updated 10/23/2007 10:35:50 AM ET 2007-10-23T14:35:50

American Express Co., one of the nation's biggest credit-card issuers, said Monday that higher spending by cardholders pushed third-quarter profit up 10 percent.

The credit-card brand — known for its relatively wealthy and well-vetted customer base — reported that quarterly profit rose to $1.07 billion, or 90 cents per share, from $967 million, or 79 cents per share. Revenue rose 11 percent to $6.95 billion from $6.27 billion.

Analysts surveyed by Thomson Financial had projected earnings of 85 cents per share on $7.27 billion of revenue, meaning that American Express beat the earnings estimate even though it fell short on the revenue side. American Express during the past few quarters has complained to analysts that their revenue estimates are too diverse to make an accurate projection.

"Our strong earnings growth this quarter reflected a 16 percent rise in combined spending by consumers, small businesses and corporate cardmembers," Chairman and Chief Executive Kenneth Chenault said in a statement. He added that the company continues "to be cautious about the overall economy."

American Express also said it had seen an increase in delinquencies. The company said it again padded reserves for loan losses, along with other financial services companies, amid worsening U.S. credit conditions.

In the past few years, the New York-based company has revamped its business lineup to focus more on credit cards and travel services. AmEx in September sold its private bank to London-based Standard Chartered PLC for $1.1 billion. AmEx also spun off its brokerage business, now known as Ameriprise Financial Corp., in 2005, and it sold a tax-services unit later that year.

American Express shares, which fell 24 cents to $56.87 before the market closed, rose more than 3 percent in after-hours trading. The stock is up about 5 percent from its low point earlier this year.

Shares of MasterCard Inc., the second-largest U.S. card network, have surged 49 percent this year. Discover Financial Services LLC, the No. 4 network, has fallen 31 percent since it spun off from Morgan Stanley in July. Visa Inc., the largest card network, plans to go public next year.

American Express and Discover offer cards as well as operate their own networks that process transactions for other issuers, while MasterCard and Visa just operate networks.

Much of American Express' revenue comes from fees charged to merchants for transactions. That "discount rate" remained at 2.5 percent during the third quarter. Revenue from those fees rose 12 percent to $3.66 billion.

Daniel Henry, the company's chief financial officer, said the discount rate could move lower because of continued competition. Visa and MasterCard charge merchants about 2 percent.

Profit at American Express' U.S. card services business rose 6 percent to $592 million in the quarter while revenue in the unit rose 12 percent to $3.6 billion.

The international card business reported a profit of $140 million, up 32 percent from the year-ago period. Card revenue outside the U.S. jumped 17 percent to $1.1 billion.

The company was not immune to the credit turmoil that hurt financial companies during the summer. American Express increased its provisioning for potential loan losses by 25 percent to $982 million.

However, Henry said the company's stability is much stronger than the competition because its portfolio consists mostly of higher valued assets, while cardmembers are typically more affluent.

"Credit quality indicators remain in line with historic ranges," he told analysts on a conference call.

Like mortgages, credit card debt is often packaged and sold as securities on global debt markets. Any spillover from the slumping housing market into consumer credit could hurt both AmEx's business and the overall asset-backed securities market.

Red Gillen, a senior analyst at Boston-based financial research firm Celent, said AmEx's "premium cardholder segment guarantees it will weather the subprime lending storm."

"AmEx not only avoided major credit losses, it increased revenue, cardholders and card spend at the same time," he said. "This demonstrates AmEx's resilience and will certainly sustain its position as a fierce competitor in the credit card space."

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