Q1 2022 American Express Co Earnings Call

In our reports on file with the SEC. The discussion today also contains non financial non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials as well as the earnings materials for the prior periods we discussed.

All of these are posted on our website at IR Dot American Express Dot Com, we will begin today with Steve <unk>, Chairman and CEO , who will start with some remarks about the company's progress and results and then Jeff Campbell Chief Financial Officer will provide a more detailed review of our financial performance after that we will move.

To Q&A on the results with both Steve and Jeff with that let me turn it over to Steve. Thanks.

Thanks, Ed and good morning, everyone welcome to our first quarter earnings call at our Investor Day last month, we took you through a detailed discussion of our strategies for driving sustainable growth across our businesses and explain why we are confident we can achieve our growth plan aspirations for 2024 and beyond as we said then our confidence is base.

On three interrelated factors the success of the strategy, we've been pursuing over the past several years, which focuses on investing in our brand customers value propositions coverage technology and talent to build share scale and relevance. The momentum we are generating through the effective execution of that strategy in a number of structural shift.

<unk> and the payment industry that are contributing to our momentum.

The strong first quarter results, we announced today are tracking in line with our expectations for the full year, despite the uncertain macro environment and they reinforce our confidence in our ability to achieve our longer term aspirations for the quarter revenues were $11 7 billion up 29% year over year and earnings were.

Earnings per share with $2 73.

These results reflect continued momentum in our core business in areas that are critical to sustainable long term growth, including customer acquisition engagement and retention as well as outstanding credit performance.

New proprietary card acquisitions remain at a strong pace, reaching $3 million this quarter, which continues to be driven by strong demand for our premium fee based products, particularly among millennials and gen Z consumers and small and medium sized businesses in the U S.

We had an all time high in acquisitions in the U S consumer platinum and gold cards as well as U S business platinum cards this quarter.

<unk> acquisitions reached an all time monthly high in March an indication of the growing demand for travel related products and services.

Regarding customer engagement, we look at a variety of indicators to measure progress for example card member engagement with our digital capabilities continues to grow with daily active users across the web and mobile up double digits over last year. We're also seeing strong engagement with the new benefits, we added to our recently refreshed consumer platinum card, particularly.

Among millennial and Gen Z card members nearly half of whom have used at least one of the new travel and lifestyle benefits to date.

And we continue to see an acceleration in customer engagement with our resin dining platform, including strong double digit growth over the last quarter and a number of <unk> cards on file and a number of restaurants participating in our global dining access program March was one of <unk> best months on record for reservations up nearly 16%.

<unk> over February .

Ultimately the key metric to gauge customer engagement is spending growth overall bill business grew 35% in Q1 globally year over year on an FX adjusted basis, and we saw our highest volumes ever in March surpassing our previous highest of December of 2021 spending growth was led by the acceleration of volumes from.

And Gen Z consumers up 56% and Smes up 30% on an FX adjusted basis over last year.

Goods and services spending continued to accelerate in the quarter growing 21% on an FX adjusted basis over last year travel and entertainment spending was up 121% globally on an FX adjusted basis year over year, driven by strong growth in consumer travel spending.

Customer retention remains at very high levels I mentioned at Investor day, an indication of the value our customers continue to place on ethics membership.

A major contributor to our success across all of these areas is the ongoing expansion of many partnerships, which go well beyond our strategic partners like Delta Hilton and Amazon, We continue to extend relationships with a variety of companies that are adding differentiated value to our membership model. For example, last week, we announced a new financial.

<unk> service with Vanguard exclusive for our U S consumer card members, which brings together vanguard's digital financial planning and investment management expertise with our industry leading membership rewards. This is just the latest example of how we're expanding our value propositions beyond our traditional core offerings to meet more of our customers' lifestyle needs. In addition.

<unk>, we are accelerating our focus on fintech to drive more innovation, including our new partnership with <unk>, which will enable fintech to more seamlessly and quickly issue new products on the American Express network.

We also continue to make progress on our ESG initiatives, which are important components of our overall business strategy, because we recognize that when our customers communities and colleagues thrive so does our company.

On a diversity equity inclusion front, we are more than three quarters of the way towards our goal of investing $1 billion in a wide range wide range of actions by 2024, including increasing spend with diverse suppliers, providing resources and financial assistance to minority owned Smes in the U S and maintaining pay equity across genders globally.

And <unk> in the U S. Among other efforts our DDI progress was cited as one of the key reasons along with our flexible work policies for a number eight ranking unfortunately in 2022 with the best U S companies to work for which we announced last week.

The third consecutive year, we've been in the top 10, which helps us attract and retain talent and.

And we recently announced a series of initiatives coinciding with Earth month that are designed to engage our customers community partners and colleagues in our climate efforts, including the goal of significantly expanding the use of recycled plastic in our in our card products.

