Okay, ladies and gentlemen, thank you for standing by and welcome to the American Express Q2 2018 earnings conference 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 star then one on your touchtone phone. Instructions will be given at that time. If you should require assistance during the call, please press star then zero. I'd now like to turn the conference over to our host, to Mr. Edmund Reese, Head of Investor Relations. Please go ahead.
Thank you, Lori. Welcome. We appreciate all of you joining us for today's call. The discussion contains certain forward-looking statements about the company's future financial performance and business prospects, which are based on management's current expectations and are subject to risk and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements are set forth within today's presentation slides and in the company's reports on file with the Securities and Exchange Commission. The discussion today also contains certain non-GAAP financial measures. Information relating to comparable GAAP financial measures may be found in the second quarter 2018 earnings release and presentation slides, as well as the earnings materials for prior periods that may be discussed, all of which are posted on our website at ir.americanexpress.com. We encourage you to review that information in conjunction with today's discussion.
Today's discussion will begin with Stephen Squeri, Chairman and CEO, who will start the call with some remarks about the company's progress and results. Then Jeffrey Campbell, Chief Financial Officer, will provide a more detailed review of Q2 financial performance. Once Jeff completes his remarks, we'll move to a Q&A session on the quarter's results with both Steve and Jeff. With that, let me turn it over to Steve.
Thanks, Edmund, good afternoon, everyone. As I've been meeting with shareholders and analysts over the past several months, a number of you have said you would like to hear my views of the company more frequently. With that in mind, I plan to join our earnings calls with Jeff going forward to share my perspective on our strategic progress and quarterly results. Jeff will continue to cover our financial performance in more detail before we take your questions. As you saw in our release earlier today, we had a strong second quarter that built on the momentum we started the year with. Revenues grew 9% and earnings per share were $1.84. We are a globally integrated payments company, and the power of our differentiated business model was evident throughout the results.
Our revenue growth was driven by broad-based increases in card member spending and fees. It also reflected higher loan volumes, which that spending growth helped to generate. Second, we're both strengthening relationships with current customers and attracting new ones through innovative products and services. Third, our disciplined control of operating expenses, combined with revenue growth, gave us the flexibility to make substantial investments in our global brand campaign, additional customer benefits and digital capabilities that will help us grow our business over the long term. In addition to our business results, we completed this year's CCAR process with a green light to increase the quarterly dividend. We are resuming our share buybacks this quarter. All in all, I feel very good about our results to date.
Looking ahead, we expect 2018 revenues to be up at least 9%. We are reaffirming our full-year EPS guidance at the high end of the range we set for this year, which is the $6.90-$7.30 per share. Coming into the CEO role earlier this year, I focused the organization on four strategic imperatives. You may recall that I first shared them with you back in October of last year. At the mid-year mark, I'm pleased to report solid progress on each. The first imperative is to expand our leadership in the premium consumer space worldwide. We once again delivered record performance on our U.S. Platinum Card. We continued to refresh our premium product line globally with enhancements to our Platinum Card in Mexico and Hong Kong and our Gold Card in the U.K.
In addition, we announced new co-branded cards with Marriott and launched a new Cash Magnet Card in the U.S. This follows the launch earlier this year of a new suite of co-branded products with Hilton. We are continuing to invest in differentiated value propositions that distinguish American Express from the competition. We provide our card members with global access to exclusive services and experiences. We continue to expand the global range of these offerings and have recently announced the expansion of our Centurion lounges with new openings scheduled in Los Angeles and Denver, and a second one in New York at JFK. Our official partnership with the Wimbledon Championship and a new partnership with Saks to offer value to our joint customers. Our second strategic imperative is to build on our strong position in commercial payments.
Just last month, we announced a multi-year partnership with Amazon, which will include a new co-branded small business credit card in the U.S. This is an exciting opportunity and a great example of why we are the small business partner of choice, because of our ability to bring value to partners and their customers by leveraging our brand, innovative technology, data analytics, and other unique assets. In addition, we also introduced new value propositions for Hilton and Marriott small business card members in the U.S. Our third strategic imperative is to strengthen our global integrated network to provide unique value. We introduced a new card with Wells Fargo, one of our larger GNS partners in the U.S. This was an important win and another validation of our differentiated benefits and services, like access to one-of-a-kind experiences and special offers that enables us to win in a competitive marketplace.
We continued our progress towards parity coverage in the U.S. and expanded our merchant network internationally. Our fourth strategic imperative is to make Amex an essential part of our customers' digital lives. Technology and innovation are the engines that continue to fuel our brand and customer value propositions. We are making investments to enhance our capabilities in this space. We are developing artificial intelligence, machine learning, and blockchain capabilities to better serve our customers. Our mobile enhancements are being recognized, and we placed first in J.D. Power's 2018 mobile app competitive survey, up from sixth in 2017. We expanded the chat-based servicing feature on our mobile app as another way to serve our customers where, how, and when they want. We are continuing to expand our capabilities as we integrate two specialized platforms we recently acquired, Mezi and Cake, into our digital offerings.
