Ladies and gentlemen, thank you for standing by. Welcome to the American Express fourth quarter 2012 earnings 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. Should you require assistance during the call, please press star then 0. As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Mr. Rick Petrino. Please go ahead.
Thank you. Thanks to everyone for joining us for our Q4 discussion again. 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 today. The words believe, expect, anticipate, estimate, optimistic, intend, plan, aim, will, should, could, likely, and similar expressions are intended to identify forward-looking 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 today's earnings press release and earnings supplement, which were filed in a Form 8-K report and in the company's 2011 Form 10-K and Q1, two and three 2012 Form 10-Q reports already on file with the SEC. The discussion today also contains certain non-GAAP financial measures.
Information relating to comparable GAAP financial measures may be found in the fourth quarter 2012 earnings release, earnings supplement, and presentation slides, as well as the earnings materials for the prior period 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 Dan Henry, Executive Vice President and CFO, who will review some key points related to the quarter's earnings through the series of slides included with the earnings documents distributed and provide some brief summary comments. Once Dan completes his remarks, we will move to Q&A. With that, let me turn the discussion over to Dan.
Okay, thanks, Rick. I'll start on slide two. This is the fourth quarter, a summary of financial performance. Revenues came in at $8.1 billion, up 5% both on a reported and FX basis. If you exclude the $93 million of card member reimbursements that are contra revenues would have grown 6%. Net income came in at $637 million. That's $0.56 of EPS. If you exclude the restructuring charge, MR reserve, and card member reimbursements that we discussed last week, adjusted EPS would be $1.09. ROE was 23%. If you adjusted for the same three items I just mentioned, it would have been 26% for the fourth quarter. You can see shares are declining, reflecting our repurchases. Moving to slide three.
This is a reconciliation from net income of $637 down to income of $1.2 billion, which relates to $1.09. The first item here is the restructuring charge. Restructuring is part of staying ahead of the curve and is designed to contain operating expenses and free up resources for growth initiatives. Our core business results continue to show the benefits of growth investments we've made over the last several years. We have increased share in a very competitive U.S. industry, improved risk management capabilities, and introduced innovative products. We believe these fourth quarter actions will make our cost structure leaner and more efficient. Our aim is to grow operating expense less than 3% in both 2013 and 2014, freeing up funds to reinvest back into the many growth opportunities we have across the business, be it our core products, prepaid or mobile.
Next is the Membership Rewards expense related to the refinement in the estimated ultimate redemption rate in the U.S. Third is card member reimbursements for issues that go back several years. The line items in the statement of income that these items are reflected on is clearly laid out on a chart in our 2012 fourth quarter earnings supplement. Moving to slide four. This is the only slide we have on full year 2012. You can see revenues came in at $31.5 billion, up 5% or 6% on an FX adjusted basis. Net income was $4.4 billion. That relates to EPS of $3.89. If we were to adjust for the items that I discussed before, adjusted EPS would be $4.40.
You can see the lower shares reflect the repurchase of 69 million shares during the year and the issuance of 10 million shares under employee plans. Moving to slide five. These are our fourth quarter metrics. Billed business was 235 billion in the fourth quarter. That's up 8% from last year or 7% on an FX adjusted basis. In the third quarter, reported growth was 6% or 8% on an FX adjusted basis. Billed business growth, very similar in the fourth quarter to what we saw in the third quarter. Our billings growth continues to be toward the upper end of the range among our large issuing competitors. Cards in force and average basic card member spending growth also are similar to the third quarter. We grew proprietary cards 3% in this quarter.
Card member loans growth was down slightly from the 6% we had in the third quarter to 4% in the fourth quarter. Moving to slide six. This is billed business growth by segment. Total FX adjusted growth moved from 8% in the third quarter to 7% in the fourth quarter. GNS, the yellow line, has moved up slightly to 12% on higher growth in Latin America. Global Corporate Services, the green line, moved down slightly to 6% growth as T&E spending grew more slowly than total billings growth. In the upper right hand, you can see the full year we had billed business of 888 billion. Moving to slide seven. This is billed business growth by region. The U.S. growth slowed slightly from 8% to 7%. The other regions are either stable or growth was up slightly. JAPA, the green line, is up slightly.