These initiatives build on the work we've already done and continue our efforts to reduce our own carbon footprint, including our commitment to net zero carbon emissions by 2035.

In summary, with a solid start to the year and the continued tailwind we expect from the ongoing recovery from the pandemic. We are reaffirming our full year guidance of delivering revenue growth in the range of 18% to 20% and earnings per share of between $9 $25 to 965. Furthermore, we remain confident that successful execution of our strategy.

<unk> will position us well as we seek to achieve our long term growth plan aspirations of revenue growth in excess of 10% and mid teens EPS growth in 2024 and beyond.

I'll now turn it over to Jeff for a deeper dive on the quarter. Thank you.

Well, thanks, Steve and good morning, everyone.

Good to be here to talk about our first quarter results, which reflect a solid start to 2022 and are tracking in line with the guidance. We gave for the full year and with our aspiration to build growth momentum beyond 2022.

Starting with our summary financials on slide two most importantly, our first quarter revenues were $11 7 billion up 31% on an FX adjusted basis consistent with the momentum we have built and our longer term growth aspirations.

Our reported first quarter net income was $2 1 billion with earnings per share of $2 73.

As you know year over year comparisons of net income have been challenging for the industry over the past two years due to the volatility that the pandemic has caused a credit reserve adjustments for.

For that reason, we thought it would be a helpful. Supplemental disclosure this quarter to include our pretax pre provision income.

That number was $2 7 billion in the first quarter up 16% versus the comparable number in 2021, reflecting growth in our core earnings.

So now let's get into a little more detailed look at our results starting with volumes.

As you can see in our slides, we have mostly gone back to reporting our volumes on a year over year basis moving away from the comparisons to 2019 that we have done in recent quarters, we think that returning to a focus on a year over year comparison gives you a better view of the momentum we have built and the momentum we have.

Seeking to maintain as we look towards our longer term growth objectives.

Starting on slide three total network volumes and build business were both up over 30% year over year in the first quarter on an FX adjusted basis strengthening further from the strong growth rates seen in the past few quarters and.

And as Steve highlighted intra quarter, while <unk> slow growth in January and early February . We then saw a strong acceleration in March with that month, achieving our highest ever level of monthly billed business.

And I would point out that the majority of this high level of growth was driven by the momentum we have built and the number of transactions flowing through our network with only a modest impact from inflation.

Now as I talked about at our Investor Day last month and it is slide four reiterate the majority of our billed business is spending on goods and services from our consumer and small and medium size enterprise customers and as you can see on slide five goods and services spending remained robust in the first quarter with year over year growth, reaching 21%.

Slightly above the 2021 exit rate.

This momentum is from strong growth in online and card not present spending that continued in the first quarter, even as offline spending growth strengthened demonstrating the effect of the structural shift in online commerce that we've seen accelerated by the pandemic.

And while <unk> spending is a smaller portion of our total billings you see on slide six that is now strongly supporting our growth momentum with overall <unk> spending growing 121% year over year.

T&D spending did show a dip in January and early February due to the <unk>, but.

But spending then rebounded tremendously, reflecting pent up travel demand and essentially reached 2019 levels for the first time since the start of the pandemic in the month of March.

And this kind of T&D spending growth has continued right into early April .

When you then breakthrough spending trends down across our consumer and commercial businesses as we begin to do on slide seven.

A few other key clients I suggest you take.

First our millennial and Gen Z customers continue to drive our highest consumer growth with their spending up 56% year over year and spending growth from all age cohorts, increasing as well in the quarter.

Also of note global consumer TMA volumes overall were back above 2019 levels as of the first quarter.

Led by the growth in the U S.

Second our commercial business as strategic focus on helping SME clients run their businesses continues to drive strong growth in overall SME spending up 30% in the first quarter with acceleration in growth.

Both the U S and international.

While a smaller part of our overall growth.

As in this segment I would point out that our large and global corporate clients have begun to show signs of a business travel recovery.

Especially in the latter part of the quarter with a year over year growth rate for the quarter a 42%.

So overall, we are pleased with the growth momentum, we see across the board in our spending volumes, which is tracking in line with our expectations for both the year and.

And for our long term expectations.

As you then move to receivable and loan balances on slide nine you see that our growth momentum has brought our ending loan balances roughly back to pre pandemic levels in this quarter.

As I said at Investor day, the interest bearing portion of our loan balances also continues to increase quarter over quarter, but is still below 2019 levels as paydown rates remained elevated due to the liquidity and strength amongst our customer base.

This liquidity and strength is also of course evident as you turn to credit and provision on slides 10 through 12.

As we continue to see extremely strong credit performance card member loans and receivables write off and delinquency rates remained well below pre pandemic levels and in line with our expectations. So they did tick up a bit this quarter.

As you then turn to the accounting for this credit performance you will see that this quarter, we released a large part of the remaining credit reserves rebuilt to capture the significant uncertainty of the pandemic, which lacked a comparable Preston.

