Pacific Booker Minerals Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 21, 2023

There are 14 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q2 2023 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. You may remove yourself from the queue at any time by pressing star then 2.

Operator

If you are using a speakerphone, please pick up the handset before pressing the numbers. As a reminder, today's call is being recorded. I will now turn the conference over to our host, Head of Investor Relations, Ms. Keri Bernstein. Thank you.

Operator

Please go ahead.

Speaker 1

Thank you, Donna, and thank you all for joining today's call. As a reminder, before we begin, this discussion contains certain forward looking statements about company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC. The discussion today also contains non GAAP financial measures.

Speaker 1

The comparable GAAP financial measures are included in this quarter's earnings materials as well as the earnings materials for prior periods we discussed. All of these are posted on our website at ir. Americanexpress.com. We'll begin today with Steve Squarey, Chairman and CEO, who will start with some remarks about the company's progress and results and then Jeff Campbell, Chief Financial Officer, will provide a more detailed review of our financial performance. After that, we'll move to a Q and A session on the results with both Steve and Jeff.

Speaker 1

With that, let me turn it over to Steve.

Speaker 2

Good morning, everyone. Thanks for joining us today for our 2nd quarter earnings call. This was the 6th consecutive quarter of strong performance since we announced the growth plan in January of 2020. Revenues of $15,000,000,000 grew 12% year over year and reached a record high for the 5th straight quarter. Earnings per share of $2.89 is Also a quarterly record and is also up 12% over last year.

Speaker 2

Based on our performance through the first half, we are reaffirming our guidance for the year of delivering revenue growth of 15% to 17% and EPS of $11 to $11.40 We also remain focused on achieving our growth plan aspirations of annual revenue growth in excess of 10% and mid teens EPS growth in 2024 and beyond in a steady state macro environment. I continue to feel very good about our ability to achieve these long term aspirations. Let me tell you why. As I've said on previous calls and at investor conferences, we have a business model that's differentiated from others in the industry, which gives us some important advantages. Our business model is built largely around a fee based premium our fee based premium products, which drive our spend centric economics and produce a fast growing stream Of subscription like revenues, spending is the largest contributor of revenues, while lending plays a more modest role in our model.

Speaker 2

This revenue mix is a key differentiator for us. It all starts with our premium customer base, which is built on our trusted brand. We have a global scale that's unmatched in the industry and leadership positions with a diverse range of high quality customers. We build long term relationships through our unique membership model, which we constantly evolve to attract new customers and grow with them over time. Our high spending card members attract a wider merchants and business partners, giving our customers and partners even more reasons to stay with us, which fuels a virtuous cycle of growth.

Speaker 2

Partnerships play an important role in our model. We have a long history of partnering with brands who share our values customers with world class products and services and who value developing broad based and long term relationships with us. Hilton is one of those long standing partnerships. Our relationship started 70 years ago when we opened a travel office at a Hilton Hotel in Madrid, and grew into a merchant relationship after we began issuing cards and then became our first co brand partner in the 90s. The partnership has lasted and grown over time because we evolved together and put our customers at the center of what we do.

Speaker 2

Today, I'm pleased to announce that we've signed a 10 year extension of our relationship with Hilton, which includes continuing as the exclusive co brand issuer of Hilton Consumer and Small Business Cards in the United States as well as extensions of our travel and merchant relationships. This extension builds on the strong foundation we've built over the years with Hilton and gives us a long runway to invest in products and services and that attract new customers and deepen our relationships with existing ones. It's a great example of the strength of our business model and that it touches virtually all aspects of our business, providing our customers and our partner with exceptional value. Our philosophy of making continuous strategic investments in our business model is what's driving our growth today and it's the way we plan to run Our business going forward. For our 2nd quarter performance, the power of our differentiated model can be seen in our results.

Speaker 2

Card member spending hit another all time high in the quarter with U. S. Consumers and card members outside the U. S. Both up by double digits, which offset some softness in U.

Speaker 2

S. Small Business. Millennial and Gen Z consumers continue to be the fastest growing portion of our card member base with U. S. Billings up 21% in the quarter.

Speaker 2

Of particular note, you'll recall that our international card business was our fastest growing segment for several years prior to the pandemic and it's again the fastest growing. We continue to see strong growth in travel and entertainment spending, which increased by double digits in the quarter and remained strong across customer categories and geographies. Q2 was a record Quarter for restaurant reservations through our resi platform and bookings to our consumer travel business reached their highest level since before the pandemic. We also saw a continued strong demand for our premium products in the quarter, with over 70% of the new accounts we acquired on fee based products The quality and potential revenues they represent. And when you look at the accounts we've acquired over the last year compared to those we acquired over a comparable period Pre pandemic, the overall revenue being generated by these new accounts is up substantially over 2019.

