amount of net interest revenue at risk, and by 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. The Company also has the ability to adjust the rates paid on certain brokerage client cash balances and certain banking deposits and the rates charged on margin loans.

The Company has market risk as a result of fluctuations in equity prices. However, the Company’s exposure to equity prices is not material. Additionally, the Company’s market risk related to financial instruments held for trading, financial instruments held for purposes other than trading, interest rate swaps related to a portion of its fixed interest rate medium-term notes, and forward sale and interest rate lock commitments related to its loans held for sale portfolio is not material.

Net Interest Revenue Simulation

The Company uses net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulation model (the model) includes all interest-sensitive assets and liabilities, as well as interest rate swap agreements utilized by the Company to hedge its interest rate risk. Key variables in the model include the repricing of financial instruments, prepayment and reinvestment assumptions, and product pricing assumptions. The Company uses constant balances and market rates in the model assumptions in order to minimize the number of variables and to better isolate risks. The simulations involve assumptions that are inherently uncertain and, as a result, cannot precisely estimate net interest revenue or precisely 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, the timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies, including changes in asset and liability mix.

As represented by the simulations presented below, the Company is positioned so that the consolidated balance sheet produces an increase in net interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall (i.e., interest-earning assets generally reprice more quickly than interest-bearing liabilities).

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THE CHARLES SCHWAB CORPORATION

The simulations in the following table assume that the asset and liability structure of the consolidated balance sheet would not be changed as a result of the simulated changes in interest rates. As the Company actively manages its consolidated balance sheet and interest rate exposure, in all likelihood the Company would take steps to manage any additional interest rate exposure that could result from changes in the interest rate environment. The following table shows the results of a gradual 100 basis point increase or decrease in interest rates relative to the Company’s current market rates forecast on simulated net interest revenue over the next 12 months at June 30, 2008 and December 31, 2007. While the Company typically uses a gradual 200 basis point change, it revised the methodology at March 31, 2008 due to the current low levels of interest rates. The Company will use a gradual 100 basis point change until such time as the level of interest rates justifies a return to the previous methodology.

Percentage Increase (Decrease)	June 30, 2008		December 31, 2007
Increase of 100 basis points	3.4	%	4.4	%
Decrease of 100 basis points	(7.8	%)	(3.1	%)

The disproportionate net interest revenue sensitivity in the decrease of 100 basis points scenario is primarily due to assumptions that rates paid on certain brokerage client cash balances and banking deposits cannot go below zero percent. The Company remains positioned to experience increases in net interest revenue as rates rise and decreases as rates fall.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures: The management of the Company, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2008. 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 June 30, 2008.

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 June 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of legal proceedings, see note “9 – Commitments and Contingent Liabilities” in the Notes to Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

During the first half of 2008, there have been no material changes to the risk factors in “Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

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THE CHARLES SCHWAB CORPORATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities

The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the second quarter of 2008.

Month	Total Number of Shares Purchased (in thousands)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (1) (in thousands)	Approximate Dollar Value of Shares that May Yet be Purchased under the Program (in millions)
April:
Share repurchase program (1)	—	$	—	—	$	596
Employee transactions (2)	24	$	21.44	N/A		N/A
May:
Share repurchase program (1)	—	$	—	—	$	596
Employee transactions (2)	6	$	22.57	N/A		N/A
June:
Share repurchase program (1)	—	$	—	—	$	596
Employee transactions (2)	5	$	21.78	N/A		N/A
Total:
Share repurchase program (1)	—	$	—	—	$	596
Employee transactions (2)	35	$	21.68	N/A		N/A

N/A Not applicable.

⁽¹⁾ There were no share repurchases under the Share Repurchase Program during the second quarter. Repurchases under this program are under authorizations by CSC’s Board of Directors covering up to $500 million and $500 million of common stock publicly announced by the Company on April 25, 2007 and March 13, 2008, respectively. The remaining authorizations do not have an expiration date.

⁽²⁾ Includes restricted shares withheld (under the terms of grants under employee stock incentive plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. The Company may receive shares to pay the exercise price and/or to satisfy tax withholding obligations by employees who exercise stock options (granted under employee stock incentive plans), which are commonly referred to as stock swap exercises.

Item 3. Defaults Upon Senior Securities

None.

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THE CHARLES SCHWAB CORPORATION

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders of CSC was held on May 15, 2008. There were a total of 1,146,948,645 shares entitled to vote at the Annual Meeting, and a total of 1,043,522,214 shares were present in person or by proxy at the Annual Meeting. The voting results are provided below:

		Shares For	Shares Against	Abstentions
1.	Election of Directors:
	(a) Frank C. Herringer	1,014,495,117	19,913,295	9,113,802
	(b) Stephen T. McLin	980,567,239	53,802,405	9,152,570
	(c) Charles R. Schwab	1,021,382,161	14,591,395	7,548,658
	(d) Roger O. Walther	1,017,787,666	16,699,124	9,035,424
	(e) Robert N. Wilson	1,025,538,787	8,898,769	9,084,658

		Shares For	Shares Against	Abstentions	Broker Non-Votes
2.	Stockholder proposal regarding political contributions	218,491,594	577,913,313	126,228,078	120,889,229
3.	Stockholder proposal regarding submission of non-binding stockholder proposals	27,841,256	875,881,052	18,910,677	120,889,229

All nominees for the election to the Board of Directors were elected. The stockholders did not approve either of the stockholder proposals.

Item 5. Other Information

None.

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THE CHARLES SCHWAB CORPORATION

Item 6. Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number	Exhibit
10.315	Credit Agreement (364-Day Commitment) dated as of June 13, 2008 between the Registrant and the financial institutions listed therein (supersedes Exhibit 10.297)
12.1	Computation of Ratio of Earnings to Fixed Charges.
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)

(1) Furnished as an exhibit to this quarterly report on Form 10-Q.

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THE CHARLES SCHWAB CORPORATION

SIGNATURE

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

	THE CHARLES SCHWAB CORPORATION
	(Registrant)
Date: August 7, 2008	/s/ Joseph R. Martinetto
	Joseph R. Martinetto
	Executive Vice President and
	Chief Financial Officer

- 38 -

EX-10.315

Exhibit 10.315

EXECUTION COPY

$800,000,000

CREDIT AGREEMENT

(364-DAY COMMITMENT)

dated as of June 13, 2008

Among

THE CHARLES SCHWAB CORPORATION

and

CITICORP USA, INC.,

as Administrative Agent

and

THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO

and

CREDIT SUISSE, CAYMAN ISLANDS BRANCH

JPMORGAN CHASE BANK, N.A.

PNC BANK, NATIONAL ASSOCIATION

and

WELLS FARGO BANK, NATIONAL ASSOCIATION

as Co-Documentation Agents

and

CITIGROUP GLOBAL MARKETS INC.,

as Sole Lead Arranger and Sole Book Manager

1.	DEFINITIONS		1
2.	THE CREDIT FACILITY		11
	2.1	The Revolving Credit Facility	11
	2.2	Term Loan Facility	11
	2.3	Evidence of Borrowing/Promissory Notes	12
	2.4	Making of Revolving Loans and Term Loans, Borrowings; Interest Periods; Notice	13
	2.5	Conversion and Continuation Elections	14
	2.6	Interest Periods	15
	2.7	Interest Rates	15
	2.8	Substitute Rates	16
	2.9	Fees	17
	2.10	Reduction of Credit	17
	2.11	Termination Date; Extensions	18
	2.12	Payments by the Lenders to the Agent	18
	2.13	Sharing of Payments, Etc.	19
	2.14	Computation of Fees and Interest	19
3.	PAYMENT		20
	3.1	Repayment	20
	3.2	Method of Payment	20
	3.3	Optional Prepayment	20
	3.4	Taxes/Net Payments	20
	3.5	Illegality	21
	3.6	Increased Costs and Reduction of Return	22
	3.7	Funding Losses	22
	3.8	Certificates of Lenders	23
	3.9	Substitution of Lenders	23
	3.10	Survival	23
4.	CONDITIONS		23
	4.1	Conditions Precedent to the Effectiveness of this Agreement	24
	4.2	Conditions Precedent to Revolving Loans and Term Loans	25
5.	REPRESENTATIONS AND WARRANTIES		25
	5.1	Organization and Good Standing	26
	5.2	Corporate Power and Authority	26
	5.3	Enforceability	26
	5.4	No Violation of Laws or Agreements	26
	5.5	No Consents	26
	5.6	Financial Statements	26

	5.7	Broker Subsidiary Licenses, Etc.	26
	5.8	Broker Subsidiary/Broker Registration	27
	5.9	Broker Subsidiary/SIPC	27
	5.10	Taxes	27
	5.11	ERISA	27
	5.12	No Extension of Credit for Default Remedy/Hostile Acquisition	27
	5.13	Use of Proceeds/Margin Regulations	27
	5.14	Authorized Persons	27
	5.15	Material Contracts	28
	5.16	Litigation	28
	5.17	Investment Company	28
6.	AFFIRMATIVE COVENANTS		28
	6.1	Notice of Events of Default	28
	6.2	Financial Statements	28
	6.3	Insurance	28
	6.4	Books and Records	28
	6.5	Change in Business	29
	6.6	Capital Requirements	29
7.	NEGATIVE COVENANTS		29
	7.1	Net Capital	29
	7.2	Minimum Stockholders’ Equity	29
	7.3	Merger/Disposition of Assets	29
	7.4	Broker Subsidiary Indebtedness	29
	7.5	Indebtedness Secured by Subsidiary Stock	30
	7.6	Liens and Encumbrances	30
8.	EVENTS OF DEFAULT		30
	8.1	Defaults	31
	8.2	Remedies	32
9.	THE AGENT		32
	9.1	Appointment and Authorization	32
	9.2	Delegation of Duties	33
	9.3	Liability of Agent	33
	9.4	Reliance by Agent	33
	9.5	Notice of Default	34
	9.6	Credit Decision	34
	9.7	Indemnification of Agent	34
	9.8	Agent in Individual Capacity	35
	9.9	Successor Agent	35
	9.10	Withholding Tax	36
	9.11	Co-Agents	37

10.	MISCELLANEOUS		37
	10.1	Amendments and Waivers	37
	10.2	Notices	38
	10.3	No Waiver-Cumulative Remedies	40
	10.4	Costs and Expenses	40
	10.5	Borrower Indemnification	40
	10.6	Payments Set Aside	41
	10.7	Successors and Assigns	41
	10.8	Assignments, Participations Etc.	42
	10.9	Confidentiality	44
	10.10	Notification of Addresses, Lending Offices, Etc.	44
	10.11	Counterparts	45
	10.12	Severability	45
	10.13	No Third Parties Benefited	45
	10.14	Governing Law and Jurisdiction	45
	10.15	Waiver of Jury Trial	45
	10.16	Entire Agreement	46
	10.17	Headings	46
	10.18	USA Patriot Act	46

SCHEDULES:

Schedule 1 - Lenders’ Commitments

Schedule 2 - List of Borrowing Agreements

Schedule 6.2 - Compliance Certificate

Schedule 10.2 - Notices

EXHIBITS:

Exhibit A-1 - Revolving Note

Exhibit A-2 - Term Note

Exhibit B - Borrowing Advice

Exhibit C - Notice of Conversion/Continuation

Exhibit D - Commitment and Termination Date Extension Request

Exhibit E - Borrower’s Opinion of Counsel

Exhibit F - Form of Assignment and Acceptance

CREDIT AGREEMENT (364-DAY COMMITMENT)

THIS CREDIT AGREEMENT (364-DAY COMMITMENT) (“this Agreement”) is entered into as of June 13, 2008, among The Charles Schwab Corporation, a Delaware corporation (the “Borrower”), the several financial institutions from time to time party to this Agreement (collectively the “Lenders”; individually each a “Lender”), and Citicorp USA, Inc., as administrative agent for the Lenders (the “Agent”).

WHEREAS, the Lenders are willing to make from time to time Revolving Loans to the Borrower through June 12, 2009, and to make Term Loans to the Borrower on or before June 12, 2009 and maturing no later than June 11, 2010, upon the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants herein contained, the parties hereto agree as follows:

1. DEFINITIONS. The following terms have the following meanings:

Affiliate:	As to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise.
Agent:	Citicorp USA in its capacity as administrative agent for the Lenders hereunder and any successor agent appointed under Section 9.9.
Agent-Related
Persons:	Citicorp USA and any successor agent appointed under Section 9.9, together with Citicorp USA’s Affiliate, the Arranger, and the officers, directors, employees, agents and attorney-in-fact of such Persons and Affiliate.
Agreement:	This Credit Agreement.
Agent’s
Payment Office:	The address for payments set forth on the signature page hereto in relation to the Agent, or such other address as the Agent may from time to time specify.
Applicable Margin:	(i)     with respect to Base Rate Loans, 0.000%;
	(ii)    with respect to Federal Funds Rate Loans, 0.500%; and
	(iii)  with respect to Eurodollar Rate Loans, 0.500%.

Arranger:	Citigroup Global Markets Inc.
Assignee:	The meaning specified in Section 10.8.
Attorney Costs:	Without duplication, (1) all fees and disbursements of any law firm or other external counsel, and (2) the allocated cost of internal legal services and all disbursements of internal counsel.
Bank Subsidiary:	Any Federal savings association (as defined in 12 U.S.C. §1813(b)(2), any national member bank (as defined in 12 U.S.C. §1813(d)(1)) or state member bank (as defined in 12 U.S.C. §1813(d)(2)) that is a subsidiary (as defined in 12 U.S.C. §1841(d)) of the Borrower.
Bankruptcy Code:	The Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as amended.
Base Rate:	For any day, the higher of: (a) 0.500% per annum above the Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by Citibank, N.A. as its “Base Rate”. The “Base Rate” is a rate set by Citibank, N.A. based upon various factors including Citibank, N.A.’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Citibank, N.A. shall take effect at the opening of business on the day specified in the public announcement of such change.
Base Rate Loan:	A Revolving Loan or Term Loan that bears interest based on the Base Rate.
Borrowing:	A borrowing hereunder consisting of Revolving Loans or Term Loans of the same Type made to the Borrower on the same day by the Lenders under Section 2 and, other than in the case of a Base Rate Loan or Federal Funds Rate Loan, having the same Interest Period.
Borrowing Advice:	A written request made by the Borrower with respect to any Loan substantially in the form of Exhibit B specifying the information required in Section 2.4 hereof and executed by the Borrower from time to time.
Borrowing
Agreements:	The credit agreement(s) between the Borrower and the lenders listed in Schedule 2.

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Borrowing Date:	Any date on which a Borrowing occurs under Section 2.4.
Broker Subsidiary:	Charles Schwab & Co., Inc., a California corporation, and its successors and assigns.
Business Day:	A day other than a Saturday, Sunday or any other day on which commercial banks are authorized or required to close in California or New York and, if the applicable Business Day relates to a Eurodollar Rate Loan, such a day on which dealings are carried on in the applicable offshore dollar interbank market.
Capital Adequacy
Regulation:	Any guideline, directive or requirement of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank.
Change in
Control:	The consummation of a reorganization, merger or consolidation by the Borrower or the sale or other disposition of all or substantially all of the assets of the Borrower (a “Business Combination”), unless, following such Business Combination, (i) no person or entity (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Borrower or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation (except to the extent that such ownership existed prior to the Business Combination); and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the board of directors of the Borrower as of the time of the action of the board of directors of the Borrower providing for such Business Combination.
Citicorp USA:	Citicorp USA, Inc., a Delaware corporation.
Closing Date:	The date (not before June 13, 2008) on which all conditions precedent set forth in Section 4 are satisfied or waived by all Lenders or, in the case of subsection 4.1(g), waived by the person entitled to receive such payment.
Code:	The Internal Revenue Code of 1986, as amended, and Regulations promulgated thereunder.

