Ladies and gentlemen, thank you for standing by and welcome to the Second Quarter 2011 Fixed Income Conference Call. At this time, all phone lines are in a listen-only mode. Later, we will conduct a question and answer session. Those instructions will be given at that time. If you should require assistance, you press star, then zero, and an operator will assist you offline. As a reminder today, this conference is being recorded. At this time, I'd now like to turn the conference over to the Vice President, Fixed Income Investor Relations, Vivian Zhou. Please go ahead.
Thank you, Nick. Welcome. We appreciate all of you joining us for today's discussion. Before we start the slide presentation, it is my role to remind you that 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. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update or revise any 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, were set forth within the company's earnings press release, which was filed in an 8-K report on July 20th, 2011, and in the company's 2010 10-K report already on file with the Securities and Exchange Commission and are included in the slides. In the second quarter 2011 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 comparable GAAP financial information. We encourage you to review that information in conjunction with today's discussion.
In today's discussion, Dan Henry, Executive Vice President and Chief Financial Officer, and David Yowan, Executive Vice President and Corporate Treasurer, will provide a second quarter 2011 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 Dan and Dave complete their remarks, they will turn to the moderator, who will announce your opportunity to get into the queue for the Q&A period. Up until then, no one has actually registered to ask questions. While we will attempt to respond to as many of your questions as possible before we end the call, we do have a limited amount of time. Based on this, we ask that you limit yourself to one question at a time during the Q&A. With that, let me turn the discussion over to Dan.
Okay. Thanks, Vivian. We're pleased to host the Fixed Income Investor Conference Call for this quarter. We hope you will find this discussion informative and helpful. We will focus on elements of the business that we think you are particularly interested in. As always, we would appreciate your feedback on how we can best provide you information as you make your investment decisions. Today, we're going to provide you with an update on the company's overall financial performance, capital, funding, and liquidity management. Some of you may have joined us for our call on July 20th, the earnings call, and there are some key points from that call that I would like to reemphasize. Dave Yowan, our Treasurer, will take you through some specifics on our capital position and liquidity profile, as well as our current funding plan for the year.
Let me move to the slides that we provided you, and I'd start on slide two. This is a summary of our financial performance. Our revenues net of interest expense were $7.6 billion. That's 12% higher than last year. On an FX basis, which is the way I think you should look at it, we are at 8%. Even after adjusting for the foreign exchange impact, we are achieving our long-term revenue growth target of 8%. We had income from continuing operations of $1.3 billion and diluted EPS from continuing operations of $1.07. EPS on net income was $1.10. There's $0.03 of income related to a tax benefit related to American Express Bank, which is now a discontinued operation. If we move to slide three, which is metric performance, you can see the billed business was $207 billion. That's up 18% over last year, 15% on an FX-adjusted basis.
The second quarter of 2011 is the strongest quarter for billed business in the company's history, both on a reported and FX-adjusted basis. Record spending by our card members. On an FX basis, billings growth has either been 14% or 15% over the past five quarters, very consistent strong performance. Cards in force are up 6%. That's 15% in our GN S business and 2% in our proprietary business. You can also see that average basic card member spending is up 15% and 11% on an FX-adjusted basis. Average spending increases by our card members are a significant part driving billed business. You can see that loans are up 2%, and it's been many quarters since we've had growth in loans. Travel sales are up 17%- 10% on an FX-adjusted basis, driven primarily by air sales.
It was affected by both higher numbers of transactions and higher prices, although higher transactions was the main driver. We saw that both in our corporate and consumer business. Moving to slide four, which is charge card billings compared to receivable growth. On this chart, the solid line is billed business growth. The dotted line is card member receivable balance growth. You can see that card member receivables are moving in tandem with the changes and the growth in charge card billings. I would note that credit losses, even in the middle of 2009, performed very well, and you'll see that on charts that follow in a few slides. Moving to slide six, this is billed business growth and managed loan growth. Here, the solid line is the growth in spending on lending products. The dotted line is the growth in loans.
As you can see on the chart, growth in spending on lending products has not correlated with the growth in loan balances over the past two years. The difference in the growth in spending and loans is in part due to our actions and in part due to card member behaviors. On our part, we have had fewer levels of proprietary lending product acquisitions. Those acquisitions are focused on premium lending, and they tend to revolve less. We have also significantly reduced balance transfers. On the card member side, they are simply deleveraging, and transactions have become a larger percentage of our loan book. If you were to look at our lending trust information and looked at the payment rate, you would see that the paydown rate in June 2010 was 28.9%, and in June 2011, it increased by 270 basis points to 31.6%.
