Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q1 2020 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question, please press one, then zero on your touch-tone phone. You will hear a message indicating that you've been placed in queue. You may remove yourself from the queue at any time by pressing the one then zero again. If you are using a speakerphone, please pick up your handset before pressing the numbers. Should you require assistance during the call, press star then zero. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Head of Investor Relations, Ms. Vivian Zhou. Please go ahead.
Thank you, Alan, and thank you all for joining today's call. As a reminder, before we begin, 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 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 posted on our website at ir.americanexpress.com. We will begin today with Stephen Squeri, Chairman and CEO, who will start with some remarks about the company's key priorities for 2020 in light of the COVID-19 pandemic.
Jeffrey Campbell, Chief Financial Officer, will provide review of our first quarter financial performance. After that, we will move to a Q&A session on the results with both Steve and Jeff. With that, let me turn it over to Steve.
Thanks, Vivian. Hello, everyone, and thanks for joining us on the call today. First of all, I hope you and your families are healthy and staying safe as we go through this COVID-19 crisis. As we said on our investor call on March 17th, we're in unprecedented times. Our results in January and February continued the strong trends we've seen over the past 10 quarters, but we're now operating in a very different world. The deterioration in the economy due to COVID-19 impacts that began during the first quarter and accelerated in April has dramatically impacted our volumes. Looking ahead, it's impossible to know when the economy will improve. In the meantime, we're focused on supporting our colleagues and customers while remaining financially strong so that we can be in a position to grow when the crisis ends.
Jeff will take you through some detail on how this environment is impacting various components of our financial results. My comments will focus on what we're doing to manage the company through the near term so that we can be in a position to take advantage of the growth opportunities that will be available when the economy improves. Last year, as many economists were predicting an economic slowdown at some point, we put together a plan for managing through a range of potential economic scenarios, and we modeled what our response might look like in those scenarios. Of course, the economic situation we're facing right now is nothing like those we modeled. However, we developed a framework that we're using to guide us in managing the company through the short term as we plan for the future.
Our framework for managing through this cycle is built on four principles you will see on slide two. Supporting our colleagues and winning as a team, protecting our customers and our brand, structuring the company for growth in the future, and remaining financially strong. I'll spend a few minutes talking about each of these principles, which represent our priorities for 2020. Turning to slide three. From day one of this crisis, our priority has been to take care of our people, the 64,000 American Express colleagues around the world. We wanted to ensure our colleagues felt secure in their jobs, which is why we committed to no COVID-19-related layoffs for the remainder of 2020. In addition, we're continuing to pay the salaries of colleagues who are affected by the virus without having to use their paid leave.
We also committed to paying all out-of-pocket COVID-related medical expenses for colleagues in our U.S. medical plans. As the virus spread rapidly around the world, we wanted to keep our colleagues safe and secure. We moved quickly to a full-time work from home arrangement in all our locations, including thousands of our frontline service colleagues. A core value of our company from our earliest days has been supporting the communities from where we do business and where our colleagues live and work. When the COVID-19 pandemic hit, we committed over $6 million in grants through the American Express Foundation to a number of charitable organizations around the world that are supporting frontline workers in this crisis. We also pledged to match more than $1 million in card member donations to Feeding America when U.S. card members use their Membership Rewards points to donate to the organization through JustGiving.com.
In addition, we're working with our partners to support our communities. For example, we're partnering with Hilton to donate up to 1 million hotel room nights to frontline medical professionals across the U.S., and we're backing Marriott's Rooms for Responders initiative to provide hotel stays for healthcare professionals in some of the hardest hit regions. The next principle is protecting our customers and our brand. Our global customer base is one of our most important assets, and like everyone, they're going through a difficult time right now. We're offering a range of financial assistance options to help our customers weather the storm, adding new product benefits to be relevant in today's environment, and continuing to provide the world-class customer service our customers expect and rely on.
Our consumer and small business Card Members are taking advantage of the various short-term financial assistance options we offer to help them navigate through this period, including temporary payment deferrals, interest and late fee waivers, and protections from collection calls and negative credit bureau reporting. We also offer a range of longer-term assistance programs for certain customers who require more time. We're expanding eligibility for these programs and enhancing them to provide for additional payment flexibility based on a customer's circumstances. To enable our U.S. small business customers to obtain the financial assistance provided under the SBA's Paycheck Protection Program, we've been authorized as an SBA PPP lender and began to accept applications from our customers earlier this week, which we'll submit to the SBA, as soon as that window opens.
In addition to our financial assistance initiatives, we've enhanced our Membership Rewards programs, and we're adding new offers, benefits, and rewards to our premium products that are particularly relevant for the times we're in now. For example, since people are not currently traveling, eating out, or shopping in-store, we've adjusted our MR program to include discounts at Amazon when you pay with points, and the ability to earn double points with orders from Grubhub and Seamless through the end of the year. We're also adding a range of limited time offers, credits, and rewards on stay-at-home services such as wireless, streaming, grocery, and food delivery for our consumer and certain co-brand card customers, as well as business essentials like wireless office equipment and shipping for our small business customers.
For our co-brand customers, we're also working with our partners to extend card member benefits such as airline companion certificates and hotel free night awards, so our mutual customers will have more time to enjoy these benefits. For our travel customers, we're waiving fees for any flight changes or new bookings made through American Express Travel now through May 31st. In addition to our card members, we're supporting small businesses, as we have for many years, through Shop Small initiatives like Small Business Saturday and many others around the world. During the COVID-19 crisis, we're continuing to promote the positive impact consumers can have on their local communities and small businesses through our Stay Home and Shop Small campaign.
Earlier this week, we launched Stand for Small in the U.S., a coalition of more than 40 companies across various industries that have come together to back small businesses by providing a wide range of offers, complimentary services, access to corporate assistance programs, and other resources designed to help support them as they manage through the crisis. We look forward to many more companies joining this initiative over the coming weeks. For our merchant partners, we're also temporarily extending the amount of time businesses must respond to disputes and have increased contactless transaction thresholds to reduce physical contact at the point of sale in 28 countries. Finally, our customer care professionals made a quick transition from a brick-and-mortar operation to a home-based servicing one, and we did so with minimal disruption.