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Commitment:	The meaning specified in Section 2.1.
Commitment Fee:	The meaning specified in subsection 2.9(b).
Consolidated
Stockholders’ Equity:	With respect to any Person, as of any date of determination, all amounts that would, in accordance with GAAP, be included under shareholders’ equity on a consolidated balance sheet of such Person as at such date, plus any preferred stock.
Controlled
Subsidiary:	Any corporation 80% of whose voting stock (except for any qualifying shares) is owned directly or indirectly by the Borrower.
Conversion/
Continuation Date:	Any date on which under Section 2.5, the Borrower (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date.
Credit:	The aggregate amount of the Commitments of all Lenders to make Revolving Loans under the Revolving Credit Facility and Term Loans under the Term Loan Facility in an amount not to exceed Eight Hundred Million and no/100 Dollars ($800,000,000.00), as the same may be reduced under Section 2.10.
Default:	Any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default.
Dollars,
dollars, and $:	Each mean lawful money of the United States.
Effective Amount:	With respect to any Revolving Loans and Term Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowings and prepayments or repayments of Revolving Loans and Term Loans occurring on such date.
Eligible Assignee:	(i) A commercial bank organized under the laws of the United States, or any state thereof, and having total equity capital of at least $1,000,000,000 and a senior debt rating of a least “A” by Standard & Poor’s Ratings Service, a Division of The McGraw-Hill Companies, Inc. or at least “A-2” by Moody’s Investors Service, Inc. or, if not rated by either of the foregoing organizations, an equivalent rating from a nationally recognized statistical rating organization; or (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the OECD), or a political subdivision of any such country, and having

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	total equity capital of at least $1,000,000,000 and a senior debt rating of at least “A” by Standard & Poor’s Ratings Service, a Division of The McGraw-Hill Companies, Inc. or at least “A-2” by Moody’s Investors Service, Inc., or, if not rated by either of the foregoing organizations, an equivalent rating from a nationally recognized statistical rating organization; provided that such bank is acting through a branch or agency located in the United States.
Eurodollar
Base Rate:	For any Interest Period:
	(a) the rate per annum equal to the rate determined by the Agent to be the offered rate that appears on the page of the Telerate screen (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
	(b) in the event the rate referenced in the preceding subsection (a) does not appear on such page or service or such page or service shall cease to be available, the rate per annum equal to the rate determined by the Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
	(c) in the event the rates referenced in the preceding subsections (a) and (b) are not available, the rate per annum equal to the average (rounded upward to the next 1/100th of 1%) of the rates of interest per annum notified to the Agent by each Reference Lender as the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by such Reference Lender in its capacity as a Lender and with a term equivalent to such Interest Period would be offered by its Offshore Lending Office to major banks in the offshore Dollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period.

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Eurodollar Rate:	The rate obtained by dividing (i) Eurodollar Base Rate by (ii) a percentage (expressed as a decimal) equal to 1.00 minus the Eurodollar Rate Reserve Percentage.
Eurodollar Rate
Loan:	A Revolving Loan or Term Loan that bears interest based on the Eurodollar Rate.
Eurodollar Rate
Reserve Percentage:	For any Interest Period for any Loan for which the Eurodollar Rate has been selected or is applicable, the percentage (expressed as a decimal) as calculated by the Agent that is in effect on the first day of such Interest Period, as prescribed by the Board of Governors of the U.S. Federal Reserve System (or any successor), for determining reserve requirements to be maintained by the Agent under Regulation D (or any successor regulation thereof) as amended to the date hereof (including such reserve requirements as become applicable to the Agent pursuant to phase-in or other similar requirements of Regulation D at any time subsequent to the date hereof) in respect of “Eurocurrency liabilities” (as defined in Regulation D). The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Rate Reserve Percentage.
Event of Default:	Any of the events or circumstances specified in Section 8.1.
Exchange Act:	The Securities and Exchange Act of 1934, as amended, and regulations promulgated thereunder.
Federal Funds Rate:	For any day, the interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York.
Federal Funds
Effective Rate:	For any day, an interest rate per annum equal to the arithmetic mean as determined by the Agent of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, received by the Agent by each of three Federal funds brokers of recognized standing in New York City prior to 11:00 a.m. (San Francisco time) selected by Agent in its sole discretion.

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Federal Funds
Rate Loan:	A Revolving Loan or Term Loan that bears interest based on the Federal Funds Effective Rate.
Fee Letter:	The meaning specified in subsection 2.9(a).
FRB:	The Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions.
GAAP:	Generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination.
Governmental
Authority:	Any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
Hedge Agreements:	Interest rate swap, interest rate cap or interest rate collar agreements.
Indebtedness:	As to any corporation, any obligation of, or guaranteed or assumed by, such corporation for (i) borrowed money evidenced by bonds, debentures, notes or other similar instruments, (ii) the deferred purchase price of property or services (excluding trade and other accounts payable), (iii) the leasing of tangible personal property under leases which, under any applicable Financial Accounting Standards Board Statement, have been or should be recorded as capitalized leases or (iv) direct or contingent obligations under letters of credit issued for the account of such corporation.
Indemnified
Liabilities:	The meaning specified in Section 10.5.
Indemnified Person:	The meaning specified in Section 10.5.

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Insolvency
Proceeding:	As to a debtor, (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other similar arrangement in respect of its creditors generally or any substantial portion of its creditors, undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code.
Interest
Payment Date:	As to any Loan other than a Base Rate Loan or Federal Funds Rate Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan or Federal Funds Rate Loan, the last Business Day of each calendar quarter, provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date.
Interest Period:	Any period specified in accordance with Section 2.6 hereof.
Intermediate
Parent:	Schwab Holdings, Inc., a Delaware corporation and its successors and assigns.
Lender:	The meaning specified in the introductory clause hereto.
Lending Office:	As to any Lender, the office or offices of such Lender specified as its “Lending Office” or “Domestic Lending Office” or “Offshore Lending Office”, as the case may be, on Schedule 10.2, or such other office or offices as such Lender may from time to time notify the Borrower and the Agent.
Loan:	An extension of credit by a Lender to the Borrower under Section 2 in the form of a Revolving Loan or Term Loan.
Loan Document:	This Agreement, any Notes, the Fee Letter, and all other documents delivered to the Agent or any Lender in connection herewith.
Minimum
Stockholders’ Equity:	As of the Closing Date, and the last day of each fiscal quarter thereafter, the greater of:
	(a)    $2,100,000,000, or

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	(b)    the sum of –
	(i)     $2,100,000,000, plus
	(ii)    50% of the sum of cumulative Net Earnings for each fiscal quarter commencing with the fiscal quarter ended June 30, 2008.
Net Capital Ratio:	As of the date of determination, that percentage of net capital to aggregate debit items of any entity subject to the Net Capital Rule 15c3-1 promulgated by the Securities Exchange Commission pursuant to the Securities Exchange Act of 1934 and any successor or replacement rule or regulation therefor.
Net Earnings:	With respect to any fiscal period, the consolidated net income of the Borrower and its Subsidiaries, after taking into account all extraordinary items, taxes and other proper charges and reserves for the applicable period, determined in accordance with U.S. generally accepted accounting principles, consistently applied.
Note:	A promissory note executed by the Borrower in favor of a Lender pursuant to Section 2.3 in substantially the form of Exhibits A-1 and A-2.
Notice of Conversion/
Continuation:	A notice in substantially the form of Exhibit C.
Obligations:	All borrowings, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Borrower to any Lender, the Agent, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising.
Person:	An individual, partnership, corporation, limited liability company, business trust, unincorporated association, trust, joint venture or Governmental Authority.
Pro Rata Share:	As to any Lender at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Lender’s Commitment divided by the combined Commitments of all Lenders.
Reference Lenders:	Citicorp USA and JPMorgan Chase Bank, N.A.
Replacement Lender:	The meaning specified in Section 3.9.

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Required Lenders:	At any time at least two Lenders then holding in excess of 50% of the then aggregate unpaid principal amount of the Loans, or, if no such principal amount is then outstanding, at least two Lenders then having in excess of 50% of the Commitments.
Requirement of Law:	As to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject.
Responsible Officer:	Any senior vice president or more senior officer of the Borrower, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer, executive vice president-finance, controller or the treasurer of the Borrower, or any other officer having substantially the same authority and responsibility.
Revolving Credit
Facility:	The revolving credit facility available to the Borrower pursuant to Section 2.1 hereof.
Revolving Loan:	The meaning specified in Section 2.1, and may be a Base Rate Loan, Federal Funds Rate Loan or a Eurodollar Rate Loan (each a “Type” of Revolving Loan).
Revolving Note:	The meaning specified in Section 2.3.
Revolving
Termination Date:	The earlier to occur of:
	(a)    June 12, 2009; and
	(b)    the date on which the Commitments terminate in accordance with the provisions of this Agreement.
SEC:	The Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
Senior Medium- Term Notes,
Series A:	Senior debt securities or senior subordinated debt securities issued by The Charles Schwab Corporation with a maturity between 9 months and 30 years in accordance with the Senior Indenture, as amended, and the Senior Subordinated Indenture, as amended, both dated as of July 15, 1993 by and between The Charles Schwab Corporation and The Chase Manhattan Bank, as trustee.

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Subsidiary:	Any corporation or other entity of which a sufficient number of voting securities or other interests having power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower.
Term Commitment:	Eight Hundred Million and no/100 Dollars ($800,000,000.00), as the same may be reduced under Section 2.10.
Term Loan:	The meaning specified in Section 2.2 and may be a Base Rate Loan, Federal Funds Rate Loan or Eurodollar Rate Loan (each a “Type” of Term Loan).
Term Loan Facility:	The term loan facility available to the Borrower pursuant to Section 2.2 hereof.
Term Loan Maturity
Date:	The meaning specified in Section 2.2.
Term Note:	The meaning specified in Section 2.3.
Type:	The meaning specified in the definition of “Revolving Loan”.

2. THE CREDIT FACILITY.

2.1 The Revolving Credit Facility Each Lender severally agrees, on the terms and conditions set forth herein, to make loans to the Borrower (each such loan, a “Revolving Loan”) from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding, together with the principal amount of Term Loans outstanding in favor of such Lender at such time, the amount set forth next to such Lender’s name on Schedule 1 (such amount together with the Lender’s Pro Rata Share of the Term Commitment, as the same may be reduced under Section 2.10 or as a result of one or more assignments under Section 10.8, the Lender’s “Commitment”); provided, however, that, after giving effect to any Borrowing of Revolving Loans, the Effective Amount of all outstanding Revolving Loans shall not at any time exceed the combined Commitments; and provided further that the Effective Amount of the Revolving Loans, together with all Term Loans outstanding at such time, of any Lender shall not at any time exceed such Lender’s Commitment. Within the limits of each Lender’s Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.1, prepay under Section 3.3 and reborrow under this Section 2.1.

2.2 Term Loan Facility. Each Lender severally agrees, on the terms and conditions set forth herein, to make Loans to the Borrower during the period from the Closing Date to June 12, 2009, in an aggregate amount not to exceed such Lender’s Pro Rata Share of the Term Commitment. The Borrower from time to time may borrow under the Term Loan Facility (and may reborrow any amount theretofore prepaid) until close of business on June 12, 2009, for a term not to exceed 364 days from the date of the Borrowing. Each such loan under the Term

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Loan Facility (a “Term Loan”) shall be in the minimum amount of $10,000,000 and shall become due and payable on the last day of the term selected by the Borrower for such Term Loan (the “Term Loan Maturity Date”), which shall in no event be later than 364 days from the date of such Term Loan. The maximum availability under the Term Loan Facility shall be the amount of the Credit minus the aggregate outstanding principal amount of Revolving Loans and Term Loans made by the Lenders; provided, however, that to the extent the proceeds of a Term Loan are used to repay an outstanding Revolving Loan (or a portion thereof), such Revolving Loan (or portion thereof) shall not be considered part of the aggregate principal amount of outstanding Revolving Loans made by the Lenders for purposes of this sentence (such maximum availability hereafter being referred to as the “Term Loan Availability”). Under no circumstances shall the aggregate outstanding principal amount of Term Loans and Revolving Loans made by the Lenders exceed the Credit, and under no circumstances shall any Lender be obligated (i) to make any Term Loan (nor may the Borrower reborrow any amount heretofore prepaid) after June 12, 2009, or (ii) to make any Term Loan in excess of the Term Loan Availability. Each Term Loan made hereunder shall fully and finally mature and be due and payable in full on the Term Loan Maturity Date specified in the Borrowing Advice for such Term Loan; provided, however, that to the extent the Borrowing Advice for any Term Loan selects an Interest Period that expires before the Term Loan Maturity Date specified in such Borrowing Advice, the Borrower may from time to time select additional interest rate options and Interest Periods (none of which shall extend beyond the Term Loan Maturity Date for such Term Loan) by delivering a Borrowing Advice or Notice of Conversion/Continuation, as applicable.

2.3 Evidence of Borrowing/Promissory Notes. The obligation of the Borrower to repay the aggregate unpaid principal amount of the Revolving Loans and Term Loans shall be evidenced by promissory notes of the Borrower (respectively the “Revolving Note and the Term Note”) in substantially the form attached hereto as Exhibits A-1 and A-2, with the blanks appropriately completed, payable to the order of each Lender in the principal amount of its Commitment, bearing interest as hereinafter specified. Each Revolving Note and Term Note shall be dated, and shall be delivered to each Lender, on the date of the execution and delivery of this Agreement by the Borrower. Each Lender shall, and is hereby authorized by the Borrower to, endorse on the schedule contained on the Revolving Note and Term Note, or on a continuation of such schedule attached thereto and made a part thereof, appropriate notations regarding the Revolving Loans and Term Loans evidenced by such Note as specifically provided therein and such Lender’s record shall be conclusive absent manifest error; provided, however, that the failure to make, or error in making, any such notation shall not limit or otherwise affect the obligations of the Borrower hereunder or under the Revolving Note and Term Note. The Agent, by notice to the Borrower (to be given not later than two Business Days prior to the initial Borrowing or Term Loan hereunder) may request that Revolving Loans or Term Loans made hereunder for which the interest calculation is to be based on the Eurodollar Rate be evidenced by separate Revolving Notes (in the case of Revolving Loans) and Term Notes (in the case of Term Loans), substantially in the form of Exhibit A-1 hereto (in the case of Revolving Loans) and Exhibit A-2 hereto (in the case of Term Loans), payable to the order of each Lender for the account of its office, branch or affiliate it may designate as its Lending Office.

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2.4 Making of Revolving Loans and Term Loans, Borrowings; Interest Periods; Notice.

(a) Each Borrowing of Revolving Loans or Term Loans shall be made upon Borrower’s irrevocable written notice delivered to the Agent in the form of a Borrowing Advice (which notice must be received by the Agent prior to 10:00 a.m. San Francisco time for a Eurodollar Rate Loan, and prior to 11:00 a.m. San Francisco time for a Base Rate Loan or a Federal Funds Rate Loan) (i) the same Business Day as the requested Borrowing Date in the case of Base Rate Loans and Federal Funds Rate Loans to be made on such Business Day, or (ii) three Business Days prior to the requested Borrowing Date in the case of Eurodollar Rate Loans, with each Borrowing Advice setting forth the following information:

(A) the requested Borrowing Date, which shall be a Business Day, on which such Revolving Loan or Term Loan is to be made;

(B) for a Eurodollar Rate Loan, the duration of the Interest Period selected in accordance with Section 2.6 hereof (if the Borrowing Advice fails to specify the duration of the Interest Period for any Borrowing comprised of a Eurodollar Rate Loan, such Interest Period shall be three months);

(C) the Type of Loans comprising the Borrowing and the interest rate option selected in accordance with Section 2.7 hereof; and

(D) the aggregate principal amount of the Revolving Loan or Term Loan (which shall be in an aggregate minimum amount of $10,000,000) to which such Interest Period and interest rate shall apply.

(b) The Agent will promptly notify each Lender of its receipt of any Borrowing Advice and of the amount of such Lender’s Pro Rata Share of that Borrowing.

(c) Each Lender will make the amount of its Pro Rata Share of each Borrowing available to the Agent for the account of the Borrower at the Agent’s Payment Office by 1:00 p.m. San Francisco time on the Borrowing Date requested by the Borrower in funds immediately available to the Agent. Each Loan to the Borrower under this Agreement shall be made by 1:30 p.m. (San Francisco time) on the date of the Requested Borrowing Date, and shall be in immediately available funds (in the aggregate amount made available to the Agent by the Lenders) wired to the Borrower’s account at Citibank, N.A. or such other account as may be designated by the Borrower in writing.

(d) After giving effect to any Borrowing, there may not be more than ten (10) different Interest Periods in effect.

With respect to any Borrowing having an Interest Period ending on or before June 12, 2009, if prior to the last day of the Interest Period for such Borrowing the Borrower fails timely to provide a Notice of Conversion/Continuation in accordance with Section 2.5, such Borrowing shall, on the last day of the then-existing Interest Period for such Borrowing, automatically

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convert into a Base Rate Loan. In the event of any such automatic conversion, the Borrower on the date of such conversion shall be deemed to make a representation and warranty to the Lenders that, to the best of the Borrower’s knowledge, (i) neither the Borrower nor any Bank Subsidiary is in violation of the capital requirements as described in Section 6.6, (ii) the Broker Subsidiary is not in violation of minimum net capital requirements as described in Section 7.1, (ii) the Borrower’s Consolidated Stockholders’ Equity is not below the Minimum Stockholders’ Equity as described in Section 7.2, and (iv) no amount owing with respect to any Commitment Fee, any outstanding Borrowing, or any interest thereon, or any other amount hereunder, is due and unpaid. If prior to the last day of the Interest Period applicable to any Term Loan the Borrower fails timely to provide a Notice of Conversion/Continuation in accordance with Section 2.5, such Term Loan shall, on the last day of the then-existing Interest Period for such Term Loan, automatically convert into a Base Rate Loan.

