American Express (AXP) Q2 2023 Earnings Call Transcript

American Express (AXP -0.62%)
Q2 2023 Earnings Call
Jul 21, 2023, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q2 2023 earnings call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session.

[Operator instructions] As a reminder, today's call is being recorded. I will now turn the conference over to our host, head of investor relations, Ms. Kerri Bernstein. Thank you. Please go ahead.

Kerri Bernstein -- Head of Investor Relations

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 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 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. The comparable GAAP financial measures are included in this quarter's earnings materials as well as the earnings materials for the prior periods we discussed. All of these are on our website at ir.americanexpress.com. We'll begin today with Steve Squeri, 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&A session on the results with both Steve and Jeff. With that, let me turn it over to Steve.

Steve Squeri -- Chairman and Chief Executive Officer

Good morning, everyone. Thanks for joining us today for our second-quarter earnings call. This was the sixth consecutive quarter of strong performance since we announced the growth plan in January of 2022. Revenues of 15 billion grew 12% year over year and reached a record high for the fifth straight quarter.

Earnings per share of $2.89 is also a quarterly record and is also up 12% over the last year. 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 produced 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.

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 cardmembers attract a wide range of merchants and business partners, giving our customers and partners even more reasons to stay with us, which fuels a virtuous cycle of growth. Partnerships play an important role in our model. We have a long history of partnering with brands who share our values of backing 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 in a Hilton hotel in Madrid, then 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 evolve together and put our customers at the center of what we do. 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 experiences 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 second quarter performance. The power of our differentiated model can be seen in our results.

Cardmembers' spending hit another all-time high in the quarter with U.S. consumers and cardmembers outside the U.S., both up by double digits, which offset some softness in U.S. small business. Millennial and Gen Z consumers continue to be the fastest-growing portion of our cardmember base with U.S.

billings up 21% in the quarter. 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 remain strong across customer categories and geographies. Q2 is a record quarter for restaurant reservations through our Resy platform, and bookings to our consumer travel business reached their highest levels since before the pandemic.

We also saw continued strong demand for our premium products in the quarter with over 70% of the new accounts we acquired on fee-based products and more than 60% of new customer accounts acquired globally are coming from millennials and Gen Zs. While the number of new accounts is important, we pay particular attention to 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. 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 14th, at which time our deputy control -- our deputy CFO, Christophe -- Christophe Le Caillec, will become CFO of the company. First, I'll recognize Jeff and thank him for his outstanding tenure as our CFO for the past decade.

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 staying 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 know I speak for all of us at American Express when I say that it's really been an honor and a pleasure working with you as our CFO these last 10 years. I also want to welcome Christophe who has been a trusted partner to our leadership team and a key contributor to our company's 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 will all enjoy getting to know him. 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 the CFO of American Express.

Jeff Campbell -- Chief Financial Officer

Well, thank you, Steve, and good morning, everyone. It's good to be here to talk about our second-quarter 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 second-quarter revenues were $15.1 billion, reaching a record high for the fifth straight quarter, up 13% year over year on an FX-adjusted basis.

This revenue momentum drove reported net income of $2.2 billion 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. Pretax, pre-provision income was $3.9 billion, 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 billed business up 9% and 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 first quarter 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. Goods and services spending grew 6% overall in the second quarter.

We saw good growth in goods and services spending in U.S. consumer and international card services of 8% and 15%, respectively, while this growth rate in the U.S. 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. consumer, grew billings strongly at 10% this quarter. Millennial and Gen Z customers continue to drive our highest billed 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 [Inaudible] consumers and cardmembers outside the U.S. offset the continued softness in U.S.

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. Our U.S. large and global corporate customers also grew billings 2% in the second quarter. As we've said for many years, these customers, while not a particular growth driver for our business, to 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 cardmember receivables on Slide 8. We saw good continued sequential growth as well as year-over-year growth of 15%. Year-over-year growth moderated a bit this quarter, as we expected, but remains elevated versus pre-pandemic levels.

