American Express Co (AXP) Q3 2026 Earnings Call Transcript

an Express Q3-2026 Earning Call. At this time, all participants are on a listen-only mode until we conduct a question and answer session later on. As a reminder, today's call is being recorded. I will now turn the call over to Kartarjeev Ramachandran, Head of Ancestry Relations.

Thank you, Donna, and thank you all for joining today's call. Today's discussion contains four words with the latest about the company's future trade business and financial foreman. These are based on management's current expectations and are subject to risk and uncertainties. Factors that could cause actual results or differ materially from these statements are included in today's presentation slides and in our report on file with the SEC. Today's discussion also contains non-GAAP financial measures. Comparable GAAP financial measures are included in this quarter's earnings materials as well as the prior period earnings materials discussed today. All of these are posted on our website at ir.americanexpress.com. We'll begin today with Steve Squirey, Chairman and CEO, followed by Christophe Likajak, Chief Financial Officer. After their remarks, we'll move to Q&A. With that, I'll turn it over to you.

Good morning, and thanks for joining us. Billion Dollars. We are reaffirming our revenue growth guidance to between 1830 and 1860 on a reported basis, and 1890 on an adjusted basis.

There are a number of discrete acts of the gain, as well as another strong quarter, and we continue to see pension rates with net car fee growth of $5.40, their impact on our first, the same of our investments in a gain of $1.11 per share. As we previously said, companies' long-term growth, and consistent with that objective, we have taken a restructuring charge of $0.37 per share. Adjusting for the global business travel group gain and the restructuring charge, EPS was $4.68 year-over-year. Adjusted EPS includes three other notable items this quarter. First, an increase in legal reserves of $0.51, which includes the remaining portion of the OCC civil money penalty that was not previously reserved for, as well as a reserve for the second item, to build business. the trend of the past four quarters. This quarter included about a 60 basis point co-grant exits with the Amazon co-grant portfolio sale happening midway through the quarter. Sequentially, spend growth also saw a small impact from the last quarter's Amazon Prime Day and other promotional retail days in the U.S. These impacts were mostly concentrated in Discretionary spending was strong, with T&E up 10%, airline spending accelerated to while restaurants spending was up 9.3% in the continued strength in our premium customer base. While growth moderated slightly through Q2, it was in line with Q1 and continues to run above the levels we saw in 2024 and 2025. In fact, Q3 is the third highest quarterly growth rate in three years. One year after the U.S. consumer platinum refresh, spend retention remains at 99% for the portfolio. Turning to commercial, spend was up 3% this quarter. Excluding the impact of the co-brand portfolio exits, spend growth was 5% for the second consecutive quarter. We're seeing strong take-up on the graphite card that we launched earlier this year and looking ahead our new corporate cashback card and integrating integrated expense management capabilities will give us additional opportunities to drive engagement and spend growth spend growth and international was up 11 percent merchant coverage now reaches over 190 million locations globally up from 160 million a year ago outside the us the number of locations accepting amex has more than doubled over the last four years. We are pleased with the outcomes of our investments in customer acquisition and driving greater engagement from our existing card members. We acquired 3.1 million new cards in the quarter with 76% of new accounts on fee-paying products. Turning to balances and credit on page 10, total balances increased 8% year-over-year in line with bill business. Importantly, we continue to grow balances from our premium customer base while maintaining best-in-class credit results. This is very much by design, reflecting our focus on attracting highly credit-worthy customers who both spend and borrow with us. And the quality of those customers is reflected not only in our credit performance, but also in the economics of our lending business. In fact, this quarter is a good illustration of this dynamic. Balances grew 8%, NII grew at a faster rate at 10%, and ride-off dollars at 3%. Delinquency rate remained very low and stable. For the last 15 quarters, the rate has been either 1.2% or 1.3%. Overall provision expense was $985 million, including a reserve release of $211 million. The reserve release was driven by enhancements to our CISL models. We feel very good about the quality of our credit performance and the stability we see in the portfolio. Turning now to revenue. Revenue was $20.1 billion, up 9% year-over-year. Revenue growth would have been about a one-point higher, excluding the impact of the small business core rent portfolio assets. Net interest income was up 10% this quarter, continuing to grow faster than balances. NII growth in the quarter at about a 2% point impact year-over-year from the core grant portfolio exits. Net car fees continue to be at our fastest growing revenue line. As expected, we've seen an acceleration in growth to 17% FX-adjusted this quarter, supported by the very strong results we've seen on the U.S. Platinum Refresh. Turning now to expenses. The VCE to revenue ratio was 44.3% this quarter. We are beginning to see growth in card member services moderate following the step up from the Platinum Refresh last year. Looking ahead, we expect VCE growth to moderate significantly in Q4 as we fully lock the Platinum Refresh. Returning to growth rates more consistent with what we saw before the refresh. We are also continuing to evolve our value propositions in ways that enhance the customer experience and support attractive product economics. For example, we recently introduced membership rewards redemption for statement balances, which has seen strong adoption. This feature provides card members with greater flexibility in how they use their rewards, while also supporting the overall economics of the program. Marketing expense was up 11%, reflecting the additional investments we made in customer acquisition following our strong performance in the first half of the year. On page 18, we can see operating expenses were down 3% year-over-year, reflecting the notable items I mentioned earlier. Excluding the global business travel group gain, restructuring in legal items, underlying OPEX growth was 3%. As Steve said earlier, we have invested significantly in strengthening risk and controls in the past few years, and we will do what's needed to establish a durable and effective program that meets our own and our regulators' expectations. The ongoing investments are in our run rate, and we do not expect the additional cost to impact our 2027 guidance before closing let me address one of the most recurring questions we get about our margins and how they have evolved over the past years especially as we ramp up marketing and technology spend and invested in richer value for positions via the vce expenses the decisions we make are profitability based and aim at maximizing risk adjusted returns and capital generation page 19 shows our roe over the last 16 years as you can see we have increased the roe from an average of 25 to 28 percent 10 years ago to around 35 percent more recently and over this period of time we are on track to more than double the size of our revenue and triple eps at the same time we have also reduced the share count by over a quarter this performance can be tracked back to our spent and fee-based model, characterized by high loyalty and engagement, greater differentiation versus competitors, lower credit risk, including under stress, lower capital intensity, and higher operating leverage from scale. These results in very strong capital generation that we return to shareholders. In Q3 specifically, we return $2.2 billion of capital to shareholders, including $1.6 billion of share repurchase and $0.6 billion of dividends. And we ended the quarter with a CET1 ratio of 10.9%, reflecting the gain from the sale of GBTG that happened at the end of the quarter. That brings me to guidance. Given our performance year-to-date, we are reaffirming our full-year revenue growth guidance of 10% and raising EPS guidance to a range of 1830 to 1860 and 1760 to 1790 on an adjusted basis. With that, I'll turn the call back over to Karthik and we'll take your questions.

