Ladies and gentlemen, thank you for standing by, welcome to the follow-up second quarter 2012 earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session with instructions being given at that time. If you should require assistance during the call, please press star then zero. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, 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 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 yesterday's earnings press release and earnings supplement, which are filed in an 8-K report and in the company's 2011 10-K and first quarter 2012 Form 10-Q report already on file with the Securities and Exchange Commission.
In the second quarter 2012 fixed income presentation slides, which are now posted on our website at ir.americanexpress.com, we have provided information that describes certain non-GAAP financial measures used by the company and the comparable GAAP financial information. We encourage you to review that information in conjunction with today's discussion. Today's discussion will begin with David Yowan, Executive Vice President and Corporate Treasurer, who will provide a second quarter 2012 capital and funding update, including some key points related to the quarter's financial performance through the series of slides distributed and provide some brief summary comments. Once Dave completes his remarks, we will move to Q&A. With that, let me turn the discussion over to Dave.
Thanks, Vivian. We're pleased to host this fixed-income investor conference call this quarter. We hope you'll find informative and helpful a separate discussion that focuses on elements of our business that are 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 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. There are some key points from that call that I would like to reemphasize. I'll take you through some specifics on our capital position and liquidity profile. Turning to slide two, we report our second-quarter results, which included a 5% increase in total revenues, net of interest expense. On an FX-adjusted basis, that was 7%.
In the call yesterday, you saw how the stronger dollar has had an impact on some of our key metrics. Income from continuing operations increased 3%, while diluted EPS from continuing ops increased 7%. That faster growth of EPS relative to income is a consequence of the share repurchase activity that we've conducted. You can see at the bottom of this slide, you see the average diluted shares outstanding have declined 4% over this period. Lastly, our return on average equity was 27% in the quarter. If you turn to slide three, we describe some of the key metric performance for the quarter. Billed business at $221 billion was up 7% compared to the prior quarter last year and 9% on an FX-adjusted basis. That billed business growth was driven by a 6% increase in total cards in force.
There was a little faster growth than that in the GNS business, and our growth in the issuance of proprietary cards was a little slower than that. Average basic card member spending increased 5%, demonstrating our ability to continue to penetrate our existing customers' spending wallet. Lastly, card member loans increased roughly 4%, up to $61 billion at the end of the second quarter. Turning to slides four and five, these are slides that we use to describe how the billed business metric turns into loans and assets on our balance sheet. Slide four shows on the solid line the year-over-year change, percentage change in billed business on our charge card products across consumer, small business, and corporate card. The dotted line shows the change in ending receivables associated with that spending.
As you would expect, given the pay-in-full nature of the product, the relationship between those two lines is very strong. If you turn to slide five, here we show the growth in spending on our credit card products, as well as the growth in loans as well. Again, the solid line is the year-over-year change in proprietary credit card billed business. The dotted line is the year-over-year growth in ending loans on a managed basis. While spending growth has slowed somewhat, you'll see that loan growth, which had been quite negative in the period in 2009 and 2010, was positive, and there is a convergence between spending growth and loan growth here. Slide six puts our spending and loan balances into a competitive framework. This is data for the first half of the year based on results reported to date.
Our total billed business of $433 billion is well above all the other major issuers. You can see the growth rates on a year-over-year basis compared to prior year at the bottom of that graph on the left-hand side. On the right-hand side of the chart, you'll see our ending loans at $61 billion, again, with the growth rates there down below. It gives you a sense of our relative performance. Starting on slide seven, we describe the credit performance in our charge and credit card portfolios. Slide seven gives you a sense of the write-off rates in our charge card portfolios. The left-hand side is U.S. consumer and small business charge card, where our 2% write-off rate is above the 1.5% rate from a year ago, but down on a sequential basis from 2.3%.
The write-off rates on the left-hand side of the page represent write-offs as a percentage of charge card receivables. On the right-hand side of slide seven, we show the net loss ratio for charge card products issued in our international consumer and small business segment, as well as in our global corporate segment. Here, the loss metric is shown as a percentage of billed business. You can see a similar pattern to the write-off rates in the U.S. consumer segment. Write-offs are slightly higher than a year ago but have declined on a sequential basis. Turning to slide eight, we show the write-off rates, including leading competitor write-off rates as well. Our second quarter write-off rate was 2.2%. That's down from 3.1% a year ago and down sequentially as well.
