American Express Company (AXP) Q1 2022 Earnings Call Transcript

American Express Company (NYSE: AXP) Q1 2022 earnings call dated Apr. 22, 2022

Corporate Participants:

Vivian Zhou — Head of Investor Relations

Stephen J. Squeri — Chairman And Chief Executive Officer

Jeff Campbell — Vice Chairman and Chief Financial Officer

Analysts:

Sanjay Sakhrani — KBW — Analyst

Mihir Bhatia — Bank of America — Analyst

John Pancari — Evercore ISI — Analyst

Betsy Graseck — Morgan Stanley — Analyst

Bill Carcache — Wolfe Research — Analyst

Mark DeVries — Barclays — Analyst

Ryan Nash — Goldman Sachs — Analyst

Meng Jiao — Deutsche Bank — Analyst

Chris Donat — Piper Sandler — Analyst

Rick Shane — JPMorgan — Analyst

Lisa Ellis — MoffettNathanson — Analyst

Don Fandetti — Wells Fargo — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q1 2022 Earnings Call. [Operator Instructions] As a reminder, today’s call is being recorded.

I would now like to turn the conference over to our host, Head of Investor Relations, Ms. Vivian Zhou. Please go ahead.

Vivian Zhou — Head of Investor Relations

Thank you, Allen, and thank you all for joining today’s call. As a reminder, before we begin, today’s discussion contains forward-looking statements about the company’s future business and financial performance. These are based on management’s current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today’s presentation slides and in our reports on file with the SEC.

The discussion today also contains 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.americanexpress.com.

We will begin today with Steve Squeri, 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.

Stephen J. Squeri — Chairman And Chief Executive Officer

Thanks, Vivian, 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 explained why we are confident we can achieve our growth plan aspirations for 2024 and beyond.

As we said then, our confidence is based 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’ve been generating through the effective execution of that strategy; and a number of structural shifts in 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 per share were $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 their strong pace, reaching 3 million this quarter, which continues to be driven by strong demand for our premium fee-based products, particularly among millennial and Gen Z consumers, and small- and medium-sized businesses in the U.S.

We had an all-time high in acquisitions of U.S. Consumer Platinum and Gold cards as well as U.S. Business Platinum Cards this quarter. Delta Card 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 regressed 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 resi dining platform, including strong double-digit growth over the last quarter in a number of Amex cards on file and a number of restaurants participating in our global dining access program. March was one of resi’s best months on record for reservations, up nearly 16% over February.

Ultimately, the key metric to gauge customer engagement is spending growth. Overall Billed 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 millennial and Gen Z consumers of 56% and SME is 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 the very high levels I mentioned at Investor Day, an indication of the value our customers continue to place in Amex membership. A major contributor to our success across all of these areas is the ongoing expansion of many partnerships, which go well beyond our large 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 advice 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 card offerings to meet more of our customers’ financial and lifestyle needs.

In addition, we’re accelerating our focus on fintech’s to drive more innovation, including our new partnership with ITC, which will enable fintech’s 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 diversity, equity, inclusion front, we are more than three quarters away towards our goal of investing $1 billion in a 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 ethnicities in the U.S. among other efforts.

Our DEI progress was cited as one of the key reasons, along with our flexible work policies for our number-eight ranking on Fortune’s 2022 list of the best U.S. companies to work for, which was announced last week. This is the third consecutive year we’ve been in the top 10, which helps us attract and retain talent.

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 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 this solid start to the year, the continued tailwinds we expect from the ongoing recovery from the pandemic, we’re reaffirming our full year guidance of delivering revenue growth in the range of 18% to 20% and earnings per share of between $9.25 and $9.65. Furthermore, we remain confident that successful execution of our strategy 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.

Jeff Campbell — Vice Chairman and Chief Financial Officer

Well, thank you, Steve, and good morning, everyone. It’s great 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 2. 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 in credit reserve adjustments. 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 year-over-year comparison gives you a better view of the momentum we have built and the momentum we are seeking to maintain as we look towards our longer-term growth objectives.