In fact, our servicing levels quickly came back to BAU levels, and our customer satisfaction results improved during the crisis and are at significantly higher levels now than in January. Our next principle is structuring the company for future growth. While we believe that the COVID-19 pandemic will generate certain changes in our business in the near term, and likely over the long term, it will also generate opportunities. We intend to be in a position to take advantage of the opportunities as they present themselves. We're starting with a strong foundation. The assets we have, our differentiated business model, particularly our brands, our customers, and our merchant network, give us a great base to build upon. In addition, the strategic imperatives we've been focused on over the past few years remain just as relevant today.
While we'll make some adjustments considering the current environment, we'll continue to pursue our overall strategies in the following areas. Expanding our leadership in the premium consumer space, building on our strong position in commercial payments, strengthening our global integrated network to provide unique value, and making American Express an essential part of our customers' digital lives. As the crisis unfolded, we knew that we had to reprioritize our investments in each of these areas to focus on those initiatives that are critical to retaining our premium customer base and strengthening our merchant network, while at the same time, continuing to invest in those areas that are key to our long-term growth strategy. This led us to a thorough and thoughtful process to identify activities that we should stop, slow, accelerate, and continue.
What we're stopping for the time being includes items that are less critical in today's environment, including traditional advertising, marketing, sponsorships, and customer acquisition activities. We're slowing down the development and launch of some of the new products we had in the pipeline for this year. We're accelerating investments in mobile, servicing, and credit and collections capabilities that are not only important today, but are also important for our continued growth over the longer term. We're continuing our activities in a number of areas, including acquiring new merchants globally, our ongoing efforts to launch our new network in China, our network replatforming initiative, our premium product refresh strategy in both consumer and commercial, and continuing to integrate and develop new digital capabilities, as well as making longer-term enhancements in our servicing platform and other key areas that are important for our future success.
Finally, we enter this crisis with particularly strong capital and liquidity positions that will enable us to remain financially strong. While some of our expense categories, such as rewards cost and the cost of card member services, will decline automatically as spending declines and customer behaviors change, we're taking aggressive actions to reduce discretionary expenses across the enterprise by nearly $3 billion from our original plan in the areas I mentioned before. We are redirecting some of those funds into new product benefits and longer-term investments I described a few moments ago. Looking ahead, in the near term, our earnings will be driven by the answers to two questions that no one yet can answer. First, when and how strongly does spending rebound as the global economy recovers?
Second, how long do the challenges of high unemployment levels and small business shutdowns last, perhaps softened by the record levels of government support? What does that mean for our credit losses? Until we all get to the answers to these questions, we're reducing our spending in every area that doesn't make sense in the current environment, consistent with our intention to not have any COVID-related layoffs in 2020, and consistent with our intention of protecting our customers and the brand. Those are our principles we've established for managing through this period in a way that will position us to return to growth when the economy rebounds. Without a doubt, these are times that are unlike any that I've encountered in my 35 years at American Express.
While the magnitude and uncertainty of today's challenges are more intense, the lessons we've learned through other crises will serve us well as we work through this one. As always, we'll remain focused on what we can control in the short term while keeping an eye on the long term. Like before, we intend to come back stronger. Our teams are working day and night all over the world to help our card members and our merchants, just as we have done throughout our history. When this is over, we intend to be in a position of strength, ready to capitalize on the opportunities ahead because we've managed the short-term challenges while remaining focused on growth over the longer term. Thank you for your time, and now I'll turn it over to Jeff.
Thank you, Steve, and good morning, everyone. Today, I will take you through our results with more real-time granularity on recent trends than I normally do to help you understand how our business is performing in this rapidly evolving environment. Starting with our summary financials, I would encourage you to look at slides four and five together. As you can see on slide five, while January and February were strong months, March was a very different month, and so the full quarter results are not so helpful for understanding our performance in the current environment. As you recall, when we held our investor update on March 17th, we said we expected first quarter earnings per share, excluding credit reserves, would be between $1.90 and $2.10, and that is where we have landed.
We also said we expected FX-adjusted revenue growth would be in the 2%-4% range. We came in a bit below that due to spending trends at the end of March deteriorating even faster than we had expected, as well as some of our ancillary revenue lines coming in a bit lower than expected. Turning now to the details of our performance, I'll start with billed business. It is remarkable how much the world has changed in just the last month and a half. What's most important as you think about the near-term future is understanding what's happening today. We've included a different view of our billed business than our typical quarterly disclosures, which you can still find in the appendix on slides 25 to 27.
Instead, on slide six and seven, we have shown you our weekly proprietary billed business growth trends through the latest date for which our data is complete, which is April 19th. Looking at all this data, there are four key observations I'd make. First, the volume declines accelerated dramatically in March, whereas January and February results were still in line with our performance over the last few years. Second, T&E, which was roughly 30% of our proprietary volumes in 2019, is down almost 95%. Third, non-T&E spending has declined more modestly. As you'd expect, some areas, such as grocery spending and some online commerce, have held up quite well and even accelerated. Whereas other categories, such as other categories of more traditional retail, have been much weaker.
Fourth, you will see that our proprietary billings declines seem to have stabilized somewhat in April, with overall proprietary volume growth down around 45%. Next to loan performance on slide eight, total loans declined by 3% year-over-year in the first quarter, driven primarily by lower spending. In today's environment, where there are so many questions around credit, we felt it would be helpful to remind you about the composition of our loan book. At the end of the first quarter, 70% of our outstanding loan balances were with U.S. consumers, 10% were with international consumers, and the remaining 20% were with small businesses, almost all of which are in the U.S. On to slide nine, we wanted to spend a minute focusing on our charge receivables, because in an environment where spending volumes move dramatically, these balances move dramatically as well.
