Ladies and gentlemen, thank you for standing by. Welcome to the American Express Fixed Income Conference Call. At this time, all participants are in a listen only mode. Later, there will be an opportunity for questions and answers with instructions given at that time. As a reminder, today's conference call is being recorded.
I would now like to turn the conference call over to your first speaker, Vice President, Global Funding and Debt Investor Relations, Keri Bernstein. Please go ahead.
Thank you, Alan. 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 risks and uncertainties. Factors that could cause actual results to differ materially from these forward looking statements are set forth within last week's earnings press release and earnings supplement, which were filed in an 8 ks report and in the company's other reports already 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 Q2 2014 earnings release, earnings supplement 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 dot com. We encourage you to review that information in conjunction with today's discussion. Today's discussion will begin with David Yellen, Executive Vice President and Corporate Treasurer, who will provide a capital and funding update, including some key points related to the company's financial performance and provide some brief summary comments. Once Dave completes his remarks, he will move to a Q and A session.
With that, let me turn the discussion over to Dave.
Thank you, Carrie, and thank you all of you for joining this afternoon. We're pleased to host a fixed income investor call this quarter. We hope you find both informative and helpful a separate discussion that focuses on elements of our business of particular interest to fixed income investors. As always, we appreciate any feedback you might have on how we can best provide you with the information you need in order to make investment decisions. This afternoon, we're going to provide you with a capital and funding and liquidity management update.
Some of you may have joined us on our earnings call last week and there are some key points from that call that I would like to reemphasize. Then I'll take you through some specifics on our capital position and liquidity profile. Turning to slide 3. Many of you I know are familiar with our franchise, a global service company, principal products, are charge and credit cards and as measured by spending volume purchase volume we are the world's largest issuer of cards. Our business model is distinguished by our spend centric business model as well as the closed loop network.
Talk a little bit about both of those in a second. Key to our company and our franchise is our brand. The brand is recognized for service quality and trust and we are particularly proud of the exceptional service and the recognition of that service that we've received over time. The average spending on our card is 3 or 4 times higher than our network competitors and our footprint is truly global with over 109,000,000 cards in force, over 140 card issuing or merchant acquiring arrangements and over 1200 American Express branded products. Slide 4 gives you some historical financial performance information as well as reminds you that we are segmented into 5 different business operating segments.
U. S. Card Services includes our U. S. Consumer and Small Business Activities.
International Card Services includes international consumer and small business activities, those conducted outside the United States. Global Commercial Services includes our corporate card business. Global Network and Merchant Services segment includes both the activities where we partner with other financial institutions that issue cards and acquire merchants for transactions that are authorized on our network, while Global Merchant Services works with providers of goods and services including retailers and seek to have them accept the American Express card as a form of payment. Our Corporate and Other segment includes our Travelers Check business and our enterprise growth activities as well. Slide 5 reminds you of the payments landscape as the different parts of a payment transaction.
American Express's business model is distinct in that we participate at all parts of a payment transaction. This provides us with 2 advantages. 1 is we capture the full economics of a payments transaction. Secondly, it provides us with an information advantage, which we can use to manage risks such as credit risk as well as work with merchants to help them promote their businesses. Slide 6 is our spend centric model.
Those of you who have covered us for some time know that this has been a feature of our business model for some time and one that we can think continues to provide us with a competitive advantage. The average spending on American Express cards as I mentioned is 3 to 4 times the spending on other network providers that allows us to enjoy premium economics which we use to invest in world class service as well as other value propositions to our card members such as our membership rewards program. Those compelling value propositions in turn allow us to attract people that are characterized by high average spending. Turning to slide 8. I'll just review briefly our 2nd quarter operating performance.
Revenues both on an FX adjusted and reported basis rose 5% as a consequence of some strong expense management discipline. Net income grew by a greater amount at 9%. And then as a result of our share repurchase activities, you'll see that average shares outstanding were down 4%. That helped drive EPS growth in excess of net income growth. And so EPS grew to $1.43 per share from $1.27 per share in the same period last year.
