Jeff Campbell
Vice Chairman & Chief Financial Officer at American Express
Well, thank you, Steve, and good morning, everyone.
It's good to be here to talk about our '22 Results, which reflects steady progress against our multi-year growth plan that we announced last January, and also to talk about what our 2022 results mean for 2023. I'll also spend some of our time this morning focusing on our full-year trends. Since it is year end and since looking at our business on an annual basis, it's more in sync with how we actually run the company.
Starting with our summary financials on Slide 2, full-year revenues reached an all-time high of $52.9 billion, up 27% on an FX-adjusted basis. Notably, our fourth quarter revenues of $14.1 billion also reached a record high for the third straight quarter and grew 19% on an FX-adjusted basis. This revenue momentum drove reported full year net income of $7.5 billion and earnings per share of $9.85. For the quarter, we reported net income of $1.6 billion and earnings per share of $2.07, which did include a $234 million impact from our net losses in our AMEX Ventures strategic investment portfolio.
As I've said throughout the year, year-over-year comparisons of net income have been challenging due to the sizable credit reserve releases we had in 2021. Because of these prior year reserve releases, we have also included pre-tax, pre-provision income as a supplemental disclosure again this quarter. On this basis, pre-tax pre-provision income was $11.8 billion for the full-year and $2.9 billion in the fourth quarter, up 27% and 23%, respectively, versus the prior year, reflecting the growth momentum in our underlying earnings.
So now let's get into a more detailed look at our results beginning with volumes starting on Slide 3. We saw good quarter-over-quarter growth in volumes. I would note that we've reached record levels of spending on our network in both the fourth quarter and full-year 2022. Total network volumes in billed business were up 16% and 15% year-over-year in the fourth quarter, and 24% and 25% for the full-year on an FX-adjusted basis. Now, of course, growth rates for quarters earlier in the year included more of a recovery on the lower levels of volumes in 2021. And we are now to the point, where we have lapped the majority of this recovery. We are pleased with this growth and the fact that it is being driven across customer types and geographies.
On Slides 4 through 7, we've given you a variety of views across our US Consumer Services, Commercial Services and International Card Services segments and the various customer types within each. There is a few key points I'd suggest you take away from these various perspectives. Starting with our largest segment, US Consumer billings grew 15% in the fourth quarter, reflecting the continued strength in spending trends from our premium US consumers.
Our focus on attracting, engaging and retaining number of cohorts of Card Members through our value propositions, throughout the 30% growth in spending from our millennial and Gen Z customers on Slide 5, where you can now see make up 30% of spend within the segment. Turning to Commercial Services, you see that spending from our US small and medium-size enterprise customers represents the majority of our billings in the segments, supported by our strategic focus on expanding our range of products to help our SME clients run their businesses. We saw another quarter of solid growth in US SME. Those who can see that it was the slowest growing customer type this quarter, up 8% year-over-year.
As you heard Steve talk about a bit last month at an Investor Conference, our SMEs have recently started to slowdown spending in certain categories such as digital advertising. So we continue to monitor spending trends. Moving to our US large and global corporate customers, the one small customer type that is not come back to pre-pandemic spend levels. They did continue through their steady recovery this quarter with overall billings now 11% below pre-pandemic levels.
And lastly, you see our highest growth in International Card Services. As this segment is now in a steep recovery mode given it's started it's pandemic recovery later than other segments. Spending from international consumers and international SME and large corporate customers grew 2023 and 32% year-over-Year, respectively, in Q4. Across all customer types T&E spending momentum remained particularly strong in the fourth quarter, while we also saw a nice sequential growth in the amount of goods and services spending versus last quarter. So there were a few pockets that slowed such as the digital advertising spend in SME that I mentioned earlier. So, what do all of these takeaways mean for 2023?
At this point, on a dollar basis, most of our spending categories have fully recovered. So I would expect more stable growth rates this year across spending categories with the exception that year-over-year growth rates for T&E spending will likely be elevated in Q1 as we lap the impact of Omicron from the prior year. Importantly, all of the things that Steve just talked about that make up the strategy underlying our growth plan, have created a foundation for sustainable growth rates greater than what we were seeing pre pandemic.