Speaker 2

Importantly, we continue to be thoughtful about who we grow with And how, and you see that in our results. Our credit metrics remain best in class, supported by the premium nature of our customer base, Our robust risk management capabilities and the thoughtful underwriting actions we take on an ongoing basis that we've discussed with you on these calls over the last several quarters. Before I turn it over to Jeff, I want to take a couple of minutes to talk about our CFO transitions. As we announced last month, Jeff will be stepping down as our CFO on August 14, at which time our Deputy CFO, Christophe Lekayak, will become CFO of the company. First, I want to recognize Jeff and thank him for his outstanding tenure as our CFO for the past decade.

Speaker 2

He's been an invaluable partner and friend to me and to American Express throughout his time at the company. Jeff's insights, strategic acumen and calm focused approach has helped us navigate through numerous challenges, including the unprecedented COVID pandemic, while strengthening the company's overall financial position and the flexibility of our business model. Jeff is a person of exceptional integrity and our company is stronger today because of him. While Jeff will officially be stepping down as CFO in mid August, he'll be standing on as our Vice Chairman until next March, during which time he'll be available to me, Christophe and our Executive Committee as we work on many of the important matters facing the company. Jeff, I speak for all of us at American Express when I say that it's truly been an honor And a pleasure working with you as our CFO these last 10 years.

Speaker 2

I also want to welcome Christophe, who has been a trusted partner to our leadership team and a key contributor to our growth for 25 years. As our Deputy CFO, Christophe works closely with our executive team, Jeff and me to drive our financial strategy and performance. Over his tenure, he has served in finance leadership roles across the company. Christophe has gained a deep knowledge of all aspects of our business and his experience and thoughtful analysis play a key role in our strategic decision making. I'm sure you all enjoy getting to know him.

Speaker 2

With that, I'll now turn it over to Jeff for his 85th earnings call as a public company CFO and his 41st and final call as a CFO of American Express.

Speaker 3

Thank you, Steve, and good morning, everyone. It's good to be here to talk about our Q2 results, which are tracking with the guidance we gave for the full year and reflects steady progress against our long term growth aspirations. Starting with our summary financials on Slide 2, our 2nd quarter revenues were $15,100,000,000 reaching a record high for the 5th straight quarter, up 13% year over year on an FX adjusted basis. This revenue momentum drove reported net income of $2,200,000,000 and earnings per share of $2.89 up 12% year over year. This does represent a quarterly EPS record for the company and it also reflects the sequential Strengthening we expected as we move through the year that I mentioned last quarter.

Speaker 3

Pretax pre provision income was $3,900,000,000 up 33% versus the same time period last year, reflecting the strong growth momentum in our underlying earnings. So now let's get into a more detailed look at our results, which in our spend centric business model always begins with a look at volumes, Which you see on Slides 3 through 7. In total, you see on Slide 3 that we did reach a new record level for spending on our network this quarter, With total network volumes and build business up 9% 8% year over year, respectively, on an FX adjusted basis. Of course, I'd remind you that growth rates were particularly elevated last quarter as we lapped the impact of Omicron in the Q1 of the prior year. We are now seeing the more stable rates that we expect are more representative of the kind of growth rates we will see in the balance of the year.

Speaker 3

Goods and services spending grew 6% overall in the 2nd quarter. We saw good growth in goods and services spending in U. S. Consumer and International Card Services of 8% 15%, respectively, All this growth rate in the U. S.

Speaker 3

SME did continue to slow down a bit further from last quarter. In contrast, We saw very strong growth in travel and entertainment spending across geographies and customer types, up 14% overall, driven by sustained demand for travel and dining experiences. Looking forward, I would expect this growth rate to remain in the double digits through the rest of this year. Turning to our largest segment, U. S.

Speaker 3

Consumer grew billings strongly at 10% this quarter. Anil and Gen Z customers continue to drive our highest build business growth within this segment with their spending growing 21% year over year. You see our highest growth again this quarter in international card services with strong growth across both geographies and customer types. Spending from international consumers grew 16%, while spending from international SME and large corporate customers grew 19%. This strengthened spending growth from our U.

Speaker 3

S. Consumers and card members outside the U. S. Offset the continued softness in U. S.

Speaker 3

SME spending growth that we have been talking about for the past few quarters. Looking at Commercial Services, U. S. SME growth came in at 2% this quarter. Looking forward, we will continue to monitor these spending trends.

Speaker 3

Our U. S. Large and global corporate customers also grew billings 2% in the As we've said for many years, these customers, while not a particular growth driver for our business, do remain an important foundation for the company's business model. Taking all of this into account, spending volumes are tracking to support our revenue guidance for the year and our long term aspirations for sustainable growth rates greater than what we were seeing pre pandemic. Now moving on to loans and card member receivables on Slide 8, we saw good continued sequential growth as well as year over year growth of 15%.

