Good morning, everyone. Welcome to U.S. Bancorp's 2019 Investor Day. Thank you to all of you who have joined us here in New York, who are listening on our webcast. We have a full agenda for you today, including a Q&A session at the end of the day where we're going to bring all of our presenters back on stage, and you'll have an opportunity to ask any questions you might have. During the day, you'll also have an opportunity at breaks and at lunch to go and visit our tech experience displays outside in the foyer. We have a number of our technology products that you can take a look at and also talk to some of our tech ambassadors out there. All of our presentations today are available on our website at usbank.com.
Aside from all of the presenters you're going to be seeing here on stage today, we have with us in attendance our entire managing committee, as well as over 25 of our most senior leaders here at the bank. They're here seated amongst you in the ballroom. They're also, as I mentioned, outside acting as tech ambassadors with our tech displays. We encourage you all to seek them out during the day. Talk to them. They're here to answer your questions, not only to give you a better understanding of our businesses and our opportunities for growth, but also to give you a better sense of our culture and who we are as a company.
We're also thrilled that nine members of our board of directors were able to join us here today, and I want to take a moment and ask our board members to just please stand and be recognized. With us are David O'Maley, Art Collins, Olivia Kirtley, Dorothy Bridges. Over here, we have Elizabeth Buse, Kimberly Harris, David Mackay, Dr. O'dell Moreno Owens, and we are going to be having Doreen Woo Ho later join us. Before we get started, I need to remind you that today's presentations are going to be including forward-looking statements that may be subject to risk and uncertainty. The factors that may cause those actual results to differ from those statements are included in the presentations on our website today, as well as in our 10-K and future SEC filings. Some of our presentations are also going to include reference to non-GAAP financial measures.
A description of those non-GAAP financial measures, as well as reconciliation to GAAP, are also included in our presentation, as well as our SEC filings. With that, let's get started.
The first game, the home opener in U.S. Bank Stadium.
Donald Trump will be the 45th President.
North Korea successfully testing its first intercontinental ballistic missile. Fear over Americans and their savings. The Dow ending the day down more than 600 points.
Mueller's now been tabbed as a Special Counsel.
The economy added 235,000 jobs in February.
The Fed is becoming increasingly uncertain about where rates are going.
U.S. Bank Stadium is playing host to one of the biggest spectacles in sports, Super Bowl LIII.
China has threatened to impose tariffs on $60 billion worth of U.S. imports in retaliation for American tariffs.
The deal is in place, and as long as it's in place, it empowers Iran to get nuclear weapons.
In the case of the Camp Fire, the town was gone.
The Democrats will win enough seats to gain control of the House.
Washington begins its government shutdown.
Playing in its third straight final, Team USA beat the Netherlands.
Goal. USA.
We decided today to lower the target for the federal funds rate by a quarter of a percentage point.
Good morning. A lot certainly has changed. My favorite part of that presentation was the two to 10-year. Did you see that? That was the only thing that was consistent, right? Heading downward. I'm Andrew Cecere, CEO of U.S. Bank. It's my pleasure to welcome you to the 2019 Investor Day. First of all, let me thank you. I know you have a lot of pressures on your time, and I recognize that it's your choice to come here this morning, and I want to thank you for that. I want to thank you for taking the time to listen to our story, and I want to thank you for the investment in our company. I believe we have a great story to tell. I believe we're positioned in an excellent place to win in this new environment.
I want to talk a little bit about what's changed over the last three years. If you think about the evolving world we're in, let me start with the economic scenario. I'll start by telling you that we have a lot of data at the company, a lot of early indicators that we look at in the credit group, in the payments group, and so forth, none of those indications are recession upcoming. You're going to hear from Jodi and Mark a little later that our credit stats as it relates to the consumer, commercial, and corporate banking groups are all consistent and stable. From a spend standpoint, we have a lot of data there also.
As you recall, at the end of 2018, there was a little bit of a dip in spend activity, particularly on the consumer side of the equation, and as we talked about in the last two earnings calls, it started to continue to go up, and we're seeing that stability there also. Spend is stable. Finally, if you think about loan demand, that's also very consistent. You'll hear from Terry later, but that consistency has been in place for the last couple of quarters. Our data would indicate stable, continuing, growing economy. Now, at the same time, as you all know, we have conflicting messages as you think about global growth, China, trade, tariffs, and Brexit. Probably most of all, what you're seeing in the yield curve and the indications about something might be happening.
That sort of conflicting set of messages is creating a lot of volatility and uncertainty in the marketplace, absolutely, and we have to be able to react to that on an ongoing basis.
From a changing expectation standpoint, quite a lot has changed. The one I want to focus on is individuals and businesses expectations around privacy and trust in technology. That is a fairly recent change in just the last almost 12 months, that people have a heightened awareness of how their data is being used, and their protection and privacy of that data is becoming even more important to them. From a regulatory environment, we've come a long way. If you think about the last 10 years, there was a tremendous increase in regulatory oversight in the banking industry. Increased capital levels, increased liquidity levels, and I will say overall, the banking industry is in a much safer, better place today. The last three years, I would call more moderate and stable.
There's a lot of clarity, there hasn't been actually increases in regulatory oversight in the industry overall. In fact, I would say a lot of the focus has shifted from capital and liquidity to overall reputation and operational risk. That's an area of focus that you'll hear a little bit about more in a moment. Finally, probably the most significant change that's occurred is related to technology and the digital revolution. The fact is, our customers, U.S. Bank customers, banking customers overall, are impacted not just about what's happening in the banking industry, but what's happening in industries across the United States. The expectations and the way they're dealing with the bank has changed quite dramatically. If you think about 10 years ago, just about every transaction that occurred at the bank occurred in the four walls of a branch.
Today, two-thirds of transactions occur on a digital device. That's quite a change over a 10-year timeframe. Even over the last couple of years, that's moved up from about 50% to 67%, and that curve continues to be very steep. Customers' expectations around convenience and speed and certainty and safety and privacy have also increased quite dramatically. That means for us, that we have to rethink about the role of the branch, the number of branches, and how we think about our branch network, and you're going to hear a lot more about that today. Certainly, the competitive landscape has changed. You met a number of our board of directors. We have an annual strategic offsite that we talk to our board every year. We've been doing that for the past 10 years, and we talk about our competitors.
For many of those 10 years, our competitors would have been those circles around the blue U.S. Bank, principally our peer group banks. As the board knows, the last three years, we've expanded that quite dramatically to include the large tech platforms on the left and the fintech players on the right. The fact is, those are our competitors today just as much as the other banks. They are entering the financial services arena principally through payments and money movement. Banking traditionally, particularly deposit-taking and lending, has a pretty wide moat around it. It's a regulated business, and many of the fintech players and large tech platforms are not in that. However, they're entering through payments and sometimes creating partnerships to expand beyond that.
We recognize that, and this is one of the key themes that you're going to hear today is that combination of payments and banking, I think is as critical as it's ever been in the last few years. A lot has changed in the environment, a lot has changed in the industry, and a lot has changed at U.S. Bank. If you think about the last three years, we've done over 17 acquisitions, card portfolios, trust portfolios, and a lot of increased capabilities, one of which we announced earlier this week, software capabilities or payments capabilities across the board. We announced our first expansion into a new market in 10 years. Next month, we're going to go into Charlotte, North Carolina, with what we're calling a digital-first branch-like strategy. Tim is going to talk a lot more about our thinking around that.
Kate will talk our brand campaign. I will tell you that our name recognition, our brand awareness is much stronger today than it was just three years ago and certainly six years ago. We've gone from a regional bank to a national bank. That brand awareness is certainly out there. Finally, we've had a number of enhancements and product introductions across every customer segment in the bank in every single business line. From a flexibility standpoint, probably one of the most significant changes is exiting the consent order. We were in the AML consent order for three years. While we were in that order, we were increasing our expense base, both from a technology and operational standpoint, as well as the number of people focused on that initiative. The good news is we're past that heightened spend. We're in a stability phase as we sit today.
In fact, you're going to hear from Jodi, where our objective is to optimize our overall risk management function. The second important component of that is while we are in that consent order, we were bound and could not open new branches, which really limited our flexibility in terms of closing branches because we want to optimize the locations. As a result of exiting that, we, as you know, announced a 10%-15% reduction in branches and a very different face of the branch that remains. What goes on in those four walls, as I talked about and Tim will talk about more, is very different today than it was just a few years ago. That flexibility allows efficiency and effectiveness. Speaking of efficiency and effectiveness, if you look at the tech side of the equation, there's a lot that's changed there.
We've been an innovation, technology-driven company in our payments group for 2 decades. Our Elavon has had agile studios going back to 2000, before anyone even knew what an agile studio was. The fact was it was a little bit isolated in that group. In the last 18 months, it's been expanded to across the bank. We currently have 22 agile studios impacting every business line, and it has completely changed the way we develop and execute in terms of our product management and product development. It's faster, it's quicker to market, it's much more customer-centric, and it's much more efficient. You're going to hear more about that, but it's a new way of doing business. That 22, I would expect to expand to double in the next year.
That has allowed us to introduce some of the things you see on that slide, like increased automated underwriting, instant decisioning. You're going to hear about some of the products and a revamped mobile app. Finally, we've had a number of changes in executive leadership. Probably the most recent, certainly the most recent change is the creation of a Chief Digital Officer position. You're going to hear from Derek White later this morning. I believe so strongly that the digital component of our success is critical, that we created a managing level committee position that looks across the company at all the digital initiatives and making sure we're having this in a consistent, effective way introduced to all the clients, regardless of business line. Derek's going to give you the vision around that shortly. We have new leaders across HR and risk.
Tim has taken over the combined consumer and business banking group. Gunjan is here today. At the last earnings call, I think, Gunjan, you were on the phone. You were one month away from starting. You wanted to make sure we had a good earnings call before we got started. She is now here to talk about wealth management. A lot's changed in the industry. A lot's changed at the bank. I want to tell you how I think about where we are today. Three things. Number one, I believe we're starting from a great position of strength. I will tell you this very honestly, I wouldn't trade places with anyone else in our peer group. I'm going to tell you why. I think we have all the attributes and the exact right timing to be really successful in this new environment.