If you look at our monthly disclosures in the second quarter, our write-off rate in the second quarter, released in April, was 2.4%. It was 2.2% in May, and then it exited the quarter in June at a 2% rate to average out to 2.2%. Page nine shows a similar pattern in delinquency rates. Again, this is on our lending business. The delinquency rate in the second quarter at 1.3% is down from 1.6% a year ago, as well as shows a decline on a sequential basis. These credit metrics are at historically low levels for our company. Slide 10 describes the credit quality as disclosed in the FICO scores in our two securitization trusts and compared to the FICO distributions as disclosed in the most recently available information from the other major card trusts.
You'll see on the left-hand side, that gives you a percentage of our two trusts, the AXP Charge Trust, the American Express Issuance Trust. And then the lending trust is the Credit Master Trust, the percentage of those accounts and balances that have a FICO below 660. On the right-hand side for the same two trusts, we show the percentage that has a FICO score above 720. Both of those are leading the industry in that respect. On slide 11, we turn to our capital ratios. We ended the second quarter with a Tier 1 common risk-based ratio of 12.8%. Not on the page, but you'll remember that we ended last year, 2011, at 12.3% on this metric. Then in the first quarter, the ratio increased 110 basis points to 13.4%.
It increased because we had a limited amount of share buyback activity in the first quarter as we only received the approval from the Fed for our capital distribution plan late into the first quarter. In the second quarter, we accelerated and increased the amount of shares that we repurchased. We repurchased $1.8 billion of shares in the second quarter, bringing the first half of the year amount to $2 billion. That share buyback amount helped influence and drive the decrease in our Tier 1 risk-based capital ratio down to 12.8% at the end of the quarter. We've also disclosed that the impact of the proposed rules on Basel III that were released in June would have, on a pro forma basis, reduced our Tier 1 common risk-based ratio by roughly 30 basis points.
That compares to some of the prior quarters where I think the range that we've disclosed on that impact is somewhere between 20 and 80 basis points. Still within the range that we have disclosed historically, given the release of the proposed rules. Turning to slide 12, we just review our principal objectives and strategies for funding and liquidity. We continue to maintain a target to hold, I should say, sufficient cash and readily marketable securities to meet all of our maturing funding obligations for the next 12 months. That's in case we don't have access to the unsecured or secured debt capital markets or are able to raise additional deposit funds. Our strategy with respect to funding is to continue to focus on diversifying our funding sources between deposits, unsecured debt, and ABS.
We're focused on laddering out our maturities to avoid any large concentrations of maturities in any one time period or with any one particular funding source. To continue to maintain substantial levels of cash and readily marketable securities, as well as additional contingent funding sources such as bank lines, conduit facilities, and the discount window. We're striving for a well-diversified funding mix and trying to achieve scale and relevance in each of our three long-term funding markets, unsecured term ABS and deposits. During Q2, as you all probably know, we issued $2 billion of unsecured debt and $500 million of asset-backed securities through the Class A securities out of the lending trust. Page 13 gives you our snapshot of liquidity against that strategy and target that I just talked about. We had excess cash and securities on the left-hand side of the page of $16 billion.
That's after deducting our commercial paper outstanding of less than $1 billion. We compare that to the funding maturities we have of $15 billion over the next 12-month period. You might remember at the end of the first quarter, our excess cash was $20 billion versus 12-month maturities of $17 billion. Turning to slide 14, we give you the balances and a roll forward of our three major deposit programs. We ended the quarter with a little less than $36 billion of retail deposits across our three deposit programs. Our direct program, branded as Personal Savings from American Express, ended the quarter with $16.4 billion outstanding. Our third-party CD program ended the quarter at $9.1 billion. Our third-party sweep deposit program ended the quarter at $10.3 billion.