We are also experimenting with technology and recently announced a pilot with the online retailer Boxed using blockchain and our Membership Rewards program to give card members more ways to earn points and merchants more ways to drive business. Two additional and important second quarter items are worth noting. First, we launched our new global brand campaign, which underscores the powerful backing of American Express. The campaign is being used across both our consumer and business segments, and it drives home what our brand is all about: building enduring customer relationships through their intertwined business and personal lives. Finally, my list of wins for the quarter includes the favorable ruling we received in a major antitrust case at the Supreme Court. The court found that our differentiated business model has spurred innovation in the payments industry.
Their ruling was a welcome end to a long legal battle with the Department of Justice. All in all, it was a very good quarter. Six months into my tenure as CEO, I feel good about what we've accomplished. I'm excited about the opportunities that lie ahead. I'm confident in our ability to deliver sustainable growth for our shareholders. Let me now turn the call over to Jeff, who is going to provide more detail about our financial results.
Well, thanks, Steve, and good afternoon, everyone. Good to be here today to talk about another quarter with strong performance. To get right into our summary financials on slide three, second quarter revenues of $10 billion grew 9%. Another quarter of revenue growth at the highest levels we have seen since the financial crisis. Even more importantly, this result was driven by strong growth across all of discount revenues, fee revenues, and netted interest income. Given recent strength in the dollar, our reported revenue growth was pretty consistent with our FX-adjusted revenue growth, unlike the last few quarters, where the weaker dollar caused our reported revenue growth to be above our FX-adjusted revenue growth. Net income was $1.6 billion, up 21% from a year ago. Earnings per share was $1.84 for the quarter, up 25% from the prior year.
Of course, our earnings growth this year reflects the passage of the Tax Act last December. It also reflects our business model's steady and consistent earnings growth, along with the impact of our share repurchases, lowering the shares outstanding by 3%, despite the suspension of our share repurchase program for the first half of 2018. These are results we feel really good about. Looking at the details of our performance, I'll start with bill business, which you see several views of on slides four through six. I'd start by pointing you to the top right of slide four, where you see that there are two different trends impacting our overall billings growth. This quarter, our proprietary billings make up 85% of our overall billings. Growth in these proprietary billings accelerated to 12%, up from 11% in the first quarter, all on an FX-adjusted basis.
This is another sign of the momentum we have in our business. You can also see on the top right of slide four that the other 15% of our overall billings, which come from our network business, GNS, is now seeing the expected impact of regulation in the European Union and Australia. Hence, billings in GNS were down 3%. This caused our total AXP billings to come in at 9% for Q2. You turn to slide five, I'd remind you that our results this quarter reflect the organizational changes Steve has made since becoming CEO. We now have three reportable operating segments: Global Consumer, Global Commercial, and Global Merchant and Network Services. Although we are reporting financial results on a global consumer basis, we do want to continue to provide you transparency into both the U.S. and international consumer metrics.
Here on slide five, you can see all of the diverse parts of our business maintaining or accelerating good growth rates aside from GNS. Turning to slide six, we have a more detailed view of billings by customer segment. This slide also serves as a helpful reminder of the relative size of each customer segment. Global Commercial and Global Consumer are roughly the same size, representing 41% and 44% of Q2 billings respectively. Global Network Services makes up the remaining 15% of billings. Starting on the left with our small and mid-size enterprise card members, or SMEs, U.S. SME was up 10%. It has been relatively stable for several quarters. International SME, which has consistently been one of our strongest growing customer segments, accelerated to 25% on an FX-adjusted basis in the second quarter, reflecting our increasing investments in this particularly attractive component of our global opportunities.
The large and global customer segment continued to perform nicely with 9% growth on an FX-adjusted basis. On a related note, you can see in the earnings tables that the company's overall global airline billings continued to accelerate to 7% on an FX-adjusted basis, and U.S. T&E billings growth remains strong at 8%. Moving to U.S. consumer, which made up about 32% of the company's billings in the second quarter, we are pleased to report our second consecutive quarter with double-digit growth. We feel particularly good about our U.S. consumer Platinum performance, where growth did not slow as we expected this quarter, as we fully lapped the changes that we made to the product early in 2017. Around half of our acquisitions on U.S. Consumer Platinum continue to come from millennials.
I would also point out that similar to last quarter, our strong billings growth reflects both our continued focus on customer engagement, as well as general strength we are seeing in consumer spending and confidence within our premium U.S. consumer base. Moving to the right, we continue to see strong growth for international consumer, which is up 18% on an FX-adjusted basis, up from 16% in Q1. Although it is only 12% of overall billings, we feel really good about the widespread strong growth in key markets, with FX-adjusted growth of 13% in Japan and over 20% in both Australia and the U.K. Last, on the right, as I mentioned earlier, Global Network Services was down 3%, driven by the impacts of regulation in the European Union and Australia. Although network billings are down in these regions, we are seeing strong growth on the proprietary side, as I just mentioned.