Number 2, those core competencies and advantages that got us here, that got us to this point, that position of strength that I talked about, continue, we're focused on retaining those strengths. Number 3, we recognize that the future is changing, and we have to continue to adjust to be successful in that new future. You all know that we're the fifth largest bank in the country, just over $480 billion in assets, and just over $80 billion in market cap. This is a great position to be in. Why is that? Because we're able to spend $2.5 billion in technology and operations around innovation on an annual basis. That's important because that is much more than the banks below us are spending, Number 1.
Number two is while the banks above us are spending more than that, we have a much simpler, less complex, more straightforward business model. I would maintain that our 2.5 is much more effectively spent in terms of outcomes and production. We're able to do that in this environment in moving a lot more of our projects from defense to offense. You're going to hear a lot about that in a moment. We're making tremendous progress. When we think about M&A, coming back to that point about the industry, M&A is occurring in the industry and in payments for two reasons. Number one is scale, and number two is capabilities. We believe we have the scales I've already talked about, and importantly, we already have this great payments business sitting in U.S. Bank.
Bank. Our objective is to weave that into the banking component because of the importance of payments and banking coming together in this new environment. We believe we have the scale and the competencies to be successful. We do not believe we need to do an acquisition. However, it would not be prudent of us to put our head in the sand and not be aware of what's going on in the market. We will look at opportunities as they present themselves under the following lens. It's a long-term lens. You're going to hear about a lot of progress today. We made a lot of progress across the company, and the momentum is terrific. As we think about deals, we recognize that there's going to be a distraction with the deal, somewhere in the neighborhood of 18 months to two and a half years.
The question we ask is, will we be a better bank after that's done, three to four years from now, than we would be on our own with the momentum we're making? We're not looking at the short term or the day one announcement or that initial financial projection. It's the long-term positioning of the company and making sure we're in the best position possible given the momentum we have, and that's how we think about it. The second thing you'll notice from this chart is we are more valuable than we are big. If you look at the left-hand side, you'll see we're one-fourth of the size of the bank above us in terms of asset size, but if you look at the right, we're more than half in terms of value. One of the key reasons for that is our returns.
From an ROE, ROA, and efficiency standpoint, this chart is the last three years. We are number one, number one, and number one. If I did the last 10 years, we'd have the same position, number one across the board. It's a function of a lot of things, but the message to you is our intent to retain that position in this new environment, regardless of what happens. If you step back and look at our advantages, I'm going to classify them in four categories. I already talked about our financial discipline and our financial measurements. We have a very good offense. I would also maintain we have the best defense. You're going to hear from both Terry and Mark in terms of when the road gets rougher, we actually perform even better. That's true in the CCAR process. We have the least amount of capital implication.
We make money even under the most severely adverse scenario. It's true of our charge-off volatility, which is much less volatile in a harsh environment than anyone else. Importantly, we haven't changed our stripes in our credit underwriting. That financial discipline, that risk discipline, which leads to the highest debt ratings in our peer group and among the highest on the globe, which is a tremendous advantage from a funding cost standpoint, a competence standpoint, and a counterparty of choice standpoint. Huge opportunity, huge advantage, and one that's very important to us. Secondly, our business mix. We have this great diversity of businesses that offer diversity of sources of income. About half of it, a little less than half from fees, some of it from net interest income, and together, they really diversify during economic cycles.
Importantly, unlike a number of banks, we have a number of unique business lines, Corporate Trust, fund services, and payments, that are very capital efficient, high return, scalable businesses that we have a huge advantage in, which drives the efficiencies and the returns that I just talked about. Number three, I talked about trust, confidence being so important in this environment, and Kate will share with you some of the facts about how we're positioned very well from a trust standpoint. We've always done things for the right reasons. Our employees are highly engaged, and that trust factor, which I think is even more important in this environment, is one that we're starting from a position of strength. Finally, our strategy, which is four simple components. Number one, retaining the financial and risk management discipline, that trusted choice component.
Number two is looking at activities across the bank, just like that, across the bank. We spend very little time as a team thinking about business line by business line, and really thinking about the customer at the center of everything we do. Number three on the right, I'm a big believer in this. I think we have a great opportunity to continue to drive for simplicity across the company. Simplicity in the way customers deal with us and making simple for employees to do their job. Finally, the future. We understand that things are changing rapidly. We're not going to just sit back and say, "We've got it all in place. We don't need to change at all because we know what we're doing, and we'll just keep doing what we're doing." We need to adjust, and we're recognizing that.
For those of you in the audience who've invested with us for the last 10 years, the good news is those things that you invested in us for, our financial discipline, our business mix, our risk management, and our culture are not going to change. Those strengths are strengths that we recognize are critically important to the future, and we're not going to change our stripes. However, I believe, and our team believes strongly, that those are necessary but insufficient to be successful in the future under this new environment. The pivot we need to make while retaining those core competencies is to be more agile, innovative, and you're going to hear this theme throughout the day, more digitally focused across the board. As we think about what we're investing in, the future, I want to talk about this sort of balance.
One of you in the room came to speak to our board about two years ago. You said, "One of the things we like about U.S. Bank is that they manage the company for forever." That was a great way to say it, because that's exactly how we think about it. We're managing the company for the long term. However, we recognize that while we manage the company for the long term, we need to perform in the short term. I get that too. I will never forget that. There's this great balance that we're looking at, which is optimizing things we're doing today to continue to invest for the things we want to be great at tomorrow. The optimization on the left-hand side includes things like our business mix.
We've actually exited a number of businesses that either have limited competitive advantage from our perspective, are not going to be as critical in the future because they're paper-based businesses, or demand a lot of investment with limited return. Businesses like retail lockbox and our ATM driving business with cash operations. We're going to continue to look at optimizing our business mix. I talked about physical asset optimization, a great opportunity for both efficiencies and effectiveness of what's going on in a branch, and we're looking at that across the board. Upper right, structure. Terry will talk about this a little bit more, where we're looking across the company for spans of control and the way we're managing call centers across every area of the company, looking for optimization and efficiencies.
You're going to hear from Jeff on technology and risk, but technology and risk is an investment for the future, but also optimizing the current, and Jeff's going to talk a lot about that. We're doing all those things to optimize what we have here and now in order to be successful in investing in the digital money movement capabilities as well as new markets in the future. As we think about that future investment, I think about it across three horizons. On a core business model, we want to be the very best consumer and business bank, the very best wealth manager, the very best payments business and corporate and commercial bank in the industry and running that as effectively for the benefit of our customers as possible.
While at the same time transforming the way we're doing that business, seeking that optimization, recognizing the technical investments that we need to make to continue going forward. That middle category is sort of this horizon of one to three years. All the while, looking at that future, that horizon that's a little longer, a little less clear, but we know there are certain components that we need to have core capabilities to drive our success, and that's that agility and digital focus. Across those three horizons, we're focused on these five things. Number one, relentlessly focusing on the customer. Everything we do at the company is with the customer in the center and all of our capabilities around that. The way we think about product development, technology, service, operations, communications. We're looking at the customer at the core of what we do.
Secondly, if you do a word count on what you're going to hear, the word most today is going to be digital. I believe that digital is critical to the future of our success, and being able to deliver digital capabilities in a seamless, convenient, agile, quick fashion is going to be critically important, and we're investing heavily in that. Data. Banks have always been great collectors of data and have always been lousy users of data, right? What we're focused on is collecting that data and using it for the benefit of the customer. You're going to hear about insights. Insights to consumers around their objectives of savings goals and financial goals overall, insights to businesses to help them improve the way they're running their business. That data component, combined with that digital component, is critically important. Partnerships is another one.
The other thing that we recognize is that we can't build everything ourselves and be everything to all customers. You're going to hear about some of the partnerships today with some fintech players where they have a core capability, typically in a thin, unregulated slice of a capability, often a front end, combined with our balance sheet, our customer base, our underwriting, and our risk discipline. Together, we are stronger than we are separately. We're going to continue to focus on partnerships across the board. Finally, really this concept of one U.S. Bank, breaking down the barriers of businesses, thinking about the customers, and not just the way we're dealing with customers, but internally, the way we're optimizing across the company. We no longer do our investment prioritization business line by business line. We do it as a company.
We do it as one entity across the board. That's our focus area. Now, I know a lot of you have followed the company for a long time, and we have always focused on those things that we can control, and we will continue to do that. I can't control the economic environment, the interest rate environment, but I can control the expenses and the optimization that we focused on. We're past our build on compliance, as I talked about, into the optimization phase. We've increased the tax relief in 2017, allowed us to increase our investment spend, which is now in the run rate, and that's part of that $2.5 billion a year that I talked about. We're looking for optimization across the board.
Terry's going to talk about our capital investment, and you're going to hear a lot about our investment overall, our capital return on our investment overall. Now, one of the things I also recognize, back to that balance component, is we need to continue to perform in the short term while we're looking at the long term. There were a few years, principally during the consent order process, that we were not able to deliver positive operating leverage. I know that's important to you. It's important to me and our management team. However, in seven of the past eight quarters, we did deliver positive operating leverage for all the reasons I talked about. On the second quarter call, and we've talked about it a few times, our objective was to achieve it in the range of 100-150 basis points for the year.
Since then, as you know, rates have come down and the rate scenario has changed dramatically. While our intent is to continue to achieve positive operating leverage and to continue to have low single-digit expense growth, it's likely that we'll be somewhat below that 1% positive operating leverage in 2019, but still delivering positive operating leverage. If we did the things that would cause us to get to that level, it would not be prudent for the long term, and we want to manage this company for the long term, and that's how we're thinking about it.