Slide 15 gives you, again, a description of our funding sources, along with the contingent sources of liquidity that we maintain for stressful periods in the marketplace. Our funding sources include the deposit programs that I just took you through. Our two ABS programs that I'll describe in a little greater detail in a slide or two. Our unsecured term debt issuances primarily from the Parent Company and from Credco, American Express Credit Corp. Then we do have some term bank facilities that we use for funding purposes, and we continue to maintain a commercial paper program to meet working capital needs. In terms of contingent sources, we just described the $16 billion of cash and readily marketable securities that we keep on hand, and the target we have in place for determining the amount of cash and readily marketable securities we hold.
In addition to that, we have collateral eligible for borrowing at the discount window, as well as committed bank facilities. In addition to those sources, we do currently maintain a $3 billion conduit facility that's associated with American Express Issuance Trust, our charge card securitization facility. That particular facility we use both for working capital purposes, as well as it serves as a source of contingent liquidity to us as well, to the extent it's undrawn. Page 16 walks you through time and gives you a sense of the transformation of our funding profile. You can see that our total amount of funding outstanding Has declined over the last few years, primarily as our loan book still remains significantly below our peak period prior to 2007.
That's come down from $105 billion at the end of 2009 to a little less than $95 billion at the second half of the year. You also look and see how we have grown deposits, both in dollar terms and as a percentage of the total. Again, we'd like to make the green, light blue, and dark blue boxes programs that all have scale and relevance to their important stakeholders. Page 17 gives you a snapshot of how that current funding profile matures with respect to the contractual maturities. You can see that those maturities are relatively well spread out with a significant amount beyond five years in our maturity ladder. Slide 18 reminds you of our two securitization programs. On the left-hand side, the American Express Credit Account Master Trust can hold U.S. consumer and small business card member loans. It currently holds consumer loans.
There aren't any small business loans that are in the trust at the moment. That trust has $31 billion of loans that have been transferred to it and certificates outstanding of $16.2 billion, leaving $14.8 billion of unencumbered collateral eligible to be used for future issuances. On the right-hand side, the issuance trust can hold U.S. consumer, small business, and corporate card member receivables, and it currently holds a mix that includes all of those three different customer segments. There is $7 billion of charged card receivables that have been transferred to the trust, investor interest outstanding of $1.6 billion, $5.4 billion eligible to be used either under the conduit facility or to execute term ABS issuances. Page 19 and 20 both give you some of the key metrics on our two key trusts.
I would call your attention in particular in both trusts to the payment rate, which is in the lower left-hand quadrant of each of these. The payment rates for our trusts, I think, tend to be at the high end of the peer range. You'll see on the Credit Account Master Trust on slide 19 that payment rate continues to be at or around a 30% level. On slide 20, given the nature of the charge card product, which is a pay in full every month product, the payment rate there nears 100%. With that, let me conclude with a few final comments. Given the uncertain environment, we feel positive about our financial performance in the second quarter, including our ability to grow earnings in the absence of settlement proceeds and with lower reserve releases. Spending growth remained relatively strong, albeit at a slower pace than recent quarters.
We continue to grow faster than most of our issuer competitors, despite a more difficult prior year comparison. We saw average loans continue to grow modestly year-over-year, with net yields that are comparable to prior year, leading to a 4% growth in our net interest income. At the same time, lending loss rates improved to new all-time lows. Our revenue growth of 5%, 7% on an FX adjusted basis, reflects the benefits of our spend-centric model and stands in contrast to many other issuers who still face year-over-year revenue declines. Our capital strength was on display this quarter. We were able to elevate our year-to-date payout ratio to 83% while continuing to maintain very strong capital ratios. The strength of our balance sheet puts us in an excellent position to meet our ongoing business requirements and make investments in our business.
Our access to a diversified source of funding, our current cash position and cash flow, and our liquidity profile prepare us for uncertain times. 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. Thank you for joining and listening, I'd be glad to take any questions that you have.
Ladies and gentlemen, if you would like to ask a question, please press star then one on your phone keypad. If you're using a speakerphone, please pick up your handset before pressing the numbers. Once again, if you have a question or comment, please press star one at this time. I do have a question from the line of Ryan O'Connell with Morgan Stanley. Please go ahead.
