Ladies and gentlemen, thank you for standing by, and welcome to the American Express Fixed Income Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, this conference is being recorded.
I would now like to turn the conference over to our host, Ms. Vivian Zhou. Please go ahead.
Thank you. Welcome. We appreciate all of you joining us for today's discussion. The discussion today contains certain forward looking statements about the company's future financial performance and business prospects, which are subject to risks and uncertainties and speak only as of statements. Factors that could cause actual results to differ materially from these forward looking statements, including the company's financial and other goals are set forth within Q2 2013 fixed income presentation slides and in the company's 2012 10 ks and Q1 twenty thirteen 10 Q 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 today's 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 David Yowen, Executive Vice President and Corporate Treasurer, who will provide a Q2 2013 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, we will move to a Q and A session.
Joining Dave for the Q and A session will be Ken Pakowitz, Vice President of Investor Relations. With that, let me turn the discussion over to Dave.
Thank you, Vivian, and thanks to all of you for joining. We're pleased to host this fixed income investor conference call this quarter. We hope you find the information helpful and having a separate discussion that focuses on elements of our business of particular interest to fixed income investors. As always, we appreciate any feedback you have on how we can best provide you with the information you need to make your investment decisions. Today, 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 yesterday, 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 the slides, we'll start with Slide 2, which describes our 2nd quarter financial performance. Revenues reported revenues grew at 4% On adjusted for changes in foreign exchange rates, they also increased 4% as well. This compares to revenue growth of 4% in the first quarter on a reported basis and 5% on an FX adjusted basis.
Due to strong operating expense discipline as well as a slightly lower tax rate, net income grew at 5%, while diluted EPS at $1.27 per share was up 10% due to the decline in our shares outstanding, which you see at the bottom of the slide attributable to our share repurchase activity. Our reported return on average equity for the quarter was 24%. Remember that that return on equity reflects performance over a 4 quarter period and so is still impacted by the 3 special items that we recorded in the Q4 of last year. Without those three items, ROE would have been 27%. Slide 3 just describes the some of the revenue drivers and important business metrics behind that performance.
You'll see that build business on a recorded basis increased 7%. On an FX adjusted basis, it increased 8%. That compares to 6% and 7% respectively in the first quarter, very much in line therefore with the last several quarters of built business growth. Total cards in force increased to $104,300,000 that's up 4%. Proprietary card issuance increased by 2% with the rest of the card in force increase coming from our GNS business.
We deepened engagement with our existing card members as average card member spend increased by 4%. And then we continue to grow card member loans at low double low single digit rates excuse me, increasing 3% on a recorded basis and 4% on an FX adjusted basis. Turning to slide 4, we describe the performance write off performance in our charge card portfolios. On the left hand side, we have the performance for USCS that includes our U. S.
Consumer and U. S. Small Business Portfolios. Our write off rate for the 2nd quarter at 1.9% is atornearhistoric lows and as you can see from the chart very stable over time. That ratio reflects write off dollars over receivable balances.
On the right hand side, we show the write off history, the net loss history for our corporate card and for our consumer and small business charge card portfolios outside of the U. S. Here the ratio is losses over billed business. And so that's why the it's calibrated at a very different level. But you can also see that the write off rates there, the net loss rates have been very low and again are at or near historic lows.
Page 5 gives our lending credit performance on a worldwide basis. On the left hand side, our net write off rate for the 2nd quarter was 2%, down 20 basis points for the year ago period and consistent with prior quarters. Up to the right hand side of this slide, we have our 30 day past due. You'll see that delinquency rates fell 20 basis points both sequentially and on a year over year basis. Page 6 gives another view of the credit quality of our portfolio.
I shared this slide with you in previous discussions. This is data that comes out of the securitization trust issued by us and other competitors. The left hand side shows the proportion of balances outstanding with FICO scores below 660. And you'll see that our 2 trusts that's the Charge Trust, American Express Issuance Trust II and our credit card trust, American Express Master Credit Trust have the lowest proportion of their balances in FICO below 660. The right hand side shows FICO scores in excess of 720 and you see there that our true trust have the highest percentage of their accounts and balances in those categories.
Page 7 gives you a sense of the velocity of spending to outstanding balances on the Master Trust. This is the payment rate information. We've shown you this information over time, over a rather long time period over the last 5 years. You can see the increasing percentage of our portfolio, which gets paid off every month and that has been increasing from below 25% back in June 2008 to in excess of 30% in the most recent quarter. That's a reflection of consumer decisions to pay off their balances more rapidly than they had previously.