Speaker 3

Year over year growth moderated a bit this quarter as we expected, but remains elevated The interest bearing portion of our loan and receivable balances continues to grow faster than the overall growth you see as our customers continue to rebuild balances. Importantly, the majority of this revolving loan growth in the U. S. Continues to come from our high credit quality existing customers. We also included a disclosure this quarter showing that only 8% of our U.

Speaker 3

S. Card member loans and receivables comes from customers with a FICO less than 660. As you then turn to credit and provision on Slides 9 through 11, this high credit quality of our customer base continues to show through in our best in class Our card member loans and receivables write off and delinquency rates remained below pre pandemic levels. Delinquency rates remained flat quarter over quarter, while write off rates continue to move up a bit this quarter as we expected, as you can see on Slide 9. Going forward, as we've talked about for many quarters now, we continue to expect these delinquency and write off rates Turning now to the accounting for this credit performance on Slide 10.

Speaker 3

The quarter over quarter growth in our loan balances was the primary driver Of our $327,000,000 were billed, there was also a small component from incorporating a slightly worse macroeconomic outlook this quarter relative to last quarter. This reserve build combined with net write offs Grew $1,200,000,000 of provision expense in the 2nd quarter. As you see on Slide 11, we ended the 2nd quarter with $4,700,000,000 Reserves representing 2.6 percent of our total loans and card member receivables. This reserve remains about 30 basis points below the levels we had pre pandemic or day 1 CECL. We continue to expect this reserve rate to increase a bit as we move through 2023, while also reflecting the continued premiumization of our portfolio.

Speaker 3

Moving next to revenue on Slide 12, total revenues were up 13% year over year in the 2nd quarter

Speaker 4

on an

Speaker 3

FX Our largest revenue line, discount revenue, grew 8% during Q2, as you can see on Slide 13, driven by the spending trends we discussed earlier. Net card fee revenues were up 22% year over year 2nd quarter on an FX adjusted basis, as you can see on Slide 14. Growth remains quite strong and continues to be driven largely by bringing new accounts onto our fee paying products. This quarter, we Acquired 3,000,000 new cards and the spend revenue and credit profiles of these acquisitions continue to look strong relative to what we Importantly, the acquisition trends you see on Slide 14 in this and recent quarters are consistent with our long term growth aspirations. Moving on to Slide 15, you can see that net interest income was up 32 percent year over year driven primarily by the growth in our revolving loan balances.

Speaker 3

To sum up, on revenues on Slide 16, We're seeing broad based revenue growth across our revenue lines. We're tracking with our expectations. So looking forward, We still expect to see revenue growth within our range of 15% to 17% for the full year of 2023. The 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. Starting with variable customer engagement expenses, these costs came in at 42% total revenues in the 2nd quarter and are tracking with our expectation for them to run at around 43% of total revenues on a full year basis.

Speaker 3

On the marketing line, We invested $1,400,000,000 in the quarter, on track with our expectation to have full year marketing spend of around $5,500,000,000 We remain focused on driving efficiencies so that our marketing dollars grow slower than revenues while continuing to drive the high quality new that Steve discussed earlier. Moving to the bottom of Slide 17 brings us to operating expenses, which were $3,400,000,000 in the 2nd quarter, also tracking with our expectation for operating expenses to be around $14,000,000,000 for the full year. This quarter, you see that as we expected, we have far less growth in OpEx relative to our high level of revenue growth. And looking forward, we continue to see OpEx as a key source of leverage. Turning next to capital on Slide 18.

Speaker 3

We returned $1,600,000,000 of capital to our shareholders in the 2nd quarter, including common stock This is $1,100,000,000 $446,000,000 in common stock dividends, all on the back of strong earnings generation. Now, as you know, this is an off cycle year for Amex as a CCAR bank. Let me briefly remind you of our capital management approach. We generally increase our dividend roughly in line with earnings and target a 20% to 25% payout ratio. And you saw us do that as we increased our dividend by 15% to $0.60 per share last quarter.

Speaker 3

We target a CET1 ratio between 10% and 11% And we ended the 2nd quarter in the middle of that range at 10.6%. As we think about the potential finalization of Basel III, I'd remind you that our 10% to 11% CET1 target range is actually well above our current regulatory minimum of 7%. We plan to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth and we don't expect any material near term changes to our capital management approach driven by the evolution of these rules. So that then brings us to Slide 19 in the growth plan. To step back for a minute, I joined American Express 10 years ago in 2013 because I was excited about the long term growth prospects for the company.

Speaker 3

Today, as I join you from my last earnings call, I'm actually even more excited about those growth prospects. Steve and I first introduced our new multiyear growth aspirations back in January of 2022. And I would point out that Christophe was in the room for every key decision we made as we developed that plan with the senior business leaders across Amex. Now in July of 2023, we have consistently achieved the aspirations we set out 6 quarters ago, thanks to the great efforts of our 77,000 colleagues across American Express. So we are reconfirming today Our 2023 full year revenue guidance of 15% to 17% growth with EPS in the range of $11 to $11.40 Our revenue momentum and customer acquisition trends are positioning us well for our growth aspirations this year, in 2024 and beyond.