As we have seen a sustained recovery from the pandemic driven economic shutdowns, we have been able to reduce pandemic driven reserves. While there clearly is still plenty of uncertainty today related to the current geopolitical an inflationary environment.

We believe that our seasonal models are better able to capture our expected credit risk related to these uncertainties to determine the appropriate level of reserves required.

Our strong credit performance combined with the adjustment to our reserves drove a $33 million provision expense benefit for the first quarter is the low write offs were fully offset by the net reserve release as shown on slide 11.

As you see on slide 12, we ended the first quarter with $3 $1 billion of reserves, representing three 3% of our balances and 0.1% of our card member receivable balances respectively.

As well below the reserve levels, we had pre pandemic given the strong credit performance we are seeing.

Going forward as loan balances, especially the interest bearing portion of loan balances build more meaningfully we expect delinquency and loss rates to continue to slowly move up over time, but remain below pre pandemic levels. This year.

We would also expect to end the year with a higher level of reserves on our balance sheet and where we ended this quarter.

Although there could be some quarterly volatility in reserve adjustments throughout the year.

As we move to revenue on slide 13, I do need to explain some changes we've made to our revenue reporting report before moving on to results.

As a reminder, we began reporting processed volumes in the first quarter of last year to better differentiate between volume on cards, we issue.

Versus those where we play more in network growth.

Added transparency, we now have moved all of the revenues associated with these volumes out of discount revenue other fees and commissions and other revenue and combined them into a newly created line called processed revenue, which you can then match up against our processed volumes.

We have also consolidated the remaining balances from other fees and commissions and other revenue into one line named service fees and other revenue with the largest components of this line item being service fees earned from merchants like those generated by our loyalty coalition business.

Foreign currency related revenues, such as FX conversion fees.

This revenue line was up strongly at 42% growth year over year in the first quarter as you will see on the next slide.

This growth was primarily driven by the uptick we have seen in travel related revenues and as I said at Investor Day, We expect this to be a pandemic recovery tailwind throughout this year.

You will see we have recast prior periods in the disclosures that accompany our earnings release a description of these reporting changes in definitions for key terms will also be included in our Form 10-Q .

With these changes out of the way, let's move to our actual revenue performance beginning on slide 14.

Total revenues were up 29% year over year in the first quarter with broad based revenue growth across all lines of our largest revenue line discount revenue grew 38% year over year in Q1, and FX adjusted basis as you can see on slide 15.

This growth was driven by our space by both our sustained growth in goods and services spending and continued recovery of T&D spending.

Net card fee revenues were up 16% year over year in the first quarter on an FX suggested basis with growth reacceleration versus the 10% to 11% growth rates seen in 2021 as you can see on slide 16.

As I said at Investor Day. This growth is largely driven by bringing new accounts onto our fee paying products. As a result of the investments we've made in our premium value propositions and the continued attractiveness of those value propositions to both prospects and existing customers.

This quarter, we acquired 3 million new cards with acquisitions of U S consumer and newest business platinum card members, reaching record high as Steve noted earlier, demonstrating great demand for our products, especially our premium fee based products.

Moving on to net interest income on slide 17, you will see that it surpassed 2019 levels for the first time this quarter, mainly driven by lower interest expense in part due to our increased mix of deposits, which is generally our lowest cost funding source, particularly in today's rising rate environment.

First quarter year over year net interest income growth of 20%, while very strong remains slower than the growth in our lending.

As a revolving loan balances continued to rebuild and so we expect net interest income to be a pandemic recovery tailwind to our revenue growth in 2022.

To sum up on revenues on slide 18, we are tracking well against our expectations and looking forward, we still expect to see revenue growth of 18% to 20% for the full year of 2022.

So all of the revenue momentum. We just discussed was driven by the investments we've been making in marketing value propositions coverage technology and talent.

And those investments show up across the expense lines you see on slide 19.

Starting with variable customer engagement expenses, the strong spending growth and customer engagement that Steve discussed earlier is driving the growth in these expense lines.

In total these costs came in at 41% of total revenues for the first quarter.

We're tracking in line with our expectation for variable customer engagement costs to run at around 42% of total revenues for the full year.

On the marketing line, we invested $1 2 billion in the first quarter on track with our expectation to spend around $5 billion in 2022.

We feel really good about the strong momentum of our new card acquisitions as I talked about earlier and more importantly about the revenues from those acquisitions, which is trending significantly higher than what we saw pre pandemic.

We continue to see great demand for our products across across a wide range of attractive investment opportunities even beyond those we are currently funding.

Moving to the bottom of slide 19, operating expenses were $3 1 billion in the first quarter tracking with our expectations to spend a bit over $12 billion for the full year.

While opex was up 26% year over year this quarter.

Important to note that we were growing over a benefit of $384 million and net mark to market gains in our Amex ventures strategic investment portfolio from the first quarter last year.