Starting on Slide 3. Total network volumes and Billed 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 as Steve highlighted, intra-quarter, while Omicron slowed 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 as Slide 4 reiterates, the majority of our Billed business is spending on goods and services from our consumer and small and medium-sized enterprise customers. And as you can see on Slide 5, 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 T&E spending is a smaller portion of our total billings, you see on Slide 6 that it is now strongly supporting our growth momentum, with overall T&E spending growing 121% year-over-year. T&E spending did show a dip in January and early February due to the Omicron variant, 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&E spending growth has continued right into early April.

When you then break these spending trends down across our consumer and commercial businesses, as we begin to do on Slide 7, there are a few other key points I’d suggest you take away. 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 other age cohorts increasing as well in the quarter. Also of note, global consumer T&E volumes overall were back above 2019 levels as of the first quarter, led by the growth in the U.S.

Second, our commercial businesses 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 across both the U.S. and international. While a smaller part of our overall growth is in this segment, I would point out that our large and global corporate clients have begun to show signs of business travel recovery, especially in the latter part of the quarter with a year-over-year growth rate for the quarter of 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 for our long-term expectations.

As you then move to receivable and loan balances on Slide 9, 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 remain 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 remain well below pre-pandemic levels and in line with our expectations, but 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 we built to capture the significant uncertainty of the pandemic, which lacked a comparable precedent. 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 and inflationary environment, we believe that our CECL 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 as 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 3.3% of our loan balances and 0.1% of our Card Member receivable balances, respectively. This is well below the reserve levels we had pre-pandemic, given the strong credit performance we’ve seen.

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 than 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 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 and cards we issue versus those who are we play more of a network role. For added transparency, we now have moved all of the revenues associated with these volumes out of discount revenue, other fees and commissions, 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, and foreign currency-related revenues, such as FX conversion fees. This revenue line was up strong with 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 and 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. Our largest revenue line, discount revenue grew 38% year-over-year in Q1 on an FX adjusted basis, as you can see on Slide 15.

This growth was driven by both our sustained growth in goods and services spending and continued recovery of T&E spending. Net Card fee revenues were up 16% year-over-year in the first quarter on an FX-adjusted basis, with growth reaccelerating versus the 10% to 11% growth rate 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 U.S. 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 AR as revolving loan balances continue 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’re 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 expenses lines. In total, these costs came in at 41% of total revenues for the first quarter and are tracking in line with our expectations for variable customer engagement costs to right 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 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 expectation to spend a bit over $12 billion for the full year. While opex was up 26% year-over-year this quarter, it is important to note that we were growing over a benefit of $384 million in net mark-to-market gains in our Amex venture strategic investment portfolio from the first quarter of last year, included in 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 on 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 CET1 ratio was 10.4% at the end of the first quarter, within our target range of 10% to 11%. We plan to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth.

That brings to our growth plan on Slide 21, and then we’ll open up the call for your questions.

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 and $9.65. We continue to expect the amount of our volumes, revenues and core earnings to sequentially strengthen throughout the year, driven in part by our pandemic recovery tailwinds.

As I mentioned earlier, there’s 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 new 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 in 2024 and beyond.

With that, I’ll turn the call back over to Vivian.

Vivian Zhou — Head of Investor Relations

Thank you, Jeff. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourself to just one question. Thank you for your cooperation. And with that, the operator will now open up the line for questions. Allen?

Questions and Answers:

 

Operator

[Operator Instructions] Our first question will come from the line of Sanjay Sakhrani with KBW. Go ahead, please.

Sanjay Sakhrani — KBW — Analyst

Thanks. Good morning. Obviously, the T&E rebound is happening at a brisk pace despite some of these lingering concerns on COVID cases, economic weakness. Jeff, you mentioned large corporate also that recently saw a strong rebound recently. Could you talk about how much of the 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 and the economic concerns? Thanks.

Stephen J. Squeri — Chairman And Chief Executive Officer

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 inflation. Now that doesn’t mean that the airline prices are not a little bit higher. But not just for T&E, but just for the overall business, transactions are up. We had billings up 35%. 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’s a tremendous pent-up demand for travel. I mean, our bookings, just from a consumer perspective, on a global basis, we’re up about 38% — 37%. In the U.S., they were up 48%. That’s not over last year. That’s over 2019.

So people are looking to get out there and travel. And I think that’s what’s driving us. That is not — it is not inflation driven when we look at that T&E number. The other thing I think is important with the T&E number, 121% is a great number, but also let’s put it in context. It’s 121% over last year, it’s not 121% over 2019. So we’re not all the way back. Consumers back, but we’re not all the way back.