Speaker 3

So this momentum combined with this being my 85th consecutive earnings crawl across 3 industries without a break makes this a good time for me to transition the CFO role

Speaker 2

to Christophe. With that, I'll

Speaker 3

ask Christophe to say a few words before Steve and I take your questions. Thank you, Jeff, and good morning, everyone. I'm excited to continue the strong legacy of performance that Steve and Sheff have delivered and look forward to spending time with many of you on the call in the coming months. With that, I'll turn the call over back to Keri to open up the call for your questions.

Speaker 1

Thank you, Christophe. Before we open up the lines Thank you for your cooperation. And with that, the operator will now open up the line for questions.

Operator

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 Our first question comes from Sanjay Sakhrani of KBW. Please go ahead.

Speaker 5

Thanks. Good morning and congratulations, Jeff. You've had quite a run at American Express. It's been very helpful throughout your tenure, and I'm sure you will be in your remaining position. Christophe, I look forward to working with you.

Speaker 5

My first question is on build business growth. Obviously, there's so much noise over the last couple of years And even in this year. And I'm just Jeff, you talked about stabilization going forward and expecting that. Could you just Talk about what gives you the confidence that you see that stabilization because we're still a little bit above trend in terms of that growth and What you need in the back half to get to that growth guidance on revenues?

Speaker 3

So gosh, I guess I don't particularly understand Jay's Above trend, what gives us confidence is looking at what has actually happened in our business over the course This year, in the Q1, you were clearly lapping omicron and that was in some ways, I think, the last of the pandemic driven noise And our results, as you got into the Q2, we have seen stabilization across geographies

Speaker 2

at a level that

Speaker 3

I would suggest is actually consistent with being in a pretty low growth economy. And what you're hearing from us is With the kind of volume growth that you see this quarter, which we think has stabilized, which we think will continue, That is consistent with both the guidance we provided for this year as well as with our longer term growth aspirations. I would point out at some point the economy is likely to get stronger. But even with the economy in its current kind of low growth state, The volume growth that we're seeing now allows us to achieve what we have been committing to for 6 quarters.

Speaker 2

Yes. And look, I mean, just look at consumer, Right. I mean consumer in the U. S. Is up at 10%.

Speaker 2

T and E is still very, very strong. We talked about travel bookings. Travel bookings more than 1 month out are higher than they've been pre pandemic. They were Higher than they were at this time last year. They were higher than they were obviously in 2019.

Speaker 2

International is really coming back strong for us. And as we said, it was the fastest growing part of our business. And the other thing I'll point out is You just had a little hangover of noise from Omicron in this quarter because Last year, you had a little bit of spending that was pushed from the Q1 to the Q2. And if you look at if you go back and look sequentially last It was a huge increase sequentially quarter over quarter. So we feel really good about I mean, it's hard to apologize for Record billings.

Speaker 2

And as Jeff said, It's the billings we need to hit our growth plan. So we feel really good about it. And the other point I'll just reiterate again is that, look, we're in a low growth economy right now. We're still out there acquiring card members. Credit is really good.

Speaker 2

Our base is Changing in terms of more millennials and Gen Z who will grow with us. And as the economy gets better, we expect the spending to pick up. So We feel really confident.

Operator

Thank you. The next question is coming from Ryan Nash of Goldman Sachs. Please go

Speaker 3

ahead. Hey, good morning, everyone. Good morning, Ryan.

Speaker 6

Jeff, it's been a pleasure working with you and best of luck in the future. And Christophe, I'm looking forward to working with you in the future. Maybe to drill down into 2 areas that were highlighted on the call. First, commercial, obviously, we've seen a big slowdown there to 2% year over year growth. Steve, maybe just talk about what's driving the slowdown and what do we need See for reacceleration and maybe just drill a little bit further on T and E in terms of your confidence like it seems like Sequentially, it may have slowed a little bit, but I take the point that year over year growth rates are still strong.

Speaker 6

So can you maybe just talk about what you see as the key drivers of that remaining in double digits.

Speaker 2

Yes. I mean, from a T and E perspective, and I think you just have to listen Our friends at Delta and what Ed had said, I mean, they're seeing record growth. And for us, We're seeing as we have a line of sight into future bookings. And so when you look at sort of consumer T and E, Restaurant, not only is airline bookings up, but if you look at what's going on with restaurants in terms of Resi, I mean restaurant is probably the biggest segment that we have in T and E. We have all other, but we'll wind up disaggregating that.

