American Express: Why Credit Provisions Fell 23%

American Express reported another strong quarter last week. Revenue increased 9% to $20.1 billion, billed business grew 8%, and adjusted earnings per share rose 13% to $4.68. Customer spending, card fees and net interest income all contributed to the improvement.

One of the more interesting developments was further down the income statement. Consolidated provisions for credit losses declined 23%, from $1.287 billion to $985 million. That helped profitability, but it would be a mistake to interpret the entire reduction as evidence that customers suddenly became substantially less likely to default.

In fact, American Express reported slightly higher net write-offs on its card balances. The apparent contradiction becomes easier to understand once we separate two concepts that are often treated as interchangeable: expected credit losses and losses that have already been recognized through write-offs.

What changed in American Express's third quarter?

According to the company's October 23 earnings release, consolidated credit-loss provisions declined to $985 million from approximately $1.3 billion a year earlier.

The company explained that the decrease reflected a reserve release during the current quarter, compared with a reserve build in the prior-year period. Higher net write-offs partly offset that benefit.

The underlying figures make the distinction clearer. For card balances, American Express recorded $1.130 billion of net write-offs during Q3 2026, compared with $1.111 billion a year earlier. Despite the modest increase in recognized losses, the card-balance provision declined from $1.220 billion to $895 million.

Those figures are not inconsistent. The provision represents an accounting expense that incorporates both recognized credit losses and changes in the amount reserved for future expected losses. A write-off, by contrast, occurs when a balance is considered uncollectible.

The accounting distinction matters because changes in expected losses can affect reported profitability before the corresponding credit outcomes are fully realized.

Credit provisions and write-offs measure different things

When a lender extends credit, it accepts the possibility that some borrowers will not repay everything they owe. Financial institutions therefore estimate expected credit losses and recognize provisions through their income statements.

These estimates are not limited to customers who have already stopped paying. Under the Current Expected Credit Loss methodology, lenders consider historical repayment behavior, current credit conditions and reasonable expectations about future economic developments.

American Express explains in its September 2026 Form 10-Q that its reserve models incorporate factors such as probabilities of default, expected balances at default, potential recoveries and macroeconomic scenarios.

A write-off occurs later in the credit process, when the company considers an outstanding balance uncollectible. Write-offs reduce the reserve that was previously established, rather than automatically creating an equivalent new expense at that moment.

The result is that provisions and write-offs operate on different timelines. One incorporates expectations about losses that may occur in the future. The other reflects balances that have reached the company's recognition threshold for being uncollectible.

How a $235 million reserve release changes the picture

The most instructive part of American Express's quarter is the relationship between its write-offs and the reserve adjustment.

In Q3 2026, card-balance net write-offs totaled $1.130 billion. The company also recorded a $235 million reserve release, reducing the provision associated with card balances to $895 million.

In the comparable quarter of 2025, net write-offs were $1.111 billion. Instead of releasing reserves, American Express added $109 million to them, producing a card-balance provision of $1.220 billion.

The arithmetic illustrates the difference:

Q3 2026: $1.130 billion in card-balance net write-offs, less a $235 million reserve release, resulted in a $895 million provision.

Q3 2025: $1.111 billion in card-balance net write-offs, plus a $109 million reserve build, resulted in a $1.220 billion provision.

Other credit-loss categories contributed additional provisions in both periods, bringing the consolidated totals to $985 million and $1.287 billion, respectively.

The important observation is that the reduction in provisions did not require realized credit losses to decline. A substantial part of the difference came from how much the company expected to need in reserves.

Why were fewer reserves needed?

American Express's quarterly filing provides important context. The company stated that its card-balance credit-loss reserve declined during the quarter primarily because of enhancements to the models used to estimate expected losses, partly offset by an increase in outstanding balances.

For the first nine months of 2026, the company also identified lower delinquencies as a contributor to declining reserves.

Those explanations are useful because they separate actual customer payment behavior from changes in the assumptions and models used to estimate future losses.

Model improvements can produce legitimate changes in reserves. Better data, revised methodologies or more accurate estimates of repayments and recoveries may indicate that the previous reserve amount was no longer appropriate.

However, a reserve release is not equivalent to receiving additional cash from borrowers. It reduces an accounting expense by changing the estimate of losses expected on outstanding credit exposures.

Investors should therefore consider why a reserve changed, rather than automatically treating a lower provision as evidence of stronger customer finances.

The credit-performance indicators provide a useful reality check

American Express's actual credit-performance metrics were relatively stable during the quarter. The principal-only net write-off rate for consumer and small-business card balances declined from 1.9% to 1.8%.

The share of those balances at least thirty days past due also declined from 1.3% to 1.2%. These improvements provide some supporting evidence that credit performance remained healthy, rather than suggesting an obvious deterioration in borrowers' repayment behavior.

At the same time, the absolute amount of net write-offs on card balances increased slightly. This is partly why investors should distinguish a loss amount from a loss rate.

American Express's total card balances increased 7%, from approximately $205.8 billion to $221.1 billion. A larger portfolio can generate more dollars of losses even when the percentage of balances being written off declines.