As we think about how all this adds up, I'm going to shortcut a slide that Terry's going to give you longer because this is so important, is whatever the environment is, whatever the interest rate, the credit environment is in the long term, it's our intent to continue to return 14.5%-17.5% ROE to our shareholders. We believe we have the business mix, the disciplines, the strengths, the core capabilities to do that on a consistent basis over the long term, and that is our intent, and Terry will talk more about the details about that in a moment. That translates into a tangible return on equity, somewhere between 18% and 20%. I believe we're in a great spot. I believe we have the core capabilities, the strengths that have gotten us there, and we're going to continue to maintain them.
We're going to build from that success, given the future and what's important in the long term, in order to be successful over the next three, five, and 10 years, and that's the way we think about the company. What are you going to hear about today? We're going to split the discussion a little bit in terms of broad initiatives across the company, business line updates, and then talking about our risk and financial discipline events. At the beginning here, you're going to hear Kate talk about brand and culture and how important that is to our success and our unique position in that regard. You're going to hear Jeffry von Gillern talk about our technology group, and he's going to talk about it both from the perspective of offense as well as defense, and we have a great position on that on both sides.
Then we're going to wrap up the first part of the morning with Derek talking about our digital strategy. Again, thank you for your time and attention. I'm really excited about the story we're going to tell you, and we're going to kick it off with Kate Quinn, our Chief Administrative Officer, who's been with the company six years. Kate?
Good morning. Brand and culture are differentiators for U.S. Bank, and they are fundamental to how we run our business. When we met last year in 2016, we talked about how strong brands drive better shareholder returns, they also drive higher top-line growth, and they outperform the S&P 500. I'll tell you today what we've done on our brand journey since then, where we're positioned, and what's next for us. Increasingly, people are not just buying what you do, they're buying why you do it. When we began our brand journey, we started from the inside out. We started with our culture, which is a unique combination of IQ and EQ, and that is reflected in our purpose statement. "We invest our hearts and minds to power human potential." The trend of culture is very important.
When you think about this sea of black and white banking, this gray space is really, really important, this space of brand and culture. It unifies and rallies employees, and this why is felt across all of our stakeholders. The intersection of brand and culture is differentiating, and it is really the unwritten rule set in which all decisions are made inside the company, and where it is felt to all of our stakeholders again, and it's how we conduct business. We were at a leadership offsite this past summer, and we asked our top 200 leaders, "What is the secret sauce of U.S. Bank?" This is the word cloud that emerged from that. For those of us who live and breathe it every day, it's no surprise that ethics, trust, and collaboration rose to the top.
As I mentioned, our why is felt across all of our stakeholder groups. For employees, our purpose is motivating for them, and we hear it all the time. It is a reason why we attract and retain top talent across the company. For our customers, they feel it in all of our efforts to earn their trust. In fact, when we test proof points, when we test products and services, we test marketing messages, we test everything. Ethics and trust rises to the number 1 spot for all customer segments, both consumers and businesses. In terms of communities, we have an industry-leading reputation with our community partners. Again, it isn't because necessarily of what we do, but how and why we engage with them. Lastly, you all feel it as well, and our other shareholders.
It's felt in our best-in-class returns, our focus on the long term, and our consistent performance, of course. We also know that expectations are definitely changing. All stakeholders are now really expecting brands to have a voice on social issues. In fact, 92% of millennials want to work for and believe it's important to work for a company that has a social conscience. We hear it from all of our stakeholders internally and externally. We also know that this heightened set of expectations is not just important to our customers and employees, but it's also important to you. We hear the questions from you as well. When we think about our social responsibility strategy and our focus, we've always been good at it, but we're getting even stronger at it, and we're focused in three areas. First, making sure that what we do has social impact.
Examples of this are things like enabling access to capital, financial wellness programs. Secondly, we're focused on diversity, equity, and inclusion. This is a critical focus area for us. Lastly, making sure that we're doing our part to address environmental challenges. We do that through our products and services, through our partnerships, but also through accountability and governance around these issues. We will make sure to keep you posted as we evolve this strategy. You can probably tell when we started our brand launch, we were not focused on advertising. We were really focused on capturing and telling our story in a better, more integrated, and consistent way across all of our stakeholder groups, internally and externally, digitally and socially.
We also, as Andy mentioned, we've really changed our focus from thinking about ourselves and presenting ourselves as a regional brand to presenting ourselves as a national brand. Of course, being a bank, we measure everything we do. We know that we have had strong impact. As expected, our brand awareness in U.S. Bank has increased over these past few years. We've also strengthened our most trusted choice positioning. We've had an undeniable positive impact on revenue and deposit share. Lastly, we've also increased our, what we call central customers, which are customers that have a deeper relationship with the bank. They're more engaged and more involved with us. You'll hear about centrality throughout the day.
Brand Finance recognizes that we've increased our brand by 55% over the past three years, and lots of other brands also recognize our performance from an external perspective. For example, Ethisphere, Fortune, Forbes, DiversityInc. In terms of our reputation with community partners, I mentioned this before, but we have the strongest reputation amongst all banks with community partners. Again, this is because of how we engage with them and how we commit to our success and their success within our communities. In terms of employee engagement, we historically have industry and company leading employee engagement scores. We know that companies with highly engaged workforces outperform their peers by nearly 150%. Focusing on culture is good business. When we think about how do we translate that employee engagement and our brand to growth, it's a very simple equation.
Higher employee engagement leads to a stronger customer experience, which leads to revenue, retention, and growth. When we think about our employees and our customers, we think about them in a very similar way. This is all leveraged with data, analytics, and insights that help us focus on knowing exactly what to spend time on. We work on attracting, retaining, and developing our relationships with both employees and customers, and we focus on three things. One, creating compelling journeys for them both. For example, personalizing their experiences with us. Secondly, enhancing and enabling their digital lives. As Andy said, you'll hear the word digital throughout the day. Lastly, by establishing really deep and meaningful relationships with both. This helps us build our customer brand as well as our employee brand, resulting again in revenue, retention, and growth. Trust will remain a competitive advantage for us.
It is not going anywhere. It is going to be a foundational driver, top driver of business in our industry. As the world evolves, we will remain competitive, we will stay relevant with our brand, and we'll focus on the moments that matter to our employees and our customers. We will continue to drive impact through our social strategies, and we will build trust at moments that matter most. We will tell our story through our brand campaign. Really, our employees are our best brand ambassadors. Let me just give you one example of that. In Northern California, during the wildfires, many employees and customers lost their homes. We were unable to open our branch. We have a branch manager named Taylor. Taylor opened up his home to employees that had lost their homes.
He invited them to stay with him, live with him, and from his home, he reached out to customers to make sure that they were safe, that they had what they needed during the crisis. This is a great example of our unique culture and how that impacts our customers in a positive way. Brand has become an agent of change at the bank. It supported some of our most critical initiatives, and it grows engagement as well as revenue. It is a core competency for us, and it is foundational to how we conduct our business every day. It's also foundational to the story that you will hear for the rest of the day. Brand and culture will remain differentiators for us to our business growth and success. Thank you.
Thanks, Kate. Taylor is one of my heroes. I called him after that fire, and he said, "You know what we're going to do, Andy? We're going to roast marshmallows." He just had the best attitude I've ever seen. Just a great example of the employee base that we have. We're going to go from sort of the soft gray, as you talked about, Kate, but important components, to zero and one. We're going to go off the other side of your brain here for a minute and talk about technology and operations. This is important to our company for a number of reasons, but it's important for both the core, as I talked about, as well as the future. Jeff's been leading this group for 20 years.
He's done a tremendous job, and I think we have the best technology group in banking and the best leader. Jeff?
Thank you, Andy. Well, good morning, everyone. Technology is the backbone that's helping enable to drive efficiency, productivity, and growth for us. As Andy talked about, I'm going to focus on today, we've increased our level of investment in the technology area at about $2.5 billion, and that's in the run rate now. I think what's more important, and hopefully I demonstrate to you today, is how we're shifting the spend in that category. We talk about offense and defense, and we do our capital allocation, our investment allocation, we categorize against that, and we also track all of our employee time against that. It's something we're very focused on. You're continuing to see the size of the pie related to offense, which is driving productivity and growth to get more investment than defense.
Part of that is coming off of the large compliance work that we did. In the category of defense, there was also some really good things that were done with the investments that were made for AML and KYC, because that's a very data ecosystem-driven environment. Those investments, at that time, we may categorize as defense. You're going to see where we're leveraging those investments because of the way that we're landing all of our transactional data in one place. We're going to be leveraging that quite significantly and applying AI and so forth to it. That's an example of defense spend that's going to be optimized in the future for offense. I think the other thing that's really important is you look below that $2.5 billion. These are a lot of technologies on the left side that I'm going to talk about today.
We look at these as tools, not solutions, and it's how you activate these and empower these things for business impact that's important. We run a big operation. We have a constant focus on the run side and the maintenance side of that, these new capabilities are going to allow us, for every dollar we can take out of the run and the maintain side, we can reinvest. When you think about that $2.5 billion, that's not just spending more. That's focused shift to offense. It's being prudent in defense, because I would say that the security space is still continuing to get its fair share of investment and probably will continue to do that, but it's how we're spending.
I'm going to take you through a little bit how these technologies are going to allow us to optimize internally and to do some shifts in how we operate. Today, as you heard, digital is a big thing, and we're going to introduce a term here today called Above the Glass and Below the Glass, as we talk about things today. I'll touch briefly on it. Derek is going to focus more on the Above the Glass. I'm going to spend more time on the Below the Glass and the optimization and the speed of the organization, the things that we're focused on there. Just simply put, it's not just a focus on our customers and consumers and how they interface with us in a digital world and how we make it simple for them, intuitive, tailored, customized, but it's also important for our employees.
We have an equal focus on making sure that the employees' tools and capabilities are there to serve our customers as well. That above the glass experience you'll see in our branches as well as our branch folks deal with customers as they come in and help educate them and train them on the digital space. The below the glass is really important, and I'm going to spend more time on that because that's where we've got tremendous opportunities to move faster, have more agility in the organization. That's changing the way that we work, but it's also using technology tools differently and in a prudent way, leveraging the cloud, which is a real key asset, and I'm going to talk more about that.