Australia's growth rate stabilized in the fourth quarter, and Hong Kong growth was stronger. EMEA, the blue line, also is up slightly, driven by higher growth in Germany and the U.K. Moving to slide eight. This is worldwide managed loans. The bars reflect the dollar amount of loans in each quarter, and the line is the growth rate. We now have several quarters where we've had growth around 4%, slightly down from 6% in the third quarter. We are seeing growth in loans driven by our billed business growth. We are not using zero-balance transfers to grow loans. If you look at our competitors, November year to date, 73% of consumer acquisition mail offers included a zero balance transfer offer. In the fourth quarter, growth of spending on lending products was 9%, while loans grew 4%. We continue to see excellent credit quality.
Moving to slide nine. This is revenue performance. Total revenues grew at 5%. You can see that in the bottom right, 6% excluding the card member reimbursement, $93 million, which were contra revenues. Starting at the top of the page, discount revenue grew 6%, reflecting 8% growth in billed business, partially offset by decline in discount rate, the impact of card member reimbursements, and higher contra revenue items, including cash rebate rewards. Net card fees reflect an increase in proprietary cards and higher average fees per card related to our premium products in U.S. consumer and international consumer businesses. Travel commissions and fees decreased 2% due to lower transaction-related revenue. Business travel sales declined 1%, while U.S. consumer travel sales increased 9%. Other commissions and fees are up 5%, that growth primarily reflects higher revenues at Loyalty Partner. Other revenues grew 4%.
We had a larger gain on ICB shares in the fourth quarter this year compared to last year, although the fourth quarter gain on the ICB shares was similar to what we had in the third quarter. We also had higher network partner fees in GNS. Net interest income increased 7%. Average card member loans are up 5%. Worldwide net interest yield is at 9.1%, up from 8.9% in 2011. The impact of card member reimbursements in the fourth quarter this year is why it is lower than the third quarter rate of 9.3%. Net interest yield also benefited from lower funding costs. Next, moving to slide 10. This is provision for losses.
Here you can see that provision in the fourth quarter of this year is higher, primarily because of a small build in reserves in 2012 compared to reserve releases in the fourth quarter of 2011. You can see that on the bottom of this chart. Charge card provision decreased 11% compared to last year. We had a lower reserve build of about $19 million this year compared to a $50 million reserve build last year. This is partially offset by higher receivable levels of 5%. The write-off in both periods are about the same. Basically, the lower charge card provision relates to a lower reserve build. Card member loan provision increased $247 million. This reflects a 4% increase in card member loans compared to last year.
A reserve build in the fourth quarter of 2012 of $12 million compared to a reserve release in the fourth quarter of last year of $265 million. This was partially offset by lower write-offs this year. Write-offs this year were $346 million, That compares to $386 million last year. Again, the change in the reserve is primarily driven by reserve releases last year, where we had a slight build this year. Provision is going up while credit metrics remain stable, You'll see that on the next several slides. Slide 11 is charge card credit performance. On the left chart, you can see the U.S. consumer write-off rate has ticked up and down slightly over the past several quarters, but I would view this as basically stable over this period.
On the right side, you see the international consumer and Global Corporate Services net loss ratio. The same thing is this is stable. For charge card, relatively stable metrics over this period, These are all at historically low levels. Next, going to slide 12. This is the lending credit performance. These metrics also continue to be stable. You can see on the left-hand side, the write-off rate has ticked down slightly, but it's basically stable over this period. In December, the U.S. managed lending write-off rate was 2.1%. The 30-day past due improved slightly in the quarter, but again, is basically stable over this period. These metrics are also at historic lows and represent the best credit metrics in the industry.