2.5 Conversion and Continuation Elections.

(a) The Borrower may, upon irrevocable written notice to the Agent in accordance with this Section 2.5:

(i) elect, as of any Business Day, in the case of Base Rate Loans or Federal Funds Rate Loans, or as of the last day of the applicable Interest Period, in the case of any other Type of Loan, to convert any such Loan (or any part thereof in an amount not less than $10,000,000), into Loans of any other Type; or

(ii) elect as of the last day of the applicable Interest Period, to continue any Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $10,000,000);

provided, that if at any time the aggregate amount of Eurodollar Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $10,000,000, such Eurodollar Rate Loans shall automatically convert into Base Rate Loans.

(b) The Borrower shall deliver a Notice of Conversion/Continuation to be received by the Agent not later than 10:00 a.m. San Francisco time for a Eurodollar Rate Loan, and not later than 11:00 a.m. San Francisco time for a Base Rate Loan or a Federal Funds Rate Loan, at least (i) three Business Days in advance of the Conversion/Continuation Date, as to any Loan that is to be converted into or continued as a Eurodollar Rate Loan; and (ii) the same Business Day as the Conversion/Continuation Date, as to any Loan that is to be converted into a Base Rate Loan or Federal Funds Rate Loan, specifying:

(A) the proposed Conversion/Continuation Date;

(B) the aggregate amount of the Loan or Loans to be converted or renewed;

(C) the Type of Loan or Loans resulting from the proposed conversion or continuation; and

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(D) other than in the case of conversions into Base Rate Loans or Federal Funds Rate Loans, the duration of the requested Interest Period.

(c) If upon the expiration of any Interest Period applicable to Eurodollar Rate Loans, the Borrower has failed to select timely a new Interest Period to be applicable to such Eurodollar Rate Loans, or if any Default or Event of Default then exists, the Borrower shall be deemed to have elected to convert such Eurodollar Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period.

(d) The Agent will promptly notify each Lender of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Borrower, the Agent will promptly notify each Lender of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given as held by each Lender.

(e) Unless the Required Lenders otherwise agree, during the existence of a Default or Event of Default, the Borrower may not elect to have a Loan converted into or continued as a Eurodollar Rate Loan.

(f) After giving effect to any conversion or continuation of Loans, there may not be more than ten (10) different Interest Periods in effect.

2.6 Interest Periods. The Borrower may select for any Eurodollar Rate Loan the Interest Period (as defined in the next sentence) for each Borrowing, it being understood that the Borrower may request multiple Borrowings on the same day and may select a different Interest Period for each such Borrowing. An Interest Period shall be each period, as selected by the Borrower in accordance with the terms of this Agreement, beginning on the Borrowing Date of any Eurodollar Rate Loan, or on the Conversion/Continuation Date on which any Loan is converted into or continued as a Eurodollar Rate Loan, and ending on the date specified by the Borrower that is one, two, three or six months thereafter; provided that whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month; and provided further that if the last day of an Interest Period would be a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such next succeeding Business Day is in a different calendar month, in which case such interest period shall end on the next preceding Business Day; but provided, however, that (i) no Interest Period applicable to any Revolving Loan shall extend beyond the Revolving Termination Date; and (ii) no Interest Period applicable to any Term Loan shall extend beyond the Term Loan Maturity Date specified in the Borrowing Advice for such Term Loan, which in no event shall be later than June 11, 2010.

2.7 Interest Rates.

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(a)    (i) Each Revolving Loan, while outstanding, shall bear interest from the applicable Borrowing Date at a rate per annum equal to the Eurodollar Rate, the Federal Funds Effective Rate, or the Base Rate, as the case may be, (and subject to the Borrower’s right to convert to other Types of Loans under Section 2.5) plus the Applicable Margin.

(ii) Each Term Loan, while outstanding, shall bear interest from the applicable Borrowing Date at a rate per annum equal to the Eurodollar Rate, the Federal Funds Effective Rate, or the Base Rate, as the case may be, (and subject to the Borrower’s right to convert to other Types of Loans under Section 2.5) plus the sum of the Applicable Margin and 0.25% per annum.

(b) Interest on each Revolving Loan and Term Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 3.3 for the portion of the Loan so prepaid and upon payment (including prepayment) in full thereof, and, during the existence of any Event of Default interest shall be paid on demand of the Agent at the request or with the consent of the Required Lenders.

(c) After the principal amount of any Revolving Loan or Term Loan, accrued interest upon such Loan, the commitment fee, or any other amount hereunder shall have become due and payable by acceleration, or otherwise, it shall thereafter (until paid) bear interest, payable on demand, (i) until the end of the Interest Period with respect to such Loan at a rate per annum equal to 2% per annum in excess of the rate or rates in effect with respect to such Loan, and (ii) thereafter, at a rate per annum equal to 2% per annum in excess of the Base Rate.

2.8 Substitute Rates. If upon receipt by the Agent of a Borrowing Advice relating to any Borrowing or of a Notice of Conversion/Continuation:

(a) the Agent shall determine that by reason of changes affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the applicable Eurodollar Rate with respect to any Interest Period; or

(b) the Agent shall determine that by reason of any change since the date hereof in any applicable law or governmental regulation (other than any such change in the regulations described in the definition of Eurodollar Rate Reserve Percentage in Section 1 hereof), guideline or order (or any interpretation thereof), the adoption or enactment of any new law or governmental regulation or order or any other circumstance affecting the Lenders or the London interbank market, the Eurodollar Rate shall no longer represent the effective cost to the Lenders of U.S. dollar deposits in the relevant amount and for the relevant period; or

(c) Agent shall determine that, as a result of any change since the date hereof in any applicable law or governmental regulation or as a result of the adoption of any new applicable law or governmental regulation, the applicable Eurodollar Rate would be unlawful;

then, the Agent will promptly so notify the Borrower and each Lender, whereupon, the obligation of the Lenders to make or maintain Eurodollar Rate Loans hereunder shall be suspended until the Agent upon the instruction of the Required Lenders revokes such notice in writing. Upon receipt of such notice, the Borrower may revoke any Notice of Borrowing or

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Notice of Conversion/Continuation then submitted by it and, at its election, submit a Borrowing Advice or Notice of Conversion/Continuation selecting another Type of Loan. If the Borrower does not revoke such Notice or give a Notice as provided herein, the Lenders shall make, convert or continue the Loans, as proposed by the Borrower in the amount specified in the applicable notice submitted by the Borrower, but such Loans shall be made, converted or continued as Base Rate Loans instead of Eurodollar Rate Loans.

2.9 Fees.

(a) Arrangement, Agency Fees. The Borrower shall pay an arrangement fee to the Arranger for the Arranger’s account, and shall pay an agency fee to the Agent for the Agent’s account, as required by the letter agreement (“Fee Letter”) between the Borrower, the Agent and the Arranger dated May 9, 2008.

(b) Commitment Fee. The Borrower shall pay to the Agent for the account of each Lender a commitment fee (the “Commitment Fee”) on the actual daily unused portion of such Lender’s Commitment computed on a quarterly basis in arrears on the last Business Day of each quarter based upon the daily utilization for that quarter as calculated by the Agent, equal to twelve-one hundredths of one percent (0.120%) per annum. For purposes of calculating utilization under this subsection, the Commitments shall be deemed used to the extent of the Effective Amount of Revolving Loans and Term Loans then outstanding. Such Commitment Fee shall accrue from the Closing Date to the Revolving Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each quarter commencing on the quarter ending June 30, 2008 through the Revolving Termination Date, with the final payment to be made on the Revolving Termination Date; provided that, in connection with any reduction or termination of Commitments under Section 2.10, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date.

(c) Utilization Fee. The Borrower shall pay to the Agent for the account of each Lender quarterly in arrears commencing on June 30, 2008 a utilization fee equal to one quarter of one percent (0.25%) per annum on the aggregate amount of outstanding Revolving Loans and Term Loans, provided that the outstanding amount of such Loans exceeds fifty percent (50%) of the aggregate amount of all the Commitments of the Lenders to the Borrower.

2.10 Reduction of Credit. The Borrower, from time to time, upon at least three (3) Business Days’ written notice to the Agent, may terminate the commitments, or permanently reduce the Commitments by an aggregate minimum amount of $10,000,000, without penalty or premium; unless after giving effect thereto and to any prepayments of Loans made on the effective date thereof, the Effective Amount of all Revolving Loans and Term Loans together would exceed the amount of the combined Commitments then in effect. Once reduced in accordance with this Section, the Commitments may not be increased. Any reduction of the Commitments shall be applied to each Lender’s Commitment according to its Pro Rata Share. All accrued Commitment Fees to, but not including, the effective date of any reduction or

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termination of Commitments, shall be paid on the effective date of such reduction or termination. During the continuation of the Credit, the computation of the Commitment Fee and the Lenders’ obligations to make Revolving Loans or Term Loans shall be based upon such reduced Commitments. In the event the Credit shall be reduced to zero pursuant to this Section, the Credit shall be deemed terminated, and any Commitment Fee or any other amount payable hereunder then accrued shall become immediately payable. Such termination of the Credit shall terminate the Borrower’s obligations with respect to the Commitment Fee to the extent not theretofore accrued and shall terminate the Lenders’ obligations to make any further Revolving Loans or Term Loans under this Agreement.

2.11 Termination Date; Extensions. The termination date of each Lender’s Commitment with respect to the Credit (the “Termination Date”), including both the Revolving Credit Facility under Section 2.1 hereof and the Term Loan Facility under Section 2.2 hereof, is initially June 12, 2009. At any time no earlier than forty-five (45) days and no later than thirty (30) days prior to the Termination Date then in effect (whether the initial Termination Date of June 12, 2009 or any later Termination Date as extended under this Section 2.11), the Borrower may, by written notice to the Agent in the form attached as Exhibit D hereto, request that the Termination Date be extended for a period of 364 calendar days. Such request shall be irrevocable and binding upon the Borrower. In no event will any Lender agree to approve any extension more than thirty (30) days before the Termination Date then in effect. Failure of any Lender to respond shall mean that such Lender has not approved such extension. If each Lender (in its sole discretion) agrees to so extend its Commitment and the Termination Date (which agreement may be given or withheld in such Lender’s sole and absolute discretion), the Agent shall evidence such agreement by executing and returning to the Borrower a copy of the Borrower’s written request no later than fifteen (15) days after the Agent’s receipt of the Borrower’s written request. If the Agent fails to so respond to and accept the Borrower’s request for extension of the Termination Date then in effect, the Lenders’ Commitments shall be terminated on the Termination Date then in effect. If, on the other hand, the Agent so responds to and accepts the Borrower’s request for extension of the Termination Date, then upon receipt by the Borrower of a copy of the Borrower’s written request countersigned by the Agent, (i) the Lenders’ Commitments then in effect and the Termination Date then in effect shall automatically be extended for the 364-day period specified in such written request, and (ii) each reference in this Agreement to “June 12, 2009”, and “June 11, 2010” (and any prior extension thereof pursuant to this Section 2.11) also shall automatically be correspondingly extended for 364 days.

2.12 Payments by the Lenders to the Agent.

(a) Unless the Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day before the date of such Borrowing in the case of a Eurodollar Rate Loan, or, in the case of a Base Rate Loan or Federal Funds Rate Loan, prior to noon (12:00) San Francisco time on the date of such Borrowing, that such Lender will not make available as and when required hereunder to the Agent for the account of the Company the amount of that Lender’s Pro Rata Share of the Borrowing, the Agent may assume that each Lender has made such amount available to the Agent in immediately available funds on the Borrowing Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Borrower on such date a

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corresponding amount. If and to the extent any Lender shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made a corresponding amount available to the Borrower such Lender shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Agent submitted to any Lender with respect to amounts owing under this subsection (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Lender’s Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the Borrowing Date, the Agent will notify the Borrower of such failure to fund and, upon demand by the Agent, the Borrower shall pay such amount to the Agent for the Agent’s account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing.

(b) The failure of any Lender to make any Loan on any Borrowing Date shall not relieve any other Lender of any obligation hereunder to make a Loan on such Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on any Borrowing Date.

2.13 Sharing of Payments, Etc. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share, such Lender shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Lenders such participation in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender’s ratable share (according to the proportion of (i) the amount of such paying Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 10.5) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. The Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participation purchased under this Section and will in each case notify the Lenders following any such purchase or repayment.

2.14 Computation of Fees and Interest.

(a) All computations of interest for Base Rate Loans when the Base Rate is determined by Citibank N.A.’s “Base Rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of interest, and all computation of fees under subsection 2.9(b) and (c) shall be made on the basis of a 360-day year and actual days elapsed. Interest and such fees shall accrue during each period during which

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interest or such fees are computed from and including the first day thereof to and excluding the last day thereof.

(b) If any Reference Lender’s Commitment shall terminate (otherwise than on termination of all the Commitments), or for any reason whatsoever such Reference Lender shall cease to be a Lender hereunder, such Reference Lender shall thereupon cease to be a Reference Lender, and the determination of the Eurodollar Base Rate under subsection (c) of the definition of such term shall be determined on the basis of the rates as notified by the remaining Reference Lenders.

3. PAYMENT.

3.1 Repayment.

(a) The Term Credit. The Borrower shall repay to the Agent for the account of the Lenders the aggregate principal amount of the Term Loans outstanding on each Term Loan Maturity Date, as applicable.

(b) The Revolving Credit. The Borrower shall repay to the Agent, for the account of the Lenders, on the Revolving Termination Date the aggregate principal amount of Revolving Loans outstanding on such date.

3.2 Method of Payment. All payments hereunder and under the Revolving Note and the Term Note shall be payable in lawful money of the United States of America and in immediately available funds not later than 12:00 noon (San Francisco time) on the date when due at the principal office of the Agent or at such other place as the Agent may, from time to time, designate in writing to the Borrower.

3.3 Optional Prepayment. Subject to Section 3.7, the Borrower shall be entitled at any time or from time to time, upon not less than one (1) Business Day irrevocable notice to the Agent, to ratably prepay Loans in whole or in part in minimum amounts of $10,000,000 without premium or penalty. Each notice of payment shall specify the date and aggregate principal amount of any such prepayment and the Type(s) of Loans to be repaid. The Agent will promptly notify each Lender of its receipt of any such Notice and of such Lender’s Pro Rata Share of such prepayment. If such Notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount, specified in such Notice shall be due and payable on the date specified therein, together with all accrued interest to each such date on the amount prepaid, and any amounts required in accordance with Section 3.7 hereof as a result of such prepayment.

3.4 Taxes/Net Payments. All payments by Borrower hereunder and under the Revolving Note and the Term Note to the Agent or any Lender shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments, after deduction or withholding for or on account of any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any Governmental Authority or taxing authority thereof (collectively, “Taxes”), shall not be less than the amounts otherwise specified to be paid under this Agreement. The Borrower shall pay all Taxes when due and shall promptly

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send to the Lender original tax receipts or copies thereof certified by the relevant taxing authority together with such other documentary evidence with respect to such payments as may be required from time to time by the Agent. If the Borrower fails to pay any Taxes to the appropriate taxing authorities when due or fails to remit to the Agent or Lender any such original tax receipts or certified copies thereof as aforesaid or other required documentary evidence, the Borrower shall indemnify the Agent or Lender within thirty (30) days of demand by the Lender or Agent for any taxes, interest or penalties that may become payable by the Agent or Lender as a result of such failure.

Notwithstanding the foregoing, (i) the Borrower shall not be liable for the payment of any tax on or measured by the net income of any Lender pursuant to the laws of the jurisdiction where an office of such Lender making any loan hereunder is located or does business, and (ii) the foregoing obligation to gross up the payments to any Lender so as not to deduct or offset any withholding taxes or Taxes paid or payable by the Borrower with respect to any payments to such Lender shall not apply (x) to any payment to any Lender which is a “foreign corporation, partnership or trust” within the meaning of the Code if such Lender is not, on the date hereof (or on the date it becomes a Lender under this Agreement pursuant to the assignment terms of this Agreement), or on any date hereafter that it is a Lender under this Agreement, entitled to submit either a Form W-8BEN or any successor form thereto (relating to such Lender and entitling it to a complete exemption from withholding on all interest to be received by it hereunder in respect of the Loans) or Form W-8ECI or any successor form thereto (relating to all interest to be received by such Lender hereunder in respect of the Loans) of the U.S. Department of Treasury, or (y) to any item referred to in the preceding sentence that would not have been imposed but for the failure by such Lender to comply with any applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections of such Lender with the United States if such compliance is required by statute or regulation of the United States as a precondition to relief or exemption from such item.