If you go over to slide seven, this is within our U.S. consumer business, the net interest yield on managed loans. While the periods are no longer on the chart, if you were to go back to 2009, net interest yield was generally in the high 8% or 9% range. The rates increased in 2008 in anticipation of the CARD Act. Rates have now come down over recent quarters as we have anticipated. As discussed in prior quarters, the impact from the CARD Act within yield was significant. However, we have worked to mitigate it through pricing actions. The lower yield reflects lower revolve rates, lower balances at penalty rates offset by certain repricing actions.
Going forward, yield will continue to be influenced by a number of factors, including our strategy to focus on premium lending, the credit quality of our portfolio, the percentage of the portfolio that is revolving, as well as the cost of the funds. If we look at slide seven, this is billed business and ending loans compared to competitors as of the end of the second quarter. Our business model is fundamentally different than our peers. We have a spend-centric model where we design products to encourage customers to spend and allow them to revolve if they choose to, where the competition is much more focused on a model that relies on net spread. You can see that our total billings, which grew at 18%, were significantly higher than our major competitors.
However, when you look at ending loans, you can see that many of our major competitors have higher loan balances than we do, and that reflects the difference in our business model. Just thinking about the credit performance of charge cards, this is slide eight. You can see that in the U.S., the net write-off rate has performed really excellently. It's stable. It is at historic lows. This is true both in the U.S. consumer business and, as you can see on the right-hand side, in our international consumer as well as our global corporate card. Even in the height of the recession back in the second quarter of 2009, the write-off rate for charge card only went up to 5.2% when our lending rate went up to 10%. By the fourth quarter of 2009, it was back to 1.9%.
This is a portfolio that has terrific credit metrics and performance. Now, our objective is not to have the lowest write-off rates possible, but to grow our business profitably. I would expect these metrics to tick up over time as we grow our business. If we move to slide nine, which is the lending write-off rate compared to competitors, you can see if you look at the left bar, which is the second quarter of 2010, we were at 6%, but we've now come down to 3.1%. While all of the competitors are coming down, our rates started to improve sooner and improve faster than the competition as we moved earlier and more decisively, and we simply have a more affluent card base. Historically, before the recession, our write-off rate was generally 100- 150 basis points lower than peers. Right now, it's 300 basis points.
Over time, I would expect that would migrate back to historic levels, but certainly much stronger performance, best-in-class performance in the industry. If you look at slide 10, this is looking at lending 30-day past-due loan rates. Again, here you can see everybody's improving, but our rates, again, are notably better than the competition. If we move to slide 11, here we're providing information on our managed lending loan rates and bankruptcy filings. If we start on the right side, this is the number of bankruptcies. You can see that it's slightly up in the second quarter from the first quarter, but well below where we were in 2009 and 2010. I just point out that 2/3 of the bankruptcies that we're notified of, we've already written off. Let me look at the chart on the left side. This chart is helpful as we look forward.
In the upper left chart, balances that this are balances that roll from current to 30 days past due. If we look along that line to the green triangles, these are accounts that rolled into 30-day past due in November and December of last year and January of this year. If these accounts stayed delinquent, they would write off in the second quarter of 2011. If we look at the three blue triangles just to the right of the green triangles, they are lower. If the 30-day past-due to write-off rate, which is the bottom chart on the left-hand side, were to stay constant, then the write-offs in the third quarter would be lower than the write-offs in the second quarter. It also assumes that early write-offs and recoveries remain unchanged. I would point out that that bottom chart, the 30-day past-due to write-off rate, has ticked down slightly.
If we move to slide 12, this is looking at Trust FICO information, comparing American Express to our peers. On the left-hand side, these are the percentage of accounts that have FICO scores less than 660, so they are subprime. You can see that charge card only has 7% of the balances in the trust are below 660, only 13% of the lending trust. Now, when we actually issued these customers' cards, they were both 660, right? Over time, they've migrated to 660. The key point here is that we have fewer accounts that are subprime in the trust than competitors. The flip side is the right side, which are those the percentage of accounts that are over 720 considered to be superprime. You can see the charge trust is at 76%. The lending trust is at 62%.
