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How Charles Schwab’s Expenses Trended in 2017

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Total expenses apart from interest

Charles Schwab’s (SCHW) total expenses excluding interest consist of compensation and benefits, depreciation and amortization, communications, advertising and market development, professional services, and occupancy and equipment, and other expenses.

Charles Schwab witnessed a marginal increase in its total expenses excluding interest from $3.3 billion in 9M16 (or the first nine months of 2016) to $3.6 billion in 9M17. This rise was primarily due to a rise in other expenses.

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The components of Charles Schwab’s total compensation and benefits expenses are salaries and wages, incentive compensation, and employee benefits and other expenses. The company incurred total compensation and benefit expenses of $2 billion in 9M17 compared to $1.8 billion in 9M16. The increase was primarily due to a rise in incentive compensation.

What led to the rise?

Charles Schwab distributed salaries and wages of $1.1 billion in 9M17 compared to $1 billion in 9M16. This increase mainly reflects a rise in annual salaries and number of employees. The company witnessed a rise in the incentive compensation from $509 million in 9M16 to $580 million in 9M17 mainly because of a rise in the incentive plan costs and the number of employees.

Charles Schwab incurred employee benefits and other expenses of $336 million in 9M17 compared to $310 million in 9M16, a rise of 8%.

On an LTM (last-12-month) basis, Charles Schwab reported a free cash flow yield of 2.1%, while peers (XLF) Bank of New York Mellon (BK), LPL Financial (LPLA), and Wells Fargo (WFC) reported 5.0%, 2.6%, and 5.3%, respectively.

We’ll look at the remaining components of total expenses (excluding interest) in the next article of the series.

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