As a reminder, our results in the quarter include some one time items specifically a gain on the establishment and the closing of a joint venture involving our global business travel business, offset in part by deal related costs, restructuring reserves, a contribution to our charitable foundation as well as some incremental investment spending business building investment spending as well. Slide 9 talks about some of the key drivers of revenue build business spending on the cards as you can see up 9% in the quarter. There are really 2 ways for us to drive put our products in the hands of our customers. You see the total cards in force grow at middle single digits. The second way to grow the business is to increase our share of payments activity among existing customers.
And you see that average basic card number spending also grew by middle single digits both on a reported and adjusted basis. We continue to see mid to low single digit growth in card member loans as we have for some time now. Total card member loans ended the quarter at $66,300,000,000 dollars up 5% on both a reported and FX adjusted basis. Turning to slide 10, you can see some of the sequential patterns in some of these key metrics. In particular, I'd point out that build business growth on an FX adjusted basis grew by 200 basis points, 2 percent quarter over quarter.
And at the bottom of slide 10, you'll see our worldwide lending write off rate at 1.6%. Those loss rates continue to be at or near all time historic lows for the company. Slide 11 gives you a good sense of the relative size of our business relative to other large U. S. Card issuers.
I think gives you a good representation of the SpendCentric business model. On the left hand side of the page, you can see that we are by far the largest issuer in terms of billed business. On the right hand side of the page, you'll see that our loans outstanding are closer to the smallest on that list. Starting on slide 12, we'll review some of our asset quality and credit statistics. Slide 12 includes the write off rate on our charge card product, the pay in full product, both within our U.
S. Business as well as our businesses outside the U. S. See that the sequential pattern in some of these write off rates with some slight declines sequentially both in the U. S.
And in the international businesses in part due to changes seasonal changes in balances sequentially. Slide 13 gives you a charge card credit performance both for ICS on a net loss ratio basis. The net write off rate on the prior page for ICS effectively has net write off dollars in the numerator and charge card receivables outstanding as the denominator. On slide 13, the net loss ratio has net write off dollars in the numerators and spending on the cards in the denominator as well. So on a different basis, that's the same basis, the billings basis that the Global Commercial Services net loss ratio is calculated as well on the right hand side of slide 13.
Turning to slide 14. We turn to credit performance in the credit card portfolios. You can see the write off rate on the left hand side decreased sequentially by 10 basis points from 1.7% to 1.6%, while delinquency rates as measured by 30 days past due declined sequentially from 1.2% down to 1%. Slides 1516 put our credit statistics in the context of some of the other major card issuers, which you can see on both of these, our write off rates and delinquency rates remain best in class against these other large card issuing competitors. Slide 17 gives you yet another measure of asset quality.
In this case, these data are compiled from securitization data. American Express sponsors 2 different securitization trusts, 1 for our charge card product, 1 for our credit card loans. You'll see on this page that as a proportion of total assets outstanding, the proportion of our assets with FICO scores less than 660, the so called subprime component is the lowest. While on the right hand side, you'll see that the proportion of assets where the FICO score exceeds 720, the so called super prime segment is among the highest of all the issuers. Turning to page 19.
I'll review the balance sheet management including capital management and funding and liquidity for our company. Slide 19 reminds you that we remain committed to a strong balance sheet. We generate a large amount of capital in excess of our needs in order to maintain capital strength. We use that capital that we generate both to fund organic business growth as well as make acquisitions from time to time. And any excess amount we distribute to shareholders in the form of dividends and through our share repurchase activity.
The payout ratio and our retention strategy have allowed us to have a ROE target of 25 in excess of 25% over time. Slide 20 shows our reported capital ratios on a sequential basis. You'll see that the common equity Tier 1 ratio, risk based capital ratio declined 20 basis points from the Q1 to the 2nd from 13.6% to 13.4%. One of the key drivers of that is a seasonal increase in assets, charge card receivables and loans outstanding. Do disclose that these ratios I should say are calculated on a so called Basel III hybrid basis.
The numerator is essentially a Basel III definition of capital including transition items. The denominator is a Basel I calculation of risk weighted assets. Disclosed that on a Basel III standardized basis, the common equity Tier 1 risk based capital ratio would decline by roughly 75 basis points compared to these reported ratios for the 2nd quarter. Turning to slide 21, we begin our discussion of our funding and liquidity management activities. We remain committed to this and are attempting to maintain scale and relevance in each of our 3 long term funding programs: unsecured term debt, asset backed securitization and consumer deposits.
