Dive Brief:

• American Express and Discover Financial Services reported on Thursday that first-quarter profits declined compared to the year-earlier period, as each card company added to credit loss provisions amid an uncertain economic climate.
• Amex’s net income slipped 13%, to $1.8 billion, even as revenue, after interest expense, rose 22%, to $14.3 billion, according to a first quarter earnings release.
• Similarly, Discover’s first-quarter net income dropped 21% over last year to $976 million, despite revenue, after interest expense, jumping 29% to $3.8 billion, according to the company’s first quarter earnings release. 

Dive Insight:

As charge-offs and delinquencies crept up during the quarter from COVID-19 pandemic lows, both Amex and Discover set aside more money in the quarter to cover potential loan losses. Card issuers have begun to see payment rates slow as some consumers plagued by inflation and higher interest rates fall behind on their loans.

At Amex, credit loss provisions reached $1.1 billion in the first quarter. Goldman Sachs Analyst Ryan Nash, in a Thursday note to investor clients, called it “a mixed quarter” for the New York-based card issuer. 

Separately, Amex this week reported in a filing with the Securities and Exchange Commission that net write-offs for its consumer card loans ticked up to 1.7% in March, from 1.4% in February, while net write-offs for its small business card loans climbed to 1.4% last month, from 1.1% in February.

During a call with analysts to discuss the earnings, Amex CFO Jeff Campbell said the company expects those figures to continue to rise as the year progresses. 

Amex executives have said in recent months that the company’s premium products attract higher-income customers that haven’t been as affected by inflation. Still, Campbell noted slower spending growth rates for goods and services through the first quarter. CEO Steve Squeri said the company also observed some softness in U.S. small business spending during the quarter.

Amex also reported higher expenses that cut into profits, in particular for employee compensation and customer engagement costs. The company’s expenses for the quarter climbed 22%, to $11.1 billion. 

At Riverwoods, Illinois-based Discover, the loss provision rose to $1.1 billion in the first quarter. The company reported credit card net charge-offs rose to 3.10% in the first quarter, from 2.37% fourth quarter, according to earnings materials.

Discover expects that rate average to be between 3.5% and 3.8% for the full year, CFO John Greene said. The company had previously identified 3.9% as the high end of that range, so the adjustment was a positive regarding the credit outlook, William Blair Analyst Robert Napoli said in a Thursday note to clients. 

Discover also reported slower growth in new account acquisition. CEO Roger Hochschild chalked that up to changes the company has made to underwriting in light of the more challenging macroeconomic environment. 

“In general, the consumers are doing well, but we have continued to tighten,” Hochschild said during Thursday’s earnings conference call with analysts. “We look at every account, every day, across all of our different products.” 

Meaningful changes to the unemployment outlook, fewer job openings and further signs of consumer stress could lead Discover to approach lending even more cautiously, Greene said.

Discover, too, reported its expenses jumped 22%, to $1.4 billion, as the company spent more on compensation and marketing. 

Although the company is pledging to keep full-year operating expense growth under 10%, Greene said Discover plans to “put some substantial dollars” behind its relaunched debit account. That product, which Discover shelved last year due to high amounts of fraud, is expected to be rolled out again late in the second quarter or early in the third quarter, Greene said.