There's a lot of focus on the cloud. We've been keenly focused on that for the last two years. I'll talk about the implications of that in our plans. Probably one of the more powerful things are what are called application programming interfaces or APIs. They enable rapid access to data. When you have many applications like a lot of banks do, it allows easy intuitive access to programs that already exist and drives efficiency, allows us to build things one time and reuse it many times. You're going to hear a lot more about APIs. In fact, if you were to look at our investment level in microservices and APIs, it's going to be a key enabler that's going to allow us to pull efficiency out of the core systems and have less dependency on those core systems.
That's an expense play, but it's also a cycle time play, and it's an efficiency for testing and software development that I'm going to talk a little bit more about today. As you think about below the glass, we kind of keep it simple and think about it in three categories. It's our architecture, and we've had a very disciplined approach through our acquisitions in the past that we integrate, we move to single platforms. I'm a big believer in having limited complexity in the operation we have to the extent we can. The way that we can limit complexity is not only a cost save, but it also allows our change rates to go faster. That single platform discipline, single platform architecture has been very important for us, pays dividends for us long term.
The other area is data. You're going to hear a lot about data today. I'm going to talk about it. You'll hear it in a lot of other things. We have a tremendous amount of data. We're not using it to our best advantage. We have plans to scale that up. When we were here three years ago, if I was to look back and look at where we are now, we've added hundreds of people in this space. We've brought in tremendous new leadership. I'll talk more about that. This is a key focus for us. I'm going to give you some examples of where we're already using it and it's making a big impact.
Andy talked about we just have to change the way that we work, and that's not just in the technology group, it's as a collective group, putting the customer at the center. We've done a lot of changes. You heard about the agile studios where everybody's coming together, and we're co-developing together with the customer in the center of it, and that's going to continue to evolve and continue to expand across the bank. APIs and microservices are really important, and what we want to do here is we want to build these microservices, and we're doing this at a rapid rate to allow reuse of the technology and the code, and it's going to make us much more efficient. We track how fast we can code and test.
In the fourth quarter last year, because of all of the automation that's come in through some of these new capabilities, we were able to do some optimization in the workforce in the neighborhood of several hundred people as a result of testing automation being built into the development process. The reason that's important is not just for productivity and cost saves, but that automation does what it's told to do every time, and it produces evidence and results that our auditors and our regulators are comfortable with. It also drives a lot of efficiency. We're excited about the continued opportunities there. Those are things within that $2.5 billion that every dollar of that we can get more efficient with, we can self-fund. That's a big focus of our group is how do we self-fund, not just go ask for more money.
These type of technologies are very key to that. Let me talk just a little bit about modernization. When I say modernization, it's enabling optimization. I'll use the mobile app, for example. That's the last just launch that we just had. We rebuilt that completely from the ground up. It's a completely advanced new tech stack, highly automated from the build, the test, the deploy process. We did all that from start to finish in eight months for the Apple platform. Because of the efficiencies that we're in, Android rolled out four months later. That's an example of a highly automated, highly collaborative collective group with the customer in the center, risk management at the table, security at the table, built-in product at launch that's had great results. We did it with fewer people than it took to do our last mobile upgrade.
We did it twice as fast, and we have opportunities to continue to get better at that. You can see some of the examples here of code test time from weeks to hours and so forth, major productivity gains in this space. We talked about data, and we've got a tremendous amount of data. We need to use that data better. We need to unlock that data our employees can use it in their business lines in running their businesses. We use it for defense around fraud. We have a lot of commercial fraud tools that we use, and we're using data and AI on the backside of that to continue to drive down fraud losses in an efficient manner. We use it in the security space, and I'll talk more about that specifically in a little bit, the security environment is data-driven. It's all about data.
It's about finding the needle in the haystack at machine speed. It's critical. I mentioned three years ago when we were here, we've continually scaled this group up. As I said, several hundred people dedicated to this now. New leadership that's come in that's very talented, we're really going to make a big push on this. When we did all of the AML KYC work, we had to centralize and land all of our transaction data in one place, the funding for that was paid for at the time, we need to now better advance that and better leverage that. We've got the building blocks and the foundation there to do that with, we've got the people and the leadership to put the focus on it. It's a tremendous opportunity for us.
This is an example of it that's real, that occurred with our mobile app rollout. This is an example of where we're customizing and bringing tailored experiences to the user based on access to real-time data and artificial intelligence. The beauty of this, you can send out generic tips to customers that don't feel personal. This is personal, and this has caused us to get some of the most positive feedback on the mobile app release. Better than the positive feedback is the engagement and the usage. If we look at our usage rates, now Tim is going to talk about this in more detail, our customers on a daily basis are using the app more, and that's because they're finding value, and that's what we want. We want to drive engagement. We want to drive more volume on that app.
Obviously, we want to continue to build feature function to be able to sell and to be able to do self-service. Derek and Tim will talk more about that. These are examples of that real-life capability with the mobile app, real-time access to data, artificial intelligence that's tailoring what it's presenting to our customers, and it's been a very positive thing. Andy talked about the Experience Studios. We're changing the way we work in a lot of different areas of the bank. The Experience Studios, we'll double those. We're planning to go from 22 to double it to 44. The employees that work in those studios don't ever want to go back to the old way of working, which is really kind of neat.
You go in those studios, and you'll see more about this in a little bit, but I just want to give you my perspective and observation on it. You can't tell who works for who, and it's kind of neat. Some of it, you've got vendors in there, you've got customers in there in the middle of it, but it's a collective team. The other thing we've done is we've kept management out of there. We've let the people that know what they're doing do the job and make the decisions and resolve issues without having to do a whole bunch of escalation. It's been positive, and I think we've got tremendous upside as we continue to expand this across the rest of the company. Let me talk about cloud for just a little bit because there's been a lot of press and coverage on the cloud.
We've been on a journey over the last two years. We run two highly efficient, scalable data centers in North America, and we've been going private cloud in those data centers. That just means highly virtualized, hyper-converged. Those are all the practices you'd have in a public cloud too. We've been doing that in our internal data centers. We are now building all new applications. It's a tenet we have that it has to be public cloud ready. Our first large payment business gateway will go live in the cloud. That'll be our next one at the end of this month. All new build is being built with cloud principles for cloud public. In addition to that, we're going across the application base and we do what's called a suitability study for applications that lend themselves well to the public cloud.
We'll identify those, and we'll refactor those and move those. There's also an equal path that says we want to sunset some of these things and we want to get rid of them. The cloud has tremendous value from a standpoint of financial economics. We have a lot of vendor products that we use today, that there's open source capabilities that are much, much cheaper. The investment is all going in the cloud. That's where the new tools are, that's where the collaboration is, that's where the productivity is. We're very focused on it. At the same time, we recognize anything we do has to be secure. At the end of the day, if we're going to put our business in somebody else's house, we have to be accountable for the security of that.
To be accountable for the security of that, you've got to understand and guarantee that you understand what's going on in that cloud, and that's a key focus for us. If we don't get that right, we have a trust and a reputation impact, we take that extremely seriously. On the topic of security, key focus for us. This is an area where we have tremendous information sharing amongst the banks, it's becoming more automated. The feeds we get through FS-ISAC that all the banks feed into the vectors go into that 5 billion data elements a day that we look at and we make decisions on at machine speed, we're looking for that needle in the haystack.
On a typical day against that volume of activity, we'll have between 10 and 14 type of events that we need to have a human look at, decide to make a change to, and so forth. In parallel with automation and orchestration, we're continuing to drive automated actions at a sub-second basis that we're comfortable with. Our automation penetration is about 20%, and we have a goal to get that up closer to 40%-50%. What that means is we know enough about what's happened with a particular event. We're going to go ahead and through automation, take action on that, and then we're going to make the security operations center aware of what occurred from an automation standpoint. That's the only way that we're going to be able to keep up with the pace of activity and attacks and things that are going on.
It's a key focus for us. Although I put this in the defense category, this is probably the larger of the expense growth areas of any area I oversee. Just in conclusion, there's going to be an impact to the way that we're changing the way we work, both from a speed and agility standpoint, but we want to be anticipatory of customer needs and stay in front of those. We want our development processes to continue to be fast. I tell you, just in conclusion, we are laser focused on efficiency, productivity, and growth. Thank you.
Thank you. One of the things that I recognized early on in my role as CEO is that all these digital initiatives we had going on across the company, I think would be better controlled and maximized for effectiveness and efficiency if they were under one leader across the company. We're really dealing with customers, that segment across all the businesses. We spent a fair bit of time identifying the role and finding the right person. Derek White, who joined us from a European industry-leading bank in the digital front, joined us just three months ago, and he's made a big change already. Derek, come up and talk about our digital experiences.
Thank you, Andy. It's a privilege to be with you here today. It's a privilege to be part of U.S. Bank, a true privilege to be part of this leadership team. At U.S. Bank, we power human potential. I love that statement, and you've heard from Kate that it is the very ethos in which this company operates. It is one of the things that attracted me to the company. Let me tell you, before I get started, I'd like to touch on the three things that really drove my decision to join U.S. Bank. The first is that we're the number one rated bank in the world, I don't need to explain to you the impact of what that does for us financially and how it positions us for growth.
What it was to me was a signal of when we describe and use the word excellent, what is the ambition and what is the benchmark for excellent? Because that comes to the second point. In the interview process, I was able to meet with the managing team. Sitting across the table from Andy, and we were discussing the future of the company, he said, "Derek, we are excellent at finance. We are excellent at credit risk management. We have the ambition to be excellent at digital." When Andy informed me that we are creating the Chief Digital Officer role, which is the third reason I chose to join U.S. Bank. The creation of this role and the opportunity to work with this leadership team to create the future of U.S. Bank for our customers, our clients, and our employees, was incredibly attractive.
There are three teams that align into the Chief Digital Officer team. Those three teams are the Omni-channel team, which is responsible for essentially all of the interaction platforms. You'll hear the term interactions a lot today. The interaction platforms is how our human customers are interacting with their money through our platforms. That is the team that is defining the what of what we are going to create. The Agile team is responsible for the Experience Studios that you've heard referenced, and changing the how we take ideas and land them in the hands of our customers at speed and at scale. The third is the Innovation team, that's asking the question, where next? Why not? One of the great strengths of U.S. Bank is our deep customer relationships.