And the Opex line.

I would point out that while I said earlier that inflation is having some modest positive impact on volumes.

It is also putting some pressure on our operating expenses, but we'll have to wait to see how material any impact might be for the full year.

In any event I still expect to have far less growth in opex compared to revenues and see these costs as a key source of leverage.

Turning next to capital Slide 20, we returned $1 $9 billion of capital to our shareholders in the first quarter, including common stock repurchases of $1 $5 billion and $394 million in common stock dividends on the back of strong earnings generation.

Our CET one ratio was 10, 4% at the end of the first quarter within our targeted range of 10% to 11%.

We plan to continue to return to shareholders, the excess capital regenerate, while supporting our balance sheet growth.

That brings our growth plan on slide 21, and then we will open up the call for your questions for.

For the full year 2022, we are reaffirming our guidance of having revenue growth of 18% to 20% and earnings per share between $9 25 to $9 65.

We continue to expect for the amount of our volumes revenues and core earnings to sequentially strengthened throughout the year driven in part by our pandemic recovery tailwind.

As I mentioned earlier, clearly uncertainty as it relates to the current geopolitical and inflationary environment.

As we sit here today, despite that uncertainty the combination of our investments successful execution of our strategy and a number of structural shifts have all come together to deliver our strong first quarter results and build growth momentum.

We remain committed to executing against our growth plan and running the company with a focus on achieving our aspiration of delivering revenue growth in excess of 10% and mid teens EPS growth on a sustainable basis.

24.

And with that I'll turn the call back over to Vivian.

Thank you Jeff before we open up the lines for Q&A I will ask <unk> to please limit yourself to just one question. Thank you for your accomplishment and with that.

Operator, we'll now open up the line for questions Alan.

Ladies and gentlemen.

Okay.

Ladies and gentlemen, if you wish to ask a question. Please press one then zero on your Touchtone phone.

You'll hear a message, indicating you've been placed in Q you may remove yourself from the queue at any time by pressing one zero again.

We are using a speakerphone please pick up your handset before pressing the numbers.

Our first question will come from the line of Sanjay <unk> with <unk> go ahead. Please.

Thanks, Good morning.

Obviously, the T&D rebound is happening at a brisk pace. Despite some of these lingering concerns on Covid cases economic weakness, Jeff you mentioned large corporate also recently saw a strong rebound recently could you talk about how much of the following.

Volume rebound is being driven by unit demand versus sort of inflationary pressures and how worried are you or your corporate clients about some of these issues like supply chain constraints.

Economic concerns.

So let me start and Jeff can maybe add some color as well but.

This is not being driven by inflation.

Try and book a flight.

So that's not in place and that doesn't mean that the.

The airline prices are not a little bit higher.

But not.

Not just for.

<unk>, but just for the overall business transactions are up who had billings up 35%. That's not that's not sort of driven all by inflation, we don't have 35% of inflation, but as far as travel goes.

You have to realize people have not been traveling for probably two years. There is a tremendous pent up demand.

For for travel bookings just from a consumer perspective on a global basis, we're up about 38, 37% in the U S. They were up 48% thats not over last year, that's over 2019.

So people are looking to get out there and travel and.

And I think that that's what's driving this that is not it is not inflation driven when we look at that <unk> number. The other thing I think is important with the teeny number 120, 21% is a great number but also let's put it in context, it's 121% over last year to 121% over over 2019, So we're not.

We're not all the way back consumers back, but we're not all the way back as far as large large corporations go.

And we're seeing it on our own company people are looking to get out and not only gather with.

Their own colleagues, but they're also looking to get out and meet with customers Youre seeing conferences come back in.

And so forth and so I know in our own company, we are getting together as a senior management team.

Top top 100, 150 people where have some sales meetings that are going on because people have not seen each other as well as you're seeing customers opening up their offices and I think as far as COVID-19 affecting this.

I think we're starting to learn to live with this <unk>.

The reality is COVID-19 is not something I think we've all learned that went away we will wind up dealing with this as we deal with the flu as we deal with strep throat as we deal with other viruses people will continue to get at Kohl's and get sick and off will go but I think the world is opening back up.

At this point and people are excited to go out and see the world and both from a business perspective and from a consumer perspective.

The only thing I would add <unk> is when you think about travel and entertainment spend some of that increase is not so much inflation as it is a return to people buying more front of airplane or <unk>.

High end hotel or high end restaurant oriented some of that as the business travel rebound, where your average beer's business travel purchase is of course much higher than the average consumer purchases.

The other comment I would make going forward is.

There is certainty lots of uncertainty in the world, but when you look at everything we see in our actual results in business.

Just can't really see any sign of weakness that thats, causing as of today.

Okay.

Our next question will come from the line of Mihir Bhatia with Bank of America go ahead. Please.

Good morning, Steve joining me here good morning.

Thank you for taking my question.