Thank you, Christophe. We will now start the Q&A session. We ask that you please limit yourself to just one question. Thank you for your cooperation. Operator?

Ladies and gentlemen, if you wish to ask a question, please press star, then 1 on your touchtone phone. You'll hear a tone indicating that you've been placed in queue. You may remove yourself from the queue at any time by pressing star, then two. If you're using a speakerphone, please pick up the handset before pressing the numbers. Our first question is coming from Sanjay Sakhrani of KBW. Please go ahead.

Thank you. How would you guys adjust your model, or is there something that you guys can do offensively to stay on the offensive? Thanks for the question, Sanjay. I think, look, customers have always had the ability to optimize across. And our strategy really hasn't been to really compete simply on points or rational rewards. And, you know, I think the other thing that's important to understand is we really don't have a breakage model. So we don't benefit when people don't use our rewards. I think that when you think about the closed loop and the ability to even match our card members' desires and our merchants' desires, I think that gives us a huge advantage. And I think our overall model is so much more than just about points. It's service. It is security, which I think service and security in AI is going to be even more important. And it's one of the reasons that when everybody talks about AI from an efficiency perspective and expense reduction productivity, which is very, very important. But what I wanted to do was to sort of demonstrate key dimensions. When we've had gamification or when we've had people that do certain things, we have levers within our – eliminates that ability. I think we have a lot of tools at our disposal, but I think the most important – Next question is coming from Ryan Nash of Goldman Sachs.

Please go ahead.

As you think about spending across the company, Chris, as he spoke about the strength versus history, maybe just talk about what you're seeing. Can you maintain this kind of level? And then given Christoph's comments regarding the moderating of VCEs, can you just talk big picture about the potential for mid-teens EPS into next year and your confidence in it?

Start with that, performing as we expected. And as you know, this quarter is the quarter we're going to lap the Platinum Refresh, which is the event that created the step-up in the VCE ratio. So as you think about Q4 is going to be a good example for that, You should expect that VCE ratio to kind of like stabilize in VCE dollars to moderate and, you know, to be more consistent with what we saw pre-refresh. And, you know, we're not going to get into guidance for 2027 at this stage. You're going to have to wait for January for that. But, you know, like that is going to help us, you know, just like, you know, maintain that maintains EPS ambition that we have been using. So I feel good about that. In terms of the spend, continuity, and the trends, obviously we have a lot more information that the beginning of the Amazon Prime Days, and it's not only Amazon, as a matter of fact, because large retailers kind of like fall. Despite that headwind, that kind of like Q2 and a bit of a trend in Q3, we're seeing 9.4% billing growth and very strong growth in discretionary categories, I'm Don Fandetti of Wells Fargo.