In order for us to become central, which Tim will elaborate on more, and the definition of centrality, we know that we need to be digital first, create exceptional experiences, and move at speed. One of the privileges of working in banking is that in institutional banking, we get exposure to every industry, every sector. We get to sit at the table with the leaders that are shaping every industry. As I sit with Leslie and Jim, and across the table from some of these leading clients, there are key messages that emerge. Every single one of their businesses, their industries, is being disrupted and transformed, and they're addressing the same questions about digital, agile, and their future. How do they capture the future in a way that responds to the way their customers are interacting with technology and their products?
It's about humans and human interaction with compute, human interaction with technology, human interaction with technology and products and/or services. In our industry, it's about humans interacting with money. We see that across the billions of interactions that we have with our customers, billions of interactions that come through all of our channels. Ray Kurzweil, one of the greatest inventors of our time, has said that the impact of AI comes to life when you deal with billions. That's how we bring the technology and the power of artificial intelligence, machine learning, to life, through the billions of interactions that we have with our customers. Now, this is important because the traffic. In the early '90s in the digital world, the early '90s was all about eyeballs. It was about impressions in the digital marketing world, and it was about clicks.
In our world, in banking, it's the shift of the traffic from the physical brick world to the digital world. That started in the move from brick to glass, to the glass that we all carry around with us every day, to increasingly to the air and how humans are interacting hands-free with computers, both in the car and the battle of the home through the Echo, the Portal, the Pod. Big tech is trying to attack in the same way because to dimension this, in banking, the average human customer walks into a branch 10 times a year. They visit the glass or the mobile banking application 300 times a year. They're visiting digital ecosystems 3,000 times a year. These digital ecosystems have three goals in mind, the big techs. Andy talked about where the source of our competition, the threats, and the opportunities for us are.
One of those is the big techs. Big techs have three goals in mind. One, to scale to billions of users. Two, to increase the amount of interactions and time that you spend on their platform. Reed Hastings has said that their competition is sleep. The third thing they do is seek to monetize. Take that model and contrast that against how banking starts. Why is this relevant? In a conversation with a chief executive of one of these big ecosystems of whom you would all know, he described their number 1 KPI centers on their second priority, which is increasing interactions and engagement on their platform, and their number 1 KPI is messages sent. In order to understand the future of banking and how humans are interacting with technology, the traffic has shifted at a rate of 30 times the number of interactions in physical versus digital.
We have to look at the business in an entirely different way, and I would suggest to you that the leading indicator for the future of banking is interactions. Now, with that as context, what are we doing to translate these learnings that we see across every industry, across our institutional clients, and as we listen and see how our customers are interacting with their money through U.S. Bank, it comes to a simple model of four, two, three, one. Yes, I do know how to count backwards. Yes, you may be surprised Andy even hired me, even though I did it. Anyway, four, two, three, one. It's about four humans of banking, and we over-index on humans because in banking, many times institutions will talk about the customer as a product.
In the digital world, this is so essential to understand that we design around the human user because in digital, customers can navigate increasingly by themselves. Those four humans are me, my money, the consumer. The second is a small business owner that blends my money and my company's money. The third is the institutional employee, whether it's a treasurer in a large multinational corporate or someone sitting at family office that is managing money, making decisions about money, interacting with money on behalf of their employer or my employer. The fourth human is the U.S. Bank employee that is supporting and enabling the other three humans that are interacting with money. Those four humans interact with money in only one of two ways, and this is where digital becomes very tangible, real ones and zeros.
That is those humans interact either in a DIY world, do it yourself world, or in a shared glass experience. DIY is the ability, and this principle is so simple. It's not self-service. It is the ability to do it yourself in the mobile device without having to talk to a human if you don't want to, and it's the first step of digital evolution for any bank. The principle of DIY or a shared glass experience where we bring data to life and increase transparency through a shared glass experience with our customers as they enter our branches. Why is this model important and relevant, especially for today in this audience? DIY is a 20% cost income ratio or efficiency model business. Shared glass experiences, shared experiences are a 60% cost income or efficiency model business. DIY has higher customer satisfaction, higher revenues, lower costs.
Four humans interact with technology and money in two ways. There are three ways for organizations, any company. Leslie's and Jim's clients can measure it, as well as banks can measure it. The first is digital available? When we say digital first, is it available? Are the 50 reasons that I would leave my home and walk into a branch, spend the time to physically walk into a brick branch, is it available for me to do that? In our mobile banking application, you can do 74% of the things that you would take the time to walk into a physical branch to do. It's very tangible. It's very measurable. The consumer business is more mature than the institutional business is, and that's natural across our industry. The same principle applies across every business we have.
Once it is available, that helps me to do it by myself, then can I make smarter decisions? Is the data, as has been talked by Jeff and Andy, are we using the data to bring it back through the glass to the customer that is in a DIY experience? In banking, over the last seven years, there's been a lot of discussion about data lakes and capturing the data that comes in through every interaction, cleaning the data, and then parking it in this beautiful pristine lake. It is safe and secure, but the real secret in the digital world is bringing that data back out of the lake, through the glass, into the experience, and measuring in every one of these billions of interactions that we have, are we using the data?
Because when we use the data and it's a smart interaction, I make smarter decisions. The third phase, this is where it gets really fun, is autonomy. One of the industries in which we work is the automotive industry. In the automotive industry, they've defined 5 levels of autonomy. The Tesla today is somewhere between a level 2, level 3 autonomy, and it can easily be described as feet on, hands on, and mind on. Feet off has been around for a very long time in the automotive industry. Hands off has been around for less time. If you've ever spent an hour going 150 miles an hour on the Autobahn, hands off, your mind is shattered. This is relevant because building trust in the digital world is about enabling and using our data to help people make decisions themselves.
Also, how do you build trust to the point where we can build the self-driven U.S. Bank account, and they will trust us to guide them to their destination? four humans, two interaction models, three key ways to measure digital maturity and building digital trust in the future all comes to the simplicity of the U.S. Bank model, the focus that we have on being and creating number one amazing experiences as our leading indicator for our future. We're translating this into five priorities for us as a digital team, working with each of the businesses that we have, and you'll hear from later today. Our business leaders know what our customers want and how we make money. We sit with them. We identify how do we collectively create the future together by, one, DIY-ing the future for all four humans. Two, creating smart interactions.
Three, ensuring that we have the data below the glass that we can bring through the glass back to the customer, that the architecture is clean, simple, reusable microservices and APIs. The 400 things that a human wants to do above the glass translates into 900+ microservices below the glass. Very tangible, very measurable, very real. Now, the one area that I'd like to just expound on a little bit that's been touched on as well, is the speed and scale at which we are creating the future. That's in the Experience Studios that we have. The Experience Studios, we've been at it for 18 months. We have core teams that are creating the future in these Experience Studios, but Agile has expanded beyond these Experience Studios broader into the organization. We're collaborating across every part of the organization.
One of the biggest surprises to me, having worked in other organizations that are agile, is that risk is sitting at the table embedded in every single one of these Experience Studios, and helping us shape and design the future rather than sitting and watching from the outside, trying to control. It's incredibly powerful. That's changed the rhythm at which we create from years to months. Now, just two examples to bring this to life. Chosen two institutional examples. You'll hear several examples throughout the day, and again, there are some examples outside the door. The first is in our corporate banking space, where we are helping Jim and Leslie's clients to be able to help their customers choose how they receive payments, choose how they receive reimbursements. The clients had three challenges in mind. One is that they were dealing with paper checks.
Two is that they did not want to disrupt their client experience. They wanted a seamless enrollment process. Three, they didn't want to store customer data. We created experience that addresses a $1 trillion opportunity. It's designed around the client in mind, and it's live in the market today, giving our clients the opportunity for their brand to be present through the entire payments process and their end customer to choose how they receive payment. The second example is what in the digital world would be described as a killer app. This killer app was created five years ago and is now dominant 50% market share, and it is Pivot. We've recently introduced the first mobile version of Pivot and brought the power of data to life to allow our end users to be able to use Tableau and data visualization to help them make better decisions.
There are many more examples of this across the business. In summary, our digital initiatives span across the organization. We're working on designing the future around the four humans of banking. We're doing it above the glass and below the glass in a very connected and coherent way. We're moving at speed and at scale, translating ideas into the hands of our customers at the speed of technology companies. We're realizing the benefits in customer satisfaction, in revenues, and in expenses. Digital and DIY are the basic table stakes. The real power comes to life as we use our data, as we make our billions of interactions with our customers smart and increasingly autonomous. This is the long game, and we're in it for the long term. Thank you all very much.
Thanks, Derek. I told you you'd hear the word digital a few times this morning. We're going to take a 15-minute break now, and then after break, we'll go to the business line updates. I would encourage you can hear about the digital applications in our products and services, but outside in the foyer, we have actual examples with some hosts there who want to take you through those technical experiences. I really encourage you to do that. For those on the webcast, we'll reconvene at 10:00 A.M. Eastern Time. Thank you. All right. It's 10:00 A.M., and we'll get started. I kicked off the day talking about the three things that I mentioned. We're starting from a position of strength. The core competencies that got us here, we're going to continue to focus on, and we're going to continue to invest in the future.
The next four presentations are going to take those core messages and really transform them in how we're thinking about them from a business line standpoint, how we're both optimizing today as well as investing for the future. We're going to start with Gunjan Kedia, who's been with us for three years and leads our Wealth Management & Investor Services group, and a great example of both transforming how we're dealing with the customers in this new environment and also a unique set of businesses. Gunjan.