Our liquidity objective is to maintain access to a diverse set of sources both on and off balance sheet and maintain liquidity sources and amounts to meet our business requirements and expected future financial obligations for at least a 12 month period in which we did not have access to our regular sources of funding. Slide 22 just describes some of our primary funding and liquidity sources. We are an issuer of retail deposits. As I mentioned, we have 2 separate asset backed securitization programs, 1 for charge card, 1 for credit card. We are an issuer frequent issuer of unsecured term debt.
We also finance our business activities through term bank facilities and to a lesser extent commercial paper. Our contingent sources of funding in for difficult environments in the capital markets include a significant amount of cash and readily marketable securities. Our 2 U. S. Banks have access and are eligible to borrow at the Fed's discount window.
We also maintain committed bank facilities. And both the charge trust and the lending trust are used as collateral for some secured financing facilities. Those facilities are ones that we use from time to time principally to finance seasonal changes seasonal balance changes in our business as well as they're available to us as a contingent source of liquidity should other sources be unavailable around economic. Slide 23 gives you a history of our issuance volume in the capital markets both for last year and for this year. To date, we have done 2 unsecured deals and 2 ABS deals totaling $4,700,000,000 $2,300,000,000 dollars respectively.
Slide 24 reminds you of our range of potential issuance both on an ABS and unsecured basis with the range for card ABS between $3,000,000,000 $9,000,000,000 for calendar year 2014 and an unsecured funding range issuance range of between $6,000,000,000 $12,000,000,000 Slide 25, our shows the historic growth and evolution of our retail deposit program. We ended the 2nd quarter with a total of $41,300,000,000 of retail deposits, U. S. Retail deposits. The by far the largest source of those is our direct deposit program branded under personal savings from American Express.
We also have distribution through 2 other channels maintained by various third parties that allow us to issue certificates of deposit and money market sweep accounts. Slide 26 gives you a sequential view looking back over the last 4 years of our outstanding funding composition and the proportion of it that is taken up by each one of our major funding programs. For those of you who have covered us for some time, you'll know that this picture is very different than it would have been before the financial crisis. We now feel that the mix that we have today between deposits, ABS and unsecured term is a relatively stable one and we would not anticipate significant changes in this mix going forward. With that, I'll end my prepared remarks and be prepared to take questions.
I will I am joined in the Q and A session by Ken Pachowicz of our Investor Relations Group at American Express.
Citigroup. Please go ahead.
Afternoon. Thank you again for hosting the call. Just a question on the unsecured debt issuance estimated range for 2014. It's $6,000,000,000 to $12,000,000,000 I was curious to see how much has been completed this year of that estimated range?
Yes. So, Ryan, that's on slide 24? Yes. Yes. It's the range.
And then it's the slide before that which is slide 23. We've completed $4,700,000,000 of unsecured debt today through the end of the second quarter.
Okay. And that includes all global issuance?
It does. Yes.
Okay. And another question I had was, do you provide an estimated supplementary leverage ratio?
We're checking. I would say that what I'd be quick to say is that we have calculated it and we do not anticipate that it be well in excess of the minimum requirements on that. Yes. As a matter of fact, I'm just reminded we did disclose that in our supplement and our estimated supplementary leverage ratio is 9.4%. Okay.
Thank you very much. Thank you. Thanks for your question.
We'll next go to the line of Robert Smalley with UBS. Go ahead please.
Hi. Thanks for doing the call. A couple of quick questions on credit quality. First, in terms of the experience between 30 days past dues and write downs, are you still seeing the same kind of rates going for 30 days past dues to write downs? Or is it are you hearing more instead of going to write downs?
What's the experience been there in terms of how your what the treatment is versus maybe in prior periods?
Yes. So this is Ken Paquid. So there really hasn't been that dramatic a shift between you're getting at kind of the migration rates from the early delinquency buckets to the write off rate buckets. If you look at the trend in those metrics year over year, you can see that both of the metrics are down a little bit from where they were in the prior year and I think at consistent levels. So we continue to see, albeit at a slower pace, gradual improvement in delinquency rates.