Please go ahead.

Good morning. Steve, if you look at the banks, they're just continuing to press hard into the premium segment, adding billions to the marketing budget. I wanted to just get your sense on how you're thinking about market share and U.S. consumer. And then can you comment on the moderation in the international bill business?

Yes. Let me go with the second one first. You know, look, it's 22 straight quarters of double-digit growth rate in international. You know, we went from 13 to 11. Let's see.

Thank you so much for taking my question.

Hello.

I guess I'm wondering, given that you're planning to be the forefront of AI, that leads us to conclude that unlike some financial institutions that are blocking access from the bots, you will allow AI to be part of the ecosystem and therefore allow your you know, your members to help them, you know, maximize their experience. Is there sort of a financial measure that investors can think of, you know, when thinking about the future impact, whether it's, you know, helping us, you know, understand, you know, how much of the benefits are already used or optimized and, you know, If AI increases that enjoyment of benefits, does that impact the VCE percentage, but then there's a revenue offset? I guess investors are also thinking about what the financial impact could be of this reward-backing trend.

Coming from Bill Karkashi of Piper Sandler, please go ahead.

Hey, Bill. Hey, good morning. I'd love your thoughts on any changes you might be seeing in the competitive intensity in the current environment. Does it feel any different today, particularly with players like Capital One now operating in a closed loop, generating higher returns, and having historically demonstrated a willingness to step up in investments to prioritize their long-term positioning, even if that means compromising your term profitability? Just really love any insights that you can share on what you're watching there. That would be great.

No, I mean, look, I think, you know, city...

Question is coming from Rob Wilde, Haskell Autonomous Research. Please go ahead.

Hi, guys.

I wanted to ask about the allowance coverage ratio in the context of the growth in NII lending balances down to 2.6 now. You know, this is a lot of adjustment, remaking the higher in borrowers, and we can see the scenarios in the back of the deck, but I guess the question is how much does the 2.6 reflect any conservatism with respect to the broader environment, or maybe ask the question another way, is there any clarity given what you think like a normal environment allowance coverage ratio might be?

So I'll take that question. So yes, in the appendix, we're showing, you know, in a simplified way, the, you know, the scenarios, the economic scenarios we're using, and I guess you're focusing on, you know, the downside scenario. I don't have the numbers in front of me, but I think we're assuming like some kind of like peak unemployment in the like 8% range, right? And so it's a pretty aggressive scenario. Listen, you know, the fundamental dynamic here and why their reserve rate is at 2.6 and it's below where we were when we uh introduced uh cecil i think it was in 2020. uh the key dynamic here is the premiumization of the portfolio um as you know we focus more on fee paying card members as we focus more on vce we are attracting you know card members and you know that have a great credit profile and that, you know, slowly improving the credit metrics across the portfolio. You see that as well in the write-off rate that we're reporting this quarter and the delinquency rate. The delinquency rate are not only best in class, they've been stable at 1.2%, 1.3% for 15 quarters, right? And, you know, when you look at by vintage, you know, the new vintages are performing better from a credit standpoint that the past vintages, and you can track that again to, you know, their positive selection that happens in our acquisition marketing engine. Another metric that we report every quarter is the percentage of those new accounts joining the franchise on a fee-paying product, which is a good indicator as well of the premiumness of that vintage, and it's the highest I think we've seen since we reported that metric at 76%, right? And so fundamentally, Rob, what's happening here is that, of course, we are, you know, very disciplined in our underwriting decisions, but safely but surely, the portfolio is getting more and more premium by the day. And we keep, you know, we haven't changed the kind of, like, economic scenarios that we use in terms of, you know, the conservative scenario over the past years. And, you know, that's what's driving, you know, the performance on CECL.

Thank you. The next question is coming from John Pancari of Evercore ISI. Please go ahead.

Good morning. Good morning, John. I'm just on the card fee front. I know you noted last quarter that card fees should grow in high teens in the fourth quarter. You didn't seem to put that in your slide deck this quarter, but I believe, Steve, you just mentioned that you should continue down that path in the in that you mentioned the 17 the third quarter so is there any change there in how you're thinking about the fourth quarter or how you think about maybe if you can also elaborate on i know you're not giving 27 yet but how you're thinking about that pace as you progress through 27 just given the the dynamics that you're seeing in the space thanks yeah so i'll take the question john uh good morning so on the card fee uh you might remember we entered the year saying you should expect a downward trend or moderation in terms of the growth rate.