Thank you, Andy. Good morning. It's my pleasure to present the Wealth Management and Investment Services business this morning. This division is about 13% the revenues of U.S. Bank, 21% of the fees, 21% of deposits. The division is really a collection of three large businesses, all of them focused on the investment part of the financial institution. A third of it is wealth management, and two-thirds of it is investment services, with Corporate Trust being the larger of the two businesses. You'll see on the bottom right, we have 61% of our revenues of fee income. These are very capital-efficient businesses. On the right-hand side, the number that I'd like to point out is the ROA, six-plus % ROA across all of these businesses. Very capital efficient, very high fee growth businesses. Some financial highlights. We have grown revenue about 7.3% over the last three years.
The loan growth story has been very, very strong. I'll describe that a little bit. It was a big part of our strategy in wealth management. We are a very strong deposit gatherer, 5% increase in deposits, kind of industry-leading efforts here. The underpinning of all of these businesses, really global financial assets. That is slightly different from many other banking businesses that we have that are propelled by metrics like population growth or GDP growth or consumer spend. Financial assets, when they deepen, even if it's in APAC where we are not present, helps us in the U.S. because U.S. managers invest, U.S. investors invest globally. Financial markets have been, over the last 30 years, steadily deepening as economies mature. One metric is that financial assets have grown at about two and a half times GDP.
In the timeframe that we are showing you, we have grown between 8% and 9%. The asset pools itself have grown about 4% and 5%, and our outperformance comes, one, because we are concentrated in the U.S., that has done better than the globe, and also market share gains. Very good core attractive revenue profile here. Let me just talk about the wealth management business first. We are organized in four channels. All of the channels are supported by foundational capabilities, practices, and functions that are common. Our chief investment officer, our credit officer, our fiduciary practice, our operations, our product and technology service all our channels. Let me start with Ascent. This is our ultra-high-net-worth business. We launched this business about eight years back, and it has grown very rapidly for us in the eight years. We are in five offices now.
It's a very successful business. You'll see it addresses a fairly niche and small market for us. Our largest business is the private wealth business. The legacy of this business is the old bank trust book. It's a very profitable business. With all of the changes in regulatory tax reforms, where the estate tax exemption limits have steadily gone up, the demand for trust in the industry is quite muted at this point. Our work in this business has really been to transition it and transform it to a broad-based private wealth business. Two years back, we had a very important milestone in this business where the trust part of the business became less than half the business. We have focused very much in this business on broadening from just the investment part of private wealth. That's why we've gotten the 12%, 13% loan growth.
Our banking practice has grown, our insurance practice has grown here. It's a very successful business. We have these beautiful tower offices, about 30 locations that we serve clients out of. Moving next to Affluent. Affluent is really our largest growth opportunity. These are $250,000-$3 million in net investable assets of clients. This business, three years back when we were talking to you, was very challenged. You will remember at that point, the Department of Labor fiduciary rule was at the height of its uncertain outcome. It had the potential of changing the risk profile of the industry quite rapidly. The core product set of the industry, which used to be annuities, were in structural decline. Both supply and demand had compressed, and as a result of it, a lot of advisors had left the industry.
Today, we find ourselves in an environment that is much, much healthier for this industry. This is the bread and butter of U.S. Bank's client base as well, so our opportunity is quite good. We started a transformation in this business about three years back when we fundamentally said to ourselves that the way to serve a client well is to bring all of U.S. Bank to the client and not have them try to find us when they needed us. We created the construct of a team that included an advisor, a banker, and other specialists. We aligned their books, we aligned their commission structures, we aligned the space where they were sitting, and their management chains became uniform. Now, this concept, as many of you might know, is not new in the industry. What has been unique to us is that we've actually made it work.
This is a real testimony to the U.S. Bank culture. Our financial advisors, that are quite different culturally from our bankers, have come together in the best interest of a client to serve them well. The last two years, we've seen kind of fruits of this labor, and boy, it was labor. This was hard work to try and construct this chemistry between people who are quite different culturally. We've seen double-digit growth emerging. We don't question the model anymore. It's now about scaling. We are quite small in this business, yet we do cover about half of Tim's branches, 1,500 branches are served through some coverage from financial institutions. We think across our households, about three in 10 American households have investable assets out of their 401k. We have 12 million households that really love U.S. Bank, that recognize the name. Our opportunity is quite significant here.
The last thing I'll mention very quickly is this emerging wealth business. About two years back, we introduced the robo-advisor, rebranded Automated Investor. This is a digital-only offering, and it is meant to serve the needs of the early investor. It takes about a decade for an investor to accumulate 250,000 plus in assets, and where their needs become complicated enough that a team needs to serve them. This is a new business for us, just getting going. I should mention, all of our channels are fully aligned with the U.S. Bank footprint by design. We'll continue to stay that way. Our goal is to be the investment option for a client who's had familiarity and experience with U.S. Bank for a good amount of their time. Andy talked about digital being the word count winner, so let me do my bit here.
We started the digital transformation of wealth in 2015. Actually, Terry launched it when he was in my position. Since then, every year we have dropped fairly substantive capabilities along the way. We talked about the Automated Investor. We've just introduced version 2 this year, which is much improved. We introduced digital planning, a real commitment to serving clients holistically. It's a collaborative tool. It has been a very successful capability for us. What we are working for most is data aggregation and data analytics. You heard from Jeff, you've heard from Derek. I will tell you this corporate capability on data analytics has been a sheer joy to me. It is so cool for our business. Our predictive models can actually tell us which client is at risk of attrition. We have seen our attrition drop 2 percentage points. It's a powerful profit lever.
We can tell and predict, not who's wealthy, that's actually table stakes. You can literally Google a person, you can know who's wealthy. What we can tell is where are they encountering a life moment that matters so that we have the right advice offered at the right time. We can tell who's getting married in one year, who's about to have a baby, who might have a divorce, who's thinking of moving because they have a new job lined up. Those are the tools and techniques that we are really utilizing to augment a robust referral model that exists. We have a metric that we measure called the wealth management digital interaction, that is steadily growing at 33%. The last point I wanted to make is just around our product set and what this means for deepening our relationship.
We have every product that a wealthy person might need. In our industry, the wealth industry, there are four formats that are dominant. The biggest is the broker-dealer world, the second is the bank-owned wealth management, the independent RIAs is the third, and the digital platforms like Fidelity and Schwab. Everybody's trying to get to the place that we're already in, where they can truly offer all product sets. We have had these products for a long time. What's new is all of the compensation, culture, team organization that actually lets the advisor team deliver all of these products. I've shown you some metric on the right-hand side. The advisor productivity has really shot up in the last three years, driven by new client acquisitions, much more than cross-sell within a relationship. That's the story on wealth.
Let me turn to investment services, also a business focused on investments, but on the institutional side. This business, this set of businesses, is quite unique to U.S. Bank compared to our peer group. Very capital efficient business. Let me talk about Corporate Trust. This is kind of a technical business. It really started during the California Gold Rush when an individual, a trusted third party, used to hold cash between a commitment made by an investor and a gold prospector. We have become that individual trusted, and we are the corporate trustee. Today, by law, every time there's a bond issuance, a securitization, any kind of a debt raise, a third-party corporate trustee is needed, and we hold the cash in trust. You have to be a bank today, and that's why we gather a lot of deposits. A majority of these deposits are operational deposits.
That's our business. We have number one and number two market share in almost every segment that we play in. The root cause is technology. Our technology platform here is called Pivot. Derek was kind enough to label it a killer app. Thank you, Derek. The creativity of the app is less the user experience, although that has improved with the help of the digital office. The data and the analytics and the insights behind it allow every credit manager to manage their risk in a very high-quality way. We are able to provide that in real time. Fund services is the second business focused on money managers. This business was so high return in the '80s as it rode the wave of mutual fund assets. It attracted significant players and capital in the industry. We have a very niche, unique position.
We compete with massive players in this, but we are very good with complexity. The credit managers that are Corporate Trust managers are shared in large part by this business. Because our operating model is quite different from some of the large players, we don't have massive functionalization, we don't have offshoring. We have a very stable group of people who really understand managers. Our business model appeals to that kind of niche, and we have really done well in that niche. Assets under administration is the metric that this industry uses. We clock in at $6.8 trillion. That makes us number 8 globally. We are quite substantive here. How did we build this business? Because it is a unique business. It's a combination of acquisitions and organic growth. We have done 23 acquisitions in the last 15, 20 years.
Got very good at doing them quickly and integrating them on one platform. In recent years, it has more been driven by organic growth just because the industry has consolidated. I will tell you, outside of the U.S., the industry remains quite fragmented, and in certain niches like the alternative segment, the industry is quite fragmented. M&A remains a big part of our strategy, and we are always looking. Today we have 22,000 clients, 80 offices, about 5,000 wonderful colleagues serving clients. I want to talk a little bit about how our business model is different because of U.S. Bank ownership. I've been here three years. I studied this a lot. This business is more profitable than I thought it should be, and I figured out why. I just want to share some numbers with you.
The power of the deposits and the balance sheet is very strong at U.S. Bank. We have grown deposits in the last three years at 6%. That far outpaces the industry growth rate. What is really powerful is the NIM applied against these deposits. That's more than twice the industry average. You can do the math on $72 billion in deposits here, on what twice the NIM means in terms of our profit and our ability to invest in technology that has just rolled up our market share organically. I would be remiss if I didn't mention points two and three. I call it free salespeople and free distribution, thanks to U.S. Bank. Leslie and Jim will describe the corporate and commercial franchise to you. It is an excellent franchise.
The relationships are really deep. Every time they're negotiating credit, we are on the table as the fee-based option to complete the relationship. Quite a unique angle on this is the contribution of a community bank, which I would not have thought was an immediate synergy with our investment servicing business. I'll give you an example. We are number one in our municipality segment. There are 40,000 municipalities and townships in the U.S. The segment is huge but so fragmented, if you had to go call on these people, these are tiny deals. You'd need hundreds of people. We have thousands of people. They understand our product set. They bring the referrals to us. Quite an interesting story, and the ownership by U.S. Bank has been quite an important part of the growth story in these businesses.
