NEW YORK — American Express Co. reported a 13% jump in third-quarter profit Wednesday, as the company's borrowers increased spending by 16% and losses from bad loans continued to decline.
Results for the New York-based credit-card lender, a closely watched barometer for the card industry, show customers are still using their credit and charge cards despite stubbornly high unemployment and concerns of a double-dip recession. American Express lends mostly to affluent customers, which helped the company bounce back from the recession more quickly than many of its peers.
American Express earned $1.24 billion, or $1.03 per share, in the quarter ended Sept. 30, up from $1.09 billion or 90 cents per share, in the same period a year ago. Revenue increased 9% to $7.6 billion
Analysts polled by Thomson Reuters on average predicted income of 96 cents a share.
"Cardmember spending was strong during the period, growing 16% to record levels and again outpacing most of the major bank card issuers," Kenneth Chenault, chairman and chief executive of American Express, said in a statement.
American Express shares closed down 1.2% at $46.13 Wednesday and fell 0.3% in after-hours trading.
While late payments and loan losses fell again on a quarterly basis, monthly numbers reported earlier this week by American Express and other big credit-card issuers are fueling investor fears that consumers are struggling again to pay their bills on time.
The delinquency rate, or the percentage of loans with a payment 30 or more days late, ticked up slightly in September from August for American Express, Capital One Financial Corp., Discover Financial Services and others. Late payments often increase at this time of year, analysts say, but the trend suggests credit improvements that have boosted banks' card profits may have run its course.
"Cards have had a two-year tailwind of improving credit but are now at an inflection point," Donald Fandetti, an analyst with Citigroup Inc., wrote in a research note last week. "Delinquencies are improving at a slower rate and should flatten out for most issuers within a few months."
The delinquency rate for American Express's U.S. card loans fell to 1.5% in the third quarter from 2.5% a year ago and flat with the prior quarter. The company's delinquency rate peaked in February 2009 at 5.3%. The rate of loans the company wrote off fell to 2.9% in the third quarter, down from 5.7% a year ago and 3.5% in the prior quarter.
During the recession, a rise in consumer defaults forced lenders to stockpile funds to cover soured card loans and focus on issuing cards to only customers with the best credit.
Since then, consumers have diligently paid their monthly bills on time, letting major card lenders set aside less funds. American Express recorded a provision of $249 million in the third quarter to cover bad loans, down 33% from a year before. As that trend slows, lenders must focus on growing loans to boost revenue, which remains a struggle.
American Express said its portfolio of U.S. card loans grew 2% from a year ago to $50.2 billion.
The company's cardholders spent $3,739 on average in the quarter, up from $3,330 a year ago. American Express, unlike other lenders, also processes card transactions in addition to extending credit to borrowers. The more customers use their cards, the more it makes in fees.