Speaker 2

Yes, and it grew 15%. And We have really strong T and E growth and I think that people are just back traveling. And so the line of tied into what we see from resi and the activity we see on resi from a restaurant perspective, from the activity that we see in our consumer travel business, We feel really confident about that. As far as small business and corporate, look, I think Let's talk about large corporate first. I think large corporate, it's crawling its way back Is the best way to describe it.

Speaker 2

It is a small piece of our business. It's about 5% of our business right now. It's an important piece of our business. And we value all of the corporate relationships that we have. But as many of us know, the first step is to get people into the office and then the second step is to get them out Onto the road.

Speaker 2

And I think what you're seeing a little bit less of is those one stop trips, That quick hop to London to meet with that one client or that quick sort of run across the country to have an internal meeting, you're seeing Less of that. So I think that will continue to come back. We continue to be aggressive, obviously, at retaining those customers and aggressive We're acquiring new customers, but I think that's going to

Speaker 3

be slower. I don't think

Speaker 2

that's coming back as fast, which is a contrast to consumer. As far as small business goes, I think when we look at small business, I think the biggest thing there from a small business perspective is really the organic growth. I think Organic growth has slowed. I don't think that's an Amex phenomenon. I think that's a little bit of an industry phenomenon.

Speaker 2

And I think small businesses grew very, very rapidly. And I think they have slowed down. What we have focused in on from a small business perspective Is making sure we're continuing to acquire more small business customers, continuing to meet The other needs that they have, which are some lending needs for existing customers and also their deposit needs. And so as we grow both aspects of those business And as when they're ready to grow again, we'll be ready to grow judiciously with them. And that's what we're focused on.

Speaker 2

So look, would we prefer that our SME business was growing like our consumer business? Sure, we would. But there are these cycles. And at this particular point in time, I think you're seeing a little bit of an industry wide Slow down from a small business perspective, but again, just to pick up on Jeff's point from before, after the slowdown comes a recovery. So, we'll be poised for that.

Operator

Thank you. The next Question is coming from Betsy Graseck of Morgan Stanley. Please go ahead.

Speaker 7

Hi, good morning. And Jeff, all the best. It's been great working with you and Christophe looking forward to meeting you and working with you as well. I did just want to make sure I understood the guide on the rev outlook here because what I'm hearing and tell me where I'm wrong, what I'm hearing is that Billings growth, you're anticipating something similar to what you generated this quarter on a year on year basis for the second half of this year. And that's a little bit of a slower pace obviously than the rev guide of 15% to 17%.

Speaker 7

Clearly, 1Q was very strong, well above that. So I'm just trying to understand if the other lines in revenue are going to more than make up for that, I. E. Net interest income, maybe you could speak to that a little bit or some of the other felines that drives your outlook for the 2015 to 2017 for the full year rev guide? Thanks.

Speaker 3

So I think it's an important Question, Betsy. But if you really just look at this quarter, the thing I would point out is you do have some unusual noise In the service fees and other revenue line when you look at our Slide 12 in the slide deck, because in the prior year we had A complicated litigation settlement that drove some unusual movement in that line. What we're really saying is That we are in a low growth economy, but we it is consistent with the objectives we set if you maintain the volume growth that we have And then combine it with the kind of consistent high growth in net card fees that you've seen Right through the pandemic grew 21% this quarter. You combine it with the fact that you still have customer rebuilding balances a little bit on the net interest income side And you take the noise out on the service fee and other revenue signs, you then easily get to a number that is very consistent In the back half of the year with what we've guided for the full year.

Speaker 2

Yes. And I think he is a great example of the model, right? I mean It's a great example of the 3 legged stool. We've got card fee growth is very, very strong. I mean, it's a third I think it's a 3rd straight quarter we've had 20% card fee plus growth.

Speaker 2

Yes, we're benefiting a little bit from net interest income. As Jeff said, there's noise In the services fee and other revenue and that will shift. But yes, we feel comfortable with billings around where we are today to make that revenue guidance because of the 3 tiers of revenue that we have. That's what gives us confidence.

Operator

Thank you. The next question is coming from Rick Shane of JPMorgan. Please go ahead.

Speaker 4

Thanks for taking my question. Hey, Jeff, I often say this in these circumstances a little bit Tongue in cheek that we're going to miss you more than you're going to miss us, but I think that's absolutely true here. It's been a pleasure Working with you over the years and Christophe, we're looking forward to getting to know you as well. I do Betsy really pulled on the thread that I'm interested in pursuing as well, but would love to sort of think about this a little bit more. When we look at The deceleration of top line in the second quarter, if revenue stays on that trajectory for the second half of the year, It sort of puts you at the low end of your top line guidance.

Speaker 4

It sounds like there's a little bit of noise that gives you some confidence, but I'm Curious fundamentally, do you think we will see some acceleration in the back half to sort of offset any potential risk if you just look at the trend line?

