NEW YORK -- American Express saw its fourth-quarter profits fall by 9%, as the credit card giant had to set aside significantly more money to cover potentially bad loans. The company saw charge-offs and delinquencies rise, a troubling sign for a company whose customer base is usually well-to-do and extremely creditworthy.
But the company did announce it planned to raise its quarterly dividend and also forecast higher-than-expected profits for 2023, which helped lift shares of American Express Co. in early trading Friday as investors seemed to look past the delinquencies and more at how card members were still spending strongly.
The New York-based company said it earned a profit of $1.57 billion in the quarter, or $2.07 per share. That is down from $1.72 billion, or $2.18 per share, in the same period a year earlier and below analysts' forecasts.
While AmEx saw a double-digit rise in card use from a year ago -- card members spent $413.3 billion last quarter -- the increase in revenue was eclipsed by a noticeable deterioration in the financial health of AmEx customers.
The company set aside $1.03 billion to cover potential credit losses, compared with only $53 million in the same period a year earlier. The company wrote off 1.3% of its total loans, compared with only 0.8% a year earlier. The number of card members who were 30 days or more past due also rose.
AmEx CEO Steve Squeri said in a statement that the company's credit metrics "remained strong" in the quarter, however. Squeri told analysts on a call with investors that the company is seeing few signs of a recession in the short-to-medium term, noting that card member spending remains strong.
Over the past several years, AmEx has moved its traditional charge card business model -- from where a customer must pay off their entire balance each month -- to a model closer to traditional credit card companies that encourage customers to keep a balance while the company collects interest. Worldwide card member loans were $108 billion last quarter, up 22% from 2021.
While investors have applauded the higher profits from AmEx, the adoption of a business model that encourages customers to keep a balance also exposes the company to losses if the economy were to sour. Investors did ask executives if the recent white collar layoffs are impacting business, and executives said such did not appear the case and that the rise in credit losses was mostly a normalization from earlier during the covid-19 pandemic, when customers paid off credit balances.
Jeff Campbell, AmEx's chief financial officer, said the increase in delinquencies was expected and the company does not expect credit losses to return to pre-pandemic levels. Other credit card companies have seen much larger rises in delinquencies, notably Discover Financial, whose stock fell sharply this week after it reported results.
Noting the growth in card member spending and an expectation that delinquencies will level off this year, AmEx did forecast a full-year profit between $11.00 and $11.40 per share for 2023. The company also raised its quarterly dividend to 60 cents per share from 52 cents per share.
In morning trading Friday, shares of American Express Co. jumped 9.7%, before edging to $172.31 for a 10.5% gain on the day in New York.