Yes.

A lot has changed since guidance was initially set at I am curious if you could maybe just talk about how your plans for the year have been evolving since they were established are there areas that made sense to lean into now with what you had thought coming into the versus maybe pulling back and others like I guess I'm just trying to understand the flexibility in the model, particularly.

On the expense side in terms of as things change, what's changing under the Hood, even as you maintained guidance, maybe just give us a flavor of that thank you.

I think.

As far as flexibility I think.

Yes look we demonstrated we have tremendous flexibility during the pandemic.

Especially as it related to.

Our marketing expenditures.

Obviously as consumers and business travelers didn't use our card member services you some flexibility there so that so those those things we do have some control over but.

As far as.

The plan and the guidance that we have we feel really comfortable where we are from a 925 to 965, but more importantly, I think we feel comfortable on what we are doing day by day to make sure that we are in line with tracking with our 2024 growth aspirations, which is.

As a sustainable 10% revenue and mid teens EPS and that's how we're running that's how we're running the company as far as what we see under the Hood.

We see as Jeff mentioned the range of good investment opportunities and you have to understand when we see investment opportunities from acquired acquisition perspective. They are here today and gone tomorrow. So if you don't act on them you don't get them and so we will continue to drive value.

Shareholder value by continuing to invest in the business and to grow the business for the medium to the long term and that's been a strategy. That's worked for us and that is going to be how we're going to how we're going to run it but.

Now if I was to look at the beginning of the year versus now I, probably see better investment opportunities today than I did with the plan, but as we know those investment opportunities.

They payback over time and what they do is they set us up better for 2023 and for 2024. So we feel really good about the guidance, we feel really good about the underlying.

Underlying investments.

That we're making and we'll continue to make.

And the only sort of simple financial summary, and put that in here.

When we gave the guidance for our revenue ambitions are quite ambitious we feel really good about the momentum we built but we have more investment opportunities and as I said in my remarks than we probably anticipated and maybe a little bit of pressure on costs from inflation. So all of those things.

Position us really well to build momentum towards our long term target of sustainable over 10% revenue growth.

Our next question will come from the line of John <unk> with Evercore ISI go ahead.

Good morning.

Right.

Sure.

Given the expected fed moves to cool the economy and tame inflation, what degree of slowing in network volume, where billed business volumes with Golar.

Do you incorporate in your outlook and then on the <unk> side I know you indicated was up nicely continues in April .

How do you view is trending.

When the economy cools through the year.

The general comment I would make John is as you know.

We don't have in house economists. So we tend to say, we should run the economy and run our guide to run the business from our guidance based on the macroeconomic consensus.

Which is not for there to be a recession and the fed.

I'd say that they are certainly focused on bringing inflation down without causing a recession. So that's what's built into our guidance and that's how we're running the company I think as Steve pointed out earlier, we have clearly demonstrated over the last couple of years, our ability to manage the company in a very agile way and react to a scenario of its different.

Just described but in terms of our base level of planning I don't think its our role to second guess spec general macroeconomic consensus.

Our next question will come from the line of Betsy <unk> with Morgan Stanley go ahead.

Hi, good morning.

Okay.

I wanted to just dig in a little bit on the loan growth and the card fee growth.

As you indicated.

The loan growth is.

It still has room to run.

And as well the impact on the NII. So maybe you could help us understand is it the NII.

Likely to accelerate here, but loan growth will be stabilizing or how youre thinking about that and also how it relates to the card fees, which I noticed were up nicely in the quarter. Thanks.

Card fees are up because we continue to acquire.

More cards and we're continuing to acquire.

And I think we acquired 68% of the consumer cards, we acquired with fee based cards, which is still slightly below where we were I think pre pandemic. So.

What what is what is important to understand is are the majority of our card fee growth comes from new cards that we that we acquire so it doesn't just come from the fee increase but we've also had a fee increase which will come in over time. So we feel really good about where we are from a from a card fee perspective, let me.

Just make one comment on on sort of our overall overall loan growth and then Jeff can get into the details, but the reality is pre pandemic, we were growing slightly faster than the industry.

We tend to have a lower share.

Of our card members' loan wallets than we do of their spending wallet and our intent is to grow judiciously, but we will probably we hope to get back to growing.

We are growing faster than we are growing faster than the industry, but again, our balances back up but.

I'll, let Jeff comment on the rest.

I'd just emphasize.

Emphasizing Angela.

So application stable what you just said, which is we are now betsy growing lending balances faster than the industry and we absolutely expect that.

To continue so theres a lot of them.

Runway for growth on the lending side and because of quarters like we just had with a record level of new <unk>.

U S.

Latin am in gold cards on the consumer side and a record level of U S business Platinum's I'd expect net card fee growth to probably accelerate even further from where it is.

Okay.

Our next question will come from Bill <unk> with Wolfe Research go ahead.

Bill.