As I say each quarter, our objective is not to have the lowest possible write-off rates, but to achieve the best economic gain when we invest. Slide 13. These are our lending reserve coverage metrics. You can look at reserves as a percentage of loans, reserves as a percentage of past due, and principal months coverage in both the U.S., At the bottom, worldwide. These metrics are all very similar to what we saw in the third quarter, We think they're appropriate given the risk in the portfolio. Next is slide 14. This is looking at expenses now. Total expenses increased 18%. You can see that on the bottom right.
However, if you exclude the three items mentioned on slide three, the restructuring, the MR reserve, and the card member reimbursements, adjusted growth in operating expense would be 3%, For total expense, would be 2%. Marketing and promotion is 2% lower than the fourth quarter of 2011, Remain at very healthy levels, as you'll see on the next slide. Card member rewards increased 27%, primarily driven by the $342 million expense related to the refinement in the ultimate redemption rate estimate in the U.S. I'll discuss that in two slides. Excluding this item, adjusted expense grew 2%, a slower growth rate than spending on MR products, partly due to a lower weighted average cost per point in the fourth quarter of this year compared to the third quarter of 2012. Total operating expense increased 15%.
However, when you adjust for the fourth quarter 2011 Visa proceeds and the fourth quarter of 2012 restructuring and Card Member reimbursement charges, the growth rate is 3%. In most quarters, we have small re-engineering charges that we don't separately highlight. If you were to further adjust the fourth quarter 2011 for its restructuring charge of $49 million, the adjusted growth rate is 5%. I will discuss the operating expense line in a few slides. Moving to slide 15. This is marketing expense. Marketing expense was $722 million in the fourth quarter of this year compared to $735 million in the fourth quarter of 2011. Down slightly, but still healthy. On the left side, you can see marketing and promotion expense as a percentage of managed revenues on an annual basis. Our objective is for marketing and promotion to be approximately 9% of revenues.
On the right side, you can see the percentage by quarter. In the fourth quarter, the percentage was 8.9% of revenues, and it varied over the quarters in 2012. As you can see, for full year, it was 9.2%. This level, we believe, can drive our business momentum. Next is slide 16. This is a historical look at the ultimate redemption rate for current enrollees worldwide. While we have refined our estimate process twice in the past four years, the primary driver for the higher ultimate redemption rate is higher Card Member redemptions, as we have enhanced the program. A data point that supports this is that at the beginning of 2009, 45% of U.S. current enrollees had made at least one redemption.
That percentage, the number of current U.S. enrollees that have made at least one redemption, has increased to approximately 60% at the end of 2012. A clear reflection of the increased redemption behavior by current enrollees. Next is slide 17. This is operating expense. You can see in the bottom right that it increased 19%. Excluding the restructuring reserve, the impact of Card Member reimbursements in operating expense for the fourth quarter of 2012, and the Visa litigation settlement in the fourth quarter of 2011, adjusted operating expense was 3%. If we look at salaries and benefits, it increased 24%. Excluding the $369 million of restructuring reserves that resulted in expense on this line, adjusted expense was flat with the fourth quarter of 2011. Professional services, occupancy and equipment, and communications all grew modestly. Adjusted other net increased 38%.
If you exclude the restructuring charge and Card Member reimbursements from this line, adjusted expense increased 21%. This increase reflects a litigation-related reserve release, or basically a credit, in the fourth quarter of 2011, as well as an impairment of a cost method investment in the current quarter. Overall operating expense adjusted growth was 3%. Moving to slide 18. This is operating expense growth over the past nine quarters. The green line is the growth in operating expense, the blue line is growth in revenues, and the dotted green line is operating expense, excluding litigation settlement proceeds, and in the fourth quarter of 2011, the restructuring reserve and Card Member reimbursements on the line. I'll make several points. The growth rate in 2010 and early 2011 were the result of our strategy to invest in the business utilizing credit releases and the settlement proceeds.
