Ladies and gentlemen, thank you for standing by, and 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. As a reminder, this call is being recorded. I would now like to turn the
conference over to your host, Vivian Jo. Please go ahead. Thank you. Welcome. We appreciate all of you joining us for today's discussion.
The discussion today contains certain 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 ks report and in the company's 2011 10 ks and Q1 2012 Form 10 Q report already on file with the Securities and Exchange Commission. In the Q2 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 Yowen, Executive President and Corporate Treasurer, who will provide a Q2 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 and 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, 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 2. We report our 2nd 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. And 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 3, describe some of the key metric performance for the quarter. Built business at 221,000,000,000 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 of 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' wallet spending wallet.
Lastly, card member loans increased roughly 4% up to $61,000,000,000 at the end of the second quarter. Turning to Slides 45. These are slides that we use to describe how the build business metric turns into loans and assets on our balance sheet. Slide 4 shows on the solid line the change 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.
And 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 5, here we show the growth in spending on our credit card products as well as the growth in loans as well. So again, the solid line is the year over year change in proprietary credit card bill 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 from in 2,009 and 20 10, was positive and there is a convergence between spending growth and loan growth here.
Slide 6 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 bill business of 433,000,000,000 dollars is well above all of the other major issuers. And 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 $61,000,000,000 again with the growth rates there down below.
So it gives you a sense of our relative performance. Starting on slide 7, we describe the credit performance in our charge and credit card portfolios. Slide 7 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 7, 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 metric the loss metric is shown as a percentage of billed business. But you can see a similar pattern to the write off rates in the U.
S. Consumer segment. So write offs are slightly higher than a year ago, but have declined on a sequential basis. Turning to Slide 8. We show the write off rates including leading competitor write off rates as well.
Our 2nd quarter write off rate was 2.2%. That's down from 3.1 percent a year ago and down sequentially as well. If you look at our monthly disclosures in the Q2, our write off rate in the Q2 released in April was 2.4%. It was 2.2% in May and then it ended the quarter exited the quarter in June at a 2% rate average out to 2.2%. Page 9 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 2 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 2 trusts the AXP Charge Trust, the Credit Account Master Trust I'm sorry, that's 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. So both of those are leading the industry in that respect. On slide 11, we turn to our capital ratios.
We ended the 2nd quarter with a Tier 1 common risk based ratio of 12.8%. Not on the page, but you remember that we ended last year 2011@12.3% on this metric. Then in the Q1, 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 received the approval from the Fed for our capital distribution plan late into the Q1. In the second quarter, we accelerated and increased the amount of shares that repurchased.
We repurchased $1,800,000,000 of shares in the second quarter, bringing the first half of the year amount to $2,000,000,000 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 form a 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 80 basis points, so 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. And that's in case there 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 and 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 3 long term funding markets, unsecured term, ABAS and deposits.
During Q2, as you all probably know, we issued $2,000,000,000 of unsecured debt and $500,000,000 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 $16,000,000,000 that's after deducting our commercial paper outstanding of less than $1,000,000,000 We compare that to the funding maturities we have of $15,000,000,000 over the next 12 month period. You might remember at the end of the Q1, our excess cash was $20,000,000,000 versus 12 month maturities of $17,000,000,000 Turning to Slide 14. We give you the balances and a roll forward of our 3 major deposit programs.