As you can see in the chart on the left, with only one month of spend declines, our charge receivables are down 21% versus the prior year and $13 billion below the prior quarter. This dynamic is important as you think about liquidity and capital in this environment, which I will get to later in my remarks. Of course, our charge receivables also have a different risk profile than our lending book. Even within our charge receivables book, there are different types of credit exposure, and so we've included a breakout of where these charge receivables come from on the right-hand side of the slide. Around 35% of our charge receivables are from consumer charge card members. Another 35% are from small business charge card members. The remaining 30% is from corporate cards, which have a relatively lower risk exposure.
Slide 10 shows our traditional credit metrics for our lending and charge portfolios. The trends in both write-offs and delinquencies in the first quarter were solid and remained best in class, in part due to all of our risk management efforts over the past few years to prepare for an eventual downturn. You do see a modest increase in write-off and delinquency rates year-over-year and sequentially, primarily due to lower loan and receivable balances as opposed to any significant change in credit performance. Further, were you to look at our TDR disclosures in our Q1 10-Q, those balances are also relatively in line with the prior quarter. Obviously, our traditional credit metrics all look fine because not enough time has passed for things to show up in these traditional metrics.
What we are all trying to manage going forward is the collision of record levels of unemployment, combined with record levels of government support. Turning to slide 11, you will see the total balances that are enrolled in our Customer Pandemic Relief program, which we established to support our customers that have encountered hardship due to COVID-19. Since we created this program in March, we've had nearly 845,000 accounts enroll in the program globally through mid-April, just a few days ago. I'd also note that over 88% of the U.S. consumer and small business loan and receivable balances enrolled in this program are from Prime and Super Prime card members. Many of those card members have made some payments since enrollment. In addition, we've seen the pace of new enrollments slow a bit from its peak a few weeks ago.
We are working hard alongside these customers to get to the best outcome for both our customers and our shareholders by providing payment deferrals, waiving interest and certain fees, as well as protecting them from adverse bureau reporting and collections actions. We are also working as people roll off these short-term programs to develop new longer-term solutions, as well as leveraging our preexisting hardship programs to help them retain their membership and to get to a good financial outcome. One of the many uncertainties around the economic future is the outcome of those efforts, which will be one of the factors that influences our credit performance through this crisis. Let's move on to provision on slide 12.
The first point I would make is that just as our credit metrics were relatively unchanged in the first quarter, our write-off dollars were also in line with our original expectations and do not yet reflect the incremental stress from the current crisis. The growth in provision expense is all about the $1.7 billion credit reserve build. The credit reserve build is all about the macroeconomic outlook as we closed the books in early April, which was suddenly and significantly much more pessimistic than when we started the year. This outlook does attempt to incorporate all the uncertainties around the impacts of COVID-19, as well as any potential offsets from the unprecedented level of government stimulus.
Turning then to slide 13, you see that our reserves at the end of the first quarter are almost double the reserve levels we had on our balance sheet at the end of last year. The increase is from a combination of the $1.2 billion of reserves we built when we implemented the current expected credit loss accounting methodology, CECL, on January 1st, as well as the $1.7 billion of credit reserves we added at the end of the first quarter as a result of the worsening macroeconomic outlook due to COVID-19. Today, our lending and charge credit reserves on the balance sheet represent 7% of our loan balances and 1% of our charge receivable balances, respectively. The key underpinning of these reserves are the macroeconomic assumptions that informed the $1.7 billion credit reserve build we took in the first quarter, which we show you on slide 14.
As you know, we do not have an in-house economist. We use an external provider and look at a range of macroeconomic forecasts that we weight together in our credit reserve models. When we closed the books on the first quarter, those scenarios assumed that GDP would be down 18%-25% and the unemployment rate would rise to 9%-13% in the second quarter, with a steady modest recovery after that. It's important to note that the latest macroeconomic outlook today reflects an even more significant deterioration in U.S. GDP and unemployment than when we closed the books on the first quarter. If those forecasts were to hold or even worsen by the time we close the books on the second quarter, we would expect to have another large reserve build. This gives you a clear view of the assumptions behind our Q1 reserve build.
Only time will tell what the ultimate level of write-offs will be, given the completely unprecedented nature of the global environment. Turning next to revenue on slide 15. Net card fees remained our fastest-growing revenue line, with 18% growth in the first quarter. We expect this revenue line to decelerate less in the short term relative to other revenue lines based on our historical experience with strong card fee performance in a downturn, as well as the fact that we have roughly $2 billion of deferred card fee revenue already sitting on the balance sheet today. It's also important to note that the majority of the card fee growth we've seen over the past few years has been driven by growth in our fee-based portfolios, with around 70% of our new card acquisitions in 2019 on fee-based products.
As the pace of new account growth slows in this environment, we would expect to see a modest slowdown in net card fee growth over time. Net interest income growth of 13% was faster than the 3% average loan growth we saw in the first quarter, driven by a modest tailwind from interest rate reductions year-over-year, as well as continued yield benefits from mix and pricing for risk. The details around average AR and yield trends can be found in the appendix on slide 28. In addition, as I mentioned earlier in my remarks, we saw softness in some ancillary revenue lines, particularly from travel-related revenue streams that are relatively immaterial and typically don't change much quarter-to-quarter, but were down significantly year-over-year in the first quarter. Turning to the largest component of our revenue, discount revenue. I'd move you ahead to slide 16.
As you can see on the right, discount revenue declined 5% for the full quarter and 27% in the month of March. The contraction in discount revenue was larger than the decline in bill business. On average, we earn higher discount revenues from our T&E merchants than we do from our non-T&E merchants. Given the much larger declines we are seeing in T&E spend, the divergence in T&E and non-T&E billing trends drove a three-basis point decline in the average discount rate in the first quarter and a 10-basis point decline in the average discount rate in March relative to the prior year. Looking forward, if the spending trends we see in early April persist with T&E spending down about 95% for the entirety of the second quarter, our discount rate erosion in the second quarter could be as much as 14 basis points-18 basis points.