3.5 Illegality.

(a) If any Lender determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make Eurodollar Rate Loans, then, on notice thereof by the Lender to the Borrower through the Agent, any obligation of that Lender to make Eurodollar Rate Loans shall be suspended until the Lender notifies the Agent and the Borrower that the circumstances giving rise to such determination no longer exist.

(b) If a Lender determines that it is unlawful to maintain any Eurodollar Rate Loan, the Borrower shall, upon its receipt of notice of such fact and demand from such Lender (with a copy to the Agent), prepay in full such Eurodollar Rate Loans of that Lender then outstanding, together with interest accrued thereon and amounts required under Section 3.7, either on the last day of the Interest Period thereof, if the Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if the Lender may not lawfully continue to maintain such Eurodollar Rate Loan. If the Borrower is required to so

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prepay any Eurodollar Rate Loan, then concurrently with such prepayment, the Borrower shall borrow from the affected Lender, in the amount of such repayment, a Base Rate Loan or Federal Funds Rate Loan.

(c) If the obligation of any Lender to make or maintain Eurodollar Rate Loans has been so terminated or suspended, the Borrower may elect, by giving notice to the Lender through the Agent that all Loans which would otherwise be made by the Lender as Eurodollar Rate Loans shall be instead Base Rate Loans, or Federal Funds Rate Loans.

(d) Before giving any notice to the Agent under this Section, the affected Lender shall designate a different Lending Office with respect to its Eurodollar Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Lender, be illegal or otherwise disadvantageous to the Lender.

3.6 Increased Costs and Reduction of Return.

(a) If any Lender determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Eurodollar Rate) in or in the interpretation of any law or regulation, or (ii) the compliance by that Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Eurodollar Rate Loan, then the Borrower shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs.

(b) If any Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Lender (or its Lending Office) or any corporation controlling the Lender with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Lender or any corporation controlling the Lender and determines that the amount of such capital is increased as a consequence of its Commitment, Loans, credits or obligations under this Agreement then, upon demand of such Lender to the Borrower through the Agent, the Borrower shall pay to the Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate the Lender for the cost of such increase.

3.7 Funding Losses. The Borrower shall reimburse each Lender and hold each Lender harmless from any loss or expense which the Lender may sustain or incur as a consequence of:

(a) the failure of the Borrower to make on a timely basis any payment of principal of any Eurodollar Rate Loan;

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(b) the failure of the Borrower to borrow, continue or convert a Loan after the Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation;

(c) the failure of the Borrower to make any prepayment in accordance with any notice delivered under Section 3.3;

(d) the prepayment or other payment (including after acceleration thereof) of any Eurodollar Rate Loan on a day that is not the last day of the relevant Interest Period; or

(e) the automatic conversion under Section 2.5 of any Eurodollar Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period,

including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Eurodollar Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Borrower to the Lenders under this Section and under subsection 3.6(a), each Eurodollar Rate Loan made by a Lender and each related reserve, special deposit or similar requirement shall be conclusively deemed to have been funded at the LIBO-based rate used in determining the Eurodollar Rate for such Eurodollar Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan is in fact so funded,.

3.8 Certificates of Lenders. Any Lender claiming reimbursement or compensation under this Section 3 shall deliver to the Borrower (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to the Lender hereunder and such certificate shall be conclusive and binding on the Borrower in the absence of manifest error.

3.9 Substitution of Lenders. Upon the receipt by the Borrower from any Lender (an “Affected Lender”) of a claim for compensation under Section 3.6, the Borrower may: (i) request the Affected Lender to use its best efforts to obtain a replacement bank or financial institution satisfactory to the Borrower to acquire and assume all or a ratable part of all of such Affected Lender’s Loans and Commitment (a “Replacement Lender”); (ii) request one or more of the other Lenders to acquire and assume all or part of such Affected Lender’s Loans and Commitment (but no other Lender shall be required to do so); or (iii) designate a Replacement Lender. Any such designation of a Replacement Lender under clause (ii) or (iii) shall be subject to the prior written consent of the Agent (which consent shall not be unreasonably withheld).

3.10 Survival. The agreements and obligations of the Borrower in this Section 3 shall survive the payment of all other Obligations.

4. CONDITIONS.

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4.1 Conditions Precedent to the Effectiveness of this Agreement. The obligation of each Lender to make its initial extension of credit hereunder is subject to the condition that the Agent has received on or before the Closing Date all of the following in form and substance satisfactory to the Agent and each Lender, in sufficient copies for each Lender;

(a) This Agreement and the Notes executed by each party thereto.

(b) A copy of a resolution or resolutions adopted by the Board of Directors or Executive Committee of the Borrower, certified by the Secretary or an Assistant Secretary of the Borrower as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, and a copy of the Certificate of Incorporation and the By-Laws of the Borrower, similarly certified.

(c) A certificate, signed by the Secretary or an Assistant Secretary of the Borrower and dated the date hereof, as to the incumbency of the person or persons authorized to execute and deliver this Agreement.

(d) A certificate signed by the Chief Financial Officer, Treasurer or Corporate Controller of the Borrower that, as of the date hereof, there has been no material adverse change in its consolidated financial condition since December 31, 2007 not reflected on its Quarterly Report on Form 10-Q filed with the SEC for the period ending March 31, 2008.

(e) A certificate, signed by the Secretary or an Assistant Secretary of the Borrower and dated the date hereof, as to the persons authorized to execute and deliver a Borrowing Advice, a Notice of Conversion/Continuation, and the Revolving Notes and the Term Notes. The Agent and each Lender may rely on such certificate with respect to the Revolving Loans and Term Loans hereunder unless and until it shall have received an updated certificate and, after receipt of such updated certificate, similarly may rely thereon.

(f) A written opinion, dated the date hereof, of counsel for the Borrower, in the form of Exhibit E.

(g) Evidence of payment by the Borrower of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date, together with Attorney Costs of Citicorp USA to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute Citicorp USA’s reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Borrower and Citicorp USA); including any such costs, fees and expenses arising under or referenced in Sections 2.9 and 10.4.

(h) Written evidence that all of the Borrowing Agreements have been or concurrently herewith are being terminated.

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(i) A certificate, signed by the Chief Financial Officer, Treasurer or an Assistant Treasurer of the Borrower and dated as of the date hereof, which confirms that after giving effect to this Agreement, the aggregate principal amount of credit available under all of the Borrower’s committed unsecured revolving credit facilities combined will not exceed the amount authorized under the resolutions of the Borrower referenced in subsection 4.1(b).

4.2 Conditions Precedent to Revolving Loans and Term Loans. The obligation of each Lender to make any Revolving Loan or Term Loan to be made by it (including its initial Revolving Loan), or to continue or convert any Loan under Section 2.5 is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date or Conversion/Continuation Date:

The Agent shall have received a Borrowing Advice or a Notice of Conversion/Continuation, as applicable. Each Borrowing Advice or Notice of Conversion/Continuation given by the Borrower shall be deemed to be a representation and warranty by the Borrower to each Lender, effective on and as of the date of such Notice and as of such Borrowing Date for a Revolving Loan or Term Loan covered thereby, that (i) the representations and warranties set forth in Section 5 hereof are true and correct as of such date, and (ii) no Default or Event of Default has occurred and is continuing. No Lender shall be required to make any Loan hereunder if:

(a) the Credit, the Revolving Credit Facility (in the case of a Revolving Loan) or the Term Loan Facility (in the case of a Term Loan) has been terminated; or

(b) any of the representations or warranties of the Borrower set forth in Section 5 hereof shall prove to have been untrue in any material respect when made, or when any Default or Event of Default as defined in Section 8, has occurred; or

(c) the Borrower or any Bank Subsidiary is in violation of the capital requirements as described in Section 6.6; or

(d) the Broker Subsidiary is in violation of minimum net capital requirements as described in Section 7.1; or

(e) the Borrower’s Consolidated Stockholders’ Equity is below the Minimum Stockholders’ Equity as described in Section 7.2; or

(f) any amount owing with respect to any Commitment Fee or any outstanding Revolving Loan or Term Loan or any interest thereon or any other amount payable hereunder is due and unpaid.

5. REPRESENTATIONS AND WARRANTIES.

The Borrower represents and warrants to the Agent and each Lender, as of the date of delivery of this Agreement and as of the date of any Revolving Loan or Term Loan, as follows:

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5.1 Organization and Good Standing. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and has full power, authority and legal right and has all governmental licenses, authorizations, qualifications and approvals required to own its property and assets and to transact the business in which it is engaged; and all of the outstanding shares of capital stock of Borrower have been duly authorized and validly issued, are fully paid and non-assessable.

5.2 Corporate Power and Authority. The Borrower has full power, authority and legal right to execute and deliver, and to perform its obligations under, this Agreement, and to borrow hereunder, and has taken all necessary corporate and legal action to authorize the borrowings hereunder on the terms and conditions of this Agreement and to authorize the execution and delivery of this Agreement, and the performance of the terms thereof.

5.3 Enforceability. This Agreement has been duly authorized and executed by the Borrower, and when delivered to the Lenders will be a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, except, in each case, as enforcement thereof may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditors’ rights or by general equity principles.

5.4 No Violation of Laws or Agreements. The execution and delivery of this Agreement by the Borrower and the performance of the terms hereof will not violate any provision of any law or regulation or any judgment, order or determination of any court or governmental authority or of the charter or by-laws of, or any securities issued by, the Borrower or any provision of any mortgage, indenture, loan or security agreement, or other instrument, to which the Borrower is a party or which purports to be binding upon it or any of its assets in any respect that reasonably could be expected to have a material adverse effect on the Borrower and its Subsidiaries taken as a whole on a consolidated basis; nor will the execution and the delivery of this Agreement by the Borrower and the performance of the terms hereof result in the creation of any lien or security interest on any assets of the Borrower pursuant to the provisions of any of the foregoing.

5.5 No Consents. Except as disclosed in writing by Borrower, no consents of others (including, without limitation, stockholders and creditors of the Borrower) nor any consents or authorizations of, exemptions by, or registrations, filings or declarations with, any Governmental Authority are required to be obtained by the Borrower in connection with the execution and delivery of this Agreement and the performance of the terms thereof.

5.6 Financial Statements. The consolidated financial statements of the Borrower contained in the documents previously delivered to each Lender have been prepared in accordance with U.S. generally accepted accounting principles and present fairly the consolidated financial position of the Borrower.

5.7 Broker Subsidiary Licenses, Etc. The Broker Subsidiary possesses all material licenses, permits and approvals necessary for the conduct of its business as now conducted and as presently proposed to be conducted as are required by law or the applicable rules of the SEC and the Financial Industry Regulatory Authority.

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5.8 Broker Subsidiary/Broker Registration. The Broker Subsidiary is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended.

5.9 Broker Subsidiary/SIPC. The Broker Subsidiary is not in arrears with respect to any assessment made upon it by the Securities Investor Protection Corporation, except for any assessment being contested by the Broker Subsidiary in good faith by appropriate proceedings and with respect to which adequate reserves or other provisions are being maintained to the extent required by U.S. generally accepted accounting principles.

5.10 Taxes. The Borrower has paid and discharged or caused to be paid and discharged all taxes, assessments, and governmental charges prior to the date on which the same would have become delinquent, except to the extent that such taxes, assessments or charges are being contested in good faith and by appropriate proceedings by or on behalf of the Borrower and with respect to which adequate reserves or other provisions are being maintained to the extent required by U.S. generally accepted accounting principles.

5.11 ERISA. The Borrower is in compliance with the provisions of and regulations under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Code applicable to any pension or other employee benefit plan established or maintained by the Borrower or to which contributions are made by the Borrower (the “Plans”). The Borrower has met all of the funding standards applicable to each of its Plans, and there exists no event or condition that would permit the institution of proceedings to terminate any of the Plans under Section 4042 of ERISA. The estimated current value of the benefits vested under each of the Plans does not, and upon termination of any of the Plans will not, exceed the estimated current value of any such Plan’s assets. The Borrower has not, with respect to any of the Plans, engaged in a prohibited transaction set forth in Section 406 of ERISA or Section 4975(c) of the Code.

5.12 No Extension of Credit for Default Remedy/Hostile Acquisition. The Borrower will not use any amounts borrowed by it under this Agreement to remedy a default under any mortgage, indenture, agreement or instrument under which there may be issued any Indebtedness of the Borrower to any bank or bank holding company, or their respective assignees, for borrowed money. Further, the Borrower will not use any amounts advanced to it under this Agreement for the immediate purpose of acquiring a company where the Board of Directors or other governing body of the entity being acquired has made (and not rescinded) a public statement opposing such acquisition.

5.13 Use of Proceeds/Margin Regulations. The Borrower will use the proceeds for general corporate purposes, including, without limitation, for the back-up of the issuance of commercial paper notes. The Borrower will not use the proceeds of any loan provided hereby in such a manner as to result in a violation of Regulations T, U or X of the Board of Governors of the Federal Reserve System.

5.14 Authorized Persons. The persons named for such purpose in the certificates delivered pursuant to subsection 4.1(e) hereof are authorized to execute Borrowing Advices.

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5.15 Material Contracts. Borrower is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note or lease to which the Borrower is a party or by which it may be bound.

5.16 Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Borrower, threatened against or affecting, the Borrower or any of its Subsidiaries before any court, arbitrator, governmental body, agency or official in which there is a significant probability of an adverse decision which could have a material adverse affect on the business or the financial condition of the Borrower.

5.17 Investment Company. The Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

6. AFFIRMATIVE COVENANTS.

The Borrower covenants and agrees that so long as any Lender shall have a Commitment hereunder or any Loan or other obligation hereunder shall remain outstanding, unpaid or unsatisfied and until full payment of all amounts due to the Lenders hereunder, it will, unless and to the extent the Required Lenders waive compliance in writing:

6.1 Notice of Events of Default. Give prompt notice to the Agent and each Lender, no later than three Business Days after becoming aware thereof, of any Default or Event of Default.

6.2 Financial Statements. Deliver to the Agent, in form and detail satisfactory to the Agent and the Required Lenders with sufficient copies for each Lender, within ten Business Days of the filing thereof with the SEC, a copy of each registration statement filed under the Securities Act of 1933, a copy of each filing (including exhibits) made by the Borrower with the SEC under the Securities Exchange Act of 1934, as amended, accompanied by a compliance certificate with an attached schedule of calculations (in the form attached hereto as Schedule 6.2) demonstrating compliance with the Section 7.1 and 7.2 financial covenants; and, in the event the Borrower requests an extension of any such filing from the SEC, promptly (but not later than the second Business Day following the filing of such request) deliver a copy of such request to the Agent.

6.3 Insurance. Maintain and keep in force in adequate amounts such insurance as is usual in the business carried on by the Borrower and cause the Broker Subsidiary to maintain and keep in force in adequate amounts such insurance as is usual in the business carried on by the Broker Subsidiary.

6.4 Books and Records. Maintain adequate books, accounts and records and prepare all financial statements required hereunder in accordance with U.S. generally accepted accounting principles and practices and in compliance with the regulations of any governmental regulatory body having jurisdiction thereof.

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6.5 Change in Business. Advise the Agent and each Lender, in a timely manner, of material changes to the nature of business of the Borrower or the Broker Subsidiary as at present conducted. The Broker Subsidiary is at present engaged in the business of providing financial services, primarily to individual investors and/or their advisors.

6.6 Capital Requirements. The Borrower will maintain, and cause each Bank Subsidiary to maintain, at all times such amount of capital as may be prescribed by the Office of Thrift Supervision (in the case of the Borrower and any Federal savings association), Board of Governors of the Federal Reserve System (in the case of any state member Bank Subsidiary) or the Comptroller of the Currency (in the case of any national member Bank Subsidiary), as the case may be, from time to time, whether by regulation, agreement or order. The Borrower shall at all times ensure that all Bank Subsidiaries shall be “well capitalized” within the meaning of 12 U.S.C. §1831(o), as amended, reenacted or redesignated from time to time.

7. NEGATIVE COVENANTS.

The Borrower covenants and agrees that so long as any Lender shall have any Commitment hereunder, or any Loan or other obligation, shall remain outstanding, unpaid or unsatisfied and until full payment of all amounts due to the Lenders hereunder, unless and to the extent the Required Lenders waive compliance in writing:

7.1 Net Capital. The Borrower will not permit the Broker Subsidiary to allow any month-end Net Capital Ratio to be less than 5%.

7.2 Minimum Stockholders’ Equity. The Borrower will not allow its Consolidated Stockholders’ Equity to fall below the Minimum Stockholders’ Equity.