We ended the quarter with a little less than $36,000,000,000 of retail deposits across our 3 deposit programs, our direct program branded as personal savings for American Express ended the quarter with $16,400,000,000 outstanding. Our 3rd party CD program ended the quarter at $9,100,000,000 and our 3rd party sweep deposit program ended the quarter at $10,300,000,000 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. So our funding sources include deposit programs that I just took you through, our 2 ABS programs that I'll describe in a little greater detail in a slide or 2, our unsecured term debt issuances from the parent primarily from the parent company and from Credco, American Express Credit Corp. And then we do have some term bank facilities that we use for funding purposes and we may continue to maintain a commercial paper program to meet working capital needs. In terms of contingent sources, we just described the 16 $1,000,000,000 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 do have access to we have collateral eligible for borrowing at the discount window as well as committed bank facilities. In addition to those sources, we do maintain a currently maintain a $3,000,000,000 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 amount of funding outstanding has declined over the last few years as our primarily as our loan book still remains significantly below our peak period prior to 2,007. That's come down from $105,000,000,000 at the end of 2,009 to $95,000,000,000 a little less than $95,000,000,000 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 liquidity current funding profile matures with respect to the contractual maturities. And you can see that those maturities are relatively well spread out with a significant amount beyond 5 years in our maturity ladder. Slide 18 reminds you of our 2 securitization programs.
On the left hand side, the American Express Credit Account Master Trust holds 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 $31,000,000,000 of loans that have been transferred to it and certificates outstanding of 16 $200,000,000 leaving $14,800,000,000 of unencumbered collateral eligible to be used for future issuances. On the right hand side, the issuance trust holds can hold U. S. Consumer small business and corporate card member receivables and it currently holds a mix that includes all of those 3 different customer segments. There is $7,000,000,000 of charge card receivables that have been transferred to the trust, investor interest outstanding of 1 $600,000,000 and so $5,400,000,000 eligible to be used either under the conduit facility or to execute term ABS issuances.
Page 1920 both give you some of the key metrics on our 2 key trusts. I would call your attention in particular in both trust to the payment rate, which is in the lower left hand quadrant of each of these. The payment rates for our trusts, I think, are tend to be at the high end of the peer range. And 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 Q2, 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. 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, and I'd be glad to take any questions that you have.
Morgan Stanley. Please go ahead.
First of all, thank you very much for holding the call. This is very, very helpful. I'm going to act like a real bond guy now and ask you about share buybacks. I mean, of course, American Express has a very, very good Tier 1 common ratio now. I mean, I'm not going to try to beat you up on that.
But when we start talking about payout ratios with 90%, I guess what would be helpful is just how you all as management look at how you're going to manage this. Do you I don't know if you publicly disclosed a target to own common ratio. Could you help me with that?
Yes, Ryan. So 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. And 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.
So that's our on average and over time payout ratio targets. Integrated with that is an interim Tier 1 common target of 10%. And 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 Dan Henry, our CFO took a question like this yesterday and reminded people that last year in 2011, we requested $2,300,000,000 of share repurchase.
We did that in contemplation of a higher level of acquisition activity than in fact we did last year. And so we didn't have the acquisition activity that was that we predicated our share buyback amount on. And so we ended up with an increase in the ratio up to the 12.3%. So that's where we find ourselves today. Now of course our CCAR submission was for maximum capacity of $4,000,000,000 of share buy 2012.
Got you. Okay. Thanks. That's very helpful.
Thank you. And our next question comes from the line of Ron Perrotta with Goldman Sachs. Please go ahead.
Hi. Thank you very much for holding the call. Just real quick question on unsecured funding strategy. I mean 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 parentco. I mean is there a real reason to issue at the holdco and at the bank levels anymore? Thank you.
So I'd say that our issuing strategy in terms of legal entity is really primarily driven by our business needs. So if you as I know you have, if you look at Credco and look at the businesses and the assets that it funds, it primarily 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. And so 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. And just a quick follow-up on that. For at the bank level when you talked about, obviously, you've made a lot of progress on 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?
Yes. So I think what we've 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 at 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.
It's the deposit growth cannot continue to grow as rapidly as it's grown over the last 3 years. And 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.
And if there are any additional questions, And I have no further questions. Please continue.
Terrific. Again, thank you all for joining. We hope you found this informative. And I know Vivian and I would love to hear any feedback you have on how we could improve upon this. So please feel free to give her a call.
Thank you very much.
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