Additionally, if you were to exclude the European Union and Australia markets, the remaining portion of GNS was up 8%. Overall, we feel good about the diverse sources of growth. We have been sustaining double-digit billings growth in U.S. consumer and U.S. SME, while also accelerating billings growth across both international consumer and SME, as well as with large and global corporate clients. Turning next to loan performance on slide seven. Our total loan growth was 16% in the second quarter and in line with the prior quarter. Once again, over 60% of our growth came from existing customers. I'd remind you that we completed the Hilton portfolio acquisition earlier this year, which contributed about 140 basis points and 130 basis points to the growth rates in the first and second quarters, respectively. On the right, net interest yield was 10.6%, up 30 basis points versus the prior year.
For some time now, we have been saying that we expect year-over-year growth in net interest yield to moderate, and you can clearly see that playing out. While net yield is still growing over the prior year, the increase has moderated over the last few quarters as we lap some of our pricing initiatives and experience higher funding costs. Lastly, I would add that we typically see a seasonal decline in net yield from the first to second quarter, as you did see this year with net yield down 20 basis points sequentially in the second quarter. To spend a minute now on funding, I'd remind you that our funding strategy is to be active in three markets: deposits, asset-backed securities, and unsecured debt.
Focusing on deposits, we have about $67 billion in total to June 30th, with about $31 billion coming from sweep accounts and CDs, which tend to move in line with market rates. The remaining $36 billion in deposits is coming from our online personal savings program, which in a rising rate environment, is generally our least expensive source of funding. We expect to continue to grow our online savings program steadily over the next few years, facilitated by the recent consolidation of our two U.S. banks. In terms of rate sensitivity, since the Fed started raising rates back in mid-2016, our beta has been about 0.45 but is trending up. More recently, our beta is closer to 0.7, which is also what we use for internal planning purposes.
Stepping back, while we view a rising rate environment as a modest headwind, it is usually mitigated in part by a stronger economic environment, which is certainly what we see currently. Turning next to credit metrics, which you see on slide eight. Starting on the left with the lending portfolio, the loss rate for the quarter was 2.1%, up about 30 basis points from last year and 10 basis points from the prior quarter. As a reminder of what we've been saying for quite some time, we expect these rates to drift up as they have. In fact, lending write-off rates in the second quarter were slightly better than we originally expected in our plan for the year. On the right side, you can see net write-off rates in our charge portfolio, as well as the global corporate payments loss ratio.
There's often some quarterly volatility in these rates due to seasonality, and this quarter's write-off rate included some write-offs related to the hurricanes last fall, for which we had previously taken a reserve. Looking forward, we don't see anything in the performance of our tenured customers to suggest any change in the broader environment. Given these credit metrics, and moving to slide eight, provision was $806 million, up 38% in the second quarter, right in line with our full-year expectation of mid 30% growth, despite loan growth running a bit higher than we had originally planned. Turning now to revenues on slide 10. FX-adjusted revenue growth was 9% in the second quarter. This represents our fifth straight quarter of having adjusted revenue growth of at least 8%, driven by steady growth from all of spending, fees, and lending. On slide 11, you see the components of our total revenue.
Discount revenue, which makes up over 60% of our revenue, was up 8%, which I'll come back to on the next slide. Net card fees growth was 9%, driven by growth in key international markets, as well as Platinum and Delta in the U.S. We continue to feel good about our ability to generate card fee revenues by offering differentiated value propositions right in the face of constant competition. As another example, year to date through May, over 60% of our Global Consumer new card acquisitions were on fee-paying cards. Other fees and commissions were up 5%, while other revenue was down 8%, driven by several discrete items. Lastly, let's turn to net interest income, which I would point out is down to being just 18% of our second quarter revenue.
For this quarter, net interest income was up 19%, driven by the growth in loans and yield that I mentioned a few moments ago. Turning now to slide 12 to cover discount revenue, our biggest component of revenue. Starting on the left, discount rate in Q2 was 2.37%, stable for the last few quarters and down five basis points from a year ago. As you have heard both Steve and I talk about, our focus is on driving discount revenue growth, not on managing the average discount rate. This has led us to strategies like increasing coverage with small merchants and deepening relationships with our key strategic partners, which we believe are key components helping drive the strong discount revenue growth you see on the right side of the page.
Discount revenue growth was 8% on an FX-adjusted basis in the second quarter, maintaining the strong momentum of the prior quarter. Turning now to expenses on slide 13. Before coming to the components of customer engagement, marketing and business development, card member rewards, and card member services on the next slide, let me cover operating expenses. Operating expenses were down 2% this quarter, and though this reflected a number of discrete items, even excluding these items, we continue to have well-controlled operating expenses. Our ability to generate steady OPEX leverage continues to be a key part of our financial model and one that we have great confidence in sustaining over the long term. That brings me next to customer engagement on slide 14. In total, customer engagement expenses were $4.5 billion in the second quarter, up 13% from the prior year.
Starting at the bottom, we have the marketing and business development line, which has two components, our traditional marketing and promotion expenses, as well as payments we make to certain partners, primarily corporate clients, GNS partner banks, and co-brand partners. This line in total is up 14% versus the prior year. There are three things that I would highlight. As I said last quarter, we have some increases in partner payments this year due to recent co-brand negotiations and agreements and growth in our corporate business. Second, Steve talked about the launch of our new global brand campaign in the second quarter. As you would expect, we have increased marketing spend to support the brand refresh.
