American Express (AXP) Q3 2026 earnings call transcript

Thank you, Donna, and thank you all for joining today's call. Today's discussion contains forward-looking statements about the 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 defer materially from these statements are included in today's presentation slides and in our reports on file with the SEC.

Today's discussion also contains non-GAP financial measures. Comparable GAP 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. americonexpress. com. We'll begin today with Steve Squarey, Chairman and CEO, followed by Christoph Lukiak, Chief Financial Officer. After their remarks, we'll move to Q&A.

With that, I'll turn it over to Steve.

Thank you, Karthik. Good morning, and thanks for joining us. We had another strong quarter with record revenues of $20 billion, up 9% and EPS at $5.42 reported, and $4.68 on an adjusted basis. Given our strong performance at a date, we are reaffirming our revenue growth guidance of 10%, and raising our EPS guidance to between 1830 and 1860 on a reported basis, or between 1760 and 1790 on an adjusted basis.

There are a number of discrete items in this quarter's results. Christoph will go through them in detail. I'll highlight a few of them. First, with the closing of the global business travel transaction in the quarter, we're dropping two-thirds of the gain to the bottom line, excluding the impact of the gain, as well as the portion of it we're using for restructuring, adjusted EPS as $4.06.

Second, adjusted EPS includes and expense for legal matters, which includes the unreserved portion of the recently announced civil money penalty levied by the OCC.

The fine does not impact our full year 2026 guidance. The orders do not impose an asset cap on the company, and the costs associated with the remediation are not anticipated to affect 2027 guidance. More importantly, the deficiencies cited in the consent orders should not have occurred, and we are accountable for addressing them thoroughly. This is critical to our future, and to maintaining the trust that our customers, regulators, colleagues, and investors place in us. We have earned that trust over many years, and we can never take it for granted.

Also this quarter, as I mentioned, we're using a portion of the gain from the global business travel transaction to continue positioning the company for long-term growth. Strong business performance throughout the year has enabled us to step up our marketing and technology investments, so we decided to use some of the gain to invest in making the organization more efficient and better prepared for the future.

As a result, we took a $336 million charge restructuring in the quarter, which is expected to result in the elimination of approximately 5% of our positions globally. Because this quarter's charge is somewhat larger than what we typically do, I'll take a moment to provide a bit more content. We've got good momentum, but to accelerate innovation and win over the next few years, we needed to become a more agile and efficient organization.

With that objective in mind, earlier this year, I had to identify ways to stream organizations, align their teams on the most critical deliverables, and reduce layers to speed.

When complete, I will help us operate and execute more effectively, and give us greater capacity to invest in our business priorities. I'd also like to highlight the latest example of how we're continuing to invest in our membership model into our card members. Yesterday's announcement of our ship with Airbnb, which follows the recent announcements of new and expanded centurion lounges and our next-generation corporate card and expense management program.

We know that card members enjoy the exceptional variety and scope of Airbnb's network of unique locations, and we're excited to bring over 1 million listings globally into our analytics travel program, as well as expanding travel benefits for eligible U. S. card members.

Next, I'd like to talk about how we're thinking about AI and the rise of AI assistance. There's been a lot of talk about how companies are using AI to increase productivity, or to make processes, and generally make their organizations more efficient. We're using AI to do all of those things too, but I want to talk about AI and agentic commerce from the customer's perspective, how their experience will evolve, and what it means for American Express.

It's still early in the game. Agentic transaction volumes are still, but the direction is clear. I pay and manage their finances.

But while AI agents that doesn't change who the customer is, our customer remains the card member, and the job remains the same, deliver differentiated value and have their back. The way I think about AI is simple.

Opportunity to make AMEX membership even more valuable. We are well positioned to do just that. Differentiated assets, closed with network, first with data, and brand built on trust.

Our goal is to have a card member through recommendations, continuing to embed AMEX membership where that's the five key areas where you get to the insights from our planet ecosystem. With our understanding of individual card members' tastes, our dining companion, for example, personalized restaurant recommendation.