As far as large corporations go — and we’re seeing it in 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. You’re seeing conferences come back and so forth. And so I know in our own company, we are getting together as a senior management team, our top 100, 150 people. We 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 affecting all of this, I think we are starting to learn to live with this. The reality is COVID is not something I think we’ve all learned that is going away. We’ll 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 — have colds and get sick and off we’ll go. But I think the world is opening back up at this point, and people are excited to go out and see the world again, both from a business perspective and from a consumer perspective.

Jeff Campbell — Vice Chairman and Chief Financial Officer

Yes, the only thing I would briefly add, Sanjay, 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 high-end hotel or high-end restaurant oriented. Some of that is the business travel rebound where your average business travel purchase is, of course, much higher than the average consumer purchase.

The other comment I’d make going forward is there’s certainly lots of uncertainty in the world. But when you look at everything we see in our actual results and business, you just can’t really see any sign of weakness that that’s causing as of today.

Operator

Our next question will come from the line of Mihir Bhatia with Bank of America. Go ahead, please.

Mihir Bhatia — Bank of America — Analyst

Good morning, Steve, Jeff.

Stephen J. Squeri — Chairman And Chief Executive Officer

Good morning, Mihir.

Jeff Campbell — Vice Chairman and Chief Financial Officer

Good morning.

Mihir Bhatia — Bank of America — Analyst

Thank you for taking my question. A lot has changed since guidance was initially set. And 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 versus what you had thought coming into the year versus maybe pulling back in 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 maintain guidance? Maybe just give us a flavor of that. Thank you.

Stephen J. Squeri — Chairman And Chief Executive Officer

Yes. I think as far as flexibility, I think — we demonstrated we have tremendous flexibility during the pandemic, especially as that related to our marketing expenditures. And obviously, as consumers and business travelers didn’t use our Card Member services, you saw flexibility there. So 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 $9.25 to $9.65. 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 what our 2024 growth aspirations, which is a sustainable 10% revenue and mid-teens EPS. And that’s how we’re running the company.

As far as what we see under the hood, we see, as Jeff mentioned, a range of good investment opportunities and you have to understand, when we see investment opportunities from a card 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 run it. But right 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 pay back 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 investments that we’re making and we’ll continue to make.

Jeff Campbell — Vice Chairman and Chief Financial Officer

The only sort of simple financial summary I put to that Mihir, 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, 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, I think, position us really well to build momentum towards our long-term target of sustainable over 10% revenue growth.

Operator

Our next question will come from the line of John Pancari with Evercore ISI. Go ahead, please.

John Pancari — Evercore ISI — Analyst

Good morning.

Stephen J. Squeri — Chairman And Chief Executive Officer

Good morning, John.

John Pancari — Evercore ISI — Analyst

So given the expected Fed moves to cool the economy and tame inflation, what degree of slowing in network volumes or Billed business volumes, let’s call it, do you incorporate in your outlook? And then on the T&E side, I know you indicated it’s up nicely and continues in April. How do you view this trend being as the Fed tightens and the economy cools through the year?

Jeff Campbell — Vice Chairman and Chief Financial Officer

Yes. The general comment I’d 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, run our guidance based on the macroeconomic consensus, which is not for there to be a recession. And the Fed will 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 that’s different than what I just described. But in terms of our base level of planning, I don’t think it’s our role to second guess that general macroeconomic consensus.

Operator

Our next question will come from the line of Betsy Graseck with Morgan Stanley. Go ahead.

Betsy Graseck — Morgan Stanley — Analyst

Hi. Good morning.

Stephen J. Squeri — Chairman And Chief Executive Officer

Hi, Betsy.

Betsy Graseck — Morgan Stanley — Analyst

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 — still has room to run. So maybe — and as well the impact on the NII. So maybe you could help us understand, is it the NII that’s likely to accelerate here, but loan growth will be stabilizing? Or how are you thinking about that? And also how it relates to the card fees, which I noticed were up nicely in the quarter? Thanks.