Speaker 2

We still feel really confident that we'll be within the 15% to 17%. And there There's really not a lot more to say other than that. So yes, you have a little as I said, you have a little bit of deceleration From a billings perspective, but it's a record quarter of billings, over 4 $20,000,000,000 of billings. And so again, we feel very confident of the 17 and we'll see where it winds up landing within that range, but it's the reason we give ranges.

Operator

Thank you. The next question is coming from Bob Napoli of William Blair. Please go ahead.

Speaker 8

Thank you. Thank you very much. And Jeff, thank you for your help Good luck to you. Christophe, welcome. I look forward to meeting you.

Speaker 8

I'd like to ask about Your views on credit normalization, kind of a trend in credit normalization, what as you look at your portfolio, what we should expect As we look at the aspirations for 2024, so that I mean, the back half of 'twenty three is pretty big, but just as we think about That going into 2024 and onward.

Speaker 3

Well, I think the most important point to make there, Bob, is That we have a portfolio today that is more premium and stronger than what we had In 2019 in day 1 CECL. That is why we added the additional disclosure this quarter around the small percentage of our portfolio that is The band where you do see challenges and that's the FICO band below 660. So We feel reasonably good about where we are from a credit perspective in this environment. I think we feel really good about The fact that when you look sequentially, you actually saw delinquencies flat. There is complexity in the So calculation when you try to do comparisons across companies, I did make the observation that the way And with the timing of how we do ours, we actually incorporated a slightly worse economic outlook this quarter Than we did last quarter sitting here on July 20.

Speaker 3

I think most people would say things have Perhaps gotten a bit more optimistic in recent days, but we'll have to see how that influences things. At core though, We feel really good about the product choices, the acquisition choices and the risk management choices we've made, which leave us Confident that we will be below this year on credit metrics all of the places we were in 2019 And absent some dramatic change in the economy, I think we feel good about what that means for 2024.

Operator

Thank you. The next question is coming from Craig Moore of Feet Partners. Please go ahead.

Speaker 9

Yes. Good morning, Jeff, for meeting you in the middle of an ice storm till now. I appreciate all the help over the years. And Christophe, looking forward to meeting you soon. So my question my two questions really are around, 1, SME, just wanted to dig in a little further there.

Speaker 9

If you can help me understand if there was a meaningful difference in Growth between the total number and if you just looked at it on a same business activity level, and took out the new business adds. And second, has there been any real difference in credit vintages? We've recently seen some data on consumer loans that have shown a real deterioration in recent vintages of loans. So I wanted to ask about that. Thanks.

Speaker 2

Yes. So for the second question first, the answer is no. It's really not that Jeff you want to add?

Speaker 3

Well, with the only color, I'd remind you over the From a risk management perspective, and I think that is part of why, as Steve says, we don't see any change from a management perspective.

Speaker 2

Yes. As far as Line of sight into SME, I mean, the way to think about it is, organic is probably flat. You obviously have businesses that go out of business and so you have a little bit of Sort of same stores that go away, but the acquisition is still relatively strong. So think about Organic is having a neutral impact. Think about attrition because attrition has a negative impact, but no different than what we've seen over the last A few years and then acquisition in there.

Speaker 2

I think the biggest difference is really organic. And what you saw Through the pandemic, as you saw, small businesses continue to add and add and add. And you got to remember, small businesses use our card to run their entire business. And so there's a lot of buying ahead from a goods and services perspective, from an inventory perspective. And so We're going to watch it really closely in terms of have they finally gotten to sort of full stock and what have you.

Speaker 2

And But I think that's the way to think about those 3 components organic, basically flat and acquisition up and attrition pretty much stable.

Operator

Thank you. The next question is coming from Lisa Ellis of MoffettNathanson. Please go ahead.

Speaker 10

Hey, thank you. Thanks for taking my question. You guys highlighted that it is now 6 quarters since you introduced the structural increase in your long term plan to double digit revenue growth and mid teens EPS growth. A lot's happened in the last 6 quarters. We're kind of finally returning to normal after the pandemic.

Speaker 10

So can you just highlight when you look at the underlying business drivers required to sustain that model on an ongoing basis. What is sort of doing better than you expected? Maybe where do you need to make some adjustments, etcetera? Just kind of comment on how that strategy and your thoughts about that has evolved as you look forward now coming back into a more normalized economy? Thank

Operator

you. Yes.

Speaker 2

Well, I think you got to go back to sort of strategic priorities we always talk about, which is focused on premium consumer, we're focused on small business and we're focused On coverage, if I look at this, I would say that international is coming back probably even a little quicker than we had Within our 3 year horizon, I think millennials are playing out even better than what we had thought both from an acquisition I think when you think about boomers, I think they've been slower to return. But It becomes a smaller piece of our business over time. Corporate, I think that's an opportunity going forward from a growth perspective. I think small business started out in the beginning. I think small business will wind up being sort of a tale of 3 cities Over this time horizon, I think it was very, really strong for us last year.