Now moving onto loans and Card Member receivables on Slide 8, we saw year-over-year growth of 24% in our loan balances as well as good sequential growth. This loan growth is now exceeding our spend growth as customers steadily rebuild their balances. Given the volumes of course have now lapped, there's steep phase of recovery, we do expect the growth rate of our loan balances to moderate as we progress through 2023, but to remain elevated versus pre-pandemic levels. The interest-bearing portion of our loan balances, which surpassed 2019 levels last quarter also continues to consistently rebuild with over 70% of year-over-year growth in the US coming from our existing customers, which is about 10 percentage points more than what we saw in the years leading up to the pandemic.
If you then turn to credit in provision on Slide 9 through 11, the high credit quality of our customer base continues to show through in our strong credit performance. Card Member loans and receivables write-off and delinquency rates remain below pre-pandemic levels. So they did continue to pick up this quarter as we expected that you can see on Slide 9. Going forward, we expect delinquency and write-off rates to continue to move up over time, but to remain below pre-pandemic levels in 2023 for Card Member loans.
Turning now to the accounting for this credit performance on Slide 10. Since it is year-end because the pandemic has clearly impacted the timing of quarterly reserve build and release adjustments across the industry, I think it's helpful to look at our full-year provision results. Full-year 2022 provision expense was $2.2 billion, which included a $617 million reserve build, primarily driven by loan growth, the continued steady and expected increase in delinquency rates and changes in the macroeconomic outlook as the year progressed.
The $2.2 billion number is, of course, still unusually low by historical standards relative to the size of our loan balances and Card Member receivables. Of the full-year $617 million reserve build, we saw $492 million of it in the fourth quarter. Since earlier this year, we were still releasing a significant amount of the credit reserves we built to capture the uncertainty of the pandemic. At this point, we no longer have any of these pandemic-driven reserves remaining on our balance sheet.
Moving to reserves on Slide 11, you can see that we ended 2022 with $4 billion of reserves representing 2.4% of our total loans and Card Member receivables. This reserve rate is about 50 basis points below the levels we had pre-pandemic for day one CECL, reflecting the continued premiumization of our portfolio and the strong credit performance we have seen. We view this consolidated reserve rate is more comparable to day one CECL than the individual loans and receivables rates because as we talked a bit last quarter, our charge products in many instances now have some embedded blending functionality. We expect this reserve rate to increase a bit, as we move through 2023, but to remain below pre-pandemic levels.
Taking all this into account, in 2023 you should expect to see provision expense move back towards more of a steady state relative to the size of our loan balances and Card Member receivables for the first time since we adopted CECL in early 2020. Given the combination of our strong loan growth and usually low level by historical standards and provision expense in 2022, I would expect a significant year-over-year increase in provision expense.
Moving next to revenue on Slide 12, total revenues were up 17% year-over-year in the fourth quarter and up 25% for the full year. This is well above our original expectations, driven by the successful execution of our strategy and this part of which strengthens our confidence in our long-term aspirations. Before I get into more details about our largest revenue drivers in the next few slides, I would note that you see a 200 basis-points spread between our FX-adjusted revenue growth and reported revenue growth for this quarter. While this is less of an impact from the strong dollar than what we saw in the prior quarter, it does remain a modest headwind.
Our largest revenue line discount revenue grew 16% year-over-year in Q4 and 27% for the full-year on an FX-adjusted basis, as you can see on Slide 13. This growth is primarily driven by the momentum seen in our spending volumes throughout 2022.
Net card fee revenues continued to accelerate throughout this year, up 25% year-over-year in the fourth quarter and 21% for the full-year on an FX-adjusted basis, as you can see on Slide 14. In 2023, I'd expect net card fees to be our fastest growing revenue line. I would expect growth to moderate from the extremely high level we saw this quarter. This steady growth is powered by the continued attractiveness to both prospects and existing customers of our fee-paying products due to the investments we've made in our premium value propositions, as Steve discussed earlier, with acquisitions of US Consumer Platinum and Gold Card members and US business Platinum Card members, all reaching record highs in 2022.
Moving on to Slide 15, you can see that net interest income was up 32% year-over-year in Q4 and 28% for the year on an FX-adjusted basis due to the recovery of our revolving loan balances, the rising interest rate environment has had a fairly neutral impact on our results in '22 as deposit betas lag the rapid and steep benchmark rate increases during the year. However, when you think about 2023, deposit betas are now in line with more historic levels. So I would expect the year-over-year impact from rising rates to represent more of a headwind in 2023. To sum up on revenues, we're seeing strong results across the board and really good momentum. Looking forward into 2023, we expect to see revenue growth of 15% to 17%.