In 2012, we stated our objective was to grow operating expense at a pace slower than revenue growth. Adjusting for the items I just referred to, we were successful at this in 2012. This demonstrates our ability to effectively control operating expense. Our aim now is to grow operating expense at an annual rate of less than 3% in both 2013 and 2014. The 2012 operating expense, excluding the restructuring charge, will be our base. Looking at slide 19. These are expenses as a percentage of revenues. This is adjusted expenses. In this case, by adjusted, we mean to exclude credit provision. On the left side, you can see five years of history. On the right side, you can see the past five quarters.
In 2012, in the fourth quarter of 2012, the dotted line in the bar excludes the restructuring charge and Card Member reimbursements that are in the fourth quarter of 2012. The adjusted percentage in the fourth quarter is 70% and 71% for the full year 2012. As you can see, in 2012, we made substantial progress reducing adjusted expense as a percentage of managed revenues. Over time, we expect this ratio to migrate back towards historical levels in two ways. First, through revenue growth, and second, our plans to contain operating expense growth. Next is slide 20, capital ratios. You can see that the Tier 1 common ratio is 11.9% at the end of the fourth quarter, down from 12.7% in the third quarter of 2012. We generated $700 million in capital in the quarter, $600 million from net income, plus $100 million from employee plans.
We distributed $1.2 billion in capital, $1 billion in share repurchases, this is in line with our capital plan and our 2012 CCAR submission, and $200 million of dividends. In addition, risk-weighted assets increased seasonally as accounts receivable and loans increased in the quarter. Tier 1 common ratio of 11.9% keeps us with very strong capital ratios and well above required benchmarks. Next is slide 21, which is our total payout ratio. This is the percentage of capital generated returned to shareholders. On the left-hand side is the past five years, on the right side, the four quarters in 2012. Our share buybacks and dividends were in line with our capital plan and 2012 CCAR submission.
We continue to maintain strong capital ratios while buying back $4 billion of shares in 2012 and currently paying a $0.20 dividend per share per quarter. Dividends in 2012 totaled $900 million. Moving to slide 22. Snapshot. Our objective is to hold excess cash and marketable securities to meet the next 12 months of funding maturities. You can see that the funding maturities are $6.6 billion, and excess cash and securities were $6.1 billion at 12/31/2012. We were $500 million shy of our objective, this is a result of accounts payable decreasing faster than we have forecasted, therefore consuming cash. By the first week in January, excess cash and securities exceeded the funding maturities over the next 12 months. We continue to have a strong liquidity position. Slide 23. This is our retail deposits by type.
You can see that we increased direct deposits by $1.7 billion in the quarter to $19.4 billion, and total deposits increased $2.7 billion in the quarter to $39.7 billion. The increased deposits funded in part the seasonal increase in higher accounts receivable and loans on our balance sheet. We continue to be committed to increase direct deposits over time. Next is slide 24. This is a chart that shows ABS and unsecured debt issuances over the past three years and an estimated range of potential issuances in 2013. This is in line with our funding strategy to maintain a diversified funding profile. We will continue to use both ABS and unsecured funding channels in addition to retail deposit programs to meet our refinance and business growth needs in 2013. With that, let me conclude with a few final comments.
While our fourth quarter results were impacted by three items, we feel that the trends in our business metrics are indicative of the underlying strength of our business. We continue to feel positive about our performance, especially given the uncertain economic environment. In the quarter, spend growth continued to be healthy in a very uneven economy. Fourth quarter billings growth rates were relatively consistent with the prior quarter, despite the negative impact of Hurricane Sandy. Our billings growth continues to be towards the upper end of the range among our large issuing competitors. We also saw our average loans continue to grow modestly year-over-year and outpace the industry, leading to 7% growth in net interest income. At the same time, lending loss rates remain near all-time lows. Revenue growth was 5%, up slightly on a reported basis from last quarter and consistent on an FX-adjusted basis.