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.S.

cardmember 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 credit performance. Our cardmember loans and receivables write-off in delinquency rates remain 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 to increase over time, but they are likely to remain below pre-pandemic levels in 2023. Turning now to the accounting for this credit performance on Slide 10. The quarter-over-quarter growth in our loan balances was the primary driver of our $327 million build. 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, drove $1.2 billion of provision expense in the second quarter. As you see on Slide 11, we ended the second quarter with $4.7 billion of reserves, representing 2.6% of our total loans and cardmember receivables. This reserve remains about 30 basis points below the levels we had pre-pandemic for day one 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.

Moving next to revenue on Slide 12. Total revenues were up 13% year over year in the second quarter on an FX-adjusted basis. Our largest revenue line, discount revenue, grew 8% year over year in 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 in the second 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 million new cards, and the spend revenue and credit profiles of these acquisitions continue to look strong relative to what we saw pre-pandemic. 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% year over year, driven primarily by the growth in our revolving loan balances. 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 second quarter and are tracking with our expectation for them to run at around 43% of total revenues on a full-year basis.

On the marketing line, we invested $1.4 billion in the quarter, on track with our expectation to have full-year marketing spend of around $5.5 billion. We remain focused on driving efficiencies so that our marketing dollars grow slower than revenues while continuing to drive the high-quality new accounts that Steve discussed earlier. Moving to the bottom of Slide 17 brings us to operating expenses, which were $3.4 billion in the second quarter, also tracking with our expectation for operating expenses to be around $14 billion 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. We returned $1.6 billion of capital to our shareholders in the second quarter, including common stock purchases of $1.1 billion and $446 million 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, but 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. We target a CET 1 ratio between 10% and 11%, and we ended the second 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% CET 1 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 and 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. 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 six 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. So, this momentum, combined with this being my 85th consecutive earnings call across three industries without a break, makes this a good time for me to transition the CFO role to Christophe. With that, I'll ask Christophe to say a few words before Steve and I take your questions.

Christophe Le Caillec -- Deputy Chief Financial Officer

Thank you, Jeff, and good morning, everyone. I'm excited to continue the strong legacy of performance that Steve and Jeff have delivered, and I 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 Kerri to open up the call for your questions.

Kerri Bernstein -- Head of Investor Relations

Thank you, Christophe. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourself to just one question. Thank you for your cooperation. And with that, the operator will now open up the line for questions.

Donna?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Sanjay Sakhrani of KBW. Please go ahead.

Sanjay Sakhrani -- Keefe, Bruyette and Woods -- Analyst

Thanks. Good morning. And congratulations, Jeff. You've had quite a run at American Express, have 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. My first question is on billed 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 then, you know, what you need in the back half to get to that growth guidance on revenues?

Jeff Campbell -- Chief Financial Officer

So, gosh, I guess I don't particularly, Sanjay, see us above trend. What gives us confidence is looking at what has actually happened in our business over the course of this year. In the first quarter, you were clearly lapping omicron, and that was, in some ways, I think, the last of the pandemic-driven noise in our results. As you got into the second quarter, we have seen stabilization across geographies at a level that 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 six quarters.

Steve Squeri -- Chairman and Chief Executive Officer

Yeah. And, you know, look, I mean, just look at consumer, right? I mean, consumer in the U.S. is, you know, up at 10%, T&E is still very very strong. You know, we talked about travel bookings.

Travel bookings more than one 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, you know, obviously in 2019. International is really coming back strong for us. And as we said, it's -- you know, it was just growing part of our business. And, you know, the other thing I'll point out is, you know, you just had -- you had a little hangover of noise from omicron in this quarter because, you know, last year, you had a little bit of spending that was pushed from the first quarter to the -- to the second quarter.