Looking ahead, combining AI and our other platforms, launching AMEX plugin, conversational experience. It was another strong quick we continue to see, alert to what we see strong and consistent spend growth in the T&E categories, balanced growth in language spend, high retention rates, excellent credit performance, and strengthened stability in customer behavior to a revenue up 9% year over year with net card fee growth accelerating to 17% effects adjusted. This quarter reflected stable VCE sibling operating expenses, renewed investment.

We reported GAPPPS of $5.42 this quarter. So, for getting into the business trends, let me walk through EPS in more detail. There are several adjusted and notable items this quarter, and I want to be clear about their impact on our results.

First, the sale of our investments in the global business travel group resulted in a gain of $1.11 per share.

Second, as we previously said, we expected to use a portion of the gain to support the company's 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, 13% year over year. Adjusted EPS includes three other notable items this quarter.

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 anticipated settlement of an unrollable second item is a discrete tax benefit of $0.29 per share. And finally, a $0.24 benefit from the most recent updates to the combined, these three items had no meaningfully on the adjusted EPS this quarter.

Turning to build business, rural spend was in line with the trend of the past four quarters. This quarter included about a 60 basis point year over year impact from the core grant exit that I previously discussed, with the Amazon core grant portfolio sale happening midway through the quarter.

Equentially, spend growth also saw a small impact from the last quarter's Amazon Prime Day and other promotional retail days in the US. These impacts were mostly concentrated in goods and services, which grew 7% this quarter.

Discretionary spending was strong, with T&E up 10% year over year. Airlines spending accelerated to 13% while restaurants are our largest T&E category, so spend growth of 9%. US consumer spending was up 9.4% this quarter, reflecting 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 US 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 core grant 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 integrated expense management capabilities will give us additional opportunities to drive engagement and spend growth. Spend growth in international was up 11%. Merchant coverage now reaches over 190 million locations globally, up from 160 million a year ago.

Outside the US, the number of locations accepting AMX 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 require 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 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 right on dollars only grew 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 seasonal 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 portfolio exits. 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 corporate portfolio exits. Net card fees continue to be at a faster growing revenue line. As expected, we've seen an acceleration in growth to 17% ethics adjusted this quarter, supported by the very strong results we've seen on the US 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 out from the Platinum refresh last year.

Looking ahead, we expect VCE growth to moderate significantly in Q4 as we fully lot 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 and 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 investment 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 propositions 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% 10 years ago to around 35% more recently. And over the period of time, we all track to more than double the size of our revenue and tripled APS. At the same time, we have also reduced the share count by over a quarter.

This performance can be tracked back to our spend and fee-based model, characterized by high loyalty and engagement, greater differentiation versus competitors, lower credit risk, including in distress, lower capital intensity, and higher operating leverage from scale. These results in very strong capital generation that will be returned to shareholders. In Q3 specifically, we returned $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 the CET1 ratio of 10.9%, reflecting the gain from the sale of GBTT that happened at the end of the quarter. That brings me to guidance. Given our performance year to date, we are reaffirming our four-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 code back over to Karthik and we'll take your questions.

Thank you, Kristoff. We will now start the Q1A session. We ask that you please limit yourself to just one question. Thank you for your cooperation. Operator?

Thanks for the question, Sanjay. I think, look, customers have always had the ability to optimize across Karth. And our strategy really hasn't been to really compete simply on points or rational rewards. And 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 about than just about points. It's service.

It is security, which I think service and security in this in AI is going to be even more important. And it's one of the reasons that when I decided what we were going to talk about today, 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 five key dimensions actually be an accelerator for us. And the last thing I'll say is when we've had gamification or when we've had people that do certain things, we have levers within our model, and we've shown this with the Platinum card, where we can get to spend thresholds that require those benefits to be made, which then sort of eliminates that ability to gain the system.

So I think we have a lot of tools at our disposal, but I think the most important tool we have at our disposal is our card members that love our product and love what our product does for them. But again, like anything else, we'll see how it all plays out.

Thank you.

Morning, Ryan. Morning, Steve. How are you? So great to hear.