7.3 Merger/Disposition of Assets. The Borrower will not (i) permit either Broker Subsidiary or Intermediate Parent to (a) merge or consolidate, unless the surviving company is a Controlled Subsidiary, or (b) convey or transfer its properties and assets substantially as an entirety except to one or more Controlled Subsidiaries; or (ii) except as permitted by subsection 7.3(i) sell, transfer or otherwise dispose of any voting stock of Broker Subsidiary or Intermediate Parent, or permit either Broker Subsidiary or Intermediate Parent to issue, sell or otherwise dispose of any of its voting stock, unless, after giving effect to any such transaction, Broker Subsidiary or Intermediate Parent, as the case may be, remains a Controlled Subsidiary.

7.4 Broker Subsidiary Indebtedness. The Borrower will not permit the Broker Subsidiary to create, incur or assume any Indebtedness other than:

(a)(i) Indebtedness to customers, other brokers or dealers, securities exchanges or securities markets, self-regulatory organizations, clearing houses and like institutions (including, without limitation, letters of credit or similar credit support devices issued for the account of Broker Subsidiary and for the benefit of any of the foregoing in order to comply with any margin, collateral or similar requirements imposed by or for the benefit of any of the foregoing), (ii) “broker call” credit, (iii) indebtedness consisting of borrowings secured solely by margin loans made by Broker Subsidiary, together with any underlying collateral of

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Broker Subsidiary, (iv) stock loans, (v) obligations to banks for disbursement accounts, (vi) Indebtedness incurred for the purchase of tangible personal property on a non-recourse basis or for the leasing of tangible personal property under a capitalized lease, (vii) Indebtedness incurred for the purchase, installation or servicing of computer equipment and software, and (viii) Indebtedness incurred in the ordinary course of the Broker Subsidiary’s business, to the extent not already included in the foregoing clauses (i) through (vii);

(b) intercompany Indebtedness; and

(c) other Indebtedness in the aggregate not exceeding $100,000,000.

7.5 Indebtedness Secured by Subsidiary Stock. The Borrower will not, and will not permit any Subsidiary at any time directly or indirectly to create, assume, incur or permit to exist any Indebtedness secured by a pledge, lien or other encumbrance (hereinafter referred to as a “lien”) on the voting stock of any Subsidiary without making effective provision whereby the Revolving Notes and the Term Notes shall be secured equally and ratably with such secured Indebtedness so long as other Indebtedness shall be so secured; provided, however, that the foregoing covenant shall not be applicable to Permitted Liens (as defined in Section 7.6 below).

7.6 Liens and Encumbrances. The Borrower will not create, incur, assume or suffer to exist any lien or encumbrance upon or with respect to any of its properties, whether now owned or hereafter acquired, except the following (the “Permitted Liens”):

(a) liens securing taxes, assessments or governmental charges or levies, or in connection with workers’ compensation, unemployment insurance or social security obligations, or the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons not yet delinquent or which are being contested in good faith by appropriate proceedings with respect to which adequate reserves or other provisions are being maintained to the extent required by U.S. generally accepted accounting principles;

(b) liens not for borrowed money incidental to the conduct of its business or the ownership of property that do not materially detract from the value of any item of property;

(c) attachment, judgment or other similar liens arising in the connection with court proceedings that do not, in the aggregate, materially detract from the value of its property, materially impair the use thereof in the operation of its businesses and (i) that are discharged or stayed within sixty (60) days of attachment or levy, or (ii) payment of which is covered in full (subject to customary and reasonable deductibles) by insurance or surety bonds; and

(d) liens existing at Closing Date provided that the obligations secured thereby are not increased.

8. EVENTS OF DEFAULT.

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8.1 Defaults. The occurrence of any of the following events shall constitute an “Event of Default”:

(a) The Borrower shall fail to pay any interest with respect to the Revolving Notes or the Term Notes or any Commitment Fee in accordance with the terms hereof within 10 days after such payment is due.

(b) The Borrower shall fail to pay any principal with respect to the Revolving Notes or the Term Notes in accordance with the terms thereof on the date when due.

(c) Any representation or warranty made by the Borrower herein or hereunder or in any certificate or other document furnished by the Borrower hereunder shall prove to have been incorrect when made (or deemed made) in any respect that is materially adverse to the interests of the Lenders or their rights and remedies hereunder.

(d) Except as specified in (a) and (b) above, the Borrower shall default in the performance of, or breach, any covenant of the Borrower with respect to this Agreement, and such default or breach shall continue for a period of thirty days after there has been given, by registered or certified mail, to the Borrower by the Agent a written notice specifying such default or breach and requiring it to be remedied.

(e) An event of default as defined in any mortgage, indenture, agreement or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Borrower in a principal amount not less than $75,000,000, shall have occurred and shall result in such Indebtedness becoming or being declared due and payable prior to the date on which it otherwise would become due and payable, or an event of default or a termination event as defined in any Hedge Agreement shall have occurred and shall result in a net payment obligation of the Borrower thereunder of not less than $75,000,000; provided, however, that if such event of default shall be remedied or cured by the Borrower, or waived by the holders of such Indebtedness, within twenty days after the Borrower has received written notice of such event of default and acceleration, then the Event of Default hereunder by reason thereof shall be deemed likewise to have thereupon been remedied, cured or waived without further action upon the part of either the Borrower or the Agent and Lenders.

(f) Any involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief against the Borrower or the Broker Subsidiary, or against all or a substantial part of the property of either of them, under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency, reorganization or similar law, (ii) the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Borrower or the Broker Subsidiary or for all or a substantial part of the property of either of them, or (iii) the winding-up or liquidation of the Borrower or the Broker Subsidiary; and, in any such case, such involuntary proceeding or involuntary petition shall continue undismissed for 60 days, or, before such 60-day period has elapsed, there shall be entered an order or decree ordering the relief requested in such involuntary proceeding or involuntary petition.

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(g) The Borrower or the Broker Subsidiary shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case under such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower or Broker Subsidiary or for any substantial part of its respective properties, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its respective debts as they become due or shall take any corporate action in furtherance of any of the foregoing.

(h) A final judgment or judgments for the payment of money in excess of $75,000,000 in the aggregate shall be entered against the Borrower by a court or courts of competent jurisdiction, and the same shall not be discharged (or provisions shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Borrower shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal.

(i) At any time after a Change in Control, the Borrower fails to maintain at least one of the following credit ratings for its Senior Medium-Term Notes, Series A: (a) BBB- (or better) by Standard & Poor’s Ratings Service, a Division of The McGraw-Hill Companies, Inc., or (b) Baa3 (or better) by Moody’s Investors Service, Inc.

8.2 Remedies. If an Event of Default occurs and is continuing, then and in every such case the Agent shall, at the request of, or may, with the consent of, the Required Lenders (i) declare the Commitment of each Lender to make Loans to be terminated whereupon such Commitments and obligation shall be terminated, and declare the unpaid principal of all outstanding Loans, any and all accrued and unpaid interest, any accrued and unpaid Commitment Fees, or any other amounts owing or payable under the Notes, to be immediately due and payable, by a notice in writing to the Borrower, and upon such declaration such principal, interest, Commitment Fees, or other amounts payable hereunder and accrued thereon shall become immediately due and payable, together with any funding losses that may result as a consequence of such declaration, without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower; provided, however, that in the case of any of the Events of Default specified in subsection (f) or (g) of Section 8.1, automatically without any notice to the Borrower or any other act by the Agent, the Credit and the obligations of each Lender to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans, any accrued and unpaid interest, any accrued and unpaid Commitment Fees or any other amounts payable hereunder shall become immediately due and payable, together with any funding losses that may result as a consequence thereof, without further act of the Agent or any Lender and without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower.

9. THE AGENT.

9.1 Appointment and Authorization. Each Lender hereby irrevocably (subject to Section 9.9) appoints, designates and authorizes the Agent to take such action on its behalf under

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the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities except those expressly set forth, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent.

9.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care.

9.3 Liability of Agent. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by the Borrower or any Subsidiary or Affiliate of the Borrower, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower or any of the Borrower’s Subsidiaries or Affiliates.

9.4 Reliance by Agent.

(a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or

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consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.

(b) For purposes of determining compliance with the conditions specified in Section 4.1, each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender.

9.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Lenders, unless the Agent shall have received written notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”. The Agent will notify the Lenders of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 8; provided, however, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Lenders.

9.6 Credit Decision. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrower and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Agent, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrower which may come into the possession of any of the Agent-Related Persons.

9.7 Indemnification of Agent. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Borrower and without limiting the obligation of the

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Borrower to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from any such Person’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for its ratable share, of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent.

9.8 Agent in Individual Capacity. Citicorp USA and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Borrower and its Subsidiaries and Affiliates as though Citicorp USA were not the Agent hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, Citicorp USA or its Affiliates may receive information regarding the Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Borrower or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its Loans, Citicorp USA shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent.

9.9 Successor Agent. The Agent may, and at the request of the Required Lenders shall, resign as Agent upon 30 days’ notice to the Lenders and Borrower. If the Agent resigns under this Agreement, the Required Lenders, with the consent of the Borrower, which consent shall not be unreasonably withheld, shall appoint from among the Lenders a successor agent for the Lenders which successor agent shall be approved by the Borrower. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent with the consent of the Borrower, which consent shall not be unreasonably withheld, may appoint, after consulting with the Lenders and the Borrower, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term “Agent” shall mean such successor agent and the retiring Agent’s appointment, powers and duties as Agent shall be terminated. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Section 9 and Sections 10.4 and 10.5 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. The retiring Agent shall refund to Borrower that portion of any agency fee paid to such Agent as is not earned due to such Agent’s resignation, prorated to the date of such Agent’s resignation.

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9.10 Withholding Tax.

(a) If any Lender is a “foreign corporation, partnership or trust” within the meaning of the Code and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Section 1441 or 1442 of the Code, such Lender agrees with and in favor of the Agent, to deliver to the Agent:

(i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Form W-8BEN before the payment of any interest in the first calendar year and before the payment of any interest in any subsequent calendar year during which the Form W-8BEN (or any successor thereto) then in effect expires;

(ii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed copies of IRS Form W-8ECI or any successor form thereto before the payment of any interest is due in the first taxable year of such Lender and before the payment of any interest in any subsequent calendar year during which the Form W-8ECI (or any successor thereto) then in effect expires; and

(iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax.

Such Lender agrees to promptly notify the Agent of any change in circumstances which would render invalid any claimed exemption or reduction.

(b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form W-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Lender, such Lender agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Lender. To the extent of such percentage amount, the Agent will treat such Lender’s IRS Form W-8BEN or any successor form thereto as no longer valid.

(c) If any Lender claiming exemption from United States withholding tax by filing IRS Form W-8ECI or any successor form thereto with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code.

(d) If any Lender is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent or if any Lender which is a “foreign corporation, partnership or trust” within the meaning

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of the Code is not entitled to claim exemption from or a reduction of U.S. withholding tax under Section 1441 or 1442 of the Code, then the Agent shall withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax.

(e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason other than the Agent’s gross negligence or willful misconduct) such Lender shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent.

9.11 Co-Agents. None of the Lenders identified on the facing page or signature pages of this Agreement as a “co-agent”, “managing agent”, “syndication agent” or “documentation agent” shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders so identified as a “co-agent”, “syndication agent” or “documentation agent” shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.

10. MISCELLANEOUS.

10.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Borrower or any applicable Subsidiary therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Agent at the written request of the Required Lenders) and the Borrower and acknowledged by the Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders and the Borrower and acknowledged by the Agent, do any of the following:

(a) increase or extend the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.2);

(b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document;

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(c) reduce the principal of, or the rate of interest specified herein on any Loan, or (subject to clause (ii) below) any fees or other amounts payable hereunder or under any other Loan Document;

(d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Lenders or any of them to take any action hereunder; or

(e) amend this Section, or Section 2.13, or any provision herein providing for consent or other action by all Lenders;

and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Required Lenders or all the Lenders, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document, and (ii) the Fee Letter may be amended or rights or privileges thereunder waived, in a writing executed by the parties thereto.

10.2 Notices.

(a) All notices, requests and other communications shall be either (i) in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Borrower by facsimile shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 10.2) or (ii) as and to the extent set forth in clause (d) below, by electronic mail.

(b) All such notices, requests and communications shall, when transmitted by overnight delivery, faxed or e-mailed, be effective when delivered for overnight (next-day) delivery, transmitted in legible form by facsimile machine (provided that the sender has retained its facsimile machine-generated confirmation of the receipt of such fax by the recipient’s facsimile machine) or transmitted by e-mail (provided that the e-mail was sent to the e-mail address provided by the recipient and that the e-mail was not returned to the sender as undeliverable), respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Section 2 or 9 shall not be effective until actually received by the Agent.

(c) The agreement of the Agent and the Lenders herein to receive certain notices by telephone, facsimile or e-mail is solely for the convenience of the Borrower, the Agent and the Lenders. The Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person who is named in the then-current certificate delivered pursuant to subsection 4.1(e) hereof as authorized to execute Borrowing Advices (each an “Authorized Person”) and the Lenders shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Agent or the Lenders in reliance upon such telephonic, facsimile or e-mail notice, provided the Agent and the Lenders reasonably believe such Person to be an Authorized Person. The obligation of the Borrower to repay the Loans shall not be affected in any way to any extent by any failure by the Agent and the Lenders to receive written confirmation of any telephonic, facsimile or e-mail notice or the receipt by the

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Agent and the Lenders of a confirmation which is at variance with the terms understood by the Agent and the Lenders to be contained in the telephonic, facsimile or e-mail notice.

(d) The compliance certificate described in Section 6.2 shall be delivered to the Agent by the Borrower by mail or overnight delivery. Except for the compliance certificate described in Section 6.2, materials required to be delivered pursuant to Section 6.2 shall be delivered to the Agent in an electronic medium format reasonably acceptable to the Agent by e-mail at oploanswebadmin@citigroup.com. The Borrower agrees that the Agent may make such materials (collectively, the “Communications”) available to the Lenders by posting such materials on IntraLinks, “e-Disclosure” (the Agent’s internet delivery system that is part of SSB Direct, Global Fixed Income’s primary web portal) or a substantially similar electronic transmission system (collectively, the “Platform”). In addition, to the extent the Borrower in its sole discretion so elects and confirms in writing or by e-mail to the Agent, any other written information, documents, instruments or other material relating to the Borrower, any of its Subsidiaries or any other materials or matters relating to this Agreement, the Notes or any of the transactions contemplated hereby and supplied by the Borrower to the Agent (other than any such communication that (i) relates to a request for a new, or a conversion of an existing, Borrowing (including any election of an interest rate or Interest Period relating thereto), (ii) relates to the payment of any principal or other amount due hereunder prior to the scheduled date therefor, (iii) provides notice of any Default or Event of Default or (iv) is required to be delivered to satisfy any condition precedent set forth in Section 4.1 or Section 4.2), shall, to the extent of such election and confirmation by the Borrower, constitute materials that are “Communications” for purposes of this subparagraph (d). The Borrower and each of the Lenders acknowledges that (i) the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution, (ii) the Platform is provided “as is” and “as available” and (iii) neither the Agent nor any of its Affiliates warrants the accuracy, adequacy or completeness of the Communications or the Platform and each expressly disclaims liability for errors or omissions in the Communications or the Platform (provided, as to such disclaimer, that the Agent and its Affiliates have not been grossly negligent or engaged in any willful misconduct in respect of the Platform). No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects, is made by the Agent or any of its Affiliates in connection with the Platform.

(e) Each Lender agrees that notice to it (as provided in the next sentence) (a “Notice”) specifying that any Communications have been posted to the Platform shall constitute effective delivery of such information, documents or other materials to such Lender for purposes of this Agreement. Each Lender agrees (i) to notify the Agent in writing of such Lender’s e-mail address to which a Notice may be sent by electronic transmission (including by electronic communication) on or before the date such Lender becomes a party to this Agreement (and from time to time thereafter to ensure that the Agent has on record an effective e-mail address for such Lender) and (ii) that any Notice may be sent to such e-mail address.

(f) The Agent agrees to give to each Lender prompt notice of all materials delivered by the Borrower pursuant to Section 6.2.