So you've clearly navigated the pandemic exceptionally well in your acceleration in investment spending couldnt have been better timed as evidenced by your customer acquisition growth, but as you look ahead from here I wanted to follow up on some of your earlier comments are you at all concerned over the risk that the fed may be forced to actually push the economy into risk.

Session to tame inflation.

Does that give you any pause to be growing aggressively into that everything looks great now, but just would love to hear your thoughts a bit more on how you think about that risk and maybe if you could help us understand how you think the amex customer base would perform in that kind of environment.

Sure.

As I said earlier, we are always in terms of our guidance planning for what the macroeconomic.

Sensus has while also making sure we're thinking about other possibilities and certainly.

Bill is just one example, we are doing work today and making adjustments.

On the risk management side, as we think about what the impact is of sustained levels of inflation at its current level.

On different aspects of our customer base and we want to make sure we're positioned from a risk perspective for that.

Although that is not the macroeconomic consensus so.

I think we demonstrated over the last couple of years and our ability to be agile and manage through a downturn should that happen.

We're trying to strike all those same balances right now.

Yeah.

We will go next to the line of Mark Devries with Barclays Go ahead. Please.

Yes. Thanks.

Steve I think in your prepared comments you alluded to both the new partnership with Vanguard and also some really strong activity out of <unk> could you just help us think through how kind of those two initiatives.

Well it really impact the top line.

Well I think the way you got to think about both of these is we are constantly and continuously adding more benefits and more services to the card when you look at both of those.

<unk>.

They onto themselves they do not drive topline growth what they do do though is they.

Our main drive more engagement.

Drive more retention and give people more of in a more more reason to want to be with the card and I'll just talk about resi for a second.

Ramsey is not only a vehicle for giving our card members access.

Two restaurant reservations and card members do get access to the global dining program, but it's also a card acquisition vehicle.

As well because <unk> is an open platform.

And so <unk> was all about what are what are where our card members spend their money and how we can <unk>.

Great more with restaurants and connect our card members and really take advantage of.

Our closed loop.

Different way not just for payments, but the reservation piece, and then which which leads to payments and so when you look at the partnerships that you have that or.

Around the core of the card and I'm not talking about the Delta co brand partnerships and so forth, but when you look at the other things that we do add on what we're constantly adding to our products.

<unk> are more services better access more experiences and so forth. So that you continue to build the value propositions in different and more sustainable ways and Vanguard is an example of offering.

And to invest in service opportunity for card members that want to take advantage of it that combines vanguard's digital adviser service with the personal advisor service and.

Puts an MLR component into it and so we will continue to look at other lifestyle financial and travel and entertainment.

Services that just to add to the overall underlying value of our core products.

We will go next to the line of Ryan Nash with Goldman Sachs Go ahead.

Hey, good morning, Steve Good morning, Jeff.

So Steve maybe a question for both of you. So Steve you talked about the investment opportunities looking better and then Jeff you talked about the potential to build reserve. So im assuming youre talking about reserve dollars and do you think we're at the bottom on the reserve rate and also the <unk>.

Recession fears credit continues to outperform expectations and if we do continue to see better credit Steve how are you thinking about the potential to lean further into opportunities to continue to acquire cards and move towards your aspirational targets for 'twenty, Let me answer questions, one and three and Jeff can answer the question too.

So if I remember one and three.

Look the reality is that we continue to see.

Good good opportunities and as those opportunities continue to arise we will continue to invest in and what's important to know is that when we make an investment we're making those investments through the cycle. So as we underwrite.

And as we underwrite and we look at Rois, we feel good about what we see now why those opportunities presenting themselves I think for a couple of reasons number one I think the premium card space has been expanding.

I think especially as you think about <unk> coming into the into the workforce.

About millennials, which are getting a little bit older now, but millennials, who are still gravitating to the product. So the opportunities have arisen I think because the pool for our products has been has been getting bigger and bigger and we've talked about this in the past we used to look at people coming into our franchise, we used to start them off on fee free.

Cards, well a lot of our fee free cards are probably not as differentiated as some of the others, we have better service.

And so forth, but when you look at the value of the products of the feed free product with feed products that we're offering.

Our smart consumer and a smart small business person can really generate a lot more value out of those products.

Then.

Then they are paying for the client and as you know with our value propositions.

Given our partner network, we work with our partners to provide value to our card members and it all works out it all works out for all three of us to card member the partner and for Us.

I think the other thing that's important and <unk> seen a growth in small business acquisition as well is more and more small businesses are forming and that's one of the structural shifts that we are taking advantage of and to get to the third question and Jeff can get to the second question, which if you remember that at this point, but to get the third one we take.

Credit continues to perform better we release more reserves.

We take advantage of opportunities, we will continue to take advantage of those opportunities as they present themselves as I said, we're running.