Stephen J. Squeri — Chairman And Chief Executive Officer

Well, 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 were fee-based cards, which is still slightly below where we were, I think, pre-pandemic. So what is important to understand is the majority of our card fee growth comes from new cards 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 card fee perspective.

Let me just make one comment on sort of our 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 have their spending wallet. And our intent is to grow judiciously, but we hope to get back to growing and — we are growing faster than the industry, but to get our balances back up. But I’ll let Jeff comment on the rest.

Jeff Campbell — Vice Chairman and Chief Financial Officer

Well, I’d just emphasize the financial implication, Steve, of what you just said, which is we are now, Betsy, growing those lending balances faster than the industry, and we absolutely expect that to continue. So there’s a lot of runway for growth on the lending side. And because of quarters like we just had with a record level of new U.S. Platinum and Gold Cards on the consumer side and a record level of U.S. business Platinums, I’d expect net card fee growth to probably accelerate even further from where it is.

Operator

Our next question will come from Bill Carcache with Wolfe Research. Go ahead.

Stephen J. Squeri — Chairman And Chief Executive Officer

Bill?

Bill Carcache — Wolfe Research — Analyst

Hey. So you’ve clearly navigated the pandemic exceptionally well, and your acceleration in investment spending couldn’t 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 recession to tame inflation? Does that give you any pause to be growing aggressively into that? I mean 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?

Stephen J. Squeri — Chairman And Chief Executive Officer

Well, as I said earlier, we are always — in terms of our guidance — planning for worst macroeconomic consensus, as while also making sure we’re thinking about other possibilities. And certainly, Bill, as 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 because 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, again, our ability to be agile and manage through a downturn, should that happen. And we’re trying to strike all those same balances right now.

Operator

We’ll go next to the line of Mark DeVries with Barclays. Go ahead, please.

Mark DeVries — Barclays — Analyst

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 resi. Could you just help us think through how kind of those two initiatives will really impact the top line?

Stephen J. Squeri — Chairman And Chief Executive Officer

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 partnerships, they onto themselves, they do not drive top line growth. What they do do though is they, in our mind, drive more engagement, drive more retention and give people more reason to want to be with the card.

Now I’ll just talk about resi for a second. Resi is not only a vehicle for giving our card members access to restaurant reservations and card members do get access to the global dining program, but it’s also a card acquisition vehicle as well because resi is an open platform. And so resi was all about what our — where our card members spend their money and how we can integrate more with restaurants and connect our card members and really take advantage of our closed loop in a different way, not just for payments, but the reservation piece and then which leads to payments.

And so when you look at the partnerships that we have that are sort of 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 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 an investment service opportunity for card members that want to take advantage of it, that combines Vanguard’s digital adviser service with the personal adviser service and puts an MR component into it. And so we’ll continue to look at other — lifestyle, financial and travel and entertainment services that just add to the overall underlying value of our card products.

Operator

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

Ryan Nash — Goldman Sachs — Analyst

Hey. Good morning, Steve. Good morning, Jeff.

Stephen J. Squeri — Chairman And Chief Executive Officer

Hey, Ryan.

Ryan Nash — Goldman Sachs — Analyst

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 reserves. So I’m assuming you’re talking about reserve dollars. And do you think we’re at the bottom on the reserve rate? And also, despite 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 —

Stephen J. Squeri — Chairman And Chief Executive Officer

Well, let me answer questions one and three, and Jeff can answer two. So — if I remember one and three. But look, the reality is that we continue to see good opportunities. And as those opportunities continue to arise, we’ll continue to invest in them. What’s important to know is that — well, when we make an investment, we’re making those investments through the cycle. So as we underwrite ROIs, as we underwrite and we look at ROIs, we feel good about what we see.

Now why are those opportunities presenting themselves? Well, 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 Gen Zs coming into the workforce, I think 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 product 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 view of the products or the fee-free product, the fee products that we’re offering, a smart consumer and a smart small business person can really generate a lot more value out of those products than they’re paying for the card. 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 for all three of us, the card member, the partner and for us.

I think the other thing that’s important, and you’ve 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 he remembers it at this point. But to get to your third one, if 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 this for the medium to long term and it really is irresponsible 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 off of a — basically off of a 2019 revenue base. And you’ve never seen that from us before. And that is a direct result of us investing in our card members, investing in our brand and not walking away from good investment opportunities.