Now let's talk about our expenses. When you think about our cost structure, you've got the costs that come down naturally as spend declines and certain behaviors change. When you look at the three customer engagement expense lines shown on slide 17, you see this dynamic in the sequential change in growth between 2019 and the first quarter of 2020. One way you might think about this dynamic in the current environment is that as our revenue goes down in the near term, you could see about a 50% offset to the revenue movement in these lines. Other expenses, such as marketing and OpEx, move based on management decisions. As Steve discussed, in light of the current environment, we're aggressively reducing costs across the enterprise. In fact, we're cutting discretionary expenses through the end of the year by $3 billion relative to our original plans.
We're also choosing to selectively reinvest some of these savings in initiatives that are key to our long-term growth strategy. Looking at slide 18, you see that the environment in March changed too quickly for us to see a significant impact from these decisions in our first-quarter marketing and operating expenses. Let me explain how we expect those cost reductions to impact these lines from a year-over-year standpoint going forward. In the balance of the year, we expect to dramatically reduce our proactive marketing efforts and reinvest in the additional product benefits that Steve spoke about in his opening remarks, while reducing many other costs. As a result, I would expect our operating expenses to be down about $1 billion year-over-year cumulatively over the next three quarters. On the marketing line, we are funding the additional product benefit adjustments that Steve discussed with our other marketing cuts.
The net of the two should result in a modest reduction in marketing investment levels relative to last year. Moving last to capital on slide 19. As Steve mentioned earlier, we are entering the current crisis with a strong capital position. Our CET1 ratio was 11.7% at the end of the first quarter, above our 10%-11% CET1 target range. The sequential growth in our CET1 ratio was driven by the countercyclical nature of our balance sheet. As our balance sheet shrinks with declining AR and loan balances in the current environment, our risk-weighted assets drop accordingly. I would also note that our first quarter CET1 ratio includes a roughly 80-basis point impact from the five-year transition option made available under the Fed rule to delay any capital effects of CECL until 2022.
We repurchased $900 million worth of shares in the first quarter, but have suspended our share repurchase program as of mid-March, and we do not expect to resume share repurchases for the time being, given the current environment. However, with our strong capital position, we have the capacity and intend to continue to pay our dividend in the second quarter. Turning to slide 20. The countercyclical nature of our business is also reflected in our particularly strong liquidity position during the first quarter. Our cash and investments balance increased from $32 billion to $41 billion in Q1, driven mainly by the decline in AR and loans. We also saw strong demand for personal savings deposits during the first quarter, even as we adjusted pricing, given the current rate environment. Our personal savings deposit base is up 6% versus the prior quarter and up 16% year-over-year.
Putting it all together, our capital funding and liquidity positions are strong, and we have significant flexibility to maintain a strong balance sheet in periods of uncertainty or stress. In summary, we are certainly in unprecedented times, and looking ahead, it's impossible to forecast our financial results for the rest of the year without knowing the answer to the two questions Steve posed earlier. When and how quickly the economy improves, and what happens to unemployment and the pace of small business recovery. Until then, we're focused on supporting our colleagues and customers, prudently managing our risk exposure and expense base, and ensuring that our capital and liquidity levels stay strong so that we can take advantage of the inevitable rebound for our customers, colleagues, and shareholders. With that, I'll turn the call back over to Vivian.
Thank you, Jeff. 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. With that, the Operator will now open up the line for questions. Operator?
Ladies and gentlemen, if you wish to ask a question, please press one, then zero on your touch-tone phone. You'll hear a message indicating that you've been placed in queue. You may remove yourself from the queue at any time by pressing one, then zero again. If you are using a speakerphone, please pick up the handset before pressing the numbers. One moment, please, for the first question. Our first question will come from the line of Sanjay Sakhrani with KBW. Go ahead, please.
Thank you. Good morning. I hope you guys are well. I wanted to follow up on the cost reduction commentary. I'm curious, Stephen and Jeffrey, you mentioned these are unprecedented times. A lot of the situation is fluid. If things continue to remain as depressed as they are or even get worse, how much more can you cut on costs? Because it seems like you're selectively still making some investments here. Is there room to take down costs further than you've outlined? Just on a related note, as we think about your card product orientation being travel and entertainment driven, do you see people sort of shifting away to other cards as a result? Are there any proactive strategies that you can employ as a result? Thanks.
Okay. It's a very slick way of asking two questions. Let me answer the second one first. I think what's important to understand with our card base is that 73% of our spending is on non-T&E. While you look at the benefits that we do have on our card base, what our card members really appreciate is experiences of all type, great service, and our brand. What you'll see coming out in early May is actual product refreshes to a number of our products which will infuse additional value in addition to the value that a card may have.
If you look at our Platinum Card where you have Fine Hotels + Resorts, and you have Uber credits, and you have other travel benefits and lounges and so forth, you will see other enhancements there from wireless to streaming to maybe some other types of travel credits which can be used in the future over a time period. I think what you'll also see in the short term is card members using that and using the points. In the longer term, I think here's where our product refresh strategy really does help us because we will continue to modify products as the environment continues to change and morph. We think some of those benefits that card members use will come back over time. I don't think that we will see people switch products.
Just to comment on the co-brand, 90% of our co-brand spend is off the co-brand partner. If you think about Delta, you think about Marriott, you think about Hilton, it's less than 10% of that spending is actually at those properties for those particular things. What I would say is we will continue to evaluate, we'll continue to monitor, but you will see value injection going back into these products. Historically, and these are not historical times, but historically, there's a tremendous resiliency in our fee-based portfolios. You'll see a lot of value injection into those fee-based cards, as I had mentioned before. The one thing I will say, I'll let Jeff talk sort of technically to the costs. What I think is critically important for us is that we support our customers.