Again, much stronger set of customers in our trust than the competition, very favorable compared to peers. Let me now turn it over to David.
Thanks, Dan. On slide 13, you'll see the sequential growth in virtually all of our capital ratios of about 50 basis points. That reflects the strong capital generation from income that Dan talked about, the $1.3 billion of net income. We generated some additional capital through employee benefit programs, the issuance of stock to employees. We had a smaller amount of our deferred tax asset that was disallowed in the quarter compared to last quarter. We did resume share repurchase activities in the second quarter following on the approval we received from the Federal Reserve as part of the CCAR exercise. We purchased roughly 15 million shares and spent about $750 million. Obviously, paid our regular quarterly dividend as well. Our Tier 1 common and Tier 1 risk-based ratios are both at 12.3%. As I think you know, we don't hold any Tier 1 capital other than common equity.
The impact of the Basel III standards as proposed on our risk-based ratios would have been roughly 40 basis point reduction in these reported ratios for the second quarter. That primarily reflects unrealized losses that are in OCI that get added back under Basel I, but would not get added back under Basel III. That impact of 40 basis points is lower than the impact we showed in the first quarter, which was 80 basis points. That's because the unrealized gain or loss in some of our investments declined during the quarter, as well as a change in the amount of disallowed deferred tax asset from one quarter to the next under Basel III as well. Turning to slide 14, we give you our liquidity snapshot.
We continue to hold very high amounts of liquid assets, predominantly in the form of cash, as you see on slide 14, netting out our very small commercial paper program of less than $1 billion. We hold $20 billion of excess cash and rarely marketable securities. We compare that, as we have for the last several quarters, to the next 12 months of all of our contractual maturities across our long-term unsecured ABS and deposit programs of $17 billion and continue to exceed that target that we've established for ourselves for this year. Slide 15 describes the growth in our U.S. retail deposit programs. You can see that they increased at a slower rate than they have over the last several quarters. We'd expect that the growth in the deposits would more closely mimic the balance sheet needs over the coming quarters.
Within deposits, we continue to emphasize the growth in direct deposits under our branded personal savings from American Express program. You can see there we raised an additional $1.4 billion in the quarter, and that program ended with slightly less than $14 billion of deposits. The third-party CDs, we continue to have maturities in excess of what we issue as we have for the last several quarters. We are refinancing a portion of those CD maturities through the issuance of direct deposits. Slide 16 just reminds you of the diversified sources of funding that we have. That's on the left-hand side. We have the three deposit programs in the U.S. that I just showed you on the prior page. I'll talk in a minute about our two ABS programs, the lending trust and the charge card trust. We have five major issuers of unsecured term debt.
We have a term bank facility both to fund a portion of our operations as well as some backup facilities that serve as contingent purposes. We do maintain access to the commercial paper market on a very small basis. On the right-hand side, our contingent sources include those on balance sheet amounts, the $20 billion that I just described. Both of our two U.S. banks have eligible collateral and are eligible to borrow at the discount window, the Fed's discount window. We have committed bank credit facilities that we've had in place for some time. At the bottom, as you may also remember, we entered into a $3 billion conduit facility that's attached to our charge card trust. That's a facility that we have used and do intend to use from time to time for working capital purposes to fund the seasonal needs of our business.
It is also available to us on a contingent basis. Starting on slide 17, we just give you a little history of where we've been from a funding mix perspective and what our overall funding requirements have been. You can see on slide 17 that our overall needs have declined from $112 billion of managed debt at the end of 2008 to a little less than $98 billion at the end of the second quarter. That reflects the decline in our balance sheet. Dan showed you earlier that the breaking up of the relationship between card member spending and card member loans, even though we did have some year-over-year growth in loans, we're still close to 20% below our peak level of managed card member loans. The balance sheet continues to be smaller than it was at the peak.
You can also get a sense here of how the mix within this declining balance has changed, and in particular, significantly lower reliance on short-term debt. Even within that deposit growth in deposit category that you see here, there's also been a mix from institutional deposits, which we had at the end of 2008, to where the 32.3% is almost entirely retail deposits raised here in the U.S. The card ABS outstanding has really followed that card member loan balances, as that has shrunk, so has our issuance there. You see where unsecured term falls out as well. Slide 18 takes those balances and shows them as a percentage of the total. On a going forward basis, we've described the right-hand side of slide 18 as 1/3 , 1/3, 1/3 strategy.