Speaker 2

I think it's a little bit more muted. It's a little bit more muted, And I think it will probably pick up. And the other thing that's been different since when we started with this plan, it was done in a much slower It was done with it. We anticipated a more robust economy. So what really makes us feel good about this is that We've accomplished this in a slow growth environment.

Speaker 2

We've stayed true to who we are from a credit quality perspective. And the last thing that I'll add is, I think we made some really great coverage gains over this period of time as we continue March to our goals, especially international, where I think the team has done a really good job from a coverage perspective. And When you think about our longer term partnerships here, we've really cemented in our key partnerships over the long term here, Obviously, with Delta and with we still have Marriott and VA, which go out still a number of years. We feel good about it. And the interesting part about this is, did it play out exactly as we thought it was going to play out?

Speaker 2

No. But the flexibility in the model has enabled it to go where we wanted it to go. And I think We really got off to a tremendous start in 2022 with tremendous revenue growth. I mean, when we did this 3 year plan, we did not project 25% revenue growth last year. We were at 17% to 19%, I believe when we started the year, then we took it up to 21% and then you got 25%.

Speaker 2

So if you think about sort of where we thought we were going to be, we're ahead of where we thought we were going to be Longer term and the 15% to 17% guidance that we provided at the beginning of this year Was based off original guidance that was 2017 to 2019. So we're growing over bigger numbers. And that's why I feel really good about it. And so we'll continue. And I think the most important thing for us Is to stay focused and to focus on our priorities.

Speaker 2

And I think the team has done a really good job of that. And you have to remember, And you guys all know this. This is a very good industry to be in. And when you play in this industry the way we play in it Across 3 different dimensions of card fees, of billings and of net interest income, it makes our model Completely differentiated from our competitors.

Operator

Thank you. The next question is coming from Arren Cyganovich of Citi. Please go ahead.

Speaker 11

Thanks. Your marketing expense pulled back a bit this quarter. You still have high Customer acquisitions, how are you thinking about marketing expenses going into the second half of the year? And can you provide a kind of Quarter to date update in terms of your growth rates of build business?

Speaker 2

We're not going to do a quarter to date update of build business. We're Kind of 20 days in, so there's no real change. But in terms of marketing, The only thing that's important to know is that we said we'd spend about $5,500,000,000 on marketing. That's our plan To continue to do that. How it winds up sort of moving from quarter to quarter, I think we're probably $100,000,000 from last year or something like this in this particular quarter.

Speaker 2

But it all depends on the programs we're running And everything else. And so a week here, a week there can make all the difference in the world sometimes. When you think about spending $1,500,000,000 $1,400,000,000 in a quarter, it's like $100,000,000 sort of a week. So The bottom line is we are committed to go after all the great opportunities that are out there and we believe that We'll wind up spending about $5,500,000,000 from a marketing perspective. Just to remind everybody that the marketing spend for us Is predominantly customer acquisition, right?

Speaker 2

And affiliate fees and incentives and things like that. It's not So the TV and print and the Sky advertising, that's what that marketing spend is. And that's why it can vary a little bit from quarter to quarter.

Operator

Thank you. The next question is coming from Dominic Gabriel of Oppenheimer and Co. Please go ahead.

Speaker 12

Hey, great. Thanks so much for the question. So I was just wondering, when you think about your aspirational revenue target, Has the thought process on the contribution to growth from net card fees to total revenue changed over time where it's Potentially providing more of a boost towards that 10% revenue goal versus the past Versus discount rate revenue? Thanks guys.

Speaker 2

No, look, I think one of the big differentiators for us is that card fee. I mean, you think about that as So the subscription SaaS kind of revenue and we're really pleased with that. But no, I mean it's in the ballpark of What we thought it was going to be as we put together our aspirations, right? I mean and so when you look at this, The 20% 3 quarters in a row is a big number. And other thing I'd point out, during the pandemic, it was growing in double digits.

Speaker 2

So which is it's a big contributor, and it's obviously a higher it has higher growth than discount Revenue would, but it's pretty much in line with where we thought we were going to be.

Speaker 3

I just can't resist adding, Dominic. For something that grew in double digits all through the pandemic has had really high growth rates last year. It is Going to continue to grow to be an ever bigger part of our revenue. I think that is a key strength of the company. It Really ties customers and engages customers with us and the product and is a critical part

Speaker 2

Just one other thing because Jeff just sort of reminded me as he said that when we talked about Sort of this 10% this double digit growth during the pandemic, it really speaks to how we think about our customers over the long term because If we had not invested in our customers during the pandemic, you would not have seen that double digit growth during the pandemic or coming out of the It was really important to embrace those customers. It would have been easier to drop more money to the bottom line rather than to put more money into our existing But that's not how we run the company. And we were thinking much more from a long term perspective and By really investing in the value propositions, because as you all remember, those value propositions from a travel perspective were challenged Fast. And to put other things in there, it really helped to cement those relationships, Which kept those fees going, but more important, dropped just normal attrition that we had because we improved our retention rates over the course of the pandemic. So I think it speaks to the membership model because this card fee is a decision that our members make To join the franchise.