And if you look at -- if you go back and look sequentially last year, it was a huge -- a huge increase sequentially quarter over quarter. So, you know, we feel really good about, I mean, you know, it's hard to apologize for record billings. And, you know, as Jeff said, it's -- it's -- 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, you know, look, we're in a -- we're in a low-growth economy right now. We're still out there acquiring cardmembers. Credit is really good. You know, our bases -- 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 ahead.

Ryan Nash -- Goldman Sachs -- Analyst

Hey, good morning, everyone.

Jeff Campbell -- Chief Financial Officer

Good morning, Ryan.

Ryan Nash -- Goldman Sachs -- Analyst

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 two areas that were highlighted on the call. First, you know, commercial, obviously, we've seen a big slowdown there to, you know, 2% year-over-year growth.

Steve, maybe just talk about what's driving the slowdown and what do we need to see for reacceleration. And, you know, maybe just drill a little bit further on T&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.

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

Steve Squeri -- Chairman and Chief Executive Officer

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

Yeah, and it grew 15%. And so, you know, we have really strong T&E growth. And I think that, you know, people are just back traveling, and so, you know, the line of sight into what we see from Resy and the activity we see on Resy from a restaurant perspective, from the activity that we see in our -- in our consumer travel business, we feel really good about that. You know, as far as a small business and -- and corporate look, I think -- you know, let's talk about large corporate first.

I think, you know, large corporate, you know, it's -- it's -- it's crawling its way back is the best way to -- is the best way to describe it. 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, you know, we value all of the corporate relationships that we have, but, you know, 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. And I think what you're seeing a little bit less of is, you know, those -- those one -- you know, these one-stop trips, that quick -- that quick hop to London to meet with that one client or that that quick, you know, sort of run across the country to nave an internal meeting. And you're seeing, you know, less of that. So, I think that will continue to come back.

We continue to be aggressive, you know, obviously retaining those customers and aggressively acquiring new customers, but I think that's going to be slower. I don't think that's -- that's coming back as fast, which is a contrast to -- to consumer. As far as small business goes, I think, you know, when we look at small business, I think the biggest -- 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. And I think, you know, small businesses grew very very rapidly, and I think they have -- 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 businesses and as when they're -- when they're ready to grow again, we'll be ready to grow judiciously with them.

And -- and that's what we're focused on. So, you know, look, would we prefer that, you know, our SME business was growing like our consumer business? Sure, we would. But, you know, there are these cycles, and at this particular point in time, I think you're seeing a little bit of an industrywide slowdown from a small business perspective. But again, just to pick up on Jeff's point from before, you know, after the slowdown comes the recovery.

So, you know, we'll be poised for that.

Operator

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

Betsy Graseck -- Morgan Stanley -- Analyst

Hi. Good morning.

Jeff Campbell -- Chief Financial Officer

Hi, Betsy.

Betsy Graseck -- Morgan Stanley -- Analyst

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, you know, the second half of this year.

And, you know, that's a little bit of a slower pace obviously than the rev guide of 15% to 17%. 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., you know, net interest income. Maybe you could speak to that a little bit or some of the other fee lines that -- you know, that drive your outlook for the 15 to 17 for the full-year rev guide.

Thanks.

Jeff Campbell -- Chief Financial Officer

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 and 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 customers rebuilding balances a little bit on the net interest income side and you take the noise out on the service fee and other revenue side, 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.

Steve Squeri -- Chairman and Chief Executive Officer

Yeah, and I think, you know, here's -- here's a great example of the model, right? I mean, it's a -- it's a great example of the three-legged stool. But, you know, we've got -- you've got card fee growth is -- is very, very strong. I meanm it's a third -- I think it's the third straight quarter we've had of 20% card fee plus growth. Yeah, we're benefiting a little bit from net interest income.

As Jeff said, there's noise in the -- in the -- in the services fee and other revenue, and that will shift. But, yeah, we feel comfortable with, you know, billings around where we are today to make that revenue guidance because of the three tiers of -- the three tiers of -- of revenue that -- that we have. So, you know, that's -- that's what gives us confidence.