Turning to slide 8, we show our capital management strategy, which really has 3 different elements to it. 1 is we are committed to a strong and flexible balance sheet. We secondly, we do generate capital have been generating capital in excess of the needs for funding business growth. And so I've been distributing capital as part of our payout strategy. And our allocate capital allocation decision between retention and distribution is obviously a determinant of our return on equity as well.
In the next slide, on slide 9, we show our most recently reported capital ratios for the 2nd quarter. You'll see here that our Tier 1 common risk based ratios declined sequentially by 10 basis points. During the quarter, we generated roughly $1,700,000,000 of capital, dollars 1,400,000,000 from net income and roughly $300,000,000 from different employee benefit plans, stock based employee benefit plans. As we'll show you on the next slide, we distributed roughly 1.4 1 point our quarterly dividend, which was increased from $0.20 to 0 point 2 $3 effective in the second quarter. The 10 basis point decline in the Tier 1 common risk based capital ratio is attributable to a slight increase in risk weighted assets sequentially, which is due to both seasonal factors as well as that growth in our loan portfolio that I described earlier.
We have and now with the Basel III rules in the United States, the capital rules finalized. We do again describe the impact, the pro form a impact on our Tier 1 common risk based ratio in the second quarter. Those rules as we read and interpret them would have reduced our Tier 1 common risk based ratio by base ratio by roughly 28 basis points. So the 12.5 percent would be reduced by 28 basis points with the full implementation of Basel III as proposed. We also know that the supplemental leverage ratio in Basel III is a topic of much discussion in the financial press and among investors.
Our pro form a calculation of the supplementary leverage ratio is 8.8%. That is effectively the leverage ratio, the Tier 1 leverage ratio that we show on slide 9, the 10.5%. The biggest difference between that ratio and the supplementary leverage ratio is the inclusion of a portion of our open to buy credit lines and our credit portfolio in the denominator. Slide 10 shows our percentage of capital returned to shareholders and includes our share repurchase amounts. Year to date, we have repurchased 2 point 2,000,000,000 shares.
You remember that our maximum authority under the CCAR 20 13 process for calendar year 2013 is up to $4,000,000,000 of shares and then the additional authority in the Q1 of next year of an additional $1,000,000,000 of shares. What I wanted to do starting on slide 11 was just use the CCAR results that were released back in the first quarter to help you understand and see the flexibility that we have in our capital management program. This will be important, I think as well as we disclosed to you in the Q3 along with the other CCAR banks the results of our mid year stress test as required under the Dodd Frank Act as well. And so Slide 11 is from the CCAR results. This is the Fed modeling of our business under their macroeconomic scenarios.
And the assumption about the capital distribution embedded in this set of capital ratios across the CCAR Banks is effectively maintenance of the current dividend without any share repurchase activity in a severe macroeconomic scenario. And so you'll see that American Express at 11.1 percent on a Tier 1 common ratio is among the 3 highest of the participating banks on that basis. When we release our mid year stress test results prior to the end of the Q3, we will apply our own macroeconomic stress scenario, which we will describe to you and our payout assumption will be similar to what you see on Slide 11. Slide 12 on the other hand takes that macroeconomic scenario assumes the payment of the regular quarterly dividend, but adds on the share repurchase and any request for increases in dividends that were made by the firm. And so you see that the 11.1% ratio for us declines to 6.4%, somewhat under the median for the group.
So remember that what this scenario reflects on slide 11 is a severe macroeconomic scenario and the assumption that during that severe macroeconomic scenario, we would continue to repurchase shares according to our capital distribution plan. If you go back to the financial crisis, one of the levers that we employed in order to continue to maintain a strong balance sheet was the suspension of the share repurchase activity. And so that's certainly a lever that's available to us if conditions warrant. The next three slides just also give you a sense of the strength of our business model in severe macroeconomic scenarios. So Slide 13 shows that we are one of only 5 participating banks in the CCAR exercise that was cumulatively profitable over the 9 quarter time horizon.
Slide 14 shows that as a percentage of assets, our pre provision net revenue that is before credit provision cost is best in class across the CCAR Banks. And then lastly, Slide 15 shows for credit card issuers that are cumulative credit card loss rates. And again, these are loss rates that are modeled and disclosed by the Federal Reserve is lowest among that group. It's also worth noting that the loss rates described here are cumulative loss rates over the 9 quarter time horizon in the SPARC analysis. Slide 16 describes our funding and liquidity strategy.
