American Express (AXP 6.22%) has always been the card company for spenders, but its first-quarter results suggest it can be a card company for borrowers, too.

The company reported net income of $1.6 billion in the first quarter, up 31% from the same period a year ago, helped by rising cardholder spending and borrowing, and topped off by a lower corporate tax rate.

AmEx's first quarter: By the numbers


Q1 2018

Q1 2017

Year-Over-Year Change

Net revenue

$9.7 billion

$8.7 billion


Net income

$1.6 billlion

$1.3 billion


Diluted EPS




Data source: American Express earnings release tables. EPS = aernings per share.

What happened this quarter?

Banks are rarely exciting businesses, as little changes from quarter to quarter, but it's important to keep an eye on the moving pieces that together drive the bulk of any bank's profitability. Here are the most important developments this quarter:

  • Loan growth was exceptional. Total loans grew 14% in the first quarter compared to the same period last year. The company acquired a portion of a Hilton card portfolio it didn't already own, which drove about 1.4 percentage points of loan growth, according to conference call commentary.
  • Charge-offs remain low. AmEx wrote off about 2.4% of worldwide card loans at an annualized rate in the fourth quarter, up slightly from 2% in the year-ago period. It's not unexpected to see charge-offs tick up when credit card issuers stomp on the growth pedal, but investors should watch its credit trends carefully (advice that extends to any financial company). AmEx expects its provisions for loan losses to grow by about 35% this year as it increasingly targets customers who carry balances from month to month.
  • Spending is soaring. Total billed business increased by 12% year over year, and by 10% when adjusted for currency fluctuation. Billed business generally refers to how much cardholders charge to their cards. The more the merrier, since American Express earns fees on every swipe (discount fees) and interest on any balances its customers carry.
  • Fees are falling. AmEx is actively lowering fees it charges merchants to increase volume and acceptance, guiding for the discount rate to fall five to six basis points in 2018 at its recent investor day. This quarter, discount revenue as a percentage of billed business fell to 2.08%, down from 2.14% last year, but spending gains outpaced the declining take rate, so total discount revenue grew 9% year over year in the first quarter. Said another way, American Express is making up for lower prices with volume. 
  • Taxes had a big impact on profit growth. American Express reported that its effective tax rate declined to 21.5% this quarter, down from 32% in the year-ago period, thanks to the Tax Cuts and Jobs Act. For perspective, consider that pre-tax earnings increased by 13% compared to the 31% increase in after-tax earnings. Last quarter, American Express said it expected its tax rate to fall to about 22%. 

What management had to say

On the conference call, management touched on a few of AmEx's most important earnings drivers. 

Rewards expenses are a perennial issue for credit card issuers who compete primarily based on the benefits (cash, airline tickets, etc.) they can offer cardholders for signing up and spending. Jeff Campbell, American Express' executive vice president and chief financial officer, said that the company expects rewards expenses to "grow roughly in line with billings," noting that rewards expense increased 14% year over year compared to a 13% increase in billed business. 

Campbell also pointed out that AmEx expects provisions for loan losses to increase "in the mid-30% range" for 2018, while highlighting increased marketing expenses later in the year, as the company directed $200 million of its tax savings to advertising and business development, which it expects to spend over the next three quarters.

Macro shot of a credit card.

Image source: Getty Images.

Looking ahead

AmEx's first quarter showed signs of progress as loans, billed business, and cards-in-force showed substantial improvement year over year, partially driven by the acquisition of a Hilton portfolio. But even excluding the impact of that acquisition, loans and billed business still increased at a double-digit rate.

Most importantly, spending and lending is growing fastest in proprietary cards, or cards where AmEx typically earns more on every dollar its clients spend, since it doesn't share the income with airlines, hotels, or retail partners. 

Upbeat about its progress so far, the company now expects that full-year earnings per share will be at the high end of its earlier guidance range of $6.90 to $7.30 per share, news that shareholders should be happy to hear.