(Reuters) - American Express Co AXP.N warned of higher operating costs this year as the credit card issuer spends heavily on rewards programs to attract customers in an increasingly crowded market, sending its shares down 2.5% on Friday.

FILE PHOTO: American Express logo and trading symbol are displayed on a screen at the New York Stock Exchange (NYSE) in New York, U.S., December 6, 2017. REUTERS/Brendan McDermid

AmEx cards, for long the preferred choice of affluent Americans, is now battling competition from JPMorgan Chase & Co's JPM.N Sapphire Reserve and Citigroup Inc's C.N Prestige Card.

AmEx has been ramping up its reward programs on its cards and striking partnership deals with a number of companies in a move to attract and retain customers. The company in 2018 renewed a partnership with Delta Air Lines Inc DAL.N that rewards customers with air miles.

Card reward expenses jumped 9% in the second quarter to $2.65 billion, compared with a 4% rise in the first quarter.

Total expenses rose 9.2% in the quarter ended June 30 from a year earlier, while total revenue rose 8.4% to $10.84 billion.

“Customer engagement cost has been and, I expect, will continue to grow a little faster than our revenues, and so that creates a little bit of margin compression,” Chief Financial Officer Jeffrey Campbell said on a post-earnings call with analysts.

AmEx said its loan portfolio increased 10% to $83.2 billion in the quarter, while loan loss provisions grew by about 7%. The company said it now expects provisions to rise 20% this year, down from its earlier forecast of mid-20% range.

The company beat analysts’ estimates for quarterly profit, helped by stronger credit card spending, which rose 7% in the United States - the company’s biggest market - and 5% globally in the quarter.

The growth in card spending was helped by an economy that is growing steadily, but at a modest pace compared with last year, Chief Executive Officer Stephen Squeri said.

Net income rose 8.5% to $1.76 billion, or $2.07 per share. (reut.rs/32ys3vT)

Analysts had expected a profit of $2.04 per share, according to IBES data from Refinitiv.