First of all, thank you very much for holding the call. This is very helpful. I'm going to act like a real bond guy now ask you about share buybacks. Of course, American Express has a very good Tier 1 common ratio now, I'm not going to beat you up on that. When we start talking about payout ratios of 90%, I guess what would be helpful is just how you all as management look at how you're going to manage this. I don't know if you publicly disclosed a target Tier 1 common ratio. Could you help me with that?
Yeah, Ryan. A couple of things, I guess. We have described our payout strategy, which is as follows. We expect to be able to pay out, on average and over time, 50% of our capital generated through dividends and share repurchases. The remaining amount of capital generated will be used to support our existing businesses and organic business growth, as well as to make acquisitions as part of our overall acquisition strategy. That's our on average and over time payout ratio targets. Integrated with that is an interim Tier 1 common target of 10%. The 10% is interim pending the final application of the Basel rules and any other rules that affect our capitalization from a regulatory or marketplace perspective. We recognize that at 12.3%, where we ended the year, we were above that amount.
I think Daniel Henry, our CFO, took a question like this yesterday and reminded people that last year in 2011, we requested $2.3 billion of share repurchase. We did that in contemplation of a higher level of acquisition activity than in fact we did last year. We didn't have the acquisition activity that we predicated our share buyback amount on. We ended up with an increase in the ratio up to the 12.3%. That's where we find ourselves today. Now, of course, our CCAR submission was for maximum capacity of $4 billion of share buyback in calendar year 2012.
Got you. Okay, thanks. That's very helpful.
Welcome.
Thank you. Our next question comes from the line of Ron Perada with Goldman Sachs. Please go ahead.
Hi. Thank you very much for holding the call. Real quick question on unsecured funding strategy. Historically, you guys have issued from several different entities, and the past few issuances have been out of CredCo. Any color that you could give us on what the strategy is there? Especially as we look at some of the upcoming maturities that you mentioned. Some are CredCo, some are Parent Co. Is there a real reason to issue at the Holdco and at the bank levels anymore? Thank you.
Yeah. I'd say that our issuing strategy in terms of legal entity is really primarily driven by our business needs. If you, as I know you have, if you look at CredCo and look at the businesses and the assets that it funds. It funds a portion of our charge card business as well as it funds through loans and the purchase of assets. It funds a significant part of our international consumer and small business segment as well, both charge and lending products as well. You should really look and think of how those businesses are growing, and our financing strategy will really follow that business growth. The banks, of course the U.S. banks, you would look at U.S. consumer and small business charge and lending growth.
There you'd also have to look at the deposit programs, which we have grown significantly over the last several years as well, along with the lending trust ABS program.
Okay, thanks. Just a quick follow-up on that. At the bank level, when you talked about, obviously you've made a lot of progress growing the deposit base. Is there an expectation that as part of your strategy, you're still trying to grow that? Or is it you're kind of comfortable where you are and given where you can issue in the securitization market, we should expect the deposit balance to just in a range around the current numbers? Or is there an expectation that you're still trying to push the balance growth there?
Yeah. I think we've grown deposits rapidly off a small base, and in doing so, we've effectively replaced that. I think we have the chart that shows the different mix of composition in the slides that we showed you. It's the slide 16. If you went back even further, you'd see an even more dramatic shift in composition, where unsecured and ABS are a smaller proportion of the total. The deposit growth cannot continue to grow as rapidly as it's grown over the last three years. It will, like all of our funding programs, really be expected to grow in the long run in line with our business needs.
Okay, great. Thank you very much.
Yep.
If there are any additional questions, please press star one. I have no further questions. Please continue.
Terrific. Again, thank you all for joining. We hope you found this informative. I know Vivian and I would love to hear any feedback you have on how we could improve upon this. Please feel free to give her a call. Thank you very much.
Ladies and gentlemen, this call will be available for replay after 7:00 PM today through Wednesday, 25th July at midnight. You may access the AT&T Playback service at any time by dialing 1-800-475-6701 and entering the access code 249200. International participants dial 3203653844. Those numbers again, 1-800-475-6701 and 3203653844 with the access code 249200. That does conclude your conference for today. Thank you for your participation and for using AT&T TeleConference Services service. You may now disconnect.