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10.3 No Waiver-Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

10.4 Costs and Expenses. The Borrower shall:

(a) whether or not the transactions contemplated hereby are consummated, pay or reimburse Citicorp USA including in its capacity as Agent and Lender within five Business Days after demand, subject to subsection 4.1(g) for all reasonable costs and expenses incurred by Citicorp USA including in its capacity as Agent and Lender in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by Citicorp USA (including in its capacity as Agent and Lender with respect thereto); and

(b) pay or reimburse the Agent, the Arranger and each Lender within five Business Days after demand (subject to subsection 4.1(g)) for all reasonable costs and expenses (including reasonable Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any “workout” or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). In connection with any claim, demand, action or cause of action relating to the enforcement, preservation or exercise of any rights or remedies covered by this Section 10.4 against the Borrower, all Lenders shall be represented by the same legal counsel selected by such Lenders; provided, that if such legal counsel determines in good faith that representing all such Lenders would or could result in a conflict of interest under laws or ethical principles applicable to such legal counsel or that a claim is available to a Lender that is not available to all such Lenders, then to the extent reasonably necessary to avoid such a conflict of interest or to permit an unqualified assertion of such a claim, each Lender shall be entitled to separate representation by legal counsel selected by that Lender, with all such legal counsel using reasonable efforts to avoid unnecessary duplication of effort by counsel for all Lenders.

10.5 Borrower Indemnification. Whether or not the transactions contemplated hereby are consummated, the Borrower shall indemnify and hold the Agent-Related Persons, and each Lender and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an “Indemnified Person”) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans and the termination, resignation or replacement of the Agent or replacement of any Lender) be imposed on, incurred by or asserted

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against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”); provided, that the Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting from the gross negligence or willful misconduct of such Indemnified Person. If any claim, demand, action or cause of action is asserted against any Indemnified Person, such Indemnified Person shall promptly notify Borrower, but the failure to so promptly notify Borrower shall not affect Borrower’s obligations under this Section unless such failure materially prejudices Borrower’s right to participate in the contest of such claim, demand, action or cause of action, as hereinafter provided. If requested by Borrower in writing, such Indemnified Person shall in good faith contest the validity, applicability and amount of such claim, demand, action or cause of action and shall permit Borrower to participate in such contest. Any Indemnified Person that proposes to settle or compromise any claim or proceeding for which Borrower may be liable for payment of indemnity hereunder shall give Borrower written notice of the terms of such proposed settlement or compromise reasonably in advance of settling or compromising such claim or proceeding and shall obtain Borrower’s prior consent. In connection with any claim, demand, action or cause of action covered by this Section 10.5 against more than one Indemnified Person, all such Indemnified Persons shall be represented by the same legal counsel selected by the Indemnified Persons and reasonably acceptable to Borrower; provided, that if such legal counsel determines in good faith that representing all such Indemnified Persons would or could result in a conflict of interest under laws or ethical principles applicable to such legal counsel or that a defense or counterclaim is available to an Indemnified Person that is not available to all such Indemnified Persons, then to the extent reasonably necessary to avoid such a conflict of interest or to permit unqualified assertion of such a defense or counterclaim, each Indemnified Person shall be entitled to separate representation by legal counsel selected by that Indemnified Person and reasonably acceptable to Borrower, with all such legal counsel using reasonable efforts to avoid unnecessary duplication of effort by counsel for all Indemnified Persons. The agreements in this Section shall survive payment of all other Obligations.

10.6 Payments Set Aside. To the extent that the Borrower makes a payment to the Agent or the Lenders, or the Agent or the Lenders exercise any right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Agent upon demand its pro rata share of any amount so recovered from or repaid by the Agent.

10.7 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except

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that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Lender.

10.8 Assignments, Participations Etc.

(a) Any Lender may, with the written consent of the Agent and the Borrower, which consent shall not be unreasonably withheld (except Borrower’s consent shall not be required if (i) a Default or an Event of Default exists and is continuing, and (ii) the Eligible Assignee is not engaged in the securities brokerage business or the investment advisory business), at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Agent shall be required in connection with any assignment and delegation by a Lender to an Eligible Assignee that is an Affiliate of such Lender) (each an “Assignee”) all, or any ratable part of all, of the Loans, the Commitments, and the other rights and obligations of such Lender hereunder, in a minimum amount of $10,000,000; provided, however, that the Borrower and, the Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (A) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Borrower and the Agent by such Lender and the Assignee; (B) such Lender and its Assignee shall have delivered to the Borrower and the Agent an Assignment and Acceptance in the form of Exhibit F (“Assignment and Acceptance”) together with any Note or Notes subject to such assignment; and (C) the assignor Lender or Assignee has paid to the Agent a processing fee in the amount of $3,500.

(b) From and after the date that the Agent notifies the assignor Lender and the Borrower that it has received (and the Borrower and the Agent have provided their consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents.

(c) Within five Business Days after its receipt of notice by the Agent that it has received an executed Assignment and Acceptance and payment of the processing fee (and provided that it consents to such assignment in accordance with subsection 10.8(a)), the Borrower shall execute and deliver to the Agent, new Notes evidencing such Assignee’s assigned Loans and Commitment and, if the assignor Lender has retained a portion of its Loans and its Commitment, replacement Notes in the principal amount of the Commitment retained by the assignor Lender (such Notes to be in exchange for, but not in payment of, the Notes held by such Lender). Immediately upon each Assignee’s making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assignor Lender pro tanto.

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(d) Any Lender may at any time sell to one or more commercial banks or other Persons not Affiliates of the Borrower (a “Participant”) participating interests in any Loans, the Commitment of that Lender and the other interests of that Lender (the “originating Lender”) hereunder and under the other Loan Documents; provided, however, that (i) the originating Lender’s obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Borrower, and the Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender’s rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document. Any Lender that sells a participation to any Person that is a “foreign corporation, partnership or trust” within the meaning of the Code shall include in its participation agreement with such Person a covenant by such Person that such Person will comply with the provisions of Section 9.10 as if such Person were a Lender and provide that the Agent and the Borrower shall be third party beneficiaries of such covenant.

(e) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR §203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law.

(f) Any Lender (a “Granting Lender”) may, with notice to the Agent, grant to a special purpose funding vehicle (an “SPC”) the option to fund all or any part of any Loan that such Granting Lender would otherwise be obligated to fund pursuant to this Agreement. The funding of a Loan by an SPC hereunder shall utilize the Revolving Credit Commitment of the Granting Lender to the same extent, and as if, such Loan were funded by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or payment under this Agreement for which a Lender would otherwise be liable for so long as, and to the extent, the Granting Lender provides such indemnity or makes such payment. Notwithstanding anything to the contrary contained in the foregoing or anywhere else in this Agreement, (i) nothing herein shall constitute a commitment by any SPC to fund any Loan, (ii) if an SPC elects not to exercise such option or otherwise fails to fund all or any part of such Loan, the Granting Lender shall be obligated to fund such Loan pursuant to the terms hereof, and (iii) the Borrower and Agent shall continue to deal exclusively with the Granting Lender and any funding by an SPC hereunder shall not constitute an assignment, assumption or participation of any rights or obligations of the Granting Lender. Any SPC may disclose on a confidential basis any non-public information relating to its funding of Loans to any rating agency, commercial paper dealer or provider of any surety or guarantee to such SPC, provided, as a condition precedent to such disclosure, (A) such agency, dealer or provider has delivered to such Granting Lender for the benefit of Borrower a written confidentiality agreement substantially similar to Section 10.9, and (B) simultaneous with or prior to such disclosure, such Granting Lender has given written notice to Borrower of the agency, dealer or provider to which such disclosure is being made and the contents of such disclosure. This Section may not be amended without the

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prior written consent of each Granting Lender, all or any part of whose Loan is being funded by an SPC at the time of such amendment.

10.9 Confidentiality. Each Lender agrees to hold any confidential information that it may receive from Borrower or from the Agent on such Borrower’s behalf, pursuant to this Agreement in confidence, except for disclosure: (a) to legal counsel and accountants for Borrower or any Lender; (b) to other professional advisors to Borrower or any Lender, provided that the recipient has delivered to such Lender a written confidentiality agreement substantially similar to this Section 10.9; (c) to regulatory officials having jurisdiction over any Lender; (d) as required by applicable law or legal process or in connection with any legal proceeding in which any Lender and Borrower are adverse parties; (e) to Affiliates of such Lender to the extent the Affiliate is involved in the administration of the credit facilities extended to Borrower and its Subsidiaries hereunder, provided that any such Affiliate has delivered to such Lender a written confidentiality agreement substantially similar to this Section 10.9 and (f) to another financial institution in connection with a disposition or proposed disposition to that financial institution of all or part of any Lender’s interests hereunder or a participation interest in the Revolving Note and/or the Term Note, each in accordance with Section 10.8 hereof, provided that the recipient has delivered to such Lender a written confidentiality agreement substantially similar to this Section 10.9. Each Lender further agrees that it will not use such confidential information in any activity or for any purpose other than the administration of credit facilities extended to Borrower and its Subsidiaries and, without limitation, will take such steps as are reasonably appropriate to preclude access to any such confidential information to be obtained by any Person employed by any Lender, or by an affiliate of any Lender, who is not involved in the administration of credit facilities extended to Borrower and its Subsidiaries. For purposes of the foregoing, “confidential information” shall mean any information respecting Borrower or its Subsidiaries reasonably specified by Borrower as confidential, other than (i) information filed with any governmental agency and available to the public, and (ii) information disclosed by Borrower to any Person not associated with Borrower without a written confidentiality agreement substantially similar to this Section 10.9. Certain of the confidential information pursuant to this Agreement is or may be valuable proprietary information that constitutes a trade secret of Borrower or its Subsidiaries; neither the provision of such confidential information to any Lender or the limited disclosures thereof permitted by this Section 10.9 shall affect the status of any such confidential information as a trade secret of Borrower and its Subsidiaries. Each Lender, and each other Person who agrees to be bound by this Section 10.9, acknowledges that any breach of the agreements contained in this Section 10.9 would result in losses that could not be reasonably or adequately compensated by money damages. Accordingly, if any Lender or any other person breaches its obligations hereunder, such Lender or such other Person recognizes and consents to the right of Borrower, Intermediate Parent, and/or Broker Subsidiary to seek injunctive relief to compel such Lender or other Person to abide by the terms of this Section 10.9.

10.10 Notification of Addresses, Lending Offices, Etc. Each Lender shall notify the Agent in writing of any changes in the address to which notices to the Lender should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request.

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10.11  Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument.

10.12  Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

10.13  No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of the Borrower, the Lenders, the Agent and the Arranger, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents.

10.14  Governing Law and Jurisdiction.

(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.

10.15 Waiver of Jury Trial. TO THE FULL EXTENT PERMITTED BY LAW, THE BORROWER, THE LENDERS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTION CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. TO THE FULL EXTENT PERMITTED BY LAW, THE BORROWER, THE LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL

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WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

10.16 Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the Borrower, the Lenders and the Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof.

10.17 Headings. Articles and Section headings in this Agreement are included herein for the convenience of reference only.

10.18 USA Patriot Act. Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies each borrower, guarantor or grantor (the “Loan Parties”), which information includes the name and address of each Loan Party and other information that will allow such Lender to identify such Loan Party in accordance with the Act.

(SIGNATURE PAGE FOLLOWS)

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date first above written.

Borrower:
THE CHARLES SCHWAB CORPORATION
By:	Joseph R. Martinetto
Name:	Joseph R. Martinetto
Title:	Executive Vice President and Chief Financial Officer

Lenders:
CITICORP USA, INC., as Agent and
individually as Lender
By:	Michael Mauerstein
Name:	Michael Mauerstein
Title:	Managing Director
CREDIT SUISSE, CAYMAN ISLANDS BRANCH
By:	Jay Chall
Name:	Jay Chall
Title:	Director
By:	Markus Frenzen
Name:	Markus Frenzen
Title:	Assistant Vice President
JPMORGAN CHASE BANK, N.A.
By:	Catherine Grossman
Name:	Catherine Grossman
Title:	Vice President
PNC BANK, NATIONAL ASSOCIATION
By:	Edward J. Chidiac
Name:	Edward J. Chidiac
Title:	Managing Director
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	Robert Fialkowski
Name:	Robert Fialkowski
Title:	Senior Vice President/Relationship Manager
BANK OF AMERICA, N.A.
By:	Garfield Johnson
Name:	Garfield Johnson
Title:	Senior Vice President

CALYON NEW YORK BRANCH
By:	Sebastian Rocco
Name:	Sebastian Rocco
Title:	Managing Director
By:	Walter Jay Buckley
Name:	Walter Jay Buckley
Title:	Managing Director
STATE STREET BANK AND TRUST COMPANY
By:	Carolyn L. Baker
Name:	Carolyn L. Baker
Title:	Assistant Vice President
UBS LOAN FINANCE LLC
By:	Irja R. Otsa
Name:	Irja R. Otsa
Title:	Associate Director
By:	Mary E. Evans
Name:	Mary E. Evans
Title:	Associate Director
BNP PARIBAS
By:	Frank S. Sodano
Name:	Frank S. Sodano
Title:	Managing Director
By:	David Seaman
Name:	David Seaman
Title:	Director
THE BANK OF NEW YORK
By:	Andrew S. Demko
Name:	Andrew S. Demko
Title:	Managing Director

COMMERZBANK AG NEW YORK AND GRAND CAYMAN BRANCHES
By:	William M. Earley
Name:	William M. Earley
Title:	Senior Vice President
By:	Michele Woessner-Larkin
Name:	Michele Woessner-Larkin
Title:	Assistant Vice President
LLOYDS TSB BANK PLC
By:	Alexander Wilson
Name:	Alexander Wilson
Title:	Director
By:	Candi Obrentz
Name:	Candi Obrentz
Title:	Associate Director
BANK OF HAWAII
By:	Steven Nakahara
Name:	Steven Nakahara
Title:	Vice President

Schedule 1

LENDERS’ COMMITMENTS

The Charles Schwab Corporation $800,000,000 Credit Agreement (364-Day Commitment) dated as of June 13, 2008.

		Lender Commitment Amount
1.	Citicorp USA, Inc.	1.	$	95,000,000
2.	Credit Suisse, Cayman Islands Branch	2.		80,000,000
3.	JPMorgan Chase Bank, N.A.	3.		80,000,000
4.	PNC Bank, National Association	4.		80,000,000
5.	Wells Fargo Bank, National Association	5.		80,000,000
6.	Bank of America, N.A.	6.		80,000,000
7.	Calyon New York Branch	7.		60,000,000
8.	State Street Bank and Trust Company	8.		50,000,000
9.	UBS Loan Finance LLC	9.		50,000,000
10.	BNP Paribas	10.		45,000,000
11.	The Bank of New York	11.		30,000,000
12.	Commerzbank AG New York and Grand Cayman Branches	12.		30,000,000
13.	Lloyds TSB Bank plc	13.		30,000,000
14.	Bank of Hawaii	14.		10,000,000
	Total		$	800,000,000

Schedule 2

LIST OF BORROWING AGREEMENTS

1. $800,000,000 Credit Agreement (364-Day Commitment) dated as of June 15, 2007 among the Borrower, the lenders party thereto, and Citicorp USA, Inc., as administrative agent for such lenders.

Schedule 6.2

COMPLIANCE CERTIFICATE

I, ____________________, certify that I am the _______________________ of The Charles Schwab Corporation (the “Borrower”), and that as such I am authorized to execute this Compliance Certificate on behalf of the Borrower, and do hereby further certify on behalf of the Borrower that:

1. I have reviewed the terms of that certain Credit Agreement (364-Day Commitment) dated as of June 13, 2008 among the Borrower, the financial institutions named therein (the “lenders”) and Citicorp USA, Inc., as Agent for the lenders (the “Credit Agreement”), and I have made, or have caused to be made by employees or agents under my supervision, a detailed review of the transactions and conditions of the Borrower during the accounting period covered by the attached financial statements dated ______________, 200__.

2. The examination described in paragraph 1 did not disclose, and I have no knowledge of the existence of any condition or event which constitutes a Default or Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Compliance Certificate, except as set forth below.

3. Schedule I attached hereto sets forth financial data and computations evidencing compliance with the covenants set forth in Sections 7.1 and 7.2 of the Credit Agreement, all of which data and computations are true, complete and correct. Capitalized terms not otherwise defined herein are defined in the Credit Agreement.

4. Described below are the exceptions, if any, to paragraph 2 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event.

The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Compliance Certificate in support hereof, are made and delivered this ___ day of _____________ 200__.

By:

Name:

Title:

The Charles Schwab Corporation

Credit Agreement (364-Day Commitment)

Dated as of June 13, 2008

Schedule I

to

Compliance Certificate

(Dollars in Thousands)

1. Net Capital Ratio of the Broker Subsidiary.

Requirement: Broker Subsidiary - month-end ratio not less than 5%.

Net Capital Ratio for Broker Subsidiary

Month Month-end Ratio

2. Minimum Stockholders’ Equity of Borrower.

Requirement: As of _____________, 200___, required Minimum Stockholders’ Equity is $2,100,000,000 plus 50% of cumulative Net Earnings from June 30, 2008.