We have been, for the last 5 years focused on diversifying our funding sources and our aim is to continue to have scale and relevance in each of 3 long term funding markets: the unsecured term market, the ABS market through our 2 securitization trusts and retail deposits. Our liquidity objective is to be able to maintain access to a diverse set of cash, readily marketable securities as well as contingent sources of liquidity so that we can meet all of our future financing obligations and business requirements for at least a 12 month period, including periods when we have no access to the unsecured or secured debt capital markets or the ability to raise further deposits. Our current liquidity is to make sure that we hold sufficient cash and readily marketable securities to meet all maturing funding obligations over the next 12 months. The way we think about those maturing funding obligations is on a consolidated basis and across all of our funding programs. So this is maturities at the parent company and at all of the subsidiaries of American Express.
It includes the unsecured debt ABS as well as retail CD funding maturities as well. Slide 17 shows that at the end of the second quarter, in fact, we did hold cash and readily marketable securities of $15,400,000,000 specifically set aside to cover the 14 point $4,000,000,000 of maturities across CDs, ABS and unsecured term over the next 12 months. The $15,400,000,000 is a subset of the total cash in the company. You'll note that in the footnote there that does not include the $15,400,000,000 does not include $7,700,000,000 of working capital cash that we had on hand at the end of the second quarter. Slide 18 reminds you of on a consolidated basis principal funding sources as well as our principal sources of contingent liquidity in times of stress in the capital markets.
As indicated, our funding sources include deposits, 2 ABS programs, unsecured debt. We do have some term bank facilities that we use to fund our assets in our company. And while we have not been a frequent and regular issue of commercial paper, we do have in place to do so and may issue small amounts of commercial paper from time to time to meet seasonal and other short term needs. On the contingent sources, I've reviewed the cash and broadly marketable securities we have on our balance sheet. Our 2 U.
S. Banks, American Express Centurion Bank and the Federal Savings Bank, do have access and collateral that's eligible at Fed's discount window. And we maintain some committed bank credit facilities in our non bank subsidiaries as well. Across the bottom of the page, you'll see that we have some secured borrowing through secured financing facilities. These are attached to our charge card trust as well as our lending trust.
And they're in the middle of the page because we will use them and have used them from time to time to fund seasonal and other short term needs in our business as well as they are available as a contingent source should other sources of liquidity be unavailable to us. Slide 19. Has our capital markets issuance volume to date. You'll see that we've issued $2,600,000,000 of unsecured debt and $600,000,000 of ABS so far this year. Slide 20 gives you the sequential walk in our total deposit portfolios.
You'll see that total deposits declined slightly during the quarter from $40,800,000,000 to $40,000,000,000 We did issue unsecured debt during the quarter and didn't need all the funding from these deposits. So you can see under the 3rd party CDs, we had $1,300,000,000 of those. And then in our 3rd party sweep program, we had $1,700,000,000 which we did not chose not to raise any additional funds. The direct column is personal savings from American Express, our direct to consumer offering of refilled deposits. And you can see that that continues to grow and grew during the quarter by $1,200,000,000 As we've transformed our funding profile, we continue to develop a set of expectations around this that the growth rates in deposits going forward will be slower than they have been up until this point lower than they have been up until this point and be more in line with asset growth than they historically have been.
Slide 21 gives you a time series of our composition of funding and the volume of funding across the four programs that we have in place. You can see the mix has not changed significantly over the last 3 years. But compared to 2010, we do hold a significantly higher percentage of deposits than other forms of debt. At the bottom of the page, we break out by legal entity, which part of that funding composition is embedded in the Centurion Bank and Federal Savings Bank and which pieces are issued by the other subsidiaries of the company. Beginning on Slide 22, I wanted to walk through and remind you all of our principal issuing entities for unsecured debt and then just give you a little visibility into each one of those entities, what their business purpose is, what their maturity ladder looks like to give you some insight into how our funding strategy actually works across the company.
So slide 22 shows our 5 principal issuing entities to the parent company, travel related services. I'll talk about each of these in a minute. American Express Credit Corp, Those are the 3 entities that on the prior page were included in the non bank category of outstanding debt. And then our 2 U. S.
Banks Centurion Bank and the Federal Savings Bank. Slide 23 talks about the parent company, which is a bank holding company. It has outstanding today 12 point $1,000,000,000 of debt and you can see that that debt is staggered as to maturities over the next several years and the majority of that debt matures beyond 2017. The funding raised by the parent company is used for general corporate purposes and the sources of funding for the parent company, the primary funding sources are dividends from subsidiaries, unsecured long term notes. Slide 24 is Travel Related Services, which is also a bank holding company.
It does not currently have any debt outstanding, but it has historically had some medium term notes outstanding and is eligible as an issue for us should the need arise. The uses of those funding for general corporate purposes and again its funding sources are medium and long term notes as well as it does have access to some of the liquidity raised to our charge card trust, American Express Issuance Trust too. Credco is our principal unsecured debt issuing entity. Its uses of funding there are to fund our U. S.