I started out during this crisis, we moved rapidly to get our colleagues out of our facilities. Within a two-week time period, we were basically 100% virtual around the world. The only people you'll find in our buildings today are security people and maintenance people, and not a lot of them. We rapidly moved that. Once we did that, our next focus really turned to our customers.
What was really important through this crisis and through any crisis, I've talked about this over the last sort of 10 quarters or so, is that it was important for us to protect our brand. It was important for us to be there for our customers. It was important for us to stick with those initiatives that inevitably would be important when this crisis ended. Merchant coverage will be important. Our efforts in China will be important. Our platform initiatives will be important. While we are very focused on staying financially strong, we're also focused on ensuring that when this crisis is over, we have been there for our customers and are ready to continue to hit the ground running. We talked a lot about what we stopped, what we accelerated, and what we've slowed down.
I'll tell you, the $3 billion of cost that we cut out of our plan, and I've been doing cost-cutting for decades at this company, was probably one of the largest cost cuts that we've ever done. This is not a run rate number. This was $3 billion out of the plan in the next eight months. Some of that money will be put back in for value injection. The reality is there more to go? It is always more to go. There will always be more to go. We decided to do no layoffs. The reason we decided to do no layoffs is there's numerous reasons for that. Number 1 is the humanitarian aspect of this. Number 2 is the disruption. To try and lay off people in a virtual environment is nearly impossible.
Number 3, we don't know what the world's going to look like. While we're not going to take layoffs off the table for the future, we certainly are taking layoffs off the table for the rest of the year. I'll let Jeff comment on sort of the technical aspect of where we have that opportunity. You saw a large reduction year-over-year in operating costs, and most of your models assumed growth in operating costs. That came right out as well. Jeff, let me turn to you.
Well, the only thing I'd add, Steve, is to your point, you can always react further, Sanjay, to the environment. We asked ourselves two questions on cost. We took out everything we didn't need to support customers, as Steve said, and we left things in, or we cut everything that couldn't be put back quickly, or that we made sure we weren't cutting things that couldn't be put back quickly in the inevitable rebound. The other point I would make is we're not hiring people today. The reality is, when you have 64,000 people and you stop external hiring, with each passing quarter our costs will be going down.
Also with each passing quarter, since you phrased the question as what if the world really radically changes and stays down for a long time, with each passing quarter, our view of what we might need to put back is going to change. We will continue to react. We should go to the next question, operator.
Will come from Don Fandetti with Wells Fargo.
Steve, certainly good to see your build business growth stabilizing in April. I was wondering if you could talk a little bit about coming out of the crisis in 2009, you guys took share. A lot of the banks were sort of in capital or struggling with capital issues. How do you think the competitive dynamic looks on the other side of this, and do you think that you can be opportunistic and take share?
Don, certainly that's the intent. That's the intent, as Jeff just said, about not shutting down these channels. If you shut down completely your acquisition channels, whether that be digital, whether that be direct mail, if you start cutting your sales organization, and so forth, obviously it's going to be hard to do that. It's hard to say where our competitors are overall in their overall business. Our business is, as you know, very monolithic. The only piece of our business that we have to focus on is the credit card business, whether that is corporate small business, and premium consumer. How this whole pandemic plays out across all the other aspects of the financial services industry is yet to be seen. What's going to be the impact on commercial real estate, commercial lending, car loans, mortgages, so forth and so on.
Traditionally what's happened is we have bounced back a lot quicker. Our card base tends to be a lot more resilient, and there is pent-up demand for our products and services. This is not a traditional environment that we're in. Our intent is to come out of this very strong with our sales channels intact, with our acquisition engines pumping, and actually to take share as we did in 2009 and as we did after the internet bubble. That's the intent, which is why we're sticking with a number of the growth initiatives.
More importantly, while it's easy to cut back on merchant acquisition, when all of this is said and done, people are going to have a huge pent-up desire to spend. We want to make sure we're able to continue to provide the access to all the alternatives that are available to spend from a merchant perspective.
Our next question will come from the line of Mark DeVries with Barclays. Go ahead.
Thank you. I just want to thank you for the new slide. There's some very good disclosure in there. My question is on the impact of the loan book. If we see build business at these levels now, what sort of runoff should we expect, and what are the implications of that for a need to maybe resume share repurchases to avoid getting too capital inefficient?
Well, it's a good question, Mark. I think when you think about our loan book, there's, of course, a fair amount of just transactors in there. I think you will probably, if the world stays as it is today, see a more significant decline in the loan book in the second quarter. Depending on how the world evolves, I frankly, past that, might expect a little bit more stabilization. From a capital perspective, the thing we are really focused on is making sure we stay really strong financially so we can be opportunistic about some of the things Steve was just talking about, trying to gain some share in the inevitable rebound or other opportunities that might come up in the current environment. The last point I'd make is that does mean when growth resumes, the balance sheet then goes in the opposite direction, and it grows.
We need to make sure that we have enough capital to support very rapid growth when the inevitable rebound happens. What does that mean for share repurchase? Boy, I think like so many things, Mark, we have to take that quarter by quarter and see where we are.
Okay, thanks.
Thanks, Mark.
Our next question will come from the line of Rick Shane with JPMorgan. Go ahead, please. One moment.
He is well.
Mr. Shane, your line is open.
Can you hear me?
Yes.
Okay, great. Thanks for taking my question. I hope everybody's well there. When we look at the change in reserve, under CECL, charge was going to have a very favorable treatment. There was a pretty significant spike in the CECL in the reserve this quarter. I'm assuming that that's associated with small business. Is that correct? The second part of that question is there an opportunity to move some of the charge product to pay over time to give some relief?
You're correct, Rick, that the charge reserves under CECL were actually, to remind everyone, a reduction from the reserves we used to have under FAS 5, whereas obviously the lending reserves went in the other direction. You're also correct that when you look at charge and when you look at our loan book today, I think it's fair to say that the sector that has shown the most immediate stress is small business, right? You shut down small businesses, a savvy business owner is going to say, "Boy, I need to go into cash conservation mode." In many ways, what our Customer Pandemic Relief programs are about is trying to help people through that transition. The question really is how long do shutdowns last? Can we help bridge our small business customers long enough to help them resume business?