The growth reflects the impact of a weak economic environment that is still significantly better than many other issuers. Excluding the items disclosed last week and last year's Visa settlement payment, adjusted operating expense increased by 3% in the quarter versus the prior year. We continue to focus on controlling operating expenses, as evidenced by the restructuring program announced last week. We are now aiming to have operating expense grow at an annual rate of less than 3% over the next two years, and we will seek to use a portion of the savings to reinvest in the business. We will measure this off of the 2012 base that excludes the restructuring charge. We continue to return significant capital to shareholders in the quarter through dividends and buybacks, in line with the authorizations under the 2012 CCAR submission.
Our capital ratios remain strong and, despite the impact of the three items in the quarter, are generally higher than forecasted in our 2012 capital plan. Looking ahead, we recognize that our business is not immune to the economic environment, but we continue to believe that our business model is well-positioned for the challenges ahead. Thanks for listening, and we are ready to take questions.
Ladies and gentlemen, if you would like to ask a question, please press star then one on your touchtone phone. You'll hear a tone indicating you've been placed in queue, and you may remove yourself at any time by pressing star two. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, it is star one at this time for a question. We'll open the line of Bill Carcache with Nomura. Please go ahead.
Good evening. Dan, can you talk about whether you're seeing any evidence of competitors pulling back on their investment spending, particularly with the benefits from reserve releases having largely abated and the large bank issuers still not really seeing any balance growth?
I think, Bill, if you look at card mailings, really in this quarter and last quarter, they're down from where they were earlier in the year. What other investment actions they're taking, we don't have great visibility into. We comment on that we continue to be very focused on operating expense That we can have additional resources to invest in the many opportunities we have, both in our core business, in mobile, and across all of our businesses. We can remain very focused and actually, quite frankly, part of the reason for our restructuring charge was to stay ahead of the curve and to ensure that we had the resources we need to invest in the business, even though it's a relatively uneven economy.
Just to make sure that I'm interpreting that correctly. Is the way that you're thinking about travel services restructuring, is that kind of a source of funds that's going to allow you to continue to invest in better growth opportunities in other areas? Then maybe along with that, if you could also talk about your pecking order of investment opportunities and how attractive you see them today versus, say, over the course of the last couple of years, how they've changed.
Yeah. This was not solely a business travel restructuring. I think business travel is a large piece of the restructuring, but the restructurings are also taking place in our servicing operations, and we are having other reductions in staff groups, basically areas that are not generating revenues. Business travel is an area where we are restructuring. It's an important business to us. It's an important adjacency to our corporate card business. It allows us to deepen our relationships with corporate card clients. While business travel hasn't been a significant generator of revenues for us, we do continue to look at ways continually to re-engineer the business.
The reason that we've taken a bigger step in business travel as part of this restructuring is that we now have a new leadership team in place who proposed turning up the dial on our re-engineering efforts in response to the changes that we're seeing in the business landscape. We decided to implement their proposal. That's not the only place that we're re-engineering. We do it on a regular basis. We have done really a terrific job in our servicing areas to improve quality, as you've seen, where we continue to win the J.D. Power Award, and at the same time, adapt to changing in the marketplace. We've invested, say, in the ability to take remittances electronically. Over 80% of our remittances are received electronically in 2012. Many people are changing the way they want to interface with us.
For instance, we've invested in apps to allow people to communicate with us either through smartphones or tablet servicing applications. In fact, we had contacts through those two means increase to 5 million, the apps downloaded 5 million times compared to 2.6 million times in 2011. We're constantly re-engineering both in business travel, in the servicing, and in other parts of our business.
Okay, if I may ask one last question here. Can you give a sense of what percentage of your volumes comes from customers who would be directly impacted by the new threshold limits after the tax law changes?