Jeff Campbell — Vice Chairman and Chief Financial Officer

Ryan, 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 the time we get to the end of the year because I very much expect our AR balances to grow. Whether the reserve rate grows is much less clear, and it’s probably more going to be a function of where economic forecasts go. Could the reserve rate go lower? Well, I don’t think our delinquencies and write-offs are going to go lower. So the only thing just mechanically that could cause the reserve rates to 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. So if magically, that were to happen, I suppose it’s mechanically possible that reserve rate are lower, but I would have to say that’s pretty unlikely sitting here.

Operator

We’ll go next to the line of Meng Jiao with Deutsche Bank. Go ahead.

Meng Jiao — Deutsche Bank — Analyst

Good morning, guys. Thanks for taking my question.

Stephen J. Squeri — Chairman And Chief Executive Officer

Good morning.

Meng Jiao — Deutsche Bank — Analyst

Just on the competitive environment, I mean we’ve seen a competitor coming with the new fab [phonetic] offering and the premium travel space is always top. 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 you’re keeping the eye on in the landscape currently? Thank you.

Stephen J. Squeri — Chairman And Chief Executive Officer

Well, I mean, look, we — this is a competitive space. When you’re talking about U.S. consumer space, 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 JPMorgan, all terrific 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 we — the question was asked about resi and Vanguard and so forth, we’re going to continue to add value to the products and making sure that we are still top of mind and top of wallet. And that — look, we had record acquisitions. However, 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 a 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 understand what our customer needs are, understand 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, we’ll 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 well, having that mindset on running the business.

Jeff Campbell — Vice Chairman and Chief Financial Officer

The one thing, Steve, I’d add is I take people back to your discussion at Investor Day about what you call the virtuous cycle, which is the faster we can continue to grow our premium customer base, the more we’re also successful in attracting partners who want access to that base and help fund and further improve the value proposition. And that’s one of the most important ways we operate in a very competitive space.

Stephen J. Squeri — Chairman And Chief Executive Officer

No, that’s a real good call out. And remember, that virtuous cycle sits on top of an actual network, right? Because where we get those partners from are from our network, our merchant network. And so you have this physical merchant network, and we’re able to create that sort of flywheel to drive more and more value, not only to card members but to partners and the more — as Jeff said, the more premium cardholders you have and the more value our customers get it, the more they want to invest in that base.

Operator

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

Chris Donat — Piper Sandler — Analyst

Good morning. Thanks for taking my question.

Stephen J. Squeri — Chairman And Chief Executive Officer

Good morning, Chris.

Jeff Campbell — Vice Chairman and Chief Financial Officer

Good morning, Chris.

Chris Donat — Piper Sandler — Analyst

Yes. Hi. Just wanted to double-check on the net card fees and the year-on-year growth there and the acceleration in the growth. So a bit of that being a function of new additions, but also fee changes. Should we expect a similar year-on-year trajectory for the next four quarters as you recognize some of that revenue over time? Or is this a onetime kind of bump —

Stephen J. Squeri — Chairman And Chief Executive Officer

Yes, it’s good question, Chris. As I pointed out earlier, the — and 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 high fee-paying products, not by any particular price increase, although the price increase when we price for adding value to add a little bit.

When you think about the rate at which we’ve been bringing new premium card members into the franchise, record first quarter for U.S. Platinum, Gold on the consumer side and business Platinum. That mechanically now just makes me 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 as I think it sounds like you recall, the accounting for fees, you’re amortizing them over 12 months from when they’re paid. So there’s a fairly predictable effect here.

Operator

Our next question will come from Rick Shane with JPMorgan.

Rick Shane — JPMorgan — Analyst

Hey, guys. Thanks and appreciate you taking my question. I’d love to understand the really strong first quarter results in context of maintaining ’22 guidance in your previous comments about sequential build throughout the year. Obviously, there’s going to be some normalization of provision expense, but I am wondering what this says about operating leverage and efficiency ratio given your accelerating top line?

Jeff Campbell — Vice Chairman and Chief Financial Officer

Well, I think that the very careful word that I inserted, Rick, when we talked about sequential growth was in what we’re calling core earnings, which is why we included that pretax pre-provision net income number on the first page because credit reserves are going to bounce over the place. Although in terms of dollars, I would expect credit reserves at the end of the year, assuming AR continues to grow as we expect to be a little bit higher.