Operator

Thank you. The next question is coming from Rick Shane of J.P. Morgan. Please go ahead.

Rick Shane -- JPMorgan Chase and Company -- Analyst

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. 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?

Steve Squeri -- Chairman and Chief Executive Officer

We still feel really confident that we'll be within the 15% to 17%. And, you know, there's -- there's really not a lot more to say other than that, you know. So, yeah, you have a little -- as I said, you have a little bit of deceleration from a billings perspective, but geez, it's a record quarter of billings, you know, 400 -- over $420 billion of -- of billings. And so, again, you know, we feel very confident of the 15 to 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.

Bob Napoli -- William Blair and Company -- Analyst

No, thank you. Thank you very much. And, Jeff, thank you for your help and good luck to you. Christophe, welcome.

I look forward to meeting you. 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 -- the aspirations for 2024. So the -- I mean, the back half of '23 is pretty baked but just as we think about that going into 2024 and onward.

Jeff Campbell -- Chief Financial Officer

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 and day one CECL. So, that is why we added the additional disclosure this quarter around the small percentage of our portfolio that is in the band where you do see challenges, and that's the FICO band below 660. So, we feel really 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 CECL 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 20th, I think most people would say things have perhaps gotten a bit more optimistic in recent days, but you know, 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 FT Partners. Please go ahead.

Unknown speaker

Yeah, 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, one, SME, just wanted to dig in a little further there.

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 add. 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.

Steve Squeri -- Chairman and Chief Executive Officer

Yeah, so for the second question first, the answer is no, it's really not just one --

Jeff Campbell -- Chief Financial Officer

Well, with the only color, I'd remind you, over the course of the past year, Craig, we have talked about the fact that we have consistently made some adjustments from a risk management perspective. And I think that is part of why Steve said we don't see any change from a vintages perspective.

Steve Squeri -- Chairman and Chief Executive Officer

Yeah, as far as line of sight into SME, I mean, the way to think about it is, you know, organic is probably flat. You know, you obviously have businesses that go out of business, and so you have, you know, a little bit of -- of sort of, you know, same scores that go away, but the -- 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 few years, and then acquisition in there. I think the biggest difference is -- is really organic.

And what you saw, you know, through the pandemic, is you saw small businesses continue to add and add and add, And, you know, you got to remember, small businesses use a card to run their entire business. And so, there was 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. And -- but I think that's the way to think about those three -- those three components, organic basically flat and, you know, acquisition up, and attrition pretty much stable.

Operator

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

Lisa Ellis -- MoffettNathanson -- Analyst

Hey, thank you. Thanks for taking my question. You guys highlighted that it is now six quarters, you know, since you introduced the structural increase in your long-term plan to double-digit revenue growth and mid-teens EPS growth. You know, a lot's happened in the last six quarters.

We're kind of finally returning to normal after the pandemic. 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, etc.? Just kind of comment on how that strategy and your thoughts about that has evolved as you look forward now coming -- coming back into a, you know, more normalized economy.

Steve Squeri -- Chairman and Chief Executive Officer

Yeah, well I think you got to go back to sort of strategic priorities we always talk about, which is, you know, focus on premium consumer, we're focused on small business, and we're focused on -- on coverage. If I look at this, I would say that, you know, international is back probably even a little quicker than we had thought within our three-year horizon. I think millennials are playing out even better than what we had thought, both from an acquisition perspective and a spending perspective. I think when you think about boomers, I think they've been slower to return, but it's -- it becomes a smaller piece of our business over time.

Corporate, I think that's an opportunity going forward from a growth perspective. And I think small business started out in the beginning -- you know, I think all business will wind up being sort of a tale of three cities over this -- over this time horizon. I think it was very really strong for us last year. I think it's a little bit more muted -- it's a little bit more muted, and I think it'll probably pick up.

