American Express Company (AXP) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Comparisons below are with Q1 2023 unless otherwise noted. American Express is a global payments company offering consumer and commercial card, lending, merchant, network, travel and related services.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue, net of interest expense | $15.801 billion | $14.281 billion | +11% |
| Provision for credit losses | $1.269 billion | $1.055 billion | +20% |
| Total expenses | $11.387 billion | $11.059 billion | +3% |
| Pretax income | $3.145 billion | $2.167 billion | +45% |
| Net income | $2.437 billion | $1.816 billion | +34% |
| Diluted EPS | $3.33 | $2.40 | +39% |
Revenue growth reflected higher card spending, fees and interest income. Discount revenue rose 5% to $8.380 billion; net card fees rose 15% to $1.974 billion; and net interest income rose 26% to $3.769 billion. Interest income increased 31%, while interest expense increased 40%, mainly reflecting higher rates and growth in customer deposits.
Billed business increased 6% to $367.0 billion; network volumes rose 5% to $419.2 billion. U.S. Consumer Services billed business grew 8%, International Card Services 11% (13% FX-adjusted), and Commercial Services 2%. Marketing expense rose 10%; Card Member services expense rose 19%. Rewards expense was nearly flat, including a $196 million benefit from changes to U.S. Membership Rewards redemption-estimation models.
Credit: Card Member loans were $126.6 billion, up 16% year over year; receivables were $59.8 billion, up 4%. The loan net write-off rate, including principal, interest and fees, was 2.3%, versus 1.7%; consumer and small-business 30+ day delinquency was 1.3%, versus 1.2%. Loan reserves were $5.271 billion, or 4.2% of loans, versus $4.053 billion, or 3.7%, a year earlier. Management attributed higher provisions primarily to higher loan write-offs, partly offset by a lower reserve build.
Cash flow: Operating activities provided $5.552 billion, compared with $377 million used in Q1 2023. Investing activities used $3.144 billion, primarily as loans and receivables grew; financing activities provided $5.181 billion, mainly from deposit growth and net debt issuance, partly offset by shareholder returns. Cash and cash equivalents were $54.213 billion at March 31, up from $46.596 billion at year-end 2023.
Balance sheet and capital: Total assets were $269.261 billion and shareholders’ equity $28.764 billion at March 31, 2024. Customer deposits were $134.418 billion; long-term debt was $48.826 billion; short-term borrowings were $1.742 billion. The company reported a 10.6% CET1 ratio, within its 10%–11% target range. It returned $1.6 billion to shareholders in the quarter: $1.1 billion in share repurchases and $0.5 billion in common dividends. The quarterly dividend was increased 17% to $0.70 per share.
Segments and material changes
| Segment | Revenue, net of interest expense | Pretax segment income | Year-over-year income change |
|---|---|---|---|
| U.S. Consumer Services | $7.499 billion | $1.613 billion | +43% |
| Commercial Services | $3.785 billion | $878 million | +39% |
| International Card Services | $2.713 billion | $252 million | +33% |
| Global Merchant and Network Services | $1.870 billion | $1.017 billion | +15% |
| Corporate & Other | $(66) million | $(615) million | Loss narrowed from $667 million |
Net income and EPS benefited from revenue growth, expense growth below revenue growth, share-count reduction and lower prior-year Amex Ventures investment losses. The effective tax rate rose to 22.5% from 16.2%, primarily because Q1 2023 included discrete tax benefits from resolution of prior-year tax items. Loan write-offs increased materially, while the company said overall write-off and delinquency levels remained best-in-class.
Outlook, risks and contingencies
The filing provides no specific numerical full-year revenue or EPS guidance. Management cited confidence in its business model and continued investment in customers, marketing, technology and its brand, while noting uncertainty from macroeconomic, geopolitical, competitive and regulatory conditions. It intends to return excess capital while maintaining CET1 within its target range and supporting balance-sheet growth.
- Accertify sale: American Express agreed to sell its fraud-prevention subsidiary, with closing expected in Q2 2024 subject to customary conditions. Management expects a sizeable pretax gain, recorded as a reduction to Other expense, and expects to substantially reinvest it in the business; the filing does not provide a clear value for the gain.
- Credit-card late-fee rule: A CFPB final rule lowers the late-fee safe harbor to $8 and was scheduled to take effect May 14, 2024, but was being challenged in litigation. If effective without a cost justification for higher fees, it could reduce delinquency-fee revenue and potentially affect repayment behavior.
- Regulatory status: The company anticipates becoming a Category III firm in 2024, which would bring heightened capital, liquidity and prudential requirements. Its current stress capital buffer of 2.5% was stated to remain effective through September 30, 2024, pending the next Federal Reserve determination.
- Legal and regulatory matters: Ongoing matters include merchant antitrust and steering litigation, investigations into historical sales practices, and regulatory examination of rewards and benefits programs. The company disclosed an estimated reasonably possible loss range of zero to $410 million in excess of accruals for matters where a range could be estimated; this is not its maximum potential exposure. It stated that certain adverse outcomes could affect results or the card-member experience.
- Other risks: Management highlighted credit deterioration, spending or economic slowdown, higher funding costs, changes in rates and foreign exchange, payment-industry competition and fee regulation, cyber and data-security threats, and geopolitical instability. The company reported no material change in market-risk exposures since year-end 2023.
Most important facts for investors to verify
- Whether loan write-offs, delinquency trends and reserve coverage continue to rise, particularly as loan balances grow.
- How much revenue and earnings growth is attributable to sustainable card spending, fees and net interest yield versus the $196 million rewards-model benefit and share repurchases.
- The outcome and financial impact of the CFPB late-fee rule, sales-practices investigations, rewards-program review and merchant litigation.
- Accertify’s closing date, realized pretax gain and amount reinvested in the business.
- Deposit growth and pricing, funding costs, liquidity requirements and any effects of the anticipated Category III designation or future capital rules.