So I absolutely do expect pretax pre-provision net income to be a little bit stronger each quarter as you go through the year. I don’t expect that necessarily of 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 your gap EPS up to $2.30 [phonetic]. I do not expect sequential growth of that number if you just do the simple math. That’s pretty obvious given our EPS guidance.

The other point I’d come back to is we feel really good about the revenue momentum. But boy, 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 the year.

Operator

Our next question will be from Lisa Ellis with MoffettNathanson. Go ahead, please.

Lisa Ellis — MoffettNathanson — Analyst

Good morning. Thanks for taking my question.

Stephen J. Squeri — Chairman And Chief Executive Officer

Hi, Lisa.

Lisa Ellis — MoffettNathanson — Analyst

Hi. I was hoping to dig in a little bit on the new card acquisition with proprietary cards in force at $72.8 million. It was up 6% year-on-year. I was just peeking back at 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? And specifically, is that temporary like the return of the Delta co-brand growth? Or is it more that you’re just seeing a higher ROI on some of your card acquisition marketing spending?

Stephen J. Squeri — Chairman And Chief Executive Officer

Yes. I mean, look, I think we are seeing a little bit of a higher ROI on our card acquisition spending. And 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 base. I’ll go back to my comments before. The millennial and 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 opportunities going forward.

So we’ll continue to invest to grow the card base. And — but remember, what we’re looking at, we’re just not looking at growing cards. I mean these cards are hitting our return. You’ve got a large percentage of these cards are fee-paying cards. But I’ll also go back to — I think it’s either my comments or in the Jeff’s script, 60% of the cards that we did acquire from a consumer perspective were millennial cards, which are up 50 — which was 50% pre-pandemic. So it is a bigger pool for us to acquire from, from a millennial Gen Z perspective, and there are 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, look, there wasn’t a tremendous amount of card growth in the first quarter from a relative basis, on a comparative basis, but it continued to move up every single quarter. And we feel good about what happened this particular quarter. Can it be 6% again next quarter? Don’t really know.

Operator

Our final question will come from the line of Don Fandetti with Wells Fargo. Go ahead.

Don Fandetti — Wells Fargo — Analyst

Yes. In SME, I noticed Capital One is marketing a no limit, small business card. I was just curious, I know that’s part of your secret sauce. Want to see if you thought that was material. And then lastly, on fintech’s like, I know you have partnerships with Bill.com and Coupa. But do they represent a threat in any way to your business?

Stephen J. Squeri — Chairman And Chief Executive Officer

So just — I’m sorry, just one other point for Lisa. 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 in it, the leak got a lot smaller. So that’s — I think that’s important.

Don, as far as fintechs go, I think there’s some opportunities for us, and I think the partnership with what I choose — we already have a partnership with them in Latin America. And I think this will just make it easy to onboard fintechs that want to have American Express, because the reality is a lot of them — not a lot, most of them don’t do their own processing. They’ll partner with somebody else to do this. And having I2C and being able now to do this on a global basis will enable us to approach. So, I don’t look at that as necessarily a threat. I look at this as an opportunity for us.

And what was the first part of your question, Don?

Jeff Campbell — Vice Chairman and Chief Financial Officer

Capital One.

Stephen J. Squeri — Chairman And Chief Executive Officer

Capital 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 preset spending limit, but — and I’m not being flipping here, I just don’t know what that no preset spending limit is. So we’ll see how that plays out. Again, a really good company. It had lots and lots of success, very tough competitor. They’re the first ones to go down this road, and we’ll see 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’ll see. So again, just look at the results in the first quarter for us, we had 30% growth from a small business perspective. So we feel pretty good about small business at this point.

Jeff Campbell — Vice Chairman and Chief Financial Officer

And a record quarter for business Platinum —

Stephen J. Squeri — Chairman And Chief Executive Officer

Acquisition, yes.

Great. 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. Allen, back to you.

Operator

Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call. You can also access a digital replay of the call at (866) 207-1041 or area code (402) 970-0847 with the access code 1532-444 after 1:00 p.m. Eastern Daylight Time today, April 22, through midnight, April 30.

[Operator Closing Remarks]