For the medium to long term and it really is irresponsible from in my opinion of me to pass up really good investment opportunities that will pay off over the longer term I think one of the things that you've seen this year is we're committing to 18% to 20% revenue growth.

Basically off the 2019 revenue base.

And you've never seen that from us before.

That is a direct result of us investing in our card members investing in our brand and not walking away from good investment opportunities.

Hi, Brian to come back on the credit side, maybe just to clarify my remarks. So when you look at the credit reserves, we closed the first quarter with I would expect the dollar level of those reserves to be higher by retirement victory end of the year, because I very much expect R&R balances to grow.

Whether the reserve rate grows is much less clear than it's probably more going to be a function of where economic forecast go.

The reserve rate go lower.

Before I don't think our delinquencies or write offs are going to go lower so the only thing just mechanically.

I'd cards are the reserve rates go down it would be a dramatic improvement in the balanced economic outlook, which probably would mean all the uncertainties in the world go away.

If magically that were to happen I suppose mechanically possible to reserve.

But I would have to say that's pretty unlikely sitting here.

We'll go next to the line of Meng <unk> with Deutsche Bank go ahead.

Good morning, guys. Thanks for taking my question.

On the competitive environment I mean, we've seen a competitor come out with a new fab offering and premium travel space is always up.

But that doesn't seem to be stopping you guys. Much if at all I'm. Just wondering can you quantify sort of the market share that you guys have taken and also speak to any potential headwinds youre keeping the ion in the landscape currently thank you.

Well I mean look we.

This is a competitive space when you're talking about U S. Consumer it's a competitive space, it's always been a competitive space and it will continue to be a competitive space and you've got.

Capital one out there with the new product and J P. Morgan.

<unk> alter for companies that are looking to double down on the premium side of it and we'll continue to again going back to what I said when the question was asked about <unk> and Vanguard and so forth, we're going to continue to add value.

To the products and making sure that we have.

Still top of mind and top of wallet and that look we had record acquisitions. However, it's still a competitive it's still a competitive space. When you think about competition, though we just don't think about competition in the U S. Consumer. We also think about it in the U S small business and which is competitive as well and you can go market by market by market both from.

Small business perspective, and so there is a lot of competition out there we keep our eye on the competition and our objective is to continue to to understand what our customer what our customer needs are and where our customer needs are going and continue to develop our products and services and the reality is you just don't you don't launch a product and then sort of go.

To sleep for a few years and then say okay. In three years will come up with a new one we're constantly adding value and I think you saw that.

As we added more value to the platinum card even after the refresh when we put the Walmart plus.

Benefit on so.

We always assume high competition and we always assume that the competition is really good and.

That has served us served us well having that mindset.

Running the business. The one thing I'd add is I would take people back.

To your discussion here at Investor Day about what you call a virtuous cycle, which is the faster we can continue to grow our premium customer base. The more overall, so successful in attracting partners, who want access to that base and help fund and further improve the value proposition that's fabs.

Perhaps one of the most important ways we can.

Operate in a very competitive that's a real good call out and remember that virtuous cycle sits on top of actuals actual network right, because whereas where we get those partners from our from our network our merchant network and so you have this physical merchant network.

And we were able to create that sort of flywheel to drive more and more value not only acquired members, but to partners and more as Jeff said the more cardholders you have in the more value our customers get at it the more they want to invest in that base.

Our next question will come from Chris Donat with Piper Sandler go ahead.

Good morning, Thanks for taking my question first I just wanted to.

Yes, Hi, just want to double check on the net card fees in the year on year growth, there and the acceleration in the growth.

So a bit of.

That being a function of new.

New additions, but also a few changes should we expect a similar year on year trajectory for the next four quarters as you.

As you recognize some of that revenue over over time or is this a one time kind of bump.

No.

Yes.

Question, Chris as I pointed out earlier demand as I think I showed a chart at Investor day. The majority of the growth in net card fees is driven by bringing more customers into the higher fee paying products not by any particular price increase some of the price increases when we reprice for adding value add a little bit.

When you think about the rate at which we've been bringing new premium card members under the franchise record first quarter for U S platinum gold on the consumer side and the business platinum.

That mechanically now just makes a pretty darn confident that as you look at the next few quarters that 16% is likely to even further accelerate a little bit.

As we build on the acquisition momentum we have because there is I think it sounds like you recall.

Counting for fees, you're amortizing them over 12 months from when they are paid so theres a.

Fairly predictable effect here.

Okay.

Our next question will come from Rick Shane with J P. Morgan.

Hey, guys. Thanks.

Taking my question.

To understand the really strong first quarter results in context of maintaining <unk> 'twenty two guidance and your previous comments about sequential build throughout the year.

Obviously, theres going be some normalization of provision expense, but I am wondering what that says about operating leverage and efficiency ratio.

Given youre accelerating topline.

I think that.

The very careful word that I inserted Rick.

The sequential growth was in what we're calling core earnings which is why we included that pre tax pre provision net income number on the first page because.

