American Express, (AXP -0.56%), the financial services giant, reported solid earnings growth in the first quarter of 2024 on Friday. Here's a summary of the company's quarterly filing.
Impressive growth from last year's Q1
American Express delivered an impressive financial performance in the first quarter, with net income surging by 34% year-over-year to reach $2.4 billion. Earnings per share of $3.33 beat analyst expectations of $2.97 by 12.1%. This significant growth was driven by an 11% increase in total revenues net of interest expense, which amounted to $15.8 billion compared to $14.3 billion in Q1 2023.
This growth was partially offset by a 20% increase in provisions for credit losses, which reached $1.3 billion due to higher net write-offs and reserve builds. This increase was primarily attributed to growth in loan balances and slight upticks in delinquencies. Despite this, American Express continued to see robust growth in Card Member loans and receivables, which increased by 16% and 4% respectively, reflecting ongoing customer spending and balance building.
Cardholder spending is up
American Express's U.S. Consumer Services and International Card Services segments were key drivers of growth, with billed business increasing by 8% and 11% respectively. The company's premium card segment also performed well, as evidenced by a 15% year-over-year growth in net card fees, highlighting strong acquisition and retention within this high-value customer segment. Additionally, AmEx continued to invest in customer acquisition and engagement, with marketing expenses rising by 10% as the company acquired 3.4 million new proprietary cards.
American Express updated investors on the timeline of the sale of its fraud prevention solutions provider, Accertify, which is now expected to close in Q2. This transaction will result in a significant pre-tax gain for the company that it expects to reinvest.
Stricter regulations on the horizon
Looking ahead, American Express is preparing for an increasingly stringent regulatory environment, particularly concerning anti-money laundering and counter-terrorism financing (AML/CFT) laws. The company is also monitoring the potential impact of new regulations from the Consumer Financial Protection Bureau that may require lowering credit card late fees, which could decrease delinquency revenue and affect Card Member repayment behaviors. As for this quarter, American Express maintained strong capital ratios, with a Common Equity Tier 1 ratio of 10.6%.
The company plans to continue returning excess capital to shareholders and increased its quarterly dividend by 17% in Q1. However, due to asset growth, American Express expects to transition to a Category III firm this year, which will subject the company to heightened capital, liquidity, and prudential requirements.
What's next for American Express?
American Express's Q1 2024 results demonstrate the company's ability to deliver strong financial performance while navigating an evolving regulatory landscape. Investors should keep a close eye on key metrics such as net income growth, total revenue, and credit loss provisions, as well as the company's ability to manage expenses and maintain a strong capital position.
Additionally, investors should monitor the impact of regulatory changes on American Express's business, particularly those related to AML/CFT laws and credit card late fees. The successful completion of the Accertify sale and the company's ongoing investments in customer acquisition and engagement will also be important factors to watch in the coming quarters.