Now all this revenue momentum, we just discussed has been driven by the investments we've made and those investments show up across the expense lines you see on Slide 17. Due to variable customer engagement expenses, these costs, as you see on Slide 17, came in at 42% total revenues for the fourth quarter and 41% for the full year. Based off the Q4 exit rate, combined with our continued focus on investing to innovate our products and expect variable customer engagement costs to approach 43% of total revenues in 2023. On the marketing line, we invested around $1.3 billion in the fourth quarter and $5.5 billion for a year. As a reminder, our marketing dollars mostly represent the things we do to directly drive the great customer acquisition results we are seeing. As we look forward, we remain focused on driving efficiencies, so that our marketing dollars grow far slower than revenues, as we did for many years prior to the pandemic. As a result, in 2023, we expect to have marketing spend that is fairly flat to 2022.
Moving to the bottom of Slide 17, brings us to operating expenses, which were $4.1 billion in the fourth quarter and $13.7 billion in full year 2022. In understanding our opex results, it's important to note the net mark-to-market impact to our Amex Ventures strategic investment portfolio that I mentioned earlier, with reference to Q4. These gains and losses are reported in the opex line and totaled $302 million at losses for full-year 2022, while in the prior year, we had a $767 million benefit in net gains.
Even putting this aside, as Steve and I have discussed all year, our 2022 operating expenses do represent a step function increase compared to prior years, as we have invested in key underpinnings to support our revenue growth, and as inflation has had some impact on our expenses. Moving forward, similar to marketing, we are focused on gaining efficiencies and getting back to the low levels of growth in opex that we have historically seen. For 2023, we expect operating expenses to be around $14 billion and CVs cost as a key source of leverage relative to the high-level of revenue growth in our growth plan. Last, our effective tax rate for full-year 2022 was around 22%, our best estimate of the effective tax rate in 2023 is between 23% to 24%, absent any legislative changes.
Turning next to capital, on Slide 18, we returned $4.9 billion in capital to our shareholders in 2022, including $1 billion in the fourth quarter with $639 million of common stock repurchases and $389 billion in common stock dividends, all on the back of strong earnings generation. We ended the year with our CET1 ratio at 10.3% within our target range of 10% to 11%. In Q1 '23, as Steve discussed, we do expect to increase our dividend by 15% to $0.60 per quarter, consistent with our approach of growing our dividend in line with earnings and our 20% to 25% target payout ratio. We'll continue to return to shareholders, the excess capital we generate while supporting our balance sheet growth going forward.
That's then brings me to our growth plan and 2023 guidance on Slide 19. 2022 was a strong year, where we exceeded our full-year guidance that we laid out in our growth plan last January for both the revenues and EPS. These results have strengthened our confidence in our 2023 guidance. First and most important, we expect the strategies that Steve laid out earlier to deliver continued high levels of revenue growth, leading to our revenue growth guidance for 2023 of 15% to 17%, and setting us up well for 2024 and beyond. As you think about the drivers of EPS growth in 2023, first, we expect to return to the low levels of growth we have historically driven in our marketing and operating expenses, producing some nice leverage.
Going the other driver, the two notable headwinds that should be just 2023 challenges are around the year-over-year impacts of provision and of interest rates, as I discussed earlier. Combining all of these factors together, at least to our EPS guidance of $11 to $11.40 for 2022. There is clearly uncertainty as it relates to the macroeconomic environment. But as Steve discussed, our 2023 guidance factors in the blue-chip macroeconomic consensus, which is for slowing growth though not a significant recession. I'd also say that our guidance is based on what we're actually seeing in terms of behavior from our customers around the globe. And of course, it reflects what we know today about the regulatory and competitive environment. We feel good about the momentum we see in our business and in any environment remain committed to running the company with a focus on achieving our aspiration of sustainably delivering revenue growth in excess of 10% and mid-teens EPS growth in 2024 and beyond as we get to a more steady state macro environment.
And with that, I will turn the call back over to Kerri, to open up the call for your questions.