Reserves are going to bounce all over the place although in terms of dollars I would expect credit reserves at the end of the year, assuming AAR continues to grow as we expect.

A little bit higher so I, absolutely do expect pretax pre provision net income to be a little bit stronger each quarter as you grow through the year I don't expect that necessarily a GAAP earnings per share because we just had really we pulled forward in many ways a good sized credit reserve release into Q1 that drove year.

GAAP EPS up to $2 7 million surety I do not expect sequential growth off that number if you just do the simple math, that's pretty obvious given our EPS guidance the.

The other point I'd come back to US we feel really good about the revenue momentum.

Steve I think has made very clear.

Our focus on pursuing good investment opportunities when they arise.

And so we're very comfortable with the EPS guidance, we've given for <unk>.

Yeah.

Our next question will be from Lisa Ellis with Moffett Nathanson go ahead. Please.

Hi, good morning, Thanks for taking my question.

Our starting to dig in a little bit on that new card acquisition with proprietary cards enforced.

At $72 8 million it was up 6% year on year I was just taking back the model, we haven't seen a quarter up 6% since back in 2018. So can you just talk a little bit about what's driving that acceleration in.

Card acquisition, specifically is that temporary like the return of the Delta co brand growth or is it more that you are just seeing a higher ROI on some of the Aircard acquisition marketing spending.

Yes, yes, I mean look I think we are seeing a little bit of a higher ROA.

INR current acquisition.

Current acquisition spending and as.

As we said I think there's just there's an expanding pool, it's not just.

The consumer base, but it's also the small business space.

I will go back to my comments before the millennial and Gen Z.

Gen Z pool is expanding there are more small businesses out there and as we look at the opportunities.

We were able to bring in probably some more cards than we thought we were.

In the first quarter.

And we see we see opportunities going forward so.

We will continue to invest.

So to grow the card base and but remember we're looking at we're just not looking at growing clients. I mean, these cards are hitting our return.

<unk> got a large percentage of these cards are fee paying cards, but I'll also go.

Go back to I think it is it's either in my comments or Jeff script, 60% of the cards that we did acquire from a consumer perspective, where millennial cards, which are up 50, which was 50% pre pandemic. So is.

He is a bigger pool for us to acquire from from a millennial Gen Z perspective, and their own small businesses. So.

Right now we feel good about card growth how that translates next quarter look the last few quarters we've had.

Sequential card growth quarter to quarter.

And coming off last year.

There wasn't a tremendous amount of card growth in the first quarter from a relative basis on a comparative basis would it continue to move up every single quarter and.

We feel good about what happened this this particular.

This particular quarter can it be 6% again next quarter don't really know.

Our final question will come from the line of Don <unk> with Wells Fargo go ahead.

Yes.

I noticed the capital one is marketing no limit small business card I was just curious I know thats part of your secret thoughts on the future.

Both material and then lastly on Fintech like I know your partnerships and fill dot com Cooper today represent a threat.

Wei.

You bet.

So just I'm sorry, just one other point Felicia just.

Retention helps a lot and our retention numbers. If you look at the last couple of years have improved significantly. So if you think about your base is having a leak and it <unk> got a lot smaller so that's I think that's important.

Don as far as.

Exco.

Hi.

Theres some opportunities opportunities for us and I think the partnership with <unk>, we already have a partnership with them in Latin America, and I think this will just make it easier to onboard fintech stat that want to have.

American Express card because reality is a lot of that.

Most of them don't do their own processing deal build partner with somebody else to do this in.

Having to see and being able now to do this on a global basis will enable us to to approach. So I don't look at that as a.

Necessarily a threat I look at this as an opportunity as an opportunity for us and what was your first part of your question on Florida.

One no limit.

I don't know what no limit I really don't know what no limit is and so yes, I think what they've done is put out a no pre set spending limit.

<unk>.

And I'm not being flipping here.

I, just don't know what that no preset spending limit spending limit is.

So we'll see how that plays out again really good company had lots and lots of success very tough competitor.

They are the first ones to go down this road.

And we'll see how it how it all plays out how it all plays out, but we take them very seriously as we take everybody else. Yes. It is part of our secret sauce and.

We will see so.

Again, just look at the results in the first quarter for US we had.

30%.

30% growth from a small business perspective so.

We feel pretty good about small business at this point and a record quarter for business Platinum acquisition yesterday.

With that we will bring the call to an end. Thank you again for joining today's call and for your continued interest in American Express.

The IR team will be available for any follow up questions.

Alan back to you.

Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at IR Dot American Express Dot com shortly after the call.

Can also access the digital replay of the call at 8662071041 or area code four zero to 90 700 847 with the access code 153 to 444 after one PM Eastern daylight time today April 20 <unk>.

Through midnight April 30th.

That will conclude our conference call for today. Thank you for your participation.

May now disconnect.

This is al.