It's hard to say. The last time we saw a large tax increase was back in 1993. At that time, there were a lot of other things going on. We didn't see an impact on volumes in that period. Back in 1993, billed business grew at 10%, and in 1994, 13%. It was truly a different economic environment, and GDP was more in the 3%-4% range, but we didn't see it have an impact then. The other thing that I point out is U.S. consumer is an important part of our business, but our business is very diversified. We have a large corporate card business, a large international business. We have GNS partners around the world. It's hard to predict what, if any, impact that we're going to have from the tax law change.
Okay. Thank you very much.
We will open the line of Bob Napoli with William Blair. Please go ahead.
Thank you. Just wanted to clarify if I could. The expense base, if you took the $23.141 billion of total expenses, backed out the $802 million charges in the fourth quarter, that's your base that you'll grow by less than 3%?
I'd have to look at the numbers.
I was looking at page six of your-
The only thing that we're going to back out, we're going to take operating expense as we defined it on our slides for the year, and we're going to back out the $400 million restructuring charge. That's the only adjustment we're going to make. Then going forward, we will compare it to that number.
Also the rewards charge, the card member rewards charge too, I guess?
No. When you look at this, it's not marketing, it's not rewards.
Okay.
If you were to look at slide 17, this is what we're defining as operating expense.
Okay.
In this quarter, it was 3.7. I don't know what the annual number is, but I take the annual number as defined here and subtract the $400 million restructuring charge.
Okay.
That'll be our base.
Thank you. You returned over 100% of capital generated this year, and your Tier 1 common is 11.9%. You anticipate having the flexibility, assuming you don't make acquisitions, to do something similar, what is your target Tier 1 common?
We have said our target is 10%. We have been above that level for the past couple of years. At the moment, we're staying in the range that we are today. We have not completed our Basel II work. That will not be done for some time now. We want to see whether there's any impacts that come out of that. We need to complete that work. At that juncture, if there were no impacts, we would probably tend to take it down from where it is today. From a target perspective, that's how we think about it. This year, we returned 98% of capital to shareholders. I think in our CCAR submission, we will have a similar philosophy that we had this year.
That if we're not utilizing capital to support growth in the balance sheet for acquisitions, that we would be inclined to return it to shareholders. The fact that we have a very strong capital position is helpful in that. I think it's also helpful that last year when the Fed did their stress analysis, we didn't see our capital ratios drop anywhere near what many of the other banks did in that review. I think all those things contribute to having the type of flexibility that we want from a capital perspective.
Thank you.
We will open the line of Sanjay Sakhrani with KBW. Please go ahead.
Thank you. Good evening. I had a big picture question. I was wondering if in this type of macro environment, you guys think you could hit your on average and over time targets, because it seems like we might be in this environment for a little bit. Thank you.
Yeah. I think that when we set our target of 8% revenue growth, we assumed it was a normal economy with GDP at the 10-year average, which is 2.7 or so. At GDP at 2%, it becomes difficult to hit the 8%. Discount revenue is 50% of revenues. While our build business has held up, performed well in this environment compared to competitors, there's a pretty good linkage between GDP and what our growth rates have been. Over time, if you look at real GDP, our growth rates have been between three and four times that number. If we have build business growth in the high single digits, then hitting 8% overall growth becomes a challenge. This quarter, we did have good growth in card fees. It was up 6%.
We did have good growth in net interest income, up 7%, and some of our other fee business lines had mid-single digit growth rates. We'll strive to be a growth company in a slow growth environment. Achieving 8% is challenging with GDP in the U.S. where it is.
I guess just one follow-up. You guys are kind of returning a little bit more capital than your targets suggest as well, and you do have some operating leverage kind of levers. Could you just speak to that as it ties into that discussion?
Well, we always are open to acquisitions. Although, as you know, we've achieved our growth and the share gains that we've experienced over the last several years through organic investments. Likely that'll be the major driver. We remain open to acquisitions if the right one comes along with the right returns. Certainly, the extent that we're able to increase our operating leverage and control operating expense, then that frees up more investment dollars to put into the many opportunities that we have across our business. That could help to generate additional revenues as well. This quarter, we actually saw Loyalty Partner, which was an acquisition, start to contribute to revenue growth. The other thing is that the share buybacks that we're doing are giving us good improvement in terms of reducing the shares outstanding, and that gives us a lift in our EPS calculation.