And then in the end of the year, the second half of the year, you should expect an inflection point and exit in the high teens. We saw that inflection point this quarter, right? And you saw it like we were at 15% in Q2, and this quarter we are at 17% effects adjusted. So that's the inflection point that we were expecting and that we saw. i'm not going to give you guidance about how to think about this 20 27 uh card fee you know again you're going to have to wait until january for that and we also don't give you know quarterly guidance on on card fee but uh you know if you take a step back uh performance on this line has been amazing since you know since 2019 since we started focusing more of our energy investments innovation towards premium products and fee-paying experiences and customers. And that 17% is amazing. The fact that we are able to accelerate the game is remarkable, and it's the fastest growing line we have in the P&L, and it's definitely a key contributor as well to their very strong ROE performance. So we're going to keep focusing on this, and we'll update you in terms of how to think about that growth rate when we get to, you know, 2027 at the beginning of the year.

Thank you. The next question is coming from Terry Ma of Barclays. Please go ahead.

Hi, Terry. Good morning, Terry. Hey. Good morning. Thank you. So you've talked in the past about the opportunity to capture more borrowing share from your existing premium customers. Are you seeing any meaningful change in revolve behavior? And just how much more runway do you see to grow lending faster without changing the credit profile of the franchise.

Yeah. So, you know, in terms of the borrowing, you know, our, I don't think we report regularly our penetration rate here, but it has been stable, I would say, over the past years. You know, what matters to us is that we meet the needs of our Cod members, right? If they want to borrow, we're there for them. If they don't want to borrow, then so be it. We don't need them to borrow for us to have a profitable relationship. That has been our mantra for years. It remains our mantra. And of course, NII plays an important role in our economics, but we're not changing our underwriting approach here. And what we've seen as well in terms of penetrating the wallet of our COD members is that the better, you know, like the more spend we capture and, you know, the more premium the product is, the more likely we are to capture the revolve and to meet the revolving needs of our con members. So our strategy remains the same, right? Serve our customer the best way we can, focus on premium customers, meet their borrowed needs when they have some, and that's our approach. We are not kind of like targeting a specific number in terms of NII or in terms of AR balances.

Thank you. The next question is coming from Darren Peller of Wolf Research. Please go ahead.

Morning, Darren. Hey, good morning, guys.

Can you just retouch again on the competitive landscape around commercial for a moment? I know you mentioned a bit more about premium, but just revisiting your initiatives, what What kind of progress and milestones you'd like to see in terms of some element of an acceleration potential in the overall segment volume? And then maybe just business milestones as well as you integrate more of the platforms you've run on.

So I think that when you look at the commercial space, there's really three segments. One we call SME, but it's really small, and it's also middle, and then you've got corporate. I think small continues to perform very, very strong. and we're doing quite well there. I think our cashback product that we launched, you know, the graphite product has performed a lot better than we even anticipated it performing. I think then you have the large and the multinational, and that continues to be a real sweet spot for us. And, you know, it's growing exactly as we would expect it to grow. I mean, that's traditionally a competitive piece, the middle market piece there. And that's where I think, and that's why we did the center acquisition as NOVA. Thank you.

The next question is coming from Meher Bhatia of Bank of America. Please go ahead.

Hi, Meher. Good morning. Hi. Good morning. Thank you for taking my question. I wanted to maybe touch on the Visa Mastercard settlement. That's been in the news again this week. I wanted to ask specifically for you all in terms of, I guess, a two-part question. One is just in terms of the settlement on all cards, expand surcharging. Do you expect there to be a change in merchant behavior from that? And how are you thinking about the competitive? Feels like there's been momentum in your network business this year with more being announced, whether it was, you know, you're rethinking your network business.

Again, we'll see.

Our final question today is coming from Chris Kennedy of William Blair. Please go ahead.

Good morning. Thanks for taking the question. I think maybe 10% of your U.S. customers have a deposit account with American Express, and I recall digital banking was a key area of an investment for you guys. Can you just talk about that journey and kind of the role of banking products going forward?

Yeah, well, you have the statistic exactly correct. I think, you know, one of the things that we really try and do with our customers is expanding organic core. And banking services are part of that core. And if you think about understanding someone's credit worthiness, understanding and building a bigger relationship with them, I think banking services is more important. We're on a journey as it relates to banking services. You want to make sure you get this right. You want to make sure you have the right controls in place and everything else. And so I think you'll see this continue to play a bigger part in our overall strategy in not only engaging with our card members, but acquiring card members. And I think there is more to come here, but even with this, the launch, you know, this quarter of the business savings account for our small business customers, it's another step in that direction.

Great. Thanks, Steve. With that, we will bring the call to an end. Thank you for joining us and for your interest in American Express.

Ladies and gentlemen, that concludes today's conference call. Thank you for participating. You may now disconnect.