1/3 of our funding would come from deposits and a like amount from ABS and unsecured term. It's not that we're managing our funding on a day-to-day basis to those percentages. You can think of our desire to have a diversified set of sources, all three of which have scale and relevance, and all three of which are critically important to us. On slide 19, we give you a sense of our term maturity profile, both what you could see in our 10-K at the end of last year and then where we stand based on our issuance and maturing activity through the second quarter. You see that our maturities are very well spread out, both in terms of years as well as in terms of type of debt that will mature.
On slide 20, we show both the actual issuance of capital markets debt, term capital markets debt, between our unsecured and ABS programs historically going back to 2008, and then provide you with an estimated range of what our full-year 2011 capital markets issuance needs would be. We put a range around both the ABS and the unsecured. We have a funding plan every year. It's rare that we ever execute that funding plan exactly as we had started to do at the beginning of the year. The amounts and mix that we issue will, of course, depend on business conditions, market capacity, as well as other factors. On slide 21, we give you some information on the assets that are held within both our lending trust, American Express Credit Account Master Trust, as well as our trust that buys and finances charge card receivables, American Express Issuance Trust.
You can see that there's a total of about a little less than $40 billion of loans and receivables in those trusts. The investor interest represents both the outstanding amount of securities, as well as in the charge card case, the current draw on the conduit facility as well, along with some of the contractual provisions, including required seller's interest and current subordination levels. Slide 22 goes back to one of the comments that Dan made earlier. This indeed is the trust performance, lending trust performance, and it shows payment rate for our trust versus some of the other large Tier 1 issuers just from July 10th on, so from the last year at this time on, I should say. What you see is that our payment rate continues to be at the high end, at the top of the range of the rest of the issuers.
You can see a steady increase in payment activity over time. Dan talked about on a yield and on a GAAP basis across the whole portfolio about how there's a number of factors that are driving our decline in revolve rate, increase in pay rate, including a different mix of portfolio acquisition. This pay rate, in some sense, kind of normalizes for that as there aren't any new accounts that are put into this trust recently. This gives you perhaps a good sense of what the consumer behavior element of that has been. We don't include the pay rate for the charge trust on here because it's literally off the charts. It's up in the 90% range, reflecting the pay in full nature of that product.
Okay. This is Daniel Henry again. Let me conclude with a few final comments. Results for the quarter reflect a continuation of the positive business trends evident during the last several quarters. Spending growth remains strong across all business segments and geographic regions, despite difficult prior year comparisons. We also saw further improvement in lending trends as average loans grew year-o ver- year for the first time since the end of 2008, and lending credit continued to improve. Our strong billings growth, coupled with higher travel revenues and modest growth in average loans, enabled us to reach our long-term revenue growth target, even after adjusting for the foreign exchange impact in the quarter. Our revenue growth rate also continues to outpace our large issuer competitors, reflecting returns on our investments and the unique nature of our spend-centric business model.
Strong revenue growth, improving credit trends, and the benefit of a lower effective tax rate provides the opportunity to invest in the business at high levels while also generating strong earnings. These investments are driving current metrics as we deliver higher average spending, grow our card base, and build capabilities for the future. We are excited about the continued momentum in our business, but acknowledge that the economic and regulatory environment remains uncertain. Our success in a highly competitive environment and our unique business model are yielding high-quality results and strong revenue growth, as spending on our network continues to grow well above the industry average, and our credit performance remains the best among major credit issuers. Our capital level remains well in excess of regulatory requirements and is greater than the level we expect to be required under Basel III.
The strength of our balance sheet puts us in an excellent position to meet our ongoing business requirements and make investments. Our access to diversified sources of funding, our current cash position and cash flow, and our liquidity profile provide us with added protection in volatile times. We are confident that our investments and business model are appropriately positioned to manage through the changing environment, capitalizing on the opportunities in front of us, and continue to win in the marketplace. Thanks for listening, and David and I are now ready to take your questions.
Thank you. Ladies and gentlemen, if you'd like to ask a question today, you may press star and then one on your phone. You will hear a tone indicating that you've been placed into the queue. Again, you may press star and then one at this time. Once again, if you had any questions, you may press star one. Speakers, there are no questions in queue.
Okay. If there are no questions, we appreciate everybody who called in to listen to the call. We will get some feedback and see if this is something people would appreciate in the future. If it is, we'll continue to do it. Thanks for calling in.
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