Third, the benefits of the Tax Act and our strong performance year to date have allowed us to ramp up somewhat the spending we do to drive long-term sustainable revenue and earnings growth. As I said on last quarter's earnings call, we began this spending in the second quarter and expect it to continue through the balance of the year. I would point out that the confluence of all these factors allowed us to acquire 2.9 million new proprietary cards globally this quarter, which is one of our highest acquisition quarters recently when you set aside the Hilton portfolio purchase. Moving up to rewards expense, you can see that it was up 11% from the prior year. Rewards were expected to and did grow roughly in line with proprietary billings growth. Moving to the top of the slide.
As you have seen for some time, as we continue to expect, card member services costs were our fastest-growing expense line, up 22% in the second quarter. The kinds of things that drive card member services costs are exactly the things that drive the differentiated value propositions that Steve discussed that are difficult for others to replicate, such as airport lounge access and other travel benefits. Turning last to capital on slide 15. As you know, we suspended share repurchases for the first half of 2018 to rebuild our capital ratios following the $2.6 billion charge we took in Q4 2017 related to the Tax Act. Now, given our high ROE, we can quickly rebuild capital. At the end of the second quarter, our Common Equity Tier 1 ratio had increased to 10.1%.
We are now at the low end of the 10%-11% range that we are targeting. Given this, we will be resuming share buybacks in the third quarter, as the Fed did not object to our CCAR submission. That raises our dividend by $0.04 per quarter beginning the third quarter and returns $3.4 billion of capital through share repurchases over the next 4 quarters. Overall, this capital plan is consistent with our objective to target Common Equity Tier 1 ratios of 10%-11% while supporting asset growth and distributing capital to shareholders. That brings us to our outlook, we'll open the call to questions. As Steve mentioned, our expectation continues to be at the high end of our original EPS guidance range of $6.90-$7.30. We are really pleased with our revenue performance to date.
Given the strong trends that we are seeing in the performance of our recent investments, we now expect revenue growth of at least 9% for the full year. Our solid performance in the first half of the year has allowed us to raise our guidance to the high end of our original range while also increasing our investments into areas that we believe will drive long-term sustainable revenue and earnings growth. This guidance is reflective of our simple financial model, in which we invest in our many and diverse growth businesses, generate operating leverage, and return capital to shareholders to drive steady and consistent revenue and EPS growth. With that, let me turn it back over to Edmund to begin the Q&A.
Thank you, Jeff. Before we open up the lines for Q&A, I'll 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. Operator?
Thank you. We have a question from the line of Robert Napoli with William Blair. Please go ahead.
Thank you. Steve, just a question on the page two, your strategic imperatives. Do you have specific measurements against each of those four that you're comparing yourselves to? Can you give any color on what you're looking at?
I think as we look at the four strategic imperatives, we've looked at these over the longer term. While we're not looking at specific year-to-year growth targets, we really are looking at what from a capabilities and what from an accomplishment perspective. Let me just give you an example. When we look at the premium segment, what we're really looking to do is to expand our definition of premium. As you've thought about premium over the years, we've thought about premium from the perspective of premium wallets. We're really looking at those that really look for premium service, premium access. That then includes the expanse of more millennials. When we look at sort of our Platinum Card acquisition and over half of our acquisition is coming from millennials. From that regard, it really is an expansion of the value proposition.
When we look at sort of the second one as it relates to continue to build on our competitive position from a commercial perspective, things like our growth from an SME perspective in international, our continued growth and progress that we've made from a co-brand perspective in the U.S. with Hilton, with Marriott, and the launch of the Amazon card. Looking much more than just the metrics we have, but how are we embedding ourselves even more and the launch of working capital and so forth. When we get into the network piece of it, we're really looking to expand with more partnerships. Wells Fargo is a great example of that expansion. In addition, obviously, coverage, we continue to push on coverage. We've stated from a coverage perspective, we want to be at parity coverage in the U.S. by the end of 2019.
From a digital perspective, when we talk about being more essential in people's digital lives, I think here there's a lot of qualitative stuff that's going on. To be able to go from in a J.D. Power survey from number 6 last year from a mobile app perspective to number 1. Why did we do that? We really focused on engaging our customers in that app, number 1, putting chat-based services within that, looking at other things from a digital perspective, whether it's the blockchain test that we're doing, our acquisition of Mezi, and our acquisition of Cake. As we think about those four things, we're really looking from an initiative perspective on how we're moving those things forward. I think the initiatives that I laid out and the specific actions that we've done is moving those business priorities forward for us.
Great. Thank you. Appreciate it.
Okay. Thank you. Our next question will come from Chris Brendler with Buckingham. Please go ahead.
Hi. Thanks, Stephen Squeri. Thanks for taking my question. Just circle back on the U.S. card business for a second. You said you had had a Platinum refresh last quarter. How much of that Platinum refresh was lapping in the second quarter? Sort of more broadly as you look out the rest of the year and all the marketing investments you made this quarter, is the plan for the second half to really continue to put the pedal to the metal on marketing? What does that mean for U.S. bill business growth? Thanks.