And, you know, the other thing that's been difference, it's been, when we started with this plan, it was -- it was done in a much slower -- it was done with -- 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. 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've made some really great coverage gains over the -- over this period of time as we continue to, you know, march to our goals, especially international, where I think -- I think the team has done a really good job from a -- from a coverage perspective.

And, you know, 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 BA, which go out, you know, still a number of years. So, you know, we feel good about it. And, you know, the interesting part about this is, you know, did it play out exactly as we thought it was going to play out? No, but the flexibility in the model, you know, has -- has enabled it to go where we wanted it to go. And I think, you know, we really got off to a tremendous start in 2022, you know, with tremendous revenue growth.

I mean, when we did this three-year plan, we did not project, you know, 25% revenue growth, you know, last year. You know, we were at 17 to 19, I believe, when we started the year, then we took it up to 19 to 21, and then you got 25. 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, you know, longer term. And the 15% to 17% guidance that we provided at the beginning of this year was based off original guidance that was 17 to 19.

So, we're growing over bigger numbers. So, you know -- and that's why I feel really good about it. And so, you know, we'll -- we'll continue. And I think the most important thing for us is to stay focused and to focus on our priorities.

And I think the team has done a really good job of that. And you have to remember, and, you know, 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 three 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.

Arren Cyganovich -- Citi -- Analyst

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 kind of quarter -- quarter-to-date update in terms of your growth rates of billed business?

Steve Squeri -- Chairman and Chief Executive Officer

We're not going to do a quarter-to-date update of billed business. We're, you know, kind of 20 days in. So, there's no real -- 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 $5.5 billion on marketing.

That's our plan to continue to do that. You know, how it winds up, you know, sort of, you know, moving from quarter to quarter, I think we're probably around 100 million from -- from last year or something like this in this particular quarter. But, you know, it all depends on the programs we're running and the timing and everything else. And so, you know, a week there -- a week there could make all the difference in the world sometimes when you think about -- you know, when you think about spending $1.5 billion, $1.4 billion in a quarter, and it's like -- it's like $100 million, you know, sort of a week.

So, the bottom line is we are -- we are committed, you know, to go after all the great opportunities that are out there. And we believe that we'll wind up spending about $5.5 billion from a marketing perspective. Just to, you know, remind everybody that, you know, the marketing spend for us is predominantly customer acquisition, right, and affiliate fees and incentives and things like that. It's not sort of TV and print and this kind of advertising. That's what that marketing spend is, and -- and that's why it can vary a little bit from -- you know, from quarter to quarter.

Operator

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

Dominick Gabriele -- Oppenheimer and Company -- Analyst

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 toward that 10% revenue goal versus the past versus discount rate revenue? Thanks, guys.

Steve Squeri -- Chairman and Chief Executive Officer

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

And so, which is -- it's a big contributor, and it's, you know, obviously a higher -- it has higher growth in discount revenue would -- but it's -- it's, you know -- it's pretty much in line with where we -- where we thought we were going to be.

Jeff Campbell -- Chief Financial Officer

I just can't resist adding, Dominick, that for something that grew in double digits all through the pandemic, has had really high growth rates in the last year, it is going to continue to grow to be an ever bigger part of our revenue. And 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 of the overall model.

Steve Squeri -- Chairman and Chief Executive Officer

You know, just one other thing, because Jeff just sort of reminded me as he said that, you know, when we talked about, you know, sort of this 10 -- you know, this double-digit growth during the pandemic, it really speaks to how we think about our customers over the long term. Because, you know, if we had not invested in our customers during the pandemic, you would not have seen that -- that double-digit growth during the pandemic or coming out of the pandemic. 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 customers, but that's not how we run the company.