We're exploring every possible avenue about how you help them with payment terms and fee deferrals, et cetera, to help them come back strong and help the economy grow.
I think the other thing from a small business perspective, these are people that are not used to being in this situation at all. You think about every other credit crisis we've ever had. We never shut down the economy, right? Things got hard, things got tough, but we never shut down the economy. When you look at our small businesses and you look at sort of the credit profile of our small businesses, these are people that would have high FICO, and they're prime and super prime as well, much like consumers. If you look at our programs that we have, the programs are one to three months of relief. We have short-term programs, and then we have our longer hardship programs. I think we'll be in good shape there because it's really getting people through this tumultuous period.
As far as the charge product, the charge product has a pay over time feature. It's called lending on charge. People could use that, but they could also use one of our hardship programs. I think one of the things that we're really focused on is retaining membership at the end of this. What is the carrot at the end? These are good customers who are in a bad time through no fault of their own, and we'd like to retain them as customers. As you look at our programs and how we're structuring them, we're also structuring them with a way to return to the franchise over time. That's an answer to your other question.
Our next question will be from Bill Carcache with Nomura. Go ahead.
Thanks. Good morning, Steve and Jeff. Is there any indication?
Good morning, Bill.
Either. Is there any indication that the customers who are filing for initial claims are broadly representative of the Amex customer base? There's been some suggestion that a disproportionate percentage of those filing are, for example, entry-level restaurant employees who may not be representative of the Amex population, and therefore, some of the traditional relationships that we've seen between initial claims and reserve building could break down. I would appreciate your thoughts on that.
Well, I think, Bill, I'd start by pointing back to something I said in my remarks, which is, I think it's worth noting that over 88% of the balances U.S. consumer and small business enrolled in the program are from prime and super prime card members. This goes back, I think, to Steve, to your point, these are not people who are used to being in stress. It's just such an unprecedented environment. Look, we'll have to see how this plays out. These are good card members on the consumer side and thriving businesses until they suddenly were forced by the government to shut down on the small business side. That's why we're really focused on working hard with them to help bridge the current environment and also hopefully let some of the government programs kick in and help.
Our next question will be from Bob Napoli with William Blair. Go ahead.
Good morning, Steve, Jeff. Glad you guys are well, and appreciate the call and all the additional detail. The post-COVID world is going to change, I think, at least somewhat. I'm sure we've all been on a lot of Zoom calls or Microsoft Teams calls or whatever. Business travel has been an important part of your business. I think consumer travel will return, but business travel may be materially less. B2B payments, I think you're involved in B2B payments and through several partnerships with the Bill.com or several other companies, MineralTree, et cetera. What are your thoughts on how the world is going to change and how does Amex prepare for that? On the B2B payment side, are you seeing more demand for stuff like AP automation as well? I know it's a small part of your business.
It's a great question. We obviously listened to Ed Bastian's earnings call yesterday. What Ed said, it's probably going to take three years for travel to come back to where it is. Let's just put this in context, I think. I think that's really important. When you think about our commercial payments business, the majority of our commercial payments business is small business, both in the U.S., international, and middle market. A majority of that is 80% non-T&E with a focus on exactly what you talked about. When you look at our corporate card business, our corporate card business is between 8% and 9% of our overall billings. 60% of that is T&E. You're looking at about 5% of our overall business, which drives a lower proportionate share of not only revenue but net income as well.
I think that will slow down. Remember, in T&E, you've got multiple components. You've got restaurants, you've got hotel, you've got car rental, and you do have air. I think we've all learned in this environment how to work virtually. It is amazing, we don't use Zoom, but we do use Webex. It is amazing to see everybody on the Webex screen. Quite honestly, I think there'll be more of that. There'll be less of those trips that are needed. I think you will see an inevitable decline in probably air travel. You'll still see people making trips in cars. You'll still see people going to restaurants, albeit restaurants will probably be reconfigured in the short term, but in the long term, I think it comes back pretty much to normal.
When you look at T&E, I think the travel piece of it and then the appropriate stay and the meal that goes along will probably go down, and it'll be a little bit of a reset moment. Our focus really has been on large corporate. I said this before, not a lot of people were sort of driving T&E high. They were sort of looking to maintain T&E, to reduce T&E. Our focus with large corporate has been on B2B payments. What we have seen in this short period of time is more automation of B2B payments. It is a small part of our business. In a virtual environment, it has gone up significantly.
Not significantly enough to drive our overall volumes at this particular point in time, but it is amazing how much it's gone up from an automation perspective with our AP acquisition, with our integrations into Bill.com and MineralTree and Sage and others like SAP. I think you'll see more of a focus on that. I think you'll see more spending there, and I think you will see an inevitable decline in some of the business travel and entertainment. I think the consumer travel will come back over time. I think the other thing is I am really happy with sort of the co-brand partners that we have. Ed talked about this on his call yesterday, and that from an airline perspective, safety will be defined in multiple ways now.
Safety was defined from a maintenance perspective, but it's also now going to be defined on how you treat your customers within the plane. It's going to be how you treat your customers within the hotel property. When I think about Ed and Arne and Chris Nassetta, we're of equal minds there from a way to treat our customers. I think you'll see a premiumness return actually to air travel. I think that plays well for our customer base as well.
I think in this time, I think our acquisition of Resy is going to play really well in the short term as restaurants will probably reduce capacity, and it'll be harder to get reservations, and we'll be able to utilize, as we talk about access and experiences, our assets to be able to help our card members get into and experience some of the great restaurants that are around this country.
Our next question will come from the line of Moshe Orenbuch with Credit Suisse. Go ahead, please.