Speaker 2

And that's really important because that means they see value in the product, They see ongoing value in the product, and it's our job and we'll continue to do this to continue to insert more values into the product and that's what keeps And that's why from a strategic perspective, the consistent refreshing of our products is really, really important to our strategy.

Operator

Thank you. The next question is coming from Don Fandetti of Wells Fargo. Please go ahead.

Speaker 4

Yes. Jeff and Christophe. Jeff, I want to clarify on the Basel comments. Are you saying that you won't have to run at a higher CET1 and your target of 10 to 11. I know there was some concern around fees being looked at differently.

Speaker 4

I wonder if you can clarify that.

Speaker 3

Don, you were cutting out a little bit, but I think you're asking about the CET1 target in Basel III. And the point I was trying to make is you need to remember a few things here. Our 10% to 11% CET1 target is actually more driven by our own view And rating agency views versus the regulatory constraints because our regulatory minimum has long been only 7 Percent, that's the first point. The second point to remember is we have an ROE return on equity of over 30%. So our ability to Quickly replenish capital whenever we need to without frankly taking more than a brief pause from share repurchase is very high.

Speaker 3

3rd, I know there's been a lot of attention paid to different iterations of The Basel III endgame, particularly around ops risk. I guess I'd also just remind people, ops risk is only one component. There are other components that probably have some positive and probably have some negative impacts on us. I guess my we'll have to see whenever the final rules come out. We've been waiting for them for, I feel like much of my 10 year here.

Speaker 3

But they may come out hopefully later this month. And the devil is in the details here. But I think My overarching message is we don't see it as a material event for this company because it's certainly a Possible outcome that there's no change in our target and even a modest change in our target with a 30% plus ROE Is not going to have any material impact on share repurchase or the trajectory of our EPS growth that we've laid out in the growth plan. Thank

Operator

you. Our final question is coming from Mihir Bhatia of Bank of America. Please go ahead.

Speaker 13

Thank you for taking my questions and good morning. Firstly, congratulations, Jeff. Thank you for all your help and welcome Christophe. I look forward to getting to know and working with Wanted to switch gears a little bit and talk about the process revenues of the network Partnerships, I think the old GMS business. It seems like there's been a little bit of momentum in terms of signing some new partners recently.

Speaker 13

I believe this quarter we actually saw the launch of the Square Card and process volumes grew faster than build business this quarter. So just wondering if you could talk about that business a little bit more. Has there been something has something changed internally? Are you focused more on that segment? What's driving that momentum?

Speaker 13

Thank you.

Speaker 2

Yes. No, I don't think anything has changed. I think these are It's always been something that we have been focused on. But to switch or to get a partner To come on to the network is a big deal. And there are technical hurdles To wind up crossing and we're the GNS team is out there On a consistent basis, looking for new partners.

Speaker 2

And when you think about our overall model, we really operate in around 29 Proprietary countries, all the rest of the markets that we operate around the world are GNS Markets either just from a card acceptance perspective or from a both a card acceptance and a card issuing perspective. And there's been a lot of work going on With GNS over the years to get to increasingly get more and more coverage. And so when you look at Our improvements in coverage, so much of that's been driven by our GNS partners. And just to remind you that Everything that we're doing in China is really comes under the heading of GNS because We're in there just as a network. We don't acquire merchants.

Speaker 2

We don't issue cards. We have a joint venture, and That's a GNS relationship. And look, our launch of our card, I mean, with Where that's been in the pipeline for a long time, but it's if you aren't cards or if you're issuing Visa, Mastercards, it's a little bit different. The total cup to our systems, if you get priority within your own system and so forth. And so we've been out there On a consistent basis, working to get partners, I think the Square 1 has a little bit more I guess a little bit more headlines because it's a U.

Speaker 2

S. Partnership, but the team is out there on a real consistent basis all across Asia and South America and Africa and so forth really thinking through how we continue to get more coverage and how we get More cards issued. So, while you may see it a little bit more, I can tell you the team has been working really hard at this for a lot of years.

Speaker 1

Great. And with that, we will bring the call to an end. Thank you again for joining today's call and for your continued interest in American Express. The IR team will be available for any follow-up questions. Donna, back to you.

Operator

Thank you. Ladies and gentlemen, the Webcast replay will be available on our Investor Relations website at ir. Americanexpress.com shortly after the call. You can also access a digital replay of the call at

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