So let me start with that. So on the VCE, so the VCE is performing as we expected. And as you know, this quarter is the quarter we're going to lap the platinum refresh, which is, you know, the event that created the step up in the VCE ratio. So as you think about going forward, and Q4 is going to be a good example for that, you should expect that VCE ratio to kind of like stabilize in this kind of rate, but the growth rate in terms of the VCE dollars to moderate significantly and either to be more consistent with what we saw pre-refresh.

And either we're not going to get into guidance for 2027 at this stage. Ryan, you're going to have to wait for January for that. But either like that is going to help us, you know, just like, you know, maintain that mid-teen DPS ambition that we have been using for years to, you know, to think about the performance of this company. So I feel good about that. And I will say, I will add one more point of either on the VCE, you know, Steve's comment here. We introduced this quarter amount-based redemption, which is like a very convenient way for con members to redeem their points. And we saw a very strong take up for this. So convenience is also a very important feature here in terms of those VCE and our ability to control that expense.

In terms of the span, listen, we know there is a bit of noise this quarter because of the impact coming from the sale of this co-brand portfolio. So that creates some discontinuity in the trends. Obviously, we have a lot more information that you have. But when we control for that, we're very pleased with that, you know, with those trends. You know, in this US consumer segment, we're reporting this quarter 9.4% spend growth. It is the third highest we've seen over the last three years. And that is despite the timing of the Amazon Prime Days. And it's not only Amazon as a matter of fact because, you know, large retailers, you know, kind of like follow the similar schedule.

So despite that headwind that kind of like, you know, created a lifting Q2 and a bit of, you know, downward training in Q3, we're seeing 9.4% billing growth and very strong growth in discretionary categories such as T-A-E and airline. So, you know, a lot of momentum and strength, you know, in our billings.

Yeah, and the only good thing I'd say is that, you know, as Kristoff said, airline spending is was really high. And spending continues is up 9%.

But just a highlight. Thank you.

Yes, let me go with the second one first. You know, look, it's 22 straight quarters of double digit growth rate and international. You know, we went from 13 to 11. Let's see. We'll see how that plays out. But, you know, 11% growth is still very strong growth. And, you know, the demographic from a card acquisition perspective, which still continues to be strong, is predominantly, you know, millennials and Gen Z. As far as the competitive frame, you know, look, the competitive frame, it really hasn't changed.

I mean, people, you know, there's a lot more, I think there's a lot more talk about it now, but it's been a battle for 10 years and, you know, people continue to step up their game, but we continue to step up our game as well. And so, you know, obviously we've increased our marketing budget over time, but as a result of that, we've also increased our revenue. And let me also be clear about one thing.

When we look at the premium segment, we're looking from a revenue perspective. It's sort of at three legs. We drive tremendous card fee income. We're, you know, at three billion dollars for the court.

You know, our premium card members want to revolve, and they are revolving, and we're taking advantage of that, and not only do we take advantage of that, but we take advantage of that with best-in-class, you know, credit performance.

You know, I think that the challenge or the thing that we continue to face is continuing to innovate, and I think we've been doing that. We've been doing that, as you see, across multiple segments, whether it's how we're embedding AI within some of the value propositions.

The Airbnb announced me yesterday, which we're very excited about. And then, you know, you just look from a corporate and a small business perspective.

Yeah, it's competitive. Thank you.

Hello. Steve, really appreciate that you sort of addressed, you know, the topic at hand up front. Rewards maxing was not part of my lexicon until recently. I guess I'm wondering, you know, given that you're planning to be at the forefront of AI, you know, that leads us to conclude that you, you know, 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.

If they're sort of a financial measure that investors can think of, you know, when thinking about the future impact, whether it's, you know, 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 VC percentage? But then there's a revenue offset. Like, I guess like investors are also thinking about, you know, what the financial impact could be of this rewards maxing trend.

So let me, let me give you my perspective on sort of, you know, AI overall. And, you know, I'll just try and summarize some of the things that I said. But I think when you take a step back, you have to embrace AI and you have to embrace it and you have to do what your customers want to do. Having said that, I think in terms of, you've heard a lot about banks that are blocking. And look, we're going to take a risk-based approach too. We're just not going to let assistance run rogue through our systems. And that's not going to happen. We need to protect our customers, merchants, and we're only going to allow agents to access our systems that are either approved through API or MCP channels.

