American Express Company (AXP) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results are compared with the corresponding 2021 periods unless otherwise stated. American Express operates a global payments network and issues consumer and commercial credit and charge cards, alongside merchant, travel, and related services.
Financial performance
| Metric | Q2 2022 | Change year over year | Six months 2022 | Change year over year |
|---|---|---|---|---|
| Revenue, net of interest expense | $13.395 billion | +31% | $25.130 billion | +30% |
| Net interest income | $2.360 billion | +30% | $4.559 billion | +25% |
| Provisions for credit losses | $410 million | Prior-year release of $606 million | $377 million | Prior-year release of $1.281 billion |
| Total expenses | $10.442 billion | +32% | $19.498 billion | +33% |
| Pretax income | $2.543 billion | -14% | $5.255 billion | -11% |
| Net income | $1.964 billion | -14% | $4.063 billion | -10% |
| Diluted earnings per share | $2.57 | -8% | $5.30 | -4% |
| Network volumes | $394.8 billion | +25% | $745.1 billion | +27% |
- Revenue drivers: Q2 billed business rose 27% and card-member loans grew 26%. Net card fees increased 15%. Travel and entertainment spend rose 80% year over year and exceeded pre-pandemic levels; goods and services spend increased 15%.
- Expenses and credit: Rewards expense rose 32% in Q2, business development 58%, and Card Member services 57%. Credit-loss provisions reflected reserve builds in Q2 versus releases in the prior year. Management cited loan and receivable growth and a slightly weaker macroeconomic outlook, partly offset by improved portfolio quality.
- Credit indicators: At June 30, card-member loans were $95.4 billion, up 26% year over year; receivables were $56.0 billion, up 18%. The loan reserve was $3.0 billion, or 3.1% of loans, compared with 5.1% a year earlier. Q2 loan net write-off rate, including principal, interest, and fees, was 1.1% versus 1.3%; 30-plus-day delinquency was 0.7% versus 0.6%.
- Cash flow: For the first half, operating activities provided $8.1 billion versus $5.5 billion in 2021; investing activities used $15.4 billion versus providing $2.0 billion; financing activities provided $11.2 billion versus using $9.5 billion. Investing outflows principally reflected growth in card loans and receivables and net investment-security purchases.
- Balance sheet and funding: At June 30, cash and cash equivalents were $26.3 billion; customer deposits $96.4 billion; short-term borrowings $2.0 billion; and long-term debt $40.5 billion. Compared with December 31, 2021, deposits and long-term debt increased from $84.4 billion and $38.7 billion, respectively. The company reported a 10.3% CET1 ratio, within its 10%–11% target range. It had no drawings on its $3.5 billion committed bank facility or its two secured facilities totaling $5.0 billion.
- Capital returns: The company returned $1.0 billion to shareholders in Q2 and $2.9 billion in the first half through dividends and repurchases. The quarterly common dividend declared was $0.52 per share, up 21% year over year.
Changes and management commentary
- Revenue growth was broad-based, supported by higher spending, travel recovery, card acquisition, and loan growth. Management attributed lower earnings year over year primarily to higher expenses and the shift from prior-year credit reserve releases to current-period provisions.
- Q2 segment pretax income was $1.404 billion for Global Consumer Services Group (down 25%), $817 million for Global Commercial Services (down 2%), and $815 million for Global Merchant and Network Services (up 55%). Corporate & Other posted a $493 million loss, versus a $306 million loss.
- Effective July 1, 2022, the company changed its management organization and expected to report under four revised segments once financial information was reviewed on that basis; it planned to recast prior periods then. It also revised income-statement presentation beginning in Q1 2022, with prior periods recast and no impact on total revenue or expenses.
- During Q2, Global Business Travel Group became publicly traded after a business combination, reducing American Express’s economic interest from approximately 40% to approximately 35%.
Outlook, risks, and unusual items
- The filing does not provide a specific earnings or revenue forecast. Management expressed confidence in the business model and commitment to long-term growth, while noting geopolitical and macroeconomic uncertainty.
- The 2022 funding plan included approximately $10–$14 billion of unsecured term debt and $6–$10 billion of secured term debt. The company issued $12.4 billion of debt in the first half, including $8.4 billion unsecured and $4.0 billion asset-backed securities. It issued a $1.0 billion ESG bond in May.
- Key risks cited include inflation, higher interest rates, recession and spending uncertainty, the Russia-Ukraine conflict, pandemic-related effects, credit deterioration, competitive and merchant-pricing pressure, regulation and litigation, cybersecurity events, and funding-market disruption.
- American Express continued to respond to government inquiries concerning historical small-business-card sales practices and stated it did not believe those matters would materially adversely affect its business or results. Merchant antitrust and other litigation remains pending; for certain matters where a loss range could be estimated, the disclosed range was zero to $170 million in excess of accrued amounts. The company cautioned that actual outcomes could vary significantly.
- Other notable items: prior-year gains on Amex Ventures investments elevated the comparison for expenses and Corporate & Other; a current-period reserve build raised credit-loss expense; and foreign-currency translation reduced first-half comprehensive income.
Most important facts for investors to verify
- Whether spending and travel growth can continue, and how much reflects recovery versus sustainable underlying growth.
- Whether rising delinquency indicators and the macroeconomic outlook lead to further reserve builds, write-offs, or weaker credit performance.
- Whether reward, partner, marketing, and compensation costs can be managed as revenues grow, given expense growth outpaced revenue growth in Q2.
- Capital and funding capacity, including CET1 levels, planned debt issuance, deposit trends, and the effect of higher rates on funding costs and loan yields.
- Developments in merchant litigation, sales-practices inquiries, payments regulation, and other contingencies that could affect costs or business practices.