Well, I think, Chris Brendler, to be clear, as you recall, in the U.S., we refreshed both the consumer as well as the small business Platinum products in the early part of 2017. We've been thrilled with the reaction to both of those upgrades. One of the things I cautioned people about last quarter on the April call was that, well, the second quarter was going to be the first quarter where we fully lapped all those changes, and that might cause a little bit of a moderation in growth in those two products. To be honest, what surprised us this quarter is we really didn't. So we were particularly pleased to see on the consumer side that the growth rates did not slow at all, even though we have completely lapped now all of those changes we made.
I think it really goes back, Steve, to the strategic imperative. It's all about differentiated value propositions that we can put in the marketplace, and we feel really good about that Platinum. We are in an unusual situation as a company in that we have tremendous opportunities to invest and accelerate our growth across both consumer, commercial, U.S., and international. We are always leaving a few really good opportunities on the table as we balance short and long-term financial performance. When we have really good performances we have had year-to-date, it allows us to dip a little deeper into those really good opportunities. I think that bodes really well for long-term sustainability of the kind of revenue growth you're seeing now.
Right. To Jeff's point about continuing to invest in unique and differentiated services, we announced we're going to implement three new lounges, which adds, again, some more value for our traveling Platinum Card members. We've also added to the Platinum Card merchant-funded value offers from Saks. That adds more value, and it shows the power of the integrated model, where we're able to take our merchant relationships that we have and marry those up with our high-spending card members. It works for our card members, and it obviously works for our merchants as well.
Just the other point that I did make, that may have caused a little bit of confusion, is in addition to obviously we refreshed the Platinum Card products in the United States, we did in the second quarter refresh the Platinum Card products that we have in Hong Kong and in Mexico. Those cards are of a smaller footprint, obviously, than both U.S. Platinum cards. I think it is important to show that as we think about the premium segment, you tend to focus on the premium segment as the U.S. There is a large premium segment outside the United States, and it is really important for us to continue to refresh the product line on a global basis.
Great. Thanks, guys.
Okay, thank you. Our next question will come from Sanjay Sakhrani with KBW. Please go ahead.
Thank you. Steve, good to have you on, and hi, Jeff. Thanks for taking my question. As you mentioned, your top-line expectations are now better than expected, and your EPS guidance didn't really change. Should we assume all of the incremental revenues are being spent and that marketing and business development line, that was up quite considerably, and you mentioned several reasons why. Should we expect that to continue to grow at the rate it is going forward? Maybe you could just talk about the payback on those returns.
Let me make a couple comments, and then I'll ask Jeff to jump in. Again, I think we try and be as transparent as we can from an EPS perspective. We've adjusted at the end of the first quarter as we looked out. Obviously with $6.90-$7.30, we said we'd be to the high end. We feel really good about 25% EPS growth this quarter and 38% growth in the first quarter. Adjusted revenue growth of at least 8% for five consecutive quarters. I think what's important to think about when you think about customer engagement is that we're making investments not only to drive results this year, but we're looking to drive results in the moderate to long term. Our objective is really to make sure that our revenue growth levels are sustainable.
Our objective is also to make sure we're taking advantage of those opportunities as they present ourselves. Jeff just made this point. We don't want to have opportunities go by the board. That's how we think about it.
I don't really have a lot to add. I think, Sanjay Sakhrani, the second quarter marketing and promotion was a particular spike because you only launch a new brand campaign every couple of years. To Stephen Squeri's point, that is also the line where a lot of the things we do that we think are about driving longer-term growth go. We feel good about the fact that we're hitting the high end of the guidance range we started out with, and we feel really good about the revenue growth sustainability we're building.
Thank you.
Thank you. Our next question will come from Bill Carcache with Nomura Instinet. Please go ahead.
Thank you. Good evening. It looks like the contribution of your discount revenue as a percentage of revenues net of rewards expense increased to 50% this quarter from 48% last quarter, while your net interest income contribution actually decreased. That seems to mark a reversal in the trend that we've been seeing. My question is, as we look ahead, is it reasonable to expect that we'll continue to see a growing mix of your revenues coming from spend versus lend? If I may just tack onto that, there's been some focus on the other operating expenses being better and part of that being from reserve releases and perhaps could you comment on whether, consistent with your philosophy of reinvesting gains in the business, that perhaps part of the reason for the increase in marketing and promotion was the opportunistic reinvestment of some of those releases? Appreciate that.
Well, let me see if I get all of those, Bill. If I miss one, you can come back. First, I guess I'd make a couple points on the net interest income discount rate mix in that on the discount revenue side, look, you do have a couple of things like OptBlue, like the immediacy of the regulation in Australia and Europe. Some of the big strategic partner renegotiations we had last year that are causing a little bit more reduction in the discount rate this year than we would probably expect on a run rate basis. By definition, that tells you over time, discount revenues should move up a little bit in the mix. On the opposite side, we've had a really good run on net interest income of doing a lot of really good stuff on the pricing side.