We balance all those things against each other as we go forward.
All right. Thank you very much.
Your next question is from the line of Chris Donat with Sandler O'Neill. Please go ahead.
Hi, good afternoon. Thanks for taking my call. One question on the previously stated goal of getting to $3 billion in fee revenue by the end of 2014. Does anything change with last week's announcement related to some of the card member issues there, or also just as you commented previously a moment ago about the economic environment makes some things more challenging?
I don't think any of the items that we identified last week will affect our ability to do fee revenues. Certainly, regulators across the industry are looking closely at all products that are offered to card members. I think we're going to continue to look at opportunities to expand services that we offer to card members and merchants. At this juncture, we don't have a plan to change our $3 billion target. We are about halfway through the timeframe and still think it's appropriate, although I would say that $3 billion is an ambitious target given the uneven economy. There's a lot of work to do, we're moving forward on a number of fronts. I think Loyalty Partner is a good example of building fee services.
I think the early returns that we're seeing on Bluebird in the reloadable prepaid space is another example where we think we can be successful. Certainly the economy does have an impact, we're going to continue to see if we can grow fee services as we go forward.
Okay. Just one question about your comments about the tapping into rewards by card members that back in 2009, only 49% had redeemed rewards. If I take a glass half full perspective, that seems to me to suggest that you might have had a newer cohort of card members back in 2009 who hadn't just gotten to the point where they did redeem rewards. Is that the wrong way to think about it?
I think it was 45%.
45, sorry.
I wasn't clear. That's okay. I don't think that our card member base has changed radically. Obviously, we've added a fair number of card members since 2009. I look at that increase as an increase of engagement of the people who are in the program. I think that increase in engagement is heavily influenced by the enhancements that we've made to the program, expanding the options people have, giving people the opportunity to redeem with fewer points or using pay with points. I think those are all things that have contributed to the increased engagement of the number of people who have redeemed. I thought it was useful just in terms of thinking about another data point that demonstrates that it is the higher level of engagement that's driving the URR.
Okay. Thanks very much.
Our next question is from the line of Mark Schoenebaum with Barclays. Go ahead.
Okay. After this, we'll take just one more question.
I think we have time.
Okay.
Yeah. Okay. Thanks, Dan. I think as you've indicated, obviously the restructuring is going to help you at least slow some of the growth of OpEx. You'll look to take at least some of those benefits and reinvest it, I guess, presumably in marketing and promotion. Can you talk about how those potentially offsetting factors might impact the pace at which you revert to that longer-term ratio of expenses to manage revenues of 68%-69%?
Yeah. That percentage includes both marketing rewards and operating expense. I think we want to be focused on operating expense growth levels and achieve our target of less than 3% growth over the next 2 years. We're going to take a piece of that and reinvest it back in the business. That could be marketing promotion, or it could be on the operating expense line as well, depending what we think is going to give us the best return. It will be a piece of what we save, what we reinvest. Therefore, I think it'll actually continue to increase the leverage in this calculation and enable us to continue to head back to where we were. Part of it is to help with leverage, and a part is to enable higher levels of investment.
Is that 69% level realistic for 2013?
Sixty
69%.
I'm not sure what the 69% is.
Of your expenses to manage revenues.
Yeah. I don't think we've set a target for next year. We were at 71% for the full year 2012 and at 70% in the fourth quarter. If we're successful on operating expense, you might expect that to decrease. I don't think we disclosed an exact amount. Certainly wouldn't take us all the way back to 67, I think we can continue to make progress towards that goal.
Okay. Great. Thanks.
Okay.
At this time, there are no other questions in queue.
Okay. Thank you, everybody, for joining the call.
Okay.
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