There is also an important measurement detail. The commonly cited 1.8% principal-only write-off rate covers consumer and small-business card balances and excludes interest and fees. The $1.130 billion absolute write-off figure covers a broader card-balance measure, including relevant interest and fees, net of recoveries. The figures should therefore not be treated as numerically identical measures expressed in different units.

Together, the data suggests that American Express's credit performance remained relatively resilient. It does not justify treating the entire provision reduction as a permanent improvement in the underlying economics.

Why credit-loss estimates matter for earnings

Credit provisions flow through the income statement. If expected losses increase, the required provision can rise and reduce current reported profit. When reserves are released, the provision can fall and reported profit can benefit.

That creates an analytical challenge because financial companies can experience meaningful earnings movements without an equally large change in current customer spending, interest income or realized credit losses.

American Express reported Q3 earnings per share of $5.42, compared with $4.14 a year earlier. However, the quarter also included a gain from selling its equity interest in Global Business Travel Group, partly offset by restructuring expenses. Management's adjusted EPS figure was $4.68, representing 13% year-over-year growth.

The credit provision is a separate consideration from those disclosed non-recurring adjustments. It is part of the company's ordinary lending economics and should not simply be excluded whenever it moves favorably or unfavorably.

Instead, investors should ask whether the current provision is consistent with portfolio growth, credit quality, reserve coverage and the long-term loss experience of the business.

That distinction matters because a lender can report stronger earnings during a period when reserve releases provide temporary support. The sustainable economic performance ultimately depends on whether the assumptions behind those reserves prove reasonable.

The balance sheet adds another perspective

At September 30, American Express held approximately $5.634 billion in reserves against its card balances, compared with $6.068 billion a year earlier.

Over the same period, the card-balance portfolio increased. As a result, reserves declined from approximately 2.9% of card balances to 2.5%.

This change is worth monitoring because it describes how much of the outstanding portfolio is covered by the company's current allowance for expected credit losses.

A lower reserve ratio is not automatically a negative development. It may reflect better borrower characteristics, improved repayment performance or more refined estimates of expected losses.

But the interpretation depends on what happens next. If delinquency rates remain controlled and realized losses develop in line with the updated expectations, the lower reserve ratio may prove appropriate. If economic conditions deteriorate or credit losses exceed expectations, additional provisions could become necessary.

The analytical objective is not to assume that reserve releases are good or bad. It is to determine whether the remaining reserves are reasonable relative to the risks in the portfolio.

What the MOATEY evidence adds

The latest MOATEY assessment classifies American Express as a Stalwart, with a Poor overall rating and a score of 40.7 out of 95 points.

Following the latest financial update, MOATEY's Growth assessment increased from 5.1 to 6.3 points. Its five-year revenue growth measure improved from 7.59% to 8.22%, while the earnings growth measure increased from 10.31% to 12.68%.

Financial Health, however, declined from 15 to 9.1 points. The overall Fundamentals assessment decreased from 38.7 to 35.4 points.

These changes should not be interpreted as evidence that the reserve release itself caused MOATEY's Financial Health assessment to deteriorate. MOATEY evaluates multiple financial characteristics using a systematic framework, while the provision and write-off discussion concerns specific accounting and credit-performance measures.

The broader relationship is nevertheless useful. Improving revenue and earnings growth does not automatically mean every aspect of a company's financial position has improved.

MOATEY's five-year free-cash-flow growth measure also remains negative at -1.15%, despite the positive revenue and earnings growth measures. These are MOATEY framework observations that may contain proprietary adjustments and should not automatically be equated with raw reported company growth rates.

Readers who want to examine the systematic methodology, supporting evidence and historical validation can consult the MOATEY factsheet and supporting documentation.

The practical lesson is that earnings, credit losses, financial health and valuation remain distinct analytical questions. A single favorable accounting development should not replace a broader assessment of the business.

What investors should watch in the next quarter

When American Express reports again, the most useful approach will be to examine provisions and write-offs together. A provision decline supported by lower delinquencies and stable realized losses would tell a different story from one driven primarily by additional reserve releases.

Portfolio growth also matters. If outstanding balances continue expanding, the absolute dollar amount of credit losses may increase even when loss rates remain stable. Investors should therefore monitor both the size of the credit portfolio and the proportion of balances becoming delinquent or being written off.

The reserve ratio provides another useful check. American Express's allowance currently represents approximately 2.5% of card balances. Whether that level remains appropriate will depend on future customer payment behavior, economic conditions and the company's expected-loss assumptions.

Finally, investors should connect the credit picture to profitability. Higher spending, card fees and interest income support revenue growth, but sustainable earnings also depend on funding costs, customer benefits, operating expenses and the credit losses associated with the company's lending activities.

American Express's latest quarter illustrates why financial-company analysis requires more than reading the headline earnings number. Credit-loss provisions fell substantially, but realized card-balance write-offs increased slightly. The difference came in meaningful part from changes in reserves for expected future losses.

For long-term investors, the lesson is straightforward: expected losses and realized losses are related, but they are not the same. Understanding the difference makes it easier to judge whether reported earnings reflect improving underlying economics or changes in the estimates used to measure them.