Let me just describe a couple of case examples so you know how organic growth is happening in this industry. On the left-hand side, we have a registered investment advisor. In 2010, they had just gotten started, a few of them split out from a large company. They had some clients that needed bank custody. They liked our service. When they started their own funds, they hired the fund services part, and all new fund launches have come to us. They are $25 billion in assets today, very large RIA, and more recently, the Wealth Management partnership with them has been we provide all the banking and credit for their investment clients. Their fee revenue has also now qualified them for a credit relationship, and the revenue has grown about 13 times in a short period of time. We can repeat this story.
On the right-hand side, I brought a very large, very elite global asset manager. They're a credit manager. We acquired them. We had tiny relationships then through an acquisition. They liked our service, started giving us more, grew rapidly. We just grew with them. Their fee profile made them eligible for corporate credit, and these guys are very grateful if you can give them corporate credit. The relationship has deepened. When they went to London, they took us with them, and we are growing globally with them. 23 times the revenue. That's kind of a simple way of you serve a client well, kind of grow with them. Our strategy on the investment servicing side, just to bring it home a little bit, the technology and digital capabilities are real white space between us and our competitors, and we intend to keep it there.
There is a lot of support from our technology and digital offices to try and keep up the platform. Pivot is now expanding to every client that we are servicing from an investment services standpoint. Technology is also very important to drive cost and productivity. These are ops and tech businesses. Lots of distributed ledger technology, lot of natural language processing that we're introducing to just drive operating leverage. Our operating leverage in these businesses, very strong, very scalable businesses. Global expansion, which we have a lot of opportunity on, has been a big focus over the last three years and will drive our growth going forward. We have just enhanced our European depository products. Those were a lot of press releases a few months back. Completely revamped our global custody network, much better quality. We are just setting up shop in Luxembourg.
Lots of headroom there with M&A and organic growth. Finally, delivering one U.S. Bank. I gave some examples on the balance sheet synergies, the distribution synergies. We are also building out a securities lending and foreign exchange capabilities, which we have but haven't been fully scaled and optimized yet. That's really our story. Let me just close it out. In summary, just to remind you of some key messages we'd like to have you take away. On the wealth management side, we're in an incredibly strong position on the high end of the wealth segments. The product set is complete. Clients are very happy. The word of mouth referral network, along with Data analytics is just a really nice business and a big growth opportunity is in the affluent segment. We think the team concept is very successful, and we have made it work.
That's going to be the growth driver of this business going forward. On Investment Services, we are at scale in a very capital-intensive business with barriers to entry. It's very efficient, high fee, high growth. We want to keep up the lead through products and technology. Growth will come from organic market share, global expansion, augmented by M&A. Thank you. We are very proud of this business. Thank you for letting me present this a little bit. With that, let me pass it back to you.
Thanks, Gunjan. I talked about business mix earlier. This is a great example of capital efficient, scalable businesses that are fee-oriented, offer high returns, and are a little unique to the banking. A great example of that in this business. Now we're going to go to a business, consumer and business banking, that most banks have. Earlier I talked about this concept of balance, about optimizing today to invest for tomorrow. I think no business has seen more of that change and that optimization and balance for the future than the consumer bank. Tim's been leading this for two years, and he's going to tell you the story.
Thanks very much, Andy. Very grateful for the opportunity to be with all of you this morning and to represent our 30,000 colleagues who work in Consumer and Business Banking. Let me describe a little bit about Consumer and Business Banking, just so you have some of the context here. We represent about half the loans and deposits across U.S. Bank, about 40% of the revenue. If you look at the split, it's about a little more than 80% traditional consumer businesses, think mortgage, auto, checking accounts, et cetera, and then about a little less than 20% small business, Business Banking is what we call it. That gives you a little bit of sense of the scale, reach of the business.
We've been fortunate to have steady increases in loans and deposits over the last couple of years, and we're going to talk more in detail about what is driving that, but you'll see several different factors. I know this will come as a big surprise to you, but we're very focused on digital. You might have heard that a little bit. We passed a critical threshold here recently in the consumer bank, which is that we're now above 50% of our customers actively engaged digitally. What you see is also a huge increase in mobile, that's really up there. Very significant growth in mobile. We're going to talk about the mobile app that Jeff and others have referenced really being a pivotal part of that. Andy talked about the fact that two-thirds of our transactions are occurring digitally.
Very importantly, we're seeing sales migrate to the digital channels. What you're seeing here is more than a third of our loans actually being, in some manner, done digitally. We're going to talk about why that's been happening because we've been making significant investments in that area. This is a pivotal switch also, which is it's not just about transactions occurring digitally, but also about the sales migrating in that direction. We're certainly seeing that. Given the scale of the business, we're quite substantial player in many parts of consumer and business banking. You see some of the rankings here. Number four mortgage lender, number four servicer, number five in auto. The rankings are sort of interesting, but what's much more interesting, I think, is if you think about how these different businesses become ways to attract new customers to the bank.
Sometimes we think about people coming to a bank first from a checking account, and we certainly have our share of those. What we're actually finding is that the real value in being in so many different consumer businesses, not just mortgage, auto, but also credit cards, which Shailesh will talk about, is that today, half of our customers come to U.S. Bank for the first time through one of those lending products. It's an enormous opportunity for us. It's nice to have those good positions, but what it really reflects is an opportunity to attract hundreds of thousands of new customers every year to U.S. Bank, and to be given the privilege of trying to serve them.
Let's talk about some of the key strategies and initiatives that we have going on in Consumer and Business Banking, and I'm going to bucket these into two categories. The first is, as you have heard, we are becoming digital, and we're going to talk about that in a lot of detail. Very importantly, we also believe that customers still want and value and benefit from human interactions with our bankers. We're going to talk about exactly how the digital and human work together because we think that is a critical component of success. Most importantly, it's a critical component of being incredibly helpful to our customers, which is what we're trying to do. All of that new interactions with digital and our people allows us to think about an entirely different physical distribution system. We're going to talk a lot about that.
Andy referenced the efficiencies that we're seeing in that front. It is absolutely efficiencies, but also, as he highlighted, effectiveness. We're able to do things for customers in our branches that we haven't been able to do before, and we're going to touch on both of those elements. As we think about our customers, we've been talking about the fact that they are absolutely at the center of everything we do. I want to tie this back to something that Kate started with. Kate said that we're here to power human potential. We invest our hearts and minds to do that. Derek highlighted that that's a reason he came to this bank. I want to then connect this to the idea of centrality. We're trying to become central to the lives of our customers. That's important.
What that means is that we're really valuable to our customers, that they depend on us, that they think of us, that they have an emotional connection to us in ways that are really meaningful. We're not just a mortgage that they pay or an auto loan bill. If that's all we are, then we're not doing anything to power their potential. This concept of centrality is very important, and the core underlying element of it is the idea of engagement. What we're trying to do with our customers is engage with them as frequently as we can. Derek talked about this with the large tech companies. He highlighted the fact that they focus on time spent with them. That's an idea that we're trying to replicate, but we're trying to do it in a very important way.
We want to interact with our customers a lot, but we want to make sure that every time we do, we are helpful to them. If we're helpful to them and they interact with us a lot, it will help us build trust, which Kate and Andy highlighted is so central to what we're doing. That's really the core. Power human potential by engaging a lot, become central. We become really valuable to them, and naturally, it expands our relationship with them over time. That's really at the core of what we're doing, and we want to talk about that with regard to specific segments of customers. We're going to talk about it first with mortgages, and then talk about it for small business customers, and then third, digital overall. Let's talk about mortgage. Why start here?
If you think about most consumers, one of the biggest financial decisions that they will make in their life is buying a home. It's exciting, it's full of joy when they actually get in the home, it also can be full of anxiety along the way because you want to make sure that you're actually able to live in that dream home that you've seen. We want to make this process as simple and understandable for the customer as possible. About two years ago, we started investing in technology that would make it a whole lot easier to get a mortgage. As you see, we've been steadily building that investment over time. A couple of highlights. Last year, we were the first bank to introduce what we call instant decision. We're able to pull data from lots of different financial institutions.
For certain credit-approved customers, we can give them a credit approval in minutes. What that means is you can literally be standing in the condo in Manhattan here that you have just found, you can type into your phone and apply right on your phone, and assuming you're qualified, you can get that decision while you're still in that living room. We have used digital analytics and data to help our mortgage loan officers make sure that they get the best leads. Gunjan talked about this. We now know when people are moving or prospective moving. We can generate a lead that suggests a call that's helpful. We've now applied this same technology to our home equity process, and we've also done it to our mortgage servicing.
We actually have millions of customers whose mortgages we serve, and you don't think about that as a particularly digitally engaging opportunity. In fact, not only have we made it easier to make a payment on your mortgage, we've actually made it easier for you to learn about your neighborhood and to see how other houses are selling in your neighborhood. That's incredibly valuable, and we're seeing our mortgage servicing customers get excited about that as well. This is a really powerful opportunity for us to become central in something that is so important. This is going to be an area that we're investing in continuously. We believe if we are going to be central to someone's life, that we need to be really, really helpful to them in getting a home. I want you to then think about a small business owner.
I love talking to small business owners. They're some of the most passionate, enthusiastic people you'll ever find. You know what they're passionate about? They're passionate about their business. They're not passionate about funding their business, right? We thought we should make that simple. We were the first bank in the country to introduce a loan of up to $250,000 that you can apply for online or with the help of a banker. We can give you a near instant decision. A process that typically took days or weeks now takes hours or maybe a few days, and often can be done in under an hour. It's unbelievably fast. We did this not just through cool technology, and believe me, the technology is pretty cool. We did it because we changed our process.
You'll see here that we reduced the number of fields that we ask someone to fill out by more than 70% so that we can give them a loan a whole lot faster. We made it much, much simpler. I want to highlight something because you all know that we have great risk management and credit guidelines. We didn't change any of that. Same risk criteria, same compliance standards. All we did was make the process a whole lot simpler. That was just the beginning. We're now investing in loans up to $2.5 million. We've significantly automated and simplified the process for loans all the way up to $2.5 million. We introduced that in August.
