American Express Company — 2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022; it is not a standalone fourth-quarter earnings report. American Express is an integrated payments company operating through U.S. Consumer Services, Commercial Services, International Card Services, and Global Merchant and Network Services. Its model combines card issuing, merchant acquiring, and a payments network. Worldwide network volumes were $1.553 trillion, including $1.338 trillion of billed business on proprietary cards.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue, net of interest expense | $52.862 billion | $42.380 billion | +25% |
| Net interest income | $9.895 billion | $7.750 billion | +28% |
| Provisions for credit losses | $2.182 billion | $(1.419) billion | $3.601 billion increase |
| Pretax income | $9.585 billion | $10.689 billion | -10% |
| Net income | $7.514 billion | $8.060 billion | -7% |
| Diluted EPS | $9.85 | $10.02 | -2% |
- Discount revenue, the largest revenue source, rose 25% to $30.739 billion; net card fees increased 17% to $6.070 billion and service fees and other revenue rose 36% to $4.521 billion.
- Revenue growth reflected higher spending, card fees, travel-related revenue, and loan balances. The $2.182 billion credit provision included a $617 million reserve build, compared with a $2.5 billion reserve release in 2021. Amex also recorded net losses on Amex Ventures investments versus net gains in 2021.
- Total expenses increased 24% to $41.095 billion, led by rewards (+27%), business development (+31%), and Card Member services (+48%). Management cited higher volumes and travel-benefit use, growth investments, compensation, and investment losses.
- Approximate calculated margins: pretax income was 18.1% of revenue, versus 25.2% in 2021; net income was 14.2%, versus 19.0%. The decline reflects the provision swing and investment results despite higher revenue.
- Credit indicators remained comparatively low but were moving upward: loan net write-off rate including interest and fees was 1.1% (1.2% in 2021); receivables rate was 0.8% (0.3%). Loans past due 30 days or more were 1.0% of total, versus 0.7% in 2021. Management expected delinquencies, write-offs, and credit provisions to increase in 2023.
Cash flow, balance sheet and capital
- Operating cash flow was $21.1 billion, investing cash flow was $(33.7) billion, and financing cash flow was $24.5 billion; cash and cash equivalents increased $11.9 billion to $33.9 billion. Investing outflows primarily reflected growth in card loans and receivables and investment purchases. Operating cash flow benefited from higher operating liabilities, including merchant payables and rewards liabilities.
- At year-end, card loans were $108.0 billion and receivables were $57.6 billion. Customer deposits rose 31% to $110.2 billion; long-term debt increased 10% to $42.6 billion. Total customer deposits and consolidated debt were $154.1 billion.
- Company CET1 capital ratio was 10.3%, within management’s 10–11% target; AENB’s ratio was 11.3%. The company reported $33.9 billion in cash and cash equivalents and undrawn committed facilities, including a $3.5 billion bank credit facility. Management’s liquidity objective is to meet obligations for at least 12 months under a substantial weakening in economic conditions.
- Returned $4.9 billion to shareholders in 2022: $3.3 billion in repurchases and $1.6 billion in common dividends. The company planned to raise its quarterly dividend approximately 15%, from $0.52 to $0.60 per share beginning with the first-quarter 2023 declaration, subject to applicable approvals and conditions.
Material changes, outlook and risks
- Network volumes increased 21% year over year; billed business grew 23%. Travel and entertainment spending rose 64%, while goods and services spending rose 13%. International billed business increased 23% reported, or 36% on an FX-adjusted basis; a stronger U.S. dollar weighed on reported international results.
- Segment pretax income was $5.4 billion for U.S. Consumer Services, $2.9 billion for Commercial Services, $578 million for International Card Services, and $3.0 billion for Global Merchant and Network Services. Corporate & Other recorded a $2.2 billion pretax loss. ICS results were significantly affected by dollar strength.
- Management expressed confidence in sustainable, profitable growth but highlighted macroeconomic and geopolitical uncertainty. Inflation, higher interest rates, recession risk, weaker consumer or business spending, and rising credit losses could pressure results. A 100-basis-point immediate rate increase was estimated to reduce annual net interest income by about $141 million.
- Key business risks include intense payments competition; merchant discount-rate pressure, surcharging, and steering; dependence on partners and cobrand relationships; cyber, technology, privacy, and third-party risks; and extensive regulation. Delta is the largest strategic partner: its cobrand portfolio represented about 10% of worldwide network volumes and 21% of worldwide Card Member loans at year-end; the agreement runs through 2029.
- Legal and regulatory matters include merchant-contract and antitrust litigation, VAT challenges, and ongoing OCC, DOJ, and U.S. Attorney reviews into historical small-business sales practices. In January 2023, the CFPB said it had completed its investigation and did not intend to recommend enforcement at that time; other reviews remained ongoing. For certain matters where a range could be estimated, the company disclosed a possible loss of $0–$200 million above accrued amounts, noting this is not a maximum exposure.
- The company estimated $31.1 billion of billed business for purchases not yet delivered by merchants or potentially subject to chargeback under an extreme assumption that all such merchants ceased operating and all claims were made; it said this was not indicative of historical actual losses and reported no significant losses to date from these exposures.
- No quantified earnings or revenue guidance is provided in the filing. The company planned 2023 unsecured term debt issuance of approximately $6–$10 billion and secured term debt issuance of $5–$9 billion. Credit provisions were expected to increase in 2023.
Investor verification priorities
- Track whether credit delinquencies, write-offs, reserves, and loan growth develop as management anticipated; assess sensitivity to economic forecasts and CECL assumptions.
- Compare spending and revenue growth with rewards, partner incentives, travel-benefit, and operating-cost growth to assess the durability of margins.
- Monitor deposits, funding costs, debt maturities, securitization access, and capital ratios, alongside planned shareholder distributions and regulatory constraints.
- Follow Delta and other cobrand renewals, merchant acceptance and discount-rate trends, and developments in surcharging, steering, and merchant-contract litigation.
- Review outcomes of the ongoing sales-practices reviews, other legal and tax matters, and any changes to the disclosed contingent-loss estimates.
- Note that PwC issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective. The audit identified credit-loss reserves and the Membership Rewards liability as critical audit matters.