And we were thinking much more from a long-term perspective and by -- by really investing in the value propositions because, as you all remember, those value propositions, from a travel perspective, were challenged best. And to put other things in there, it really helped to cement those relationships, which kept those fees going but, more important drop, just normal attrition that we had because we improved our retention rates over the course of the pandemic. So, I think, you know, it speaks to the membership model because this -- this card fee is a decision that our members make to join the franchise. 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 -- to insert more values into the product, and that's what keeps this thing going. 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.

Don Fandetti -- Wells Fargo Securities -- Analyst

Yeah. [Inaudible] 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 CET 1 than your target of 10 to 11? I know there was, like, some concern around, you know, fees being looked at differently. I wonder if you can clarify that.

Jeff Campbell -- Chief Financial Officer

You know, Don, you were cutting out a little bit, but I think you're asking about the CET 1 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% CET 1 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%. That's the first point. The second point to remember is we have a 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. Third, you know, I know there's been a lot of attention paid to different iterations of Basel -- 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.

So, you know, 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 tenure here, but they may come out, hopefully, later this month. And the devil's 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.

Operator

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

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

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 you. I wanted to switch gears a little bit and talk about the process revenues or the network partnerships, I think, in the oil and G&S business. It feels like there's been a little bit of momentum in terms of signing some new partners recently. I believe, this quarter, we actually saw the launch of the Square card, and process volumes grew faster than billed 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, you focused more on that segment? What's driving that momentum? Thank you.

Steve Squeri -- Chairman and Chief Executive Officer

Yeah, no, I don't -- I don't think anything has changed. I think these are -- it's always -- it's always been something that, you know, we have been focused on. But to switch or to get a partner to come on to the network is -- is a big deal. And, you know, there are technical hurdles to -- to wind up crossing.

And, you know, we're -- the G&S team is out there on a consistent basis, you know, looking for new partners. And, you know, when you think about our overall model, we really operate in around 29 proprietary countries. And, you know, all the rest of the markets that we operate around the world are G&S 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 G&S over the years to get -- to increasingly get more and more coverage.

And so, when you look at, you know, our improvements in coverage, so much of that's been driven by our G&S partners. And just to remind you that, you know, everything that we're doing in China is really -- you know, really -- it really comes under the heading of -- of G&S because we're in there just as a -- just as a network, you know. We don't acquire merchants, we don't issue cards, we have a joint venture, and that's a -- that's a -- that's a G&S -- that's a G&S relationship. And, you know, look, our -- our launch of, you know, our card, I mean, you know, with -- with Square, that's been, you know, in the pipeline for a long time.

But it's -- you know, if you aren't in cards or if you're issuing Visa, Mastercard, it's a little bit different to hook up to our systems and to get priority within your own system and so forth. And so, we've been out there, you know, on a consistent basis, working to get -- to get partners. I think the Square one, you know, has a little bit more -- it gets a little bit more headlines because it's a U.S. partnership, but the team is out there on a real consistent basis all across, you know, 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.

Kerri Bernstein -- Head of Investor Relations

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 (877) 660-6853 or (201) 612-7415, access code 13739237, after 1 p.m. Eastern on July 21st through July 28th.

That will conclude our conference call for today. Thank you for your participation. You may now disconnect.

Duration: 0 minutes

Call participants:

Kerri Bernstein -- Head of Investor Relations

Steve Squeri -- Chairman and Chief Executive Officer

Jeff Campbell -- Chief Financial Officer

Christophe Le Caillec -- Deputy Chief Financial Officer

Sanjay Sakhrani -- Keefe, Bruyette and Woods -- Analyst

Ryan Nash -- Goldman Sachs -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Rick Shane -- JPMorgan Chase and Company -- Analyst

Bob Napoli -- William Blair and Company -- Analyst

Unknown speaker

Lisa Ellis -- MoffettNathanson -- Analyst

Arren Cyganovich -- Citi -- Analyst

Dominick Gabriele -- Oppenheimer and Company -- Analyst

Don Fandetti -- Wells Fargo Securities -- Analyst

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

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