I've been pointing out for a few quarters, there is an end to that. I do expect the growth in net interest income to moderate down more to where loan growth is. I do think those two things, in the absence of other changes in the business will cause a continuation of the trend that you called out. In terms of reserve releases, I guess I'm, Bill, a little puzzled by that. There's nothing in particular that's unusual going on in our operating expense line. We're just as we always will be, and as we have been for many years, very focused on the aspect of our business model, that is we can grow and pump a lot of revenue through our fixed cost infrastructure without adding a lot of cost, and technology helps us do that more efficiently every year.
That's really what you see happening on the operating expense side. When you hear Steve and I talk about investing a little bit opportunistically this year, it really comes from the revenue upside that we're seeing.
Yeah. Just one other point that I'll make is, as you look at sort of the shift, I guess, the little bit of the shift mix, and it's a slight shift mix this particular quarter, we're really focused on driving spend, right? If you dig within the numbers, and if you go to the slide that showed sort of the breakout of billings, you see it across every single one, whether it's SME International, U.S. consumer, and consumer international. These are all double-digit growth numbers. When you look, if you net out GNS, we had 12% proprietary billings growth in the second quarter. We've had the GNS drag due to regulatory issues in Europe and in Australia. Well, that spending is obviously driving the discount rate revenue, but that's the spending as well where the lending comes in, right?
We drive spend. From that spend, we look to get whatever lend we can get from our existing customers. Again, Jeff mentioned this in his remarks as well, 60% of our AR growth this particular quarter came from existing card members. We feel good about how the model is working, right? The whole thing works together. The discount rate is working for us as well. It's driving more spend. That spend drives more lend with existing customers, hence drives what we believe is very good revenue growth at 9%.
Thank you very much.
Thanks, Bill.
Thank you. Our next question will come from Ryan Nash with Goldman Sachs. Please go ahead.
Hey, Ryan.
Good evening, guys. How you doing? Jeff, I wanted to ask a question on capital. You talked about the 10%-11% CET1 as the binding constraint as you shift from CCAR to the rating agencies. I guess, given the lower risk and less NII dependency of your model, why is that the right number, given that your model is less lend-centric and a lot of the other traditional card lenders will be running at 10%-11%? I guess, what do you think is the right level of capital to actually run the business relative to what the rating agencies are telling you? Thanks.
Well, Ryan, maybe I should bring you with us on our next round of meetings with the rating agencies. You are correctly pointing out that as I think about what the Fed has said publicly about where they are likely to be taking this CCAR process, I think the Fed ceases to be the constraint on our capital. I do think it's about the rating agencies. We are very comfortable with the way we are rated today, but we think the ratings we have are important to sustain. The reality of the way we work with the rating agencies today is that's going to require us to stay at that tier one common equity ratio in the 10%-11% range.
Certainly, we have lots and lots of discussions with them about this unique strength of our business model, about how strongly we perform in economic downturns, and that's certainly something you see in the Fed's modeling of the latest round of CCAR results. I'm trying to be very transparent. 10%-11% is where we are today unless we succeed in further working with the rating agencies. I'll give you a call to tell you when the next meeting is, and you can join us.
Got it. Thanks.
Thank you. Our next question will come from Eric Wasserstrom with UBS. Please go ahead.
Thanks very much. Just following up on the top-line discussion. It would seem that except for the impact from regulation on discount revenue, discount revenue would have continued to accelerate year-over-year. What is your sense about some of the underlying drivers, such as the benefits of corporate tax reform on commercial T&E growth and that kind of thing, to the extent that these can continue to maintain accelerating discount revenue as the comps begin to get a little bit tougher relative to the back half of last year?
Let me start, Steve. Maybe you can continue. It's a good question, Eric. When you think about sustainability, I'd make a few comments. We can look at the acceleration in revenue growth we've seen over the last few years and very much link it to changes we have made in the business, and that really builds confidence in us as to the sustainability. A couple things around the edges, though, that I would say go a little bit beyond that is clearly in this calendar year, we're benefiting a little bit from buying the Hilton portfolio. That goes away next year. The other thing is, last quarter, I brought up the fact that we had seen a modest acceleration in organic growth that began very late last year.
It has now sustained itself for the first half 2018, that clearly is indicative of the fact that at least for the demographic of customers we serve, there is clearly some increased level of confidence. That could strengthen, it could weaken. We'll have to see where the economy goes. Other than those two pieces, I think we feel pretty good about the things we have done that are driving the revenue growth and their sustainability.
I think two of those things that we're doing that are really driving the revenue growth, it's really the coverage initiatives. When there's more and more places to use the card. Last year, we signed over a million merchants in the United States, what happens is that gives us an opportunity to go after a higher share of wallet with our existing card members, it's also a very good way to attract new card members. We're doing a really good job from an acquisition perspective, both in the United States and in our international markets of gaining new card members, both from a commercial perspective and from a consumer perspective. Just to put a highlight on sort of the volume growth, when you look at the second quarter, 25% SME international growth and 18% consumer growth in international.
