When it comes time to make a purchase, more people are turning to their trusty American Express (NYSE:AXP) cards.

The card company known for higher-spending customers reported that it earned $1.65 billion in the third quarter, a 22% increase over 2017, helped by rising spending volumes, loan growth, and slowing growth in loan provisions to cover bad loans.

American Express Platinum card resting on a travel wallet.

Image source: American Express.

American Express' third quarter: By the numbers

The table below shows a high-level view of American Express' financial results for the third quarter. Pre-tax income was included to show the change in the company's earnings power on a basis that isn't affected by the Tax Cut and Jobs Act, which significantly lowered its average tax rate in 2018.


Q3 2018

Q3 2017

Year-Over-Year Change

Net revenue

$10.14 billion

$9.29 billion


Pre-tax income

$2.12 billion

$1.83 billion


Net income

$1.65 billion

$1.36 billion


Diluted EPS




Data source: American Express.

What happened at American Express this quarter?

Results for the third quarter showed that American Express' performance in the first half of 2018 wasn't just an anomaly. The company continued to build on its progress, reporting growth in spending and lending while showcasing credit metrics that can only be described as the best among major card issuers.

  • American Express is winning in lending. Card member loans increased to $77.6 billion at the end of the third quarter, rising 14% year over year. On the conference call, management said that about 60% of its loan growth is coming from existing customers, a testament to its ability to generate more revenue from its card members over time.
  • Card member spending is soaring. Worldwide billed business grew to $294.7 billion in the third quarter, up 10% year over year. Importantly, this was powered by raw increases in the number of cards and spending per card, as billed business grew at a 10% clip before and after adjustment for currency fluctuations. Notably, spending is growing fastest in proprietary cards, on which the company earns a larger fee for every swipe.
  • Credit quality remains high. American Express reported a write-off rate of 2.5% of card loans, in line with its performance in the previous quarter, and up from its 2.1% write-off rate in the year-ago period. The year-over-year increase in write-offs is far from troubling, given its write-off rate remains far those of below competing card issuers. (For perspective, JPMorgan Chase's card charge-off rate stood at 2.9% this quarter.)
  • Provision growth moderated. When lenders make more loans, they inevitably encounter more loan losses. Earlier this year, American Express said it expected to set aside more money for loan losses in 2018, guiding for provisions to grow "in the mid-30% range" compared to 2017. After coming in higher than guidance in the first half of the year, third-quarter provisions grew just 6% compared to the year-ago period. For the first nine months of the year, provisions are up only 25% over the year-ago period, putting it on track to beat guidance for the full year.

What management had to say

American Express is optimistic about its ability to capture a greater share of its customers' financing needs. In response to an analyst's question, CFO Jeff Campbell pointed out that there are ample opportunities to grow its loan book with its existing customer base.

Referring to its U.S. consumer business, Campbell said that the company captures "roughly 50% of our customers' spending behaviors and only 25% of their borrowing behavior." Logic follows that American Express can drive loan growth by encouraging its card members to think about their cards not just as a way to spend, but also a way to carry balances. Importantly, the U.S. consumer business made up 32% of its billed business this quarter, so even modest gains in its share of customer borrowing activity move the needle.

American Express earns very attractive returns in lending, particularly since its customers tend to have above-average incomes and FICO scores, leading to lower credit losses across economic cycles. In the third quarter, net interest income, or interest income it earned minus interest paid on deposits and other borrowings, increased 17% to $1.96 billion.

Looking ahead

American Express shareholders should be pleased with its ability to drive spending and lending volume. The company has come a long way since 2015, when it lost a key relationship with Costco. At the time, Costco cards were responsible for 10% of its cards in force and 20% of its total loans outstanding.

With much of 2018 in the rearview mirror, American Express increased its guidance for the full year. The company now expects to earn $7.30 to $7.40 per fully diluted share in 2018, up from an earlier range of $6.90 to $7.30 per share.

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