American Express Company — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The interim financial statements are unaudited. Comparisons below are with the three months ended March 31, 2022 unless otherwise noted.
Business context and performance
American Express is a global payments company offering consumer and commercial credit and charge cards, merchant processing and network services, and travel and lifestyle services. Management cited strong Card Member spending, premium-product engagement, new-card acquisition and retention. Worldwide network volumes rose 14% to $398.9 billion; billed business increased 15% to $345.5 billion.
Key financial metrics
| Metric | Q1 2023 | Prior-year comparison |
|---|---|---|
| Revenue, net of interest expense | $14.281 billion | Up 22% |
| Net interest income | $2.983 billion | Up 36% |
| Provision for credit losses | $1.055 billion | Compared with a $33 million provision credit (release) in Q1 2022 |
| Total expenses | $11.059 billion | Up 22% |
| Pretax income | $2.167 billion | Down 20% |
| Net income | $1.816 billion | Down 13% |
| Diluted EPS | $2.40 | Down from $2.73 |
| Effective tax rate | 16.2% | Down from 22.6% |
Revenue growth reflected higher billed business and card fees, increased travel-related and foreign-exchange fees, and higher interest income. Interest expense also rose substantially, primarily because of higher rates paid on deposits. The decline in earnings principally reflected credit reserve builds and higher write-offs, versus reserve releases in the prior-year quarter. Management also cited increased rewards and travel-benefit costs, marketing investment, compensation and Amex Ventures investment losses.
Card Member loans were $109.1 billion, up 23% year over year; receivables were $57.5 billion, up 8%. Loan net write-off rate, including principal, interest and fees, was 1.8% for the quarter versus 1.0% a year earlier; 30-plus-day past-due loans were 1.1% of total versus 0.7%. Management said delinquency and write-off rates were increasing but remained best in class.
At March 31, cash and cash equivalents were $40.8 billion, compared with $33.9 billion at December 31, 2022. Customer deposits were $120.8 billion, up from $110.2 billion at year-end; long-term debt was $41.1 billion, down from $42.6 billion. Q1 operating cash flow was negative $0.4 billion, investing cash flow negative $1.4 billion and financing cash flow positive $8.6 billion; cash rose $6.9 billion overall, mainly with deposit growth. The company reported a 10.6% CET1 ratio, within its 10%–11% target range, and said capital, funding and liquidity were strong. It reported $0 drawn on its $3.5 billion committed bank facility and its $3.0 billion and $2.0 billion secured facilities.
Material changes and segment results
- U.S. Consumer Services: Revenue net of interest expense rose 25% to $6.583 billion; pretax income fell 26% to $1.130 billion, reflecting higher credit provisions and expenses.
- Commercial Services: Revenue rose 15% to $3.492 billion; pretax income fell 19% to $630 million.
- International Card Services: Revenue rose 22% to $2.510 billion; pretax income fell 23% to $189 million. The stronger U.S. dollar weighed on reported results.
- Global Merchant and Network Services: Revenue rose 23% to $1.741 billion; pretax income rose 32% to $885 million.
- Corporate & Other: Pretax loss widened to $667 million from $514 million, primarily due to Amex Ventures investment losses and higher deferred compensation costs.
The company returned $0.6 billion to shareholders through common dividends and share repurchases and increased its quarterly common dividend 15%, to $0.60 per share. It repurchased 1.1 million shares at an average price of $175.85.
Outlook, risks and contingencies
No specific numerical earnings or revenue guidance is provided in the supplied filing text. Management noted slower macroeconomic growth, elevated inflation, higher interest rates and banking-sector stress, while expressing confidence in its business model and commitment to long-term growth investment and shareholder returns.
- Credit risk may rise with delinquencies, loan growth, macroeconomic deterioration and future reserve builds or write-offs. The loan credit-loss reserve was $4.053 billion, or 3.7% of loans, at March 31.
- Funding and earnings are exposed to interest-rate, deposit, capital-market and foreign-exchange movements. Management reported no material change in market-risk exposures since year-end.
- Regulatory and litigation risks include merchant antitrust and steering cases, international payments regulation, and investigations into historical sales practices. The CFPB said its investigation was complete and that it did not intend to recommend enforcement at that time; OCC, DOJ and other inquiries remained ongoing.
- For disclosed legal proceedings where a loss was reasonably possible and estimable, the company reported an estimated range of $0–$320 million in excess of accrued amounts; this is not its maximum exposure.
- The CFPB proposed reducing the late-fee safe-harbor amount. A final rule requires reporting certain small-business credit application data, with compliance due by October 1, 2024 based on the company’s transaction volume.
- Other stated risks include competition, merchant discount-rate pressure, cyber and operational incidents, partner and cobrand relationships, and geopolitical or economic disruption.
Investor verification points
- Track whether rising delinquencies and write-off rates lead to further reserve builds or materially higher credit costs.
- Assess whether spending, card-fee growth and travel-related revenues can offset higher rewards, servicing, marketing and funding expenses.
- Monitor deposit growth, deposit pricing, liquidity resources and capital ratios amid continued market volatility.
- Follow the status and potential financial or business effects of sales-practices investigations, merchant litigation and consumer-finance rule changes.
- Verify subsequent earnings, credit trends and shareholder-return decisions against management’s stated long-term growth strategy; this filing gives no quantified forward guidance.