That shows us that the investments that we've made, we're going to continue to go to the well on those same investments because they are truly working for us. Look, the SME business in the U.S. and the consumer business in the U.S. are obviously more mature than the businesses that we have and a little bit more competitive than from an international perspective. Again, double-digit growth in both those portfolios as well. Again, really a lot of focus on our card member acquisition efforts. Coverage is really helping. Then, what we also do is the journeys we take our card members through to get more and more of their spend from a trigger marketing perspective. We continue to do that and will continue to do that as we look to get more and more pockets of their spend.
Thanks. If I can just follow up on one question. You indicated that there's some increase in investment coming from the top-line strength. I think previously, Jeff, you had indicated that that might be something around $200 million in the second, third, and fourth quarters. Is that still the same approximate level?
To be clear, the $200 million, Eric, is what when the Tax Act passed in December, we actually made a very conscious choice, even though we had the plan done for the year, to add another $200 million because we didn't make that choice till the beginning of January. We couldn't thoughtfully spend it in the first quarter. What we're telling you on this call is above and beyond that $200 million, our revenue strength is allowing us to both get to the high end of our guidance range, but also put some additional money to work, making sure we're doing all the kinds of things, Steve, you just talked about that are going to really sustain the sort of revenue growth we're getting.
Great. Thanks very much.
Thank you. We have a question from the line of Mark DeVries with Barclays. Please go ahead.
Thanks. I was hoping to better understand kind of strategically why you decided to add this new Shop Saks benefit to the Platinum Card at a time, I think where you'd indicated you're already very pleased with kind of the re-engagement and the customer acquisitions you were getting from that card. What was the need to do that? Also, if you could give us a sense of the cost to you. Presumably you're not paying your merchant partner $1.00 on the dollar for the benefit. I assume the same goes for the benefit you provide through Uber. If you could just give us a sense of what the cost might be relative to the percentage.
I'm going to give you a sense of what the cost is for Saks. Zero. It's fully funded by the merchant partner. Look, one of the unique advantages of our model is we manage a lot of our merchants. As we manage them, what the objective is to help them drive and grow their business. In conversations with Saks, they're very interested in our Platinum Card holders. Our Platinum Card holders tend to spend money at Saks or merchants like Saks. In working with Saks, we came up with $100 annual credit on Saks purchases. The real question is, why wouldn't you? Someone's handing you 100 bucks and it fits from a premium perspective, it fits from a demographic perspective. It's going to help drive value to Saks, and it helps drive value to our customers as well. That's why we added the benefit.
I think we will continue to add merchant-funded benefits when they make sense. What happens also with the Platinum Card, this is an offer that sticks with the whole year. What we will do from time to time is do time-based offers for our Platinum Card holders and for our Centurion Card holders because merchants want access to those customers. That's why we did it.
Okay, fair enough. Thank you.
Thanks, Mark.
We have a question from the line of Don Fandetti with Wells Fargo. Please go ahead.
Hey, Don.
Hey, Don.
Oh, it's Don.
Steve, I was wondering if you could talk a little bit about the commercial segment. The build business is obviously performing well. You got the Amazon co-brand. Can you talk a little bit about the competitive intensity in commercial, maybe contrast it with consumer, and do you think there's more upside to the growth rates that you're seeing today?
Yeah. It's different, right? Let's talk about international. In international, from an SME perspective, it's really an open playing field. When you look at the penetration, I think the market is a couple of % penetrated. We have not only replicated what we've been doing in the U.S. from a sales force perspective, but a tele perspective and really engaging from a digital perspective. That's why you're seeing these growth rates. I'm sure over time, it will become competitive as well. We believe it's a huge opportunity, which is why we continue to invest and why we continue to see large growth rates. When you look at the SME segment in the U.S., it's competitive regionally. Different banks do different things because customers mean different things to them. We compete regionally.
You'll compete with Capital One, we'll compete with Wells, we'll compete with Citi and JPMorgan and so forth. What I would say is that it is probably not as intense as the competition that we traditionally see in the U.S. consumer business. The other thing is that we are truly leveraging scale here. We're leveraging the assets that we have from a large and middle market and global corporate card perspective. We're leveraging that global footprint, that's really helping us out. We'll continue to do that. I think if you look at Amazon, you look at Marriott, I'll just pick those two out in particular, because they truly had a choice. With the split portfolio with Marriott could have gone either with us or with Chase or could have split it.
What they liked was our assets, our ability to reach small businesses. We won that part of the portfolio, and Amazon obviously looked at it the same way. We're excited about not only the growth opportunities here, but the new partnerships that we've really just engaged with. We're going to continue to aggressively compete in these segments. The large segment, 9% growth. That's what I've always talked about when we've had the one-on-one analyst meetings. I've talked about how our value is to really help companies control their spending and reduce their spending. But as Jeff said, we're seeing an uptick in T&E, we're seeing an uptick in airline spending, we're winning more accounts. We believe we play really well in this space, and we're going to continue to compete very vigorously as we move forward.
Thanks.
We have a question from the line of Moshe Orenbuch with Credit Suisse. Please go ahead.
Great. Thanks. Maybe could you talk a little how we should think about the provision and reserve build over the course of the next year? Just given you've still got 30+% growth in losses on both the charge and the credit portfolios, and this quarter is a fairly small build. If the double-digit loan growth continues, how should we think about that?