We're also focused on providing a very consistent membership experience, meaning we don't want AI agents to be pinging resy every four seconds and dis-advantaging our other card members. Are we still on the line? An echo. Okay. Anyway, so we're going to be selectively, selectively looking at agents and how they act. Having said that, and as I said within my remarks earlier, I think there's going to be opportunities for us to embed our own agents within AI platforms. We're doing that today. And what we want to do is make sure that on these AI platforms, our assets are discoverable, much like we're doing with open AI, with resy, and like we'll do with our own things like Wish Builder.

I think in terms of rewards maximization, we've got a lot of gaming today that goes on, and it's part of the overall mix. But I think with AI, as it might allow people to game a little more, it also will allow us to manage it a little bit better as well by using AI tools to understand what people are doing, and then how do we modify our value proposition? And you've seen us do this. You've seen us do this with the $75,000 limit in terms of passes for Platinum Card, and you'll see other controls that are put into the system. I think it's a little too early in the game to determine what the impact will be on VCE.

But what I also would say is, you know, when you look at the entire model, card member engagement is so important to us. And as people continue to engage with our benefits, we tend to get a higher share of wallet. We get better credit benefits out of this. And I think ultimately engagement leads to a better outcome.

Thank you.

Now, I mean, look, I think, you know, City, you know, Capital One, Chase, everybody is, you know, sort of playing in this space.

To be honest, we really don't see much difference than what we've seen. It's highly competitive, it's been highly competitive, and our assumption is it will remain highly competitive, and it's highly competitive because it's a very profitable segment of the card base. The other thing I think that this competition does, which a lot of people lose focus of, there's a subset of card members that premium characteristics but don't look at themselves as premium card members necessarily. And so it's introduced more people into that part of the TAM, which may not have been there before.

They're credit worthy enough, but they weren't taking, you know, they weren't participating in, you know, with those products and services, and I think that's worked out well for everybody.

Thank you.

Hey, Rob.

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, let's some kind of like peak, right, a peak unemployment in the like 8% range, right? And so it's a pretty, 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 introduced Cecil, I think it was in 2020. The key dynamic here is the premiumization of the portfolio.

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, you know, slowly improving the credit metrics across the portfolio. You see that as well in the, in the write off rate that we're reporting this quarter and then 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 than 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 a recorder 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, 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, their conservative scenario over the past years.

And, you know, that's what's driving, you know, the performance on Cecil. Thank you.

Yeah, so I'll take the question, John. Good morning. So on the card fee, 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, you know, the second half of the year, you should expect an inflection point and, and exit in the, in the high teens.

We saw that inflection point this quarter, right? And, you know, you saw it like we were at 15% in Q2 and this quarter, we are at 17% if it's 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 27 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, on card fee, but, you know, if you take a step back, 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 gain is, 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 various form or a performance. So we're going to keep, you know, focusing on this and we'll update you in terms of how to think about that growth rate when we get to, you know, 20, 27 at the beginning of the year.

Thank you.

Yeah. So, you know, in terms of their, 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 con members, right? If they want to borrow with their Feden, 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 con 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 me, 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 borrow 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.

Yeah, 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 all so 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 has performed the graphite product has performed a lot better than we even anticipated it performing. I think then you have the large in the multinational, and that continues to be a real sweet spot for us. And, you know, when it's growing, exactly as we would expect it to grow. I mean, that's traditionally a T&E piece.

I think where the competitive piece is is really within the middle, the middle market piece there. And that's where I think we get the center acquisition as Nova.

The synergy there between our NFL deal and their NFL to Visa MasterCard settlement. We're going to aggravate it.

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 and not only engaging with our card members, but acquiring card members.

And I think it is more to come here. But even with this launch, you know, this quarter of the business savings account for our small business customers, it's another step in that direction.

Thanks, Steve.

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