American Express Company — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2022; filing also reports the nine months ended September 30, 2022. Comparisons below are year over year unless noted. Financial amounts are in U.S. dollars.
Business context and results
American Express is a global payments company spanning consumer and commercial cards, merchant services, its payment network, and travel and lifestyle services. Effective in Q3 2022, it realigned its reportable segments; prior periods were recast to match.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue, net of interest expense | $13.556 billion | $10.928 billion | $38.686 billion | $30.235 billion |
| Provision for credit losses | $778 million | $(191) million | $1.155 billion | $(1.472) billion |
| Total expenses | $10.319 billion | $8.669 billion | $29.817 billion | $23.324 billion |
| Pretax income | $2.459 billion | $2.450 billion | $7.714 billion | $8.383 billion |
| Net income | $1.879 billion | $1.826 billion | $5.942 billion | $6.341 billion |
| Diluted earnings per share | $2.47 | $2.27 | $7.77 | $7.82 |
| Effective tax rate | 23.6% | 25.5% | 23.0% | 24.4% |
Q3 revenue increased 24%, while net income rose 3% and diluted EPS rose 9%, helped in part by a 5% reduction in diluted average shares. Nine-month revenue rose 28%, but net income fell 6% and diluted EPS declined 1%. Provisions shifted from releases in 2021 to builds in 2022, while expenses also grew substantially. Q3 pretax margin on revenue net of interest expense was approximately 18.1%, compared with 22.4% a year earlier.
Revenue, spending and segment performance
Q3 network volumes increased 19% to $394.4 billion; billed business rose 21% to $339.0 billion. On a constant-currency basis, network volumes rose 23% and billed business 24%. Revenue growth reflected higher spending, card fees, travel-related revenue and loan balances. Net interest income increased 29% to $2.578 billion; higher interest rates also raised interest expense, which grew to $796 million from $307 million.
Q3 segment pretax income was $1.309 billion for U.S. Consumer Services (up 5%), $774 million for Commercial Services (up 11%), $166 million for International Card Services (down 38%), and $792 million for Global Merchant and Network Services (up 54%). Corporate & Other posted a $582 million pretax loss, versus $282 million.
Credit, liquidity, debt and capital
Card Member loans were $99.0 billion at quarter-end, up 29% year over year; receivables were $55.3 billion, up 13%. Q3 credit provisions included a $337 million reserve build for loans and a $43 million build for receivables. Management cited loan growth, a weaker macroeconomic outlook and higher write-offs; delinquency rates remained low but had increased modestly sequentially. The total loan reserve was $3.319 billion, or 3.4% of loans, versus 4.5% a year earlier. The loan net write-off rate, including principal, interest and fees, was 1.1%, up from 0.8%; 30-plus-day delinquency was 0.9%, up from 0.7%.
Cash and cash equivalents were $31.2 billion at September 30, 2022, versus $22.0 billion at December 31, 2021. For the first nine months, operating cash flow was $12.6 billion, investing cash outflow was $22.9 billion, and financing cash inflow was $18.9 billion; cash increased $9.2 billion. Investing outflows primarily reflected growth in loans and receivables and purchases of investment securities.
Customer deposits were $103.5 billion, up from $84.4 billion at year-end 2021; long-term debt was $42.4 billion, up from $38.7 billion. Total customer deposits and debt were $147.4 billion. The company reported a 10.6% CET1 ratio, within its 10%–11% target range; the ratio was 12.6% a year earlier. It returned $1.0 billion to shareholders in Q3 through $0.4 billion of common dividends and $0.6 billion of share repurchases.
Management outlook, risks and unusual items
Management described performance and the premium Card Member base as strong, and said it remained committed to investing for long-term growth and returning excess capital while supporting balance-sheet growth. It acknowledged macroeconomic and geopolitical uncertainty. The supplied filing text does not provide a specific numerical earnings or revenue forecast.
- Credit and economic sensitivity: Inflation, recession risk, higher rates, unemployment, weaker spending and worsening delinquencies could affect revenue, credit losses and reserves.
- Foreign exchange and spending mix: A stronger U.S. dollar reduced reported international growth; travel and entertainment spending continued to recover.
- Legal and regulatory exposure: The filing describes merchant antitrust disputes, regulatory inquiries into historical small-business card sales practices, and other consumer, payments and tax matters. For certain disclosed proceedings, the estimated range of reasonably possible loss was $0–$160 million above recorded accruals; the company cautions this is not a maximum exposure.
- Rewards review: An internal review found that some current and former U.S. Card Members with multiple cards may not have received earned Membership Rewards points. The company expected a possible increase in rewards liability and expense, and potential remediation costs; amounts were undetermined and management did not expect a material adverse impact.
- Other risks: Competition, merchant acceptance and pricing, cyber and operational security, funding-market volatility, regulation, litigation, and partner or cobrand relationships could affect results.
Investor verification priorities
- Track loan and receivables delinquencies, write-off rates, reserve builds and assumptions about the economic outlook.
- Assess whether spending and travel growth persist, and separate underlying international growth from foreign-exchange effects.
- Monitor the cost of rewards, partner incentives, travel benefits, compensation and technology investments relative to revenue growth.
- Review CET1 capital, funding mix, deposit growth, debt maturities and liquidity under weaker market conditions.
- Follow developments and potential costs from the Membership Rewards review, sales-practices inquiries and merchant litigation.