If you think about it, Moshe, we went into this year with a very clear expectation. We communicated publicly that we thought provision would grow 30%. Given the growth we've seen and very importantly, as you would understand, the accelerating growth that you've seen over the last few years as we go through a seasoning process on some of the vintages from the last couple of years. That's just playing out actually a little better than we thought. Our loan growth is a little higher than we expected. Provision is coming in right where we thought this year.
We feel very comfortable and good about the trends, and we feel good about the overall economics. I'd also make the point that, I think you can kind of see this if you look at the provision slide. When you think about 38% for the year, in 2017, the first two quarters were much lower, then you had kind of a step up as we started building reserves. That factors into a little bit of the trend I would expect for the next two quarters. Once you get beyond 2018, look, we'll have to see at what rate loan growth continues to perform. I don't want to govern our team. I want to pursue as much really good, really economic, through the cycle loan growth as we can achieve, particularly with the focus we have on our existing customers.
Depending on what that happens to be in 2019, we'll have to see exactly what it means for provision. I think what we feel comfortable with is we are getting really good through the cycle economics, even net of the provisions that when you're accelerating growth, you have to build.
Thanks so much.
Thanks, Moshe.
Our next question will come from the line of Chris Donat with Sandler O'Neill. Please go ahead.
Thanks for taking my question. Jeff, I wanted to ask one question on Australia of all places, just because I'm trying to understand the dynamic there. I thought you said that build business was up 20% year-on-year in Australia, you got the headwinds from GNS. Is there something in the dynamic where we're going to lap a pricing-
Yeah.
-
No, Chris, I should probably clarify that. To remind everyone, what's going on in Australia is with the latest round of regulatory changes, we are in the process of shutting down our network business. We had some great bank partnerships that are slowly going away. That's why when you look at the GNS business, it is shrinking in Australia and will eventually shrink to essentially zero. That very fact is creating some really interesting growth opportunities for us on the term we use is our proprietary side, where we are the card issuer, including a co-brand that we have launched with one of our former network bank partners, Westpac. That is fueling really high growth rates for us in Australia. Over 20% is the number I cited.
I just remind everyone that when you replace a $1 of network billings with a $1 of proprietary billings, that is a really good trade economically. In some ways, this is just a commentary on the flexibility of our business model as the world changes competitively or from a regulatory perspective. I'd say we feel good about the overall trends in Australia.
Okay. That you got a decent runway, too, to grow the business as you move more proprietary in Australia? Because it had been, I think in the past, you disclosed that Australia was, I want to say like 4%-5% of revenues, or when you did sort of FX exposure. It was in one of your larger markets, at least.
Yeah. Australia is one of the five or six markets that are very significant to us outside. When you look at our non-U.S. results, you can pick eight or 10 markets, and that's most of the economics, and Australia would be near the top of that list.
All right. Thank you.
Thank you. Our last question will be from the line of Craig Maurer with Autonomous Research. Please go ahead.
Hey, Craig.
Hi.
Craig.
How are you?
Good. Wanted to drill down if I can a little bit on what you're seeing in the U.S. From our vantage point, we've seen deceleration in all your competitors in the U.S. and their U.S. purchase volume. You guys have done an amazing job sustaining growth. I guess the question begs, who are you taking share from, and in what categories in the U.S.? Look, from an SME perspective, we continue to grow. Even large market customers are even growing because if you look at sort of large market and global results in the U.S., just look at it sort of a year ago, these were sort of stagnant numbers for us. Our consumer business, we feel really good. We feel really good about the U.S. consumer business. Double-digit growth two quarters in a row.
We feel good about the co-brand partnerships that we just announced and launched, obviously, two of them. Look, with the networks report, I guess next week, we'll find out sort of where we are from a share perspective, at least directionally. Look, you've seen Citi and JPM and U.S. Bank and so forth report, so you can sort of look at their results and our results, and you can make your own assertion of just where it may be coming from.
All right. Thank you. Okay. Anyway, I thank you everybody for participating today. Let me just give a couple of closing thoughts. Hopefully what you've seen as a globally integrated payments company here, our business model, and we hope that the commentary did this today, does set us apart from the card issuing and merchant acquiring competitors. I think Saks was a really great example of just what we can do with relationships on both parts. It's different in the networks, and it's certainly different than the pure fintechs, which really don't have either relationships to brand or to scale to do some of the things that we've been doing.
We operate, we believe in an industry that has a long runway for growth, we think that differentiated business model that we have will provide us with many ways to take advantage of the opportunities that lie ahead. We feel good about the results we've generated by focusing on the four strategic imperatives that Jeff and I discussed not only in our prepared remarks, but certainly through the questions. Again, just once again, thanks for all of you for joining us today and for your continued interest in American Express.
With that, we'll bring the call to an end. Thank you, Jeff and Steve, and thank you to those of you on the phone. The IR team will be available for any follow-up questions. Operator, back to you.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for your participation and for using the AT&T Executive TeleConference service. You may now disconnect.