Great. Thanks. I wanted to follow up on that, Steve, because I think that you made some interesting points at the beginning about issues around your co-branded programs and the spending being kind of.
Outside of the partner and the comments about that you just made about kind of being special and at the top of the pile. I guess the question that I have is the fees that you just raised on a lot of those co-brand, the high-end cards, the actual benefits that the partner provides, whether it's Delta or one of the hotel chains, kind of are going to be less valuable to people at this point. How do you think about what people do, whether they down tier or actually shift the spending to another card? How does that process work?
Yeah, I think what you'll see in the coming weeks is you'll see other benefits that'll be added to those cards to sort of balance out the value. Look, we're very focused on it. Obviously, if you go on a blog, a blog is very focused on what is the value that you get for what you're paying. You'll see enhancements to those cards that are not specifically either air or hotel related, and in particular, to those cards where fees were raised. You'll see extensions on benefits, but you'll also see other things that are non-hotel, non-air related, which will provide more utility to the card in general. People have those cards to accumulate points for hotel stays, for airline, and for so forth. I think as I said, and you just pointed out again, 90% of that spend is in other areas.
What we'll do is we'll enhance those products so that the value propositions are more in an equilibrium to what the environment is today. That's what we'll continue to do, which is why I think having built the DNA in the company now to constantly refresh products is very important. Not just constantly refresh them on a sort of we're on a three to four-year cycle, but the ability within a couple of months now to add other benefits and to add other credits and other access and things like that will serve us well as we go through this. We're going to watch it very carefully. We're going to work with our partners very carefully to put those benefits that will continue to maintain the value and continue to maintain the price value that we strive to have with these cards.
I think it's a great question, and that's what the teams are working on with our partners.
Question will be from Betsy Graseck with Morgan Stanley. Go ahead.
Hi. Thank you. Good morning, Steve and Jeff.
Morning, Betsy.
Morning.
I know we spoke a little bit earlier about small business. It is the single biggest question that I get on American Express, ranging from credit quality questions to persistency of the business as we go through this COVID crisis. I just wondered if you could refresh your comments with some more details around how you see the credit quality, the different industries that are really dominating your small business portfolios, and if you could help us understand how long you feel your partners or your small business customers are set up to endure this shutdown that they have to deal with.
Well, maybe I'll start, Betsy, with a few comments, and then Steve can chime in. I am going to start by reciting for a third time the statistic I pointed out earlier that when you look across both consumer and small business, because many of our small business card members, while they run their small business on the card, they still have credit scores and personal FICO scores we can track. 88% of those people are prime and super prime. I just think that's an important first thing to think about. Second, we have, I think, a lot more diversity in our small business card members than perhaps many people realize. Steve, you were just talking earlier about the importance of restaurants to our value propositions and our partnership with Resy.
If you look at our open card members, that's actually restaurants are a fairly immaterial part of the card member base. In fact, the card member base is in some places you might not think about intuitively, Betsy, like construction, building materials, professional services, lawyers, doctors. If you think about many of those kinds of small businesses, those are the businesses that are going to come back and thrive. Clearly, when the government tells them you got to shut the doors, they would be, I think, financially irresponsible if they didn't say, "Boy, for a little while, I could pay American Express, but I just need to kind of hold on to my cash while I understand the environment." That's a lot of the anecdotal dialogue we're having with our customers.
We'll have to see, as we said all along, the question is, how long does unemployment stay at the astronomical levels it appears to be at now, and how long do small businesses stay shut down?
Yeah.
Steve, you can add a little more.
Yeah, no, I think it's a great question, and it's one that we look at all the time, but Jeff said a small percentage. It's less than 5% of our small business customers are actually restaurants. When you look at sort of almost 25% of our small business customers, it's things like contractors, plumbing, electrical work, air conditioning. All those things are actually still continuing today, maybe at a more reduced level because people don't want other people in the house. Those people are not going to go anywhere, and they usually have a lot of low overhead. They may need that three months to get through it. When you look at business services, it's legal, it's automotive repair, it's-
Beauty salons, barbershops, things like that. A lot of those will still be there and come back as a lot of them are single proprietor institutions. The other thing that I'll point out about our small businesses, while we do have a very high share of the market from a spend perspective, when you look at the overall sort of loan books, whether that be working capital, whether that be mortgage loans, auto loans that small businesses have, just their own loan servicing, we're probably less than 2% of the U.S. market when it comes from an exposure perspective. When I look at it from a credit perspective, I think you just can't look at the card. You need to look at the entire small business sort of ecosystem of what is out there, and we're less than 2% of that.
I would also leave you with the fact we are very diverse in terms of what our small business set is. We think it'll bounce back. We feel good about our small business portfolio, but it will go through, like everything else, it'll go through a tough period of time until the world starts to open again, which was why we think our relief programs are ideally suited for small businesses.
Our next question will come from Eric Wasserstrom with UBS. Go ahead.
Great. Thanks so much. Can you hear me okay?
Yes.
Okay, thank you.
No worries. We can get it.
All right. Good. My question is about the COVID experience, just doing the quick back of the envelope from your ACL ratio suggests maybe an expectation around a 4.5-ish kind of percent peak loss experience. I'm wondering if you can maybe put that in context of past downturns. I think, as I recall from your peak quarter of losses in 2009, something like 9.7%, something like that. I was wondering if you could just maybe put that in context, and maybe the broader question is does this circumstance perhaps suggest or has it caused you to reconsider whether expanding lending is most value maximizing for Amex?
Let me maybe make a few comments about the credit reserves, Stephen, and then you might talk about risk management in the current environment. Eric, gosh, if you think about past experiences, the great financial crisis, I think it took six quarters for the economy to get up to close to 10% unemployment rates. In the current environment in six weeks, we appear to have gone way beyond that. That makes it very hard to predict exactly how things are gonna play out. Clearly, if unemployment stays at the level it is at now, then you should expect lifetime losses across the entirety of the financial services sector that are greater than what you saw in the great financial crisis. On the other hand, the government is throwing unprecedented amounts of money at things here. We'll have to see where that goes.