Schedule 10.2

NOTICES

If to the Borrower:

If by U.S. mail:	The Charles Schwab Corporation
	Treasury Department
	Attn: Carrie L. Dolan or Successor
	101 Montgomery Street (Mail Stop SF120KNY-13-471)
	San Francisco, CA 94104
If by hand delivery
(including courier
and overnight
messenger service):	The Charles Schwab Corporation
	Treasury Department
	Attn: Carrie L. Dolan or Successor
	120 Kearny St. 13th Floor
	San Francisco, CA 94104
Telephone:	(415) 636-9824
Facsimile:	(415) 636-9892

If to the Agent:

See information under Citicorp USA, Inc. in table below pertaining to Lenders.

If to the Lenders:

Credit Contact	Operations Contact	Lending Office	Payment Instructions
Bank of America, N.A. 335 Madison Ave. New York, NY 10017 Attention: Garfield Johnson          Senior Vice President (212) 503-7926 Fax: (21) 503-8206	Bank of America, N.A. One Independence Center 101 N. Tryon Street Charlotte, NC 28255-0001 Attention: Tammy Lunetta (704) 387-3603 Fax: (704) 409-0857	Bank of America, N.A. One Independence Center 101 N. Tryon Street Charlotte, NC 28255	Bank of America, N.A. ABA #: 026009593 Charlotte, NC Acct #: 1366212250600 Attention: Tammy Lunetta Ref: The Charles Schwab Corporation (TAE)
Bank of Hawaii 130 Merchant Street 20th Floor Honolulu, HI 96813 Attention: Steven Nakahara          Vice President (808) 694-8689 Fax: (808) 694-8301	Bank of Hawaii P.O. Box 2715 Honolulu, HI 96806 Attention: Rosalie Ponce (808) 694-1249 Fax: (808) 693-1672	Bank of Hawaii 130 Merchant Street 20th Floor Honolulu, HI 96813	Bank of Hawaii Honolulu, HI ABA #: 1213-01028 Acct #: 0298-206330 Acct Name: Bank of Hawaii Attn: Loan Operations Department Ref: The Charles Schwab Corporation

Credit Contact	Operations Contact	Lending Office	Payment Instructions
The Bank of New York One Wall Street, 41st Floor New York, NY 10286 Attention: Thomas P. Caruso          Vice President (212) 635-6745 Fax: (212) 635-1194	The Bank of New York 6023 Airport Road Oriskany, NY 13424 Attention: Brian Brown (315)765-4439 Fax: (315) 765-4783	The Bank of New York One Wall Street, 41st Floor New York, NY 10286	The Bank of New York ABA #: 021-000-018 Acct #: GLA111-231 Acct name: Broker Services Attn: Jacob Childress Ref: Charles Schwab Corporation
BNP Paribas 787 7th Avenue, 27th Floor New York, NY 10019 Attention: Frank Sodano          Director (212) 841-2084 Fax: (212) 841-2717	BNP Paribas 787 7th Avenue, 27th Floor New York, NY 10019 Attention: Frank Chiofalo (212) 841-2297 Fax: (212) 841-2717	BNP Paribas 787 7th Avenue, 27th Floor New York, NY 10019	BNP New York ABA #: 026007689 New York, NY Acct #: 10313000103 Attn: Loan Services Clearing Account
Calyon New York Branch 1301 Avenue of the Americas 13th Floor New York, NY 10019 Attention: Ken Ricciardi (212) 261 7348 Fax: (212) 261 3438	Calyon New York Branch 1301 Avenue of the Americas New York, NY 10019 Attention: Seth Ruffer          Asst. Vice          President (212) 261-7410 Fax: (212) 261-3401	Calyon New York Branch 1301 Avenue of the Americas New York, NY 10019	Calyon New York Branch ABA #: 026-008-073 New York, NY Acct #: 01-88179-3701-00 Acct Name: Loan Servicing Attention: S. Ruffer Ref: The Charles Schwab Corporation
Citicorp USA, Inc. 388 Greenwich Street New York, NY 10013 Attention: Michael Mauerstein          Vice President (212) 816-3431 Fax: (212) 816-4140	Citicorp USA, Inc. 2 Penn’s Way, Suite 200 New Castle, DE 19720 Attention: Lee Ocasio          Assistant          Manager (302) 894-6065 Fax: (302) 894-6120	Citicorp USA, Inc. 399 Park Avenue New York, NY 10043	Citibank NA ABA #: 021-000-089 New York, NY Acct #: 40610794 Acct Name: Wall Street Fees Attention: Lee Ocasio Ref: The Charles Schwab Corporation
Commerzbank AG New York and Grand Cayman Branches Two World Financial Center New York, NY 10281 Attention: Michele Woessner-          Larkin          AVP (212) 266-7693 Fax: (212) 266-8195	Commerzbank AG New York and Grand Cayman Branches Two World Financial Center New York, NY 10281 Attention: Ms. Soo Lee (212) 266-7487 Fax: (212) 266-7204	Commerzbank AG New York and Grand Cayman Branches Two World Financial Center New York, NY 10281 Attention: Cheriese Brathwaite (212) 266-7775 Fax: (212) 266-7491	Commerzbank AG New York Branch ABA #: 026-008-044 Acct. #: 150-1035104 Acct Name: The Charles Schwab Corporation Attn: Commercial Loan Department Ref: $800 million RCF
Credit Suisse, Cayman Islands Branch Eleven Madison Avenue New York, NY 10010 Attention: Jay Chall Markus Frenzen (212) 325-9010 (212) 325-6911 Fax: (212) 743-1843          (212) 322-0370	Credit Suisse, Cayman Islands Branch One Madison Avenue New York, NY 10010 Attention: Loan Closers          Hazel Leslie (212) 325-9041 (212) 325-9049 Fax: (212) 538-9120          (212) 538-3477	Credit Suisse, Cayman Islands Branch Eleven Madison Avenue New York, NY 10010 Attention: Jay Chall          Markus          Frenzen (212) 325-9010 (212) 325-6911 Fax: (212) 743-1843          (212) 322-0370	Credit Suisse ABA #: 021-000-018 New York, NY Acct #: 890-0492-627 Acct Name: CS Agency Cayman Ref: The Charles Schwab Corporation

2

Credit Contact	Operations Contact	Lending Office	Payment Instructions
JPMorgan Chase Bank, N.A. 270 Park Avenue 22nd Floor New York, NY 10017 Attention: Catherine Grossman (212) 270-1153 Fax: (212) 270-1511	JPMorgan Chase Bank, N.A. 4 New York Plaza, 11th Floor New York, NY 10004 Attention: Evadney Sandiford (212) 623-0471 Fax: (212) 623-0211/0213	JPMorgan Chase Bank, N.A. 270 Park Avenue 22nd Floor New York, NY 10017	JPMorgan Chase Bank, N.A. New York, NY ABA #: 021000021 Acct #: 066-999979 Acct Name: Broker Dealer House Attn: Evadney Sandiford Ref: The Charles Schwab Corp
Lloyds TSB Bank plc 1251 Avenue of the Americas 39th Floor New York , NY 10020 Attention: Alex Wilson/          Elaine Kallenbach (212) 930-8977/8975 Fax: (212) 930-5098	Lloyds TSB Bank plc 1251 Avenue of the Americas 39th Floor New York , NY 10020 (212) 930-89014/8971 Fax: (212) 930-5098	Lloyds TSB Bank plc 1251 Avenue of the Americas 39th Floor New York , NY 10020	Bank of America International, New York New York, NY ABA #: 026-009-593 Acct #: 655-010-1938 Acct Name: Lloyds TSB Bank plc, Miami Ref: The Charles Schwab Corporation
PNC Bank, N. A. One PNC Plaza 249 Fifth Avenue Pittsburgh, PA 15222 Attention: Edward Chidiac /          Carolyn Schwarz (412) 768-2642 (412) 762-3236 Fax: (412) 762-6484 (412) 705-3232	PNC Bank, N. A. 500 First Avenue Pittsburgh, PA 15219 Attention: Patricia Behun          Loan                    Administration (412) 768-7517 Fax: (412) 768-4586	PNC Bank, N. A. One PNC Plaza 249 Fifth Avenue Pittsburgh, PA 15222	PNC Bank, N.A. Pittsburgh, PA ABA #: 043-000-096 Acct #: 13076-0016-803 Acct Name: Commercial Loan Operations Attention: Patricia Behun Ref: Charles Schwab
State Street Bank and Trust Company 225 Franklin Street MAO7 Boston, MA 02110 Attention: James Reichert (617) 664-0240 Fax: (617) 664-0646	State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 Attention: Eola Romano (617) 664-6434 Fax: (617) 664-3874	State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110	State Street Bank and Trust Company, Boston, MA ABA#: 011-000-028 Acct #: 0006-332-1 Acct. Name: IS Loan Operations/CSU Internal
UBS Loan Finance LLC 677 Washington Boulevard Stamford, CT 06901 Attention: Marie Haddad (203) 719-5609 Fax: (203) 719-3888	UBS Loan Finance LLC 677 Washington Boulevard Stamford, CT 06901 Attention: Marie Haddad (203) 719-5609 Fax: (203) 719-3888	UBS Loan Finance LLC 677 Washington Boulevard Stamford, CT 06901	UBS Loan Finance LLC Stamford, CT ABA #: 026 007 993 Acct #: WA-894001-001 Acct. Name: BPS Loan Finance Act Attn: Marie Haddad Ref: Charles Schwab Corporation
Wells Fargo Bank, National Association 230 West Monroe Street Chicago, IL 60606-4703 Attention: Robert P. Fialkowski          Corporate Banking          Relationship Mgr. (312) 726-2159 Fax: (312) 845-86067251	Wells Fargo Bank, National Association 201 3rd Street, 8th Floor A0187-081 San Francisco, CA 94103 Attention: Cindy Dunn          Loan Servicing          Spec. (415) 477-5431 Fax: (415) 979-0675	Wells Fargo Bank, National Association 6th Street and Marquette Ave N9305-075 Minneapolis, MN 55479	Wells Fargo Bank, National Association San Francisco, CA ABA #: 121000248 Acct #: 2712507201 Account Name: Member Syndication Ref: The Charles Schwab Corporation, Obligor #1582242431

3

EXHIBIT A-1

REVOLVING NOTE

$____________________ (Amount of Commitment) Date: June 13, 2008

For Value Received, The Charles Schwab Corporation (“Schwab”) hereby promises to pay to the order of ________________ (the “Lender”) to Citicorp USA, Inc., as Agent, at Agent’s office located at 388 Greenwich Street, New York, New York 10013, for the account of the applicable Lending Office of the Lender, the principal amount of ____________________ ($___________) or the aggregate amount of all Revolving Loans made to Schwab by the Lender, whichever is less, on June 12, 2009. The undersigned also promises to pay interest on the unpaid principal amount of each Borrowing from the date of such Borrowing until such principal amount is paid, at the rates per annum, and payable at such times, as are specified in the Credit Agreement. This Note shall be subject to the terms of the Credit Agreement, and all principal and interest payable hereunder shall be due and payable in accordance with the terms of the Credit Agreement.

Schwab hereby authorizes the Lender to endorse on the Schedule attached to this Note the amount and Type of Revolving Loans made to Schwab by the Lender and all renewals, conversions, and payments of principal amounts in respect of such Revolving Loans, which endorsements shall, in the absence of manifest error, be conclusive as to the outstanding principal amount of all such Revolving Loans, provided, however, that the failure to make such notation with respect to any Revolving Loans or payments shall not limit or otherwise affect the obligation of Schwab under the Credit Agreement or this Note.

This Note is the Revolving Note referred to in the Credit Agreement (364-Day Commitment), dated as of June 13, 2008 among Schwab, the Lender, certain other Lenders party thereto, and Citicorp USA, Inc., as Agent for the Lenders (the “Credit Agreement”). Terms defined in the Credit Agreement are used herein with the same meanings. The Credit Agreement, among other things, contains provisions for acceleration of the maturity of this Note, upon the happening of certain stated events and also for prepayments on account of the principal of this Note prior to the maturity of this Note upon the terms and conditions specified in the Credit Agreement.

Principal and interest payments shall be in money of the United States of America, lawful at such times for the satisfaction of public and private debts, and shall be in immediately available funds.

Schwab promises to pay the costs of collection, including reasonable attorney’s fees, if default is made in the payment of this Note.

The terms and provisions of this Note shall be governed by the applicable laws of the State of California.

IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its officers thereunto duly authorized and directed by appropriate corporate authority.

The Charles Schwab Corporation

By:

Name:

Title:

2

EXHIBIT A-1

SCHEDULE TO REVOLVING NOTE

Date Made, Continued,
Converted, or Paid Type of Loan Amount of Loan Amount of Principal Continued,
Converted, or Paid Unpaid Principal
Balance of
Revolving Note Name of Person
Making Notation

3

EXHIBIT A-2

TERM NOTE

Date: June 13, 2008

FOR VALUE RECEIVED, the undersigned, The Charles Schwab Corporation (“Schwab”) hereby promises to pay to the order of ___________________ (the “Lender”), to Citicorp USA, Inc., as Agent, at the Agent’s office located at 388 Greenwich Street, New York New York 10013, for the account of the applicable Lending Office of the Lender, the principal amount of each Term Loan made by the Lender to Schwab pursuant to the terms of the Credit Agreement (364-Day Commitment), dated as of June 13, 2008, as amended, among Schwab, the Lender, certain other Lenders party thereto, and Citicorp USA, Inc., as Agent for the Lenders (the “Credit Agreement”), as shown in the schedule attached hereto and any continuation thereof, in lawful money of the United States and in immediately available funds on the Term Loan Maturity Date for such Term Loan. The undersigned also promises to pay interest on the unpaid principal amount of each Term Loan from the date of such Term Loan until such principal amount is paid, in like money, at said office for the account of the Lender’s applicable Lending Office, at the rates per annum, and payable at such times as are specified in the Credit Agreement. This Term Note shall be subject to the terms of the Credit Agreement and all principal and interest payable hereunder should be due and payable in accordance with the terms of the Credit Agreement. Terms defined in the Credit Agreement are used herein with the same meanings.

This Term Note is one of the Term Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, contains provisions for acceleration of the maturity of this Term Note upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity of the Term Note upon the terms and conditions specified in the Credit Agreement.

Schwab promises to pay costs of collection, including reasonable attorney’s fees, if default is made in the payment of this Note.

The terms and provisions of this Term Note shall be governed by the applicable laws of the State of California.

IN WITNESS WHEREOF, the undersigned has caused this Term Note to be executed by its officer thereunto duly authorized and directed by appropriate corporate authority.

The Charles Schwab Corporation

By:

Name:

Title:

EXHIBIT A-2

SCHEDULE TO TERM NOTE

Date Made,
Continued,
Converted, or Paid Type of Loan Amount of Loan Term Loan
Maturity Date Amount of
Principal Continued,
Converted, or Paid Unpaid Principal
Balance of
Term Note Name of Person
Making Notation

2

EXHIBIT B

BORROWING ADVICE

1. This Borrowing Advice is executed and delivered by The Charles Schwab Corporation (“Borrower”) to you pursuant to that certain Credit Agreement dated as of June 13, 2008 (the “Credit Agreement”), entered into by Borrower, Citicorp USA, Inc. (“Citicorp USA”) and certain other Lenders parties thereto, collectively with Citicorp USA (the “Lenders”) and Citicorp USA as Agent for the Lenders (herein “Agent”). Terms defined in the Credit Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement.

2. Borrower hereby requests that the Lenders make a Revolving [or Term Loan] for the account of Borrower (at _______________, Account No. ________________) pursuant to Section 2.4 of the Credit Agreement as follows:

(a) Amount of Revolving [or Term Loan]:___________________ .

(b) Borrowing Date of Revolving [or Term Loan]: _________________.

(c) [If a Revolving Loan] Type of Revolving Loan (check one only):

¨  Eurodollar Rate with ________- day Interest Period

¨   Federal Funds Rate

¨  Base Rate

(d) [If a Term Loan] Type of Term Loan (check one only):

¨  Eurodollar Rate with initial ________- day Interest Period

¨  Federal Funds Rate

¨  Base Rate

(e) [If a Term Loan] Maturity Date of Term Loan:__________________.

3. Following this request for a Revolving Loan [or Term Loan], the aggregate outstanding amount of all Revolving Loans and Term Loans under the Revolving Note will not exceed the aggregate amount of the Commitments.