And those gradual improvements have translated to slightly better write off rates as well. So I wouldn't say there's been any noticeable change in those migration rates.
And in terms of overall card growth, I know that leading into the crisis, there had been growth in California and Florida cards. Now that we've come out of the crisis, are you seeing similar kind of growth geographically? How has that changed at all? Yes.
So I think going into the crisis, you're right. One of the things that we pointed to that impacted our write off rates going in there is some of the geographic mix and the fact that AmEx does have a higher presence on the coast than in other markets that were impacted more by some of the real estate pricing impact that had an impact on our credit performance. Obviously, since that time, we've enhanced our risk models quite a bit to take into account geography as one of those factors. And I would say, overall, the growth in cards that you're seeing, Dave referenced the 5%, which is the global growth in cards. I don't think there's any noticeable pattern there from a geographic standpoint.
One thing actually that would be probably helpful in those geographies is that those are now the geographies where real estate prices have actually recovered to a greater extent, which if anything gives people more equity that they can use to tap into for some of their credit needs. So I think we've enhanced our models quite a bit to incorporate that. And I wouldn't say there's any noticeable shift. It's been pretty even geographically in terms of where that card growth is coming from.
That's very helpful. Thanks very much.
We'll go to the line of James Strecker with Wells Fargo. Your line is open.
Good afternoon, gentlemen. Thanks for hosting the call. Just a couple of quick questions. First, in terms of deposits, there's a lot of concern among analysts and the media, etcetera, these days about the performance or the stickiness of deposits in a rising rate environment. If I look at your breakdown, obviously, there's a lot of direct consumer deposits and Amex has huge cache.
But just thinking about like the 3rd party suite programs and the 3rd party CDs, do we expect those to continue to decline over time? Have you thought at all about how you model outflows and deposit beta? And just some general questions around that or general comments around that.
Yes. So thanks for your question. And indeed you're right. When you think about the direct program personal savings from American Express, that's certainly one where we have direct relationship with customers and we obviously have the ability to continue to price competitively to retain those balances. We started that program in 2,009.
And so we've not been through a rate cycle with that program, but certainly the products that we offer have been in the marketplace for some period of time. You can imagine we've spent a lot of time studying the pricing patterns in that marketplace and spend a lot of time understanding the competitive marketplace that we're in today. So it's certainly something that we're very focused on and we feel comfortable obviously that we've got the levers in place, the knowledge and the relationship with the customers as well as the ability to price competitively there to continue to keep that persistency. In the 3rd party arrangements, there's a little bit of difference on the CD rates, for example. We also control that rate there.
And so like as with any financial product, you have to price competitively in order to continue to attract people to those products. The sweep account products are a little different. We don't have that direct pricing capacity, but we do have through some of the contractual arrangements we have with distributors, we have some for lack of better words some balance protection there that we have and that gives us greater confidence that those balances will continue to persist through different rate cycles.
Okay, great. Thanks for that Dave. Maybe on a related note, since the growth in deposits has been so strong over the last few years and you've obviously got the securitization market back open. What about the willingness or the appetite to continue issuing debt out of the bank entities? There's only been a couple of examples over the last few years.
Is that just circumstances and unrelated? Or is there a specific desire to kind of decrease issuance out of the bank entities?
It is a combination of factors. I would say that the single biggest factor in the reduced amount of issuance that you've seen debt issuance that you've seen out of the banks over the last several years is as we were growing the deposit base rapidly, the deposit base is exclusively in the 2 banks. And in fact, personal savings, the direct piece is in the federal savings banks. We were using that growth in liabilities largely to replace maturing liabilities. And in some cases, obviously, those included unsecured debt.
We are, as we said, continue to be committed to having scale and relevance in all of our debt programs. As I think you know, Credco and to a lesser extent, the parent company have historically been the largest issuers of unsecured debt. And for a variety of reasons, I think you could expect that that would continue to be the case going forward.
Okay. And then maybe one last one, because I think it's going to be a quick no, but any other comments besides what Jeff said during the earnings call about the ongoing anti steering case?
No additional comments.
Okay. I figured I'd ask. Thanks a lot guys. Thank you, Ben.
And there are no further questions in queue at this time.
Great. Again, thank you all for participating in today's call. We hope you found it helpful. And of
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