I'm also not sure peak write-off rates really are a useful way to think about this, right? Under CECL, we're trying to, every quarter, close the books and put on the books a reserve for the lifetime losses we expect for what loans and receivables are on the books. That's what we did is we closed the books in April. We'll have to see where we are at the end of June. I am gonna close before I turn it over to Steve by saying, unemployment today is worse than it was in the great financial crisis and worse than it was in any CCAR or DFAST test. You've tacked on to that shutting down small businesses in the U.S., so we'll have to see how long that goes.
Yeah. Let me answer the last part of the question, is there regret to be in lending? The answer is no. I don't think you could be in a payments business without providing a wide range of services. I think our strategy of lending to our customers and understanding who we're lending to, I think that will play out for us well during this pandemic. I think the other thing which is important to note is that you go back a couple of years, we really started to even invest even more heavily in our credit capabilities. The difference between 2009 and today is a chasm. I mean, we're not even the same company as it relates to it.
When I think about what we've done from an external monitoring perspective, how we do modeling and risk assessment, whether it's machine learning and how we do more through the cycle evaluation, just our overall customer evaluation, our ability to flex up and down spend and lend capacity, the way we risk price, and our credit and collections capability are so much better, including our hardship programs. I mean, we had no hardship programs through the great financial crisis. Now we roll out the CPR program in a matter of weeks. We have other programs that are coming out in addition to our traditional hardship programs, which by the way, were not traditional in 2009.
I think the key thing as we move forward through this cycle will be our constant evaluation of our customers, our constant ability to modify the spend and lend that we have, and our credit and collections capabilities, and our ability to be able to talk to our customers, understand their situations, and really work with them so that those customers that have the potential to be good customers when this is over, we ensure that we were there for them. I think I don't regret sort of expanding our lending at all. I think we are much better positioned than we were in 2009, and much better positioned than we were just two years ago.
Our next question will be from Ryan Nash with Goldman Sachs. Go ahead, please.
Hey, good morning, guys.
Morning, Ryan.
Morning.
Maybe just a follow-up on the last question. You talked about 88% of customers being prime, super prime, but Jeff, you also mentioned that unemployment is higher than where we were in the financial crisis. I guess, do you have any visibility on where job loss is across your customer base, how that plays into your loss forecasting? I guess broadly speaking, just how do we think about the relationship between job losses and unemployment across your customer base? Thanks.
Well, I think we've said for a while that certainly general levels of unemployment, while it's just one of many factors that influences our ultimate credit losses, is probably the single most important factor. I think your question also goes to, though, when we look at our consumer customer base, we would believe that the unemployment levels amongst our customers are well below the general levels of unemployment when you think about who's gotten laid off. When you look at small businesses, we talked earlier about the range of actual card members we have who are small businesses. They're in lots of different industries. You have probably a more representative sample amongst our card member base because we cut across all industries, and if a small business gets shut down, that's a tough thing in the short run for them.
We'll have to see how this plays out, but I think I'm gonna go back to where Steve kind of finished his last answer. We've built tremendously stronger risk management capabilities over the last decade. We have taken many steps in the last couple of years to tighten up our risk management practices, and we go into this, I would remind you, with best-in-class credit metrics. We think we have best-in-class capabilities, and we think we have a customer base, both consumer and small business, that absolutely is more premium-oriented that should help us depending on whatever the outcome is here economically.
Our next question will come from Craig Maurer with Autonomous. Go ahead, please.
Yeah. Good morning, Steve and Jeff.
Morning, Craig.
Morning.
Two questions. I was hoping you could update us on your U.S. regional exposures. Secondly, in what I'm sure have been extensive conversations with Ed Bastian and others, can you provide a little bit of thought around how you expect travel to reemerge in terms of cross-border versus domestic? One of the biggest debates we currently have with investors is the pace at which cross-border travel can resume. Thanks.
Let me quickly hit the regional one, Steve, and then you can talk about travel. The regional answer, Craig, is pretty short, which is, I think as you would expect, where our heavy concentrations of our premium-oriented card member base is, well, places like California, the Northeast, Texas, all places that have been fairly significantly hit within the U.S. When you go outside the U.S., particularly in the big urban areas, the Londons, the Paris, the Tokyos. I'd say we are right in the mainstream of the COVID-19 challenge when it comes regionally. We don't particularly see any differences, though, when we look across all those regions and countries in terms of credit performance or volume performance. It's remarkably similar globally, I would say.
Yeah. Look, I talk to Ed probably once a week. Not only are we good partners, we're good friends as well. I think he would tell you that you will see more emergence of domestic travel before you see cross-border. The reason you will see that is, I think, look, how will countries open up their borders to inbound flights, number one? How will the psychology work from a consumer perspective? I think there'll be a pent-up demand to do something in the summertime, in September. I think a lot of U.S. consumers will probably do that in the United States, may do that in the islands. I think travel will emerge more domestically first than it will internationally.
Having said that, I talked to Willie Walsh a couple of weeks ago at BA, and their flights to China are going back and forth and relatively full as those markets reopen as well. I think it'll be interesting. I think what is going to make the difference here is how safe you make your airline and how safe you make the travel experience. Certainly, we will work with Ed and our other partners to do our part to help that, whether it's from a boarding process, and he'll take care of once you're on the plane. They do a fantastic job. He and his team are thinking about those things, and I'm sure they will come up with a really high quality and premium product as they always do.
I do believe domestic will emerge more than cross-border, and I think it'll take more time to get back to cross-border travel, would be my sense. I think that's obviously a better question for Ed and the other airline executives, but we do have sort of a dog in this fight as well. I think that's what'll happen, Craig.
With that, we will bring the call to an end. Thank you, Steve. Thank you, Jeff. Thank you again for joining today's call, and thank you for your continued interest in American Express. The IR team will be available for any follow-up questions. Operator, back to you.
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