As American Express Co. (AXP) gets a handle on the credit quality of its card loans, investors will be looking for trends in retail spending as the company reports third-quarter results Oct. 22.

The more cardholders charge on their AmEx plastic, the more the company earns by way of fees; strapped and budget-conscious borrowers could crimp third-quarter earnings, and if consumers, heading into the busiest shopping season in the U.S., continue to hold back, it could even dent AmEx's prospects for the fourth quarter.

The amount cardholders spend "will be key," said Scott Valentin, an analyst at FBR Capital Markets.

An AmEx spokeswoman declined to comment, citing the so-called quiet period ahead of a company's earnings report.

American Express issues charge cards, which must be paid off each month, as well as credit cards that allow customers to carry a balance. Unlike most other card companies, which either issue plastic or process the transactions, AmEx does both. Therefore, a big chunk of its revenue comes from fees it charges banks and merchants, such as grocery stores or gas stations, to process card payments. But as economic woes and unemployment grow, consumer spending slows, eating into the fees that AmEx earns from transactions.

American Express customers reduced spending by 16% in the second quarter, sending the company's quarterly net income down 48%.

But investors concerned about cutbacks in spending may draw some comfort from improving credit trends on AmEx's card portfolio. This is also key to the company, as cash-strapped consumers struggle to keep up with payments. AmEx not only has to write off loans on souring credit-card debt, but it also has to squirrel away funds to reserve against potential future losses.

Citing preliminary data, the company said Wednesday that U.S. borrowers at least a month behind their card payments for the third quarter totaled 4.1%, down from 4.4% in the second quarter. At the same time, the company said it wrote off 8.9% of its U.S. card loans for the quarter ended Sept. 30, down from 10% in the second quarter.

Analysts polled by Thomson Reuters expect net income of 36 cents a share on revenue of $5.9 billion for AmEx's third quarter. A year ago, the company posted earnings of 70 cents a share on revenue of $7.2 billion. The Thomson Reuters estimate and year-ago net may not be comparable due to one-time items and other adjustments.

Investors have also taken comfort from the company's repayment in June of the $3.4 billion in bailout cash it had received from the government as a sign that the industry is poised for a recovery.

In addition, American Express last month resumed annual salary hikes and contributions to retirement plans that it had suspended earlier this year. This move indicates the company is "saying things aren't getting markedly worse," says FBR's Valentin.

AmEx shares recently traded at $35.05, down 49 cents, or 1.38%. The stock has traded in the range of $9.71 to $36.50 in the last 52 weeks.

-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com