When we go into Charlotte, we're going to do something that is really powerful, a terrific one U.S. Bank story, which is that we're going to be introducing in Charlotte what we call the triple play, checking, credit, and importantly, merchant services. What we realized is our small business customers want all of those things brought together in a very simple manner. What I would highlight about this is that this is another example of how customers respond digitally, but then also engage with people. There's a great story as an example from Appleton, Wisconsin, where a customer, a prospect, excuse me, finds this tool online, applies for a loan, gets a loan, comes into our branch, and says, "Can I transfer all of my business accounts to you?" Fortunately, we were able to say yes.
That's the kind of human and digital interaction that is so powerful here. What I would highlight about these two stories, the mortgage and the small business, is not just are we able to do great things for the customers, but we're also able to see real benefits for U.S. Bank. You saw on the mortgage slide huge improvements, 25% reduction in cycle time, material increases in market share. Costs, we're able to process 30% more mortgages with the same team. The same thing is happening in these small business loans. We're making huge increases in volumes with the same level of productivity. What's important here is what is good for the mortgage customer, what is good for that business customer also benefits the economics of U.S. Bank.
I also want to talk about the fact that we've been describing mobile banking, and both Derek and Jeff have talked about our new mobile app, and it's extraordinary how fast we've redesigned it, et cetera. I want to underscore that this is not just a neat technology. There's an idea under here that I want to make sure you fully appreciate. What is different about this, what we've tried to make different is back to this idea of centrality, right? What we said in centrality is we want to engage with the customer a lot so that we can be helpful to them. This app is designed to do that.
In very simple ways, what you see is if you use our app and you have one of our credit cards, every time you use your credit card, it pops up and says, "You just spent $30 at this restaurant." Lets you know that it's a great fraud protection tool. It, by the way, also creates very interesting dialogues between husbands and wives, which is not something that we control. That's an example of the interactions. What is also happening here is that we're able to provide personalized insights to people in ways that are genuinely helpful to them. What you see is in just the four months, the first four months that we launched the Apple version of this, we created 100 million personalized insights that we provided to our customers, and almost 90% of them, they said, were really helpful to them.
That's a different way of interacting. Every time you get on the app, you see something very often that says, "Boy, look at your spending pattern. Did you realize that your deposit just came in?" All of those helpful kinds of things come to you on a regular basis in the app. What we're seeing as a result of that is a significant increase in the amount of engagement. Already, in the short time since we've introduced the app, we're seeing a 50% increase in the amount of interactions and engagements that customers have on our app. This is a material shift not only in the technology but in the underlying idea, and we believe that that allows us to become more central, which allows deeper relationships, more trust, all of that.
Only other point I want to make about the app is that it, in fact, allows us to be truly one U.S. Bank. You see on the right-hand side of this, you can do wealth, you can do business banking. All of these kinds of things are available to you through the app because, A, it makes it easier for consumers, but B, you think about small business as an example. Small businesses, they expect the same conveniences in their business life that they do in their personal life, that's where we want to be able to integrate these things as easily as possible. What I've touched on now is that we're trying to become central to the lives of our customers by digitizing so many different aspects.
When we do that, we also create new opportunities for human interaction, like I talked about in the Business Banking, but also ways that significantly improve our economics, and you saw those mortgage numbers, the small business numbers, et cetera. You're also seeing that with the app. What we're seeing just as an example of the efficiency measures is that we're seeing a material reduction in call volume in our call centers, right? Because people can do so many things themselves, just as Derek referenced, DIY, right? Significant cost reductions there. Perhaps the most material place we're seeing efficiencies and effectiveness changes are in our branches. Many of you have wondered how we're doing on our physical asset optimization process.
We've talked about the fact, very publicly, that by the first quarter of 2021, we will have about 10%-15% net reduction in the number of our branches. I want you to know that we are well on the path to that. In this year alone, we've closed 140 branches. I'm going to come to the reinvestment side of this in just a second because I want to emphasize, this is not just about closings. This is about finding growth opportunities in many new places. It's also not just about the physical footprint. It's about what goes on in that branch that's also critically important. When you think about it, if you can do so many things in your life digitally, what do you need to do in a branch? Well, we're finding at least two things that are really important to do in branches.
The first is, people often need help. Often help with the technology. What we're discovering is we put all these great features into our app, and you know what? Many people discover those features on their own. A lot of people don't. A lot of people really value having somebody to talk to about the different features. You think about a simple feature like mobile check deposit. I suspect many of you use that. Take a picture, deposit the check. Many customers actually don't know about that, and what we're finding is enormous success helping educate them about those kinds of features, and there are countless features that we can provide that education for.
At the same time, what we're also seeing is that people say, "Gosh, now that I have all this information about myself because my app aggregates things, all of my different customer information, what goals do I have? And can I talk to somebody about goals? And how do I think about managing for the future?" Those kinds of discussions, we're also having in branches. What I would highlight is that we're absolutely changing our physical footprint, both to reduce costs and to increase growth. We're also changing the nature of what happens there in the branch in order to be really helpful to our customers. You're all also aware that we're exploring new markets, and let me tell you how we think about new markets. We've announced, of course, that we're going into Charlotte, but let me describe the underlying logic of why we're going into Charlotte.
The first is, we're looking for markets where we already have a presence. Now, many of you are aware that we have more than 800 of our colleagues who live and work in Charlotte already. They've invested millions of dollars and tens of thousands of hours of volunteering to help build a presence for us in Charlotte. That's not all we have in Charlotte. Remember I mentioned that many customers come to us through the bank from credit card, auto, mortgage. We already have, through those product lines, tens of thousands of customers in Charlotte. We've got a material portion of our assets and deposits and things like that, particularly loans, in that area. Okay? It's one thing to say, "Oh, U.S. Bank's going to a new market." I'd like you to think maybe about a different way to contemplate that, which is U.S.
Bank is bringing a branch to a place where we already have a great reputation, great employee base, and a terrific set of customers. That's what we're doing. Just as Andy said, branch light, digital first, going to serve customers we already have, and hopefully beginning to expand that over time. We will pick other markets like that, where we have a great presence already, where we've got a lot of customers, and where we think we can bring a branch to them to serve a broader set of their needs and become more central to their lives. I'd also highlight some of the reinvestment opportunities. It's not just places like Charlotte. Charlotte may get a lot of great headlines, and we're very excited about it.
As we look across our footprint, what we've highlighted here are all the places where we're going to be doing renovations or new branches because we see enormous growth potential in those places. What will often happen, for example, is we'll have a great downtown set of locations in a city, but see opportunities in new suburbs where we haven't had a branch before to be able to grow in those areas. We perhaps have a branch in those areas, and we get the opportunity to renovate it and make it look more contemporary and be more inviting for the kinds of new services that we're offering in that area. In summary, I'd highlight a couple of things. The first is we really are trying to become central to the lives of our customers so that we can power their human potential. That's the core.
This concept of centrality is rooted in the notion of engagement, making it easy for them to interact with us, and importantly, that those engagements be helpful to them. We're also trying to do this in a way that is incredibly simple. You saw that in the mortgage process. You saw that in the small business loan. We're trying to make it incredibly simple for the customer so that they can do the things in their life they want to, like run that business or go to Disney World or whatever it is that they're trying to do.
We're also cognizant of, for us to be able to do this, we need to be able to operate at speed, and Derek and Jeff and others have highlighted this. Almost all of the innovations that we have talked about in the consumer bank in the last little bit here, almost all of those innovations have been done in the last 18 months, building on, just as Andy said, the terrific example of innovation we had in our payments business. What we see is an enormous amount of speed that we are able to achieve, and we expect that speed to accelerate as we go forward. The reason for that is very simple. Our customers' expectations are rising all the time. They expect more and more out of us.
While we're incredibly excited about all the innovations that we've been able to develop so far, we know this is just the beginning. We're going to continue to work at that level of pace and intensity to keep up with those rising expectations because we are absolutely determined to be central to their lives so that we can really help them power their potential, live the lives that they want to live. Thank you very much for the opportunity to describe what's happening with consumers and business banking.
Thanks, Tim. Centrality, simplicity, optimization, and reinvestment. A lot of change going on in the consumer bank, and I think we have a clear strategy for what we're trying to achieve. Next up is Corporate and Commercial Banking. I will tell you, this is a business that over the last 10 years has gone through a lot of change. The change in corporate and commercial happened in many cases, and they're going to really benefit from what they've created and the structure they have from a one U.S. Bank standpoint. The next set of changes you're going to hear about is the real-time payments component that's going to change the way companies do business and the way we're going to help them achieve those goals. You're going to hear from Jim Kelligrew and Leslie Godridge, who lead this business.
Both of them have been here in excess of 10 years, and they have a great story to tell. We'll start with Jim.
Thank you, Andy. Let's go through a quick snapshot of the Corporate and Commercial Banking, just our financials. First, three primary customer segments. Commercial banking, we define as clients with revenues of $25 million-$500 million. It's what I think all of us think about as middle-market clients. We have a big corporate banking business, obviously, that's $500 million revenues and above. That's how we define it. That also includes any government entities. Third primary one would be commercial real estate, which is targeted more on the upper middle market and above and both public and institutional clients. We have two big product areas, Fixed Income Capital Markets and Treasury Management, which I'll get to a little bit more in a second. Also just note, we're 18% of the bank's revenues and roughly a third of the deposits and a third of the loans.
Treasury management and fixed income capital markets, about the same number of revenues. Fixed income capital markets is very client-driven and origination-focused. There's no proprietary trading. We don't have an equity capital markets business. That obviously gives us versus our peers, a much more predictable, consistent revenue stream. Looking quickly at our loan portfolio, it's very diversified and high credit quality. The largest component part is large corporate, which is predominantly investment grade. In addition to the three primary customer segments that I mentioned, the other piece there is called specialized finance, which is basically two big parts, an asset-based lending business and an equipment leasing business. Looking at our loan growth, there are three underlying factors that I would say for the 1% CAGR over the last 2016 to 2018. One is, we saw really good solid C&I loan growth and activity.
We also saw in 2018, as all of you know, because of tax reform, a significant amount of loan payoffs of corporations with lots of cash