4. This Borrowing Advice is executed on ______________ by the Borrower.

BORROWER:

THE CHARLES SCHWAB CORPORATION,

a Delaware Corporation

By:

Name:

Title:

2

EXHIBIT C

NOTICE OF CONVERSION/CONTINUATION

Dated as of: _________________

Citicorp USA, Inc., as Agent

_____________________________

_____________________________

Ladies and Gentlemen:

This irrevocable Notice of Conversion/Continuation (this “Notice”) is delivered to you under the Credit Agreement (364-Day Commitment) dated as of June 13, 2008 (as amended, restated or otherwise modified, the “Credit Agreement”) by and among The Charles Schwab Corporation, a Delaware corporation (the “Company”) (herein “Borrower”); and Citicorp USA, Inc., a Delaware corporation (herein “Citicorp USA”) and the other Lenders signatory thereto (together with Citicorp USA, collectively “Lenders”), and Citicorp USA as agent for the Lenders (herein “Agent”).

1. This Notice is submitted for the purpose of:

(check one and complete applicable information in accordance with the Credit Agreement)

¨  Converting or  ¨  continuing all or a portion of the following type of Loan:

(a) (check, as applicable)

Base Rate Loan  ¨;

Federal Funds Rate Loan  ¨;

Eurodollar Rate Loan  ¨.

(b) The aggregate outstanding principal balance of the above Loan is $_____________________.

(c) As applicable, the last day of the current Interest Period for such Loan is __________________.

(d) The principal amount of such Loan to be [converted or continued] is $___________________.

(e) Such principal amount should be converted/continued into the following type of Loan:

Base Rate Loan _____________________;

Federal Funds Rate Loan ______________;

Eurodollar Rate Loan ________________.

(f) The requested effective date of the [conversion/continuation] of such Loan is _____________________.

(g) As applicable, the requested Interest Period applicable to the new Loan is _____________________.

2. No Default or Event of Default under the Credit Agreement has occurred and is continuing or will be caused by the advance requested hereby.

3. The representations and warranties set forth in Section 5 of the Credit Agreement are true and correct as if made on the date hereof (except for such representations and warranties as expressly relate to a prior date).

Capitalized terms used herein which are not defined herein shall have the respective meanings set forth in the Credit Agreement.

IN WITNESS WHEREOF, the undersigned officer of the Company has executed this Notice of Conversion/Continuation this ___ day of __________, _____.

THE CHARLES SCHWAB CORPORATION
By:
Name:
Title:
	[must be signed by an Authorized Officer]

2

EXHIBIT D

COMMITMENT AND TERMINATION DATE EXTENSION REQUEST

[Bank name and address] [Date]

Reference is made to that certain Credit Agreement (364-Day Commitment) dated as of June 13, 2008 (“Credit Agreement”) entered into by The Charles Schwab Corporation (“Borrower”), Citicorp USA, Inc., as Agent and Lenders party thereto. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement.

Pursuant to Section 2.11 of the Credit Agreement, Borrower hereby requests Agent to obtain each Lender’s agreement to the extension of such Lender’s Commitment presently in effect, in the amount of $[specify amount of existing Commitment], and the Termination Date presently in effect, for an additional 364 days.

Agent’s execution of a copy of this letter in the space provided below and the transmission of such executed copy to Borrower shall constitute all Lenders’ acceptance of Borrower’s request and all Lenders’ agreement to the 364-day extension sought herein. More specifically, upon the execution of a copy of this letter by Agent on behalf of Lenders and the transmission thereof to Borrower within 15 days after Agent’s receipt of this letter, (1) the Termination Date as defined in Section 2.11 of the Credit Agreement shall be extended 364 days and deemed changed to ___________________, and (2) all other dates appearing in the Credit Agreement that are referred to in Section 2.11 of the Credit Agreement shall correspondingly be extended 364 days.

This Commitment and Termination Date Extension Request is executed by Borrower on ________________.

BORROWER:

THE CHARLES SCHWAB CORPORATION,

a Delaware Corporation

By:

Name:

Title:

ACCEPTED AND AGREED:

Agent, on Behalf of Lenders

By:

Name:

Title:

EXHIBIT E

June 13, 2008

Citicorp USA, Inc., as Agent

399 Park Ave.

New York, New York 10043

Re: Credit Agreement (364-Day Commitment) dated as of June 13, 2008,

among The Charles Schwab Corporation, as Borrower; Citicorp USA, Inc.,

as Administrative Agent; Credit Suisse, Cayman Islands Branch,

JPMorgan Chase Bank, N.A., PNC Bank, National Association and

Wells Fargo Bank, National Association, as Co-Documentation

Agents; Citigroup Global Markets Inc., as Sole Lead Arranger and

Sole Book Manager; and the banks signatory thereto, as Lenders

Ladies and Gentlemen:

This opinion is delivered at the request of The Charles Schwab Corporation to you in your capacity as the Administrative Agent, on behalf of the Lenders, under the Credit Agreement (364-Day Commitment) dated as of June 13, 2008 (the “Credit Agreement”) among The Charles Schwab Corporation, a Delaware corporation, as Borrower (the “Borrower”); Citicorp USA, Inc., as Administrative Agent (the “Agent”); Credit Suisse, Cayman Islands Branch, JPMorgan Chase Bank, N.A., PNC Bank, National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents; Citigroup Global Markets Inc., as Sole Lead Arranger and Sole Book Manager; and the banks signatory thereto, as Lenders (each a “Lender” and collectively the “Lenders”). This opinion letter speaks as of close of business on June 13, 2008 (hereafter the “operative date”).

We have acted as special counsel to Borrower in connection with the Credit Agreement. In such capacity we have examined originals, or copies represented to us by Borrower to be true copies, of the Credit Agreement; and we have obtained such certificates of such responsible officials of Borrower and of public officials as we have deemed necessary for purposes of this opinion. We have assumed without investigation the genuineness of all signatures on original documents, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as photostatic copies of originals, and the accuracy and completeness of all corporate records certified to us by the Borrower to be accurate and complete. We have further assumed that the Credit Agreement is binding upon and enforceable against the Agent and the Lenders. As to factual matters, we have relied upon the representations and warranties contained in and made pursuant to the Credit Agreement.

Capitalized terms not otherwise defined herein have the meanings given for such terms in the Credit Agreement. For the purpose of this opinion, “Loan Documents” as used herein means the Credit Agreement and the Notes.

Based upon the foregoing and in reliance thereon, and subject to the exceptions and qualifications set forth herein, we are of the opinion that:

1.     Borrower is a corporation duly formed, validly existing, and in good standing under the laws of Delaware.

2.     Borrower has all requisite corporate power and authority to execute, deliver and perform all of its obligations under the Loan Documents.

3.     Each of the Loan Documents has been duly authorized, executed and delivered by Borrower. Each of the Loan Documents constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such validity, binding nature or enforceability may be limited by:

(a) the effect of applicable federal or state bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or other similar laws and court decisions relating to or affecting creditors’ rights generally;

(b) the effect of legal and equitable principles upon the availability of creditors’ remedies, regardless of whether considered in a proceeding in equity or at law;

(c) the effect of California judicial decisions involving statutes or principles of equity which have held that certain covenants or other provisions of agreements, including without limitation those providing for the acceleration of indebtedness due under debt instruments upon the occurrence of events therein described, are unenforceable under circumstances where it cannot be demonstrated that the enforcement of such provisions is reasonably necessary for the protection of the lender, has been undertaken in good faith under the circumstances then existing, and is commercially reasonable;

(d) the effect of Section 1670.5 of the California Civil Code, which provides that a court may refuse to enforce a contract or may limit the application thereof or any clause thereof which the court finds as a matter of law to have been unconscionable at the time it was made;

(e) the unenforceability, under certain circumstances, of provisions purporting to require the award of attorneys’ fees, expenses, or costs, where such provisions do not satisfy the requirements of California Civil Code Section 1717 et seq., or in any action where the lender is not the prevailing party;

(f) the unenforceability, under certain circumstances, of provisions waiving stated rights or unknown future rights and waiving defenses to obligations, where such waivers are contrary to applicable law or against public policy;

(g) the unenforceability, under certain circumstances, of provisions which provide for penalties, late charges, additional interest in the event of a default by the borrower or fees or costs related to such charges;

(h) the unenforceability, under certain circumstances, of provisions to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy, or that the election of some particular remedy or remedies does not preclude recourse to one or another remedy;

(i) the unenforceability of provisions prohibiting waivers of provisions of either of the Loan Documents otherwise than in writing to the extent that Section 1698 of the California Civil Code permits oral modifications that have been executed;

(j) limitations on the enforceability of release, contribution, exculpatory, or nonliability provisions, under federal or state securities laws, Sections 1542 and 1543 of the California Civil Code, and any other applicable statute or court decisions;

(k) limitations on the enforceability of any indemnity obligations imposed upon or undertaken by the borrower to the extent that such obligations do not satisfy the requirements of Sections 2772 et seq. of the California Civil Code and any judicial decisions thereunder; and

(l) the effect of Grafton Partners L.P. v. Superior Court, 36 Cal. 4th 944 (Cal. 2005), in which the California Supreme Court held that predispute contractual waivers of trial by jury are invalid, as well as the effect of Section 631(d) of the California Code of Civil Procedure, which provides that a court may, in its discretion upon just terms, allow a trial by jury although there may have been a waiver of trial by jury.

The foregoing opinions are subject to the following exceptions and qualifications:

a. We have not been requested to verify and have not verified the validity, accuracy, or reasonableness of any of the factual representations contained in either or both of the Loan Documents, and we express no opinion with respect to any of such matters.

b. We are members of the bar of the State of California, and we are opining herein only concerning matters governed by the Federal laws of the United States of America, the laws of the State of California, and the General Corporation Law of the State of Delaware, and only with respect to Borrower. We express no opinion concerning the applicability to the Loan Documents, or the effect thereon, of the laws of any other jurisdiction. Furthermore, we express no opinion with respect to choice of law or conflicts of law, and none of the opinions stated herein shall be deemed to include or refer to choice of law or conflict of law.

c. We express no opinion on any Federal or state securities laws as they may relate to the Loan Documents.

d. We express no opinion as to compliance with the usury laws of any jurisdiction.

The opinions set forth herein are given as of the operative date. We disclaim any obligation to notify you or any other person or entity after the operative date if any change in fact and/or law should change our opinion with respect to any matters set forth herein. This opinion letter is rendered to you in your capacity as the Agent on behalf of the Lenders under the Credit Agreement and may not be relied upon, circulated or quoted, in whole or in part, by any other person or entity (other than the Lenders and a person or entity who becomes an assignee or successor in interest of any Lender or acquires a participation from any Lender consistent with the terms of the Loan Documents) and shall not be referred to in any report or document furnished to any other person or entity without our prior written consent; provided, however, that the foregoing shall not preclude any Lender from describing or otherwise disclosing the

existence or contents of this letter to (i) any bank regulatory authority having jurisdiction over such Lender, as required by such authority, (ii) a person or entity who, in good-faith discussions between such Lender and such person or entity, is proposed to become an assignee or successor in interest of such Lender or to acquire a participation from such Lender consistent with the terms of the Loan Documents, and (iii) counsel to the Agent and the Lenders.

Very truly yours, HOWARD RICE NEMEROVSKI CANADY FALK & RABKIN A Professional Corporation
By	s/o Jeffery L. Shaffer
	Jeffrey L. Schaffer on behalf of the Firm

EXHIBIT F

FORM OF ASSIGNMENT AND ACCEPTANCE

To: CITICORP USA, INC., as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement (364-Day Commitment) dated as of June 13, 2008 between THE CHARLES SCHWAB CORPORATION, a Delaware corporation (“Borrower”), Lenders from time to time party thereto, and CITICORP USA, INC., as Administrative Agent (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement”, the terms defined therein being used herein as therein defined).

1. We hereby give you notice of, and request your consent to, the assignment by _______________________ (the “Assignor”) to __________________ (the “Assignee”) of _________% of the right, title and interest of the Assignor in and to the Loan Documents, including, without limitation, the right, title and interest of the Assignor in and to the Commitment of the Assignor, and all outstanding Loans made by the Assignor. Before giving effect to such assignment:

(a) the aggregate amount of the Assignor’s Commitment is $            .

(b) the aggregate principal amount of its outstanding Loans is $            .

2. The Assignee hereby represents and warrants that it has complied with the requirements of Section 10.8 of the Agreement in connection with this assignment and acknowledges and agrees that: (a) other than the representation and warranty that it is the legal and beneficial owner of the Pro Rata Share being assigned hereby free and clear of any adverse claim, the Assignor has made no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or the execution, legality, validity, enforceability, genuineness or sufficiency of the Agreement of any other Loan Document; (b) the Assignor had made no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or the performance by Borrower of the Obligations; (c) it has received a copy of the Agreement, together with copies of the most recent financial statements delivered pursuant to Section 6.2 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (d) it will independently and without reliance upon Administrative Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement; (e) it appoints and authorizes Administrative Agent to take such action and to exercise such powers under the Agreement and the other Loan Documents as are delegated to Administrative Agent by the Agreement and such other Loan Documents; and (f) it will perform in accordance with their terms all of the obligations which by the terms of the Agreement are required to be performed by it as a Lender.

3. The Assignee agrees that, upon receiving your consent to such assignment and form and after _______________, the Assignee will be bound by the terms of the Loan Documents, with respect to the interest in the Loan Documents assigned to it as specified above, as fully and to the same extent as if the Assignee were a Lender originally holding such interest in the Loan Documents.

4. The following administrative details apply to the Assignee:

(a) Credit Contact:

Assignee name:___________________________

Address: ________________________________

_______________________________________

Attention:_______________________________

Telephone:_______________________________

Telecopier:_______________________________

(b) Operations Contract:

Assignee name:____________________________

Address:_________________________________

________________________________________

Attention:_________________________________

Telephone:________________________________

Telecopier:________________________________

(c) Lending Office:

Assignee name:_____________________________

Address:__________________________________

_________________________________________

(d) Payment Instructions:

Assignee name:_____________________________

ABA No.:__________________________________

Account No.:_______________________________

Attention:__________________________________

Reference:_________________________________

2

IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned.

Very truly yours,

[ASSIGNOR]

By:

Name:

Title:

[ASSIGNEE]

By:

Name:

Title:

We hereby consent to the

foregoing assignment.

THE CHARLES SCHWAB CORPORATION,

as Borrower

By:

Name:

Title:

CITICORP USA, INC.,

as Administrative Agent

By:

Name:

Title:

3

EX-12.1

THE CHARLES SCHWAB CORPORATION

Exhibit 12.1

Computation of Ratio of Earnings to Fixed Charges

(Dollar amounts in millions)

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Earnings from continuing operations before taxes on earnings	$	514	$	424	$	1,022	$	815
Fixed charges
Interest expense:
Deposits from banking clients		21		63		57		122
Payables to brokerage clients		9		89		44		185
Long-term debt		15		7		30		14
Other		6		5		11		10
Total		51		164		142		331
Interest portion of rental expense		15		14		31		29
Total fixed charges (A)		66		178		173		360
Earnings from continuing operations before taxes on earnings and fixed charges (B)	$	580	$	602	$	1,195	$	1,175
Ratio of earnings to fixed charges (B) ÷ (A) (1)		8.8		3.4		6.9		3.3
Ratio of earnings to fixed charges excluding deposits from banking clients and payables to brokerage clients interest expense (2)		15.3		17.3		15.2		16.4

⁽¹⁾ The ratio of earnings to fixed charges is calculated in accordance with SEC requirements. For such purposes, “earnings” consist of earnings from continuing operations before taxes on earnings and fixed charges. “Fixed charges” consist of interest expense as listed above, including one-third of rental expense, which is estimated to be representative of the interest factor.

⁽²⁾ Because interest expense incurred in connection with both deposits from banking clients and payables to brokerage clients is completely offset by interest revenue on related investments and loans, the Company considers such interest to be an operating expense. Accordingly, the ratio of earnings to fixed charges excluding deposits from banking clients and payables to brokerage clients interest expense reflects the elimination of such interest expense as a fixed charge.

EX-31.1

Exhibit 31.1

THE CHARLES SCHWAB CORPORATION

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles R. Schwab, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Charles Schwab Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2008	/s/ Charles R. Schwab
	Charles R. Schwab
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

THE CHARLES SCHWAB CORPORATION

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph R. Martinetto, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Charles Schwab Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2008	/s/ Joseph R. Martinetto
	Joseph R. Martinetto
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

THE CHARLES SCHWAB CORPORATION

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Charles Schwab Corporation (the Company) on Form 10-Q for the quarter ended June 30, 2008 (the Report), I, Charles R. Schwab, Chairman 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/ Charles R. Schwab	Date: August 7, 2008
Charles R. Schwab
Chairman 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.

EX-32.2

Exhibit 32.2

THE CHARLES SCHWAB CORPORATION

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Charles Schwab Corporation (the Company) on Form 10-Q for the quarter ended June 30, 2008 (the Report), I, Joseph R. Martinetto, Executive Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

/s/ Joseph R. Martinetto	Date: August 7, 2008
Joseph R. Martinetto
Executive Vice President and
Chief Financial Officer

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