And non U. S. Charge card receivables as well as funding non U. S. Revolving cards.
In addition to the unsecured debt outstanding, its other funding sources include proceeds from the Charge Card Trust, bank credit facilities that we have drawn across the globe, intercompany borrowings and it is the entity that has the commercial paper capacity that we have not used but is available to
us should a need arise.
You see the funding maturities off to the right of the total $20,700,000,000 of unsecured debt also staggered out over several years. Slide 26 talks about American Express Centurion Bank. The funding here is to fund consumer charge card including our lending on charge products as well as the so called proprietary lending products. Those are not co brand products for example. Funding sources in the bank include retail deposits, 3rd party CDs and 3rd party sweep accounts that I showed you on the prior page, unsecured medium and long term notes, proceeds from asset backed securities issued by the Credit Account Master Trust as well as intercompany borrowings and other short term money market instruments.
On the right hand side, you see the funding maturities, both our CD book of $6,800,000,000 as well as the unsecured debt issued by Centurion as well. Federal Savings Bank on Slide 27 exists primarily to issue and fund co brand and our Open that is our small U. S. Small Business Services business charge as well as revolving products. It has access to retail deposits.
It is the issuer of our personal savings direct deposit program that I described earlier. It also raises deposits through 3rd party CDs and 3rd party sweep arrangements. It issues medium and long term notes, participates in the lending trust securitization and also has intercompany borrowings and short term money market instrument capacity available to it. Its funding maturities are relatively small at $1,800,000,000 $1,300,000,000 and we give you the maturity ladders there. Slide 28 is the lending trust, which was established in 1996.
It currently has total loans of $29,600,000,000 and outstanding certificates of investor interest of $17,000,000,000 as well as sellers' interest of 12.6 percent. You can see the funding maturities there by calendar year as well on slide 20 8. Slide 29 is the American Express Issuance Trust, AET1 and AET2, which was recently established. We did our first issuance from AET II earlier this year. You can see that as a 5 year deal due in 2018.
Slide 30 gives you the term maturity profile including certificates of deposit on a consolidated basis both at the end of June as well as the end of last year to show you the change that's occurred in the last 6 months as a result of the issuance and maturity activities. With that, let me conclude with a few final comments. We continue to feel positive about our performance, especially given the relatively slow growth economic environment. During the quarter, spend growth continued to be healthy and was relatively consistent with past several quarters. We saw average loans continue to grow modestly year over year and outpace the industry.
At the same time, lending loss rates remain near all time lows. We continue to return significant capital to shareholders in the quarter through dividends and buybacks, while maintaining strong capital ratios. This strength in our balance sheet puts us in an excellent position to meet our ongoing business requirements and make investments in the business. Our access to diversified sources of funding, our cash position and cash flow and liquidity profile prepare us well for uncertain times. We recognize our business is not immune to the economic environment, but continue to believe that the flexibility of our business model enables us to deliver significant value to our stakeholders even in a slow growth environment.
Thanks for listening. And Ken and I are now ready take any questions you might have.
With no further questions at this point, again, thank you for listening.
Thank you.
We do have a question. Would you like to take it?
Of course.
Okay. It comes from the line of Ryan Buckleth from Citigroup. Please go ahead.
Hi. I had a quick question on the guidance for issuance for 2013. I believe it was $4,000,000,000 to $10,000,000,000 that was mentioned at the end of 2012. And I was just checking to see if that remains the guidance for this year and as it is offset by 2 point $6,000,000,000 so far of year to date issuance?
So, Ryan, thanks. We don't update that guidance during the year.
Okay. Just another question in addition to that would be for potential issuance. Could you give us a flavor about what your thoughts are for tenors or mix of issuance in terms of currencies and so forth?
So I think if you look historically, the majority of our unsecured debt issuance and our ABS issuance is in the 3 or 5 year tenors. Some of the longer term debt we've issued at the parent company as the maturity ladder there indicates. But our I think our historical pattern you've seen us issue in the 3 5 years most frequently. The majority of our unsecured debt is issued in U. S.
Dollars. We have issued and have maintained a Canadian MTN program as you know and have issued in non U. S. Dollar currencies from time to time when conditions warrant that. And so we do have the flexibility to do that.
But the bulk of our issuance activity certainly historically has been in U. S. Dollars.
Okay. Thank you very much and thanks for hosting the call.
Again, thank you. Thank you for listening.
And there are no further questions. And ladies and gentlemen, that does conclude our conference for today. This conference will be available for replay after 7 o'clock p. M. Today until July 25 at midnight.
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