American Express Company — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Comparisons are with Q1 2021 unless stated otherwise. American Express is a global payments company offering consumer and commercial cards, merchant services, network services, financing, and travel and lifestyle products.
Financial performance
| Metric | Q1 2022 | Prior period / change |
|---|---|---|
| Revenue, net of interest expense | $11.735 billion | $9.064 billion; up 29% |
| Net interest income | $2.199 billion | $1.830 billion; up 20% |
| Provision for credit losses | Net benefit of $33 million | Net benefit of $675 million |
| Total expenses | $9.056 billion | $6.746 billion; up 34% |
| Pretax income | $2.712 billion | $2.993 billion; down 9% |
| Net income | $2.099 billion | $2.235 billion; down 6% |
| Diluted EPS | $2.73 | $2.74 |
| Effective tax rate | 22.6% | 25.3% |
| Network volumes / billed business | $350.3 billion / $301.0 billion | Up 30% / 34% |
Revenue growth reflected higher spending and travel recovery. Discount revenue rose 37%, net card fees 14%, service fees and other revenue 42%, and processed revenue 9%. Total expenses rose faster than revenue, reflecting higher rewards, partner payments, travel-benefit usage, marketing and compensation, alongside prior-year gains on Amex Ventures investments. The smaller credit-loss benefit versus 2021 also weighed on the year-over-year profit comparison. Loan net write-off rates remained below pre-pandemic levels but rose modestly sequentially; delinquency and write-off rates also increased modestly from the prior quarter.
Segments and operating trends
- Global Consumer Services: Revenue net of interest expense was $6.897 billion, up 27%; pretax income was $1.735 billion, down 19%. Consumer billed business rose 37%.
- Global Commercial Services: Revenue was $3.494 billion, up 31%; pretax income was $804 million, up 19%. Commercial billed business rose 30%.
- Global Merchant and Network Services: Revenue was $1.402 billion, up 30%; pretax income was $687 million, up 78%, largely reflecting higher network volumes and lower expenses relative to revenue.
- Corporate & Other: Pretax loss was $514 million versus $212 million, principally reflecting prior-year Amex Ventures investment gains.
Travel and entertainment spending rose 119% year over year and approached global 2019 levels in March. Goods and services spending grew 19%. Card Member loans increased 27% year over year; management attributed slower loan growth relative to billed business partly to higher paydowns.
Cash flow, balance sheet, capital and liquidity
- Operating cash flow was $3.9 billion, compared with $2.3 billion. Investing cash flow used $2.8 billion, versus providing $4.8 billion; financing cash flow provided $4.5 billion, versus $0.4 billion. Cash and cash equivalents increased $5.7 billion to $27.7 billion from year-end 2021.
- At March 31, 2022, Card Member receivables were $53.2 billion and Card Member loans were $88.8 billion. Customer deposits were $90.9 billion; short-term borrowings were $2.1 billion and long-term debt was $38.3 billion.
- Company CET1 was 10.4%, within management’s 10–11% target range; American Express National Bank CET1 was 12.6%. The company reported total risk-based capital of 12.8%.
- Q1 shareholder returns totaled $1.9 billion: $1.5 billion of share repurchases and $0.4 billion of common dividends. The quarterly common dividend increased 21% to $0.52 per share. The company repurchased 8.2 million shares at an average $180.64.
- Liquidity resources included a $3.5 billion committed bank facility, undrawn at quarter-end; a $3.0 billion secured facility with $1.0 billion drawn; and a $2.0 billion secured facility with no amount drawn. Management targets liquidity sufficient for at least 12 months under a substantial weakening in economic conditions and inability to raise new funds through regular programs.
Outlook, commentary and risks
Management described strong growth momentum and said it intends to continue investing in its brand, customers, value proposition, coverage, technology and talent, while returning excess capital subject to supporting balance-sheet growth. The filing provides no specific full-year revenue or earnings guidance. Management cited uncertainty from geopolitical conditions and inflation.
Key risks include the Russia-Ukraine conflict, inflation, supply-chain disruption, pandemic effects and travel patterns, competition, credit performance and reserve assumptions, interest-rate and funding-market changes, payment and consumer-protection regulation, cyber threats, and legal proceedings. The company said it suspended business operations in Russia and Belarus. In India, card-issuing restrictions remain in place pending compliance with local payment-data storage rules; existing customers are not affected.
The company is cooperating with regulatory inquiries into historical small-business card sales practices and related consumer sales practices. It said it does not believe these matters will materially adversely affect its business or results of operations. Merchant antitrust and other litigation remains pending; for certain disclosed proceedings, the estimated reasonably possible loss range is $0–$170 million above recorded accruals, and the filing says this is not the maximum exposure. The company also warns that adverse outcomes could affect its business and results.
Q1 reporting presentation changes reclassified certain revenue and expense items, with prior periods recast and no impact on total non-interest revenue or total expenses. Segment revenue allocations were also updated, with prior periods recast.
Important facts for investors to verify
- Whether spending and travel recovery continue, and whether growth translates into profit after rewards, marketing and servicing costs.
- How loan growth, paydown behavior, delinquencies, write-offs and future credit-reserve releases or builds evolve.
- Capital and liquidity levels, funding costs, and the effect of the Federal Reserve’s forthcoming stress-capital-buffer determination.
- Developments in regulatory sales-practice inquiries, merchant litigation, and the India data-localization restriction.
- Whether inflation, geopolitical disruption, competition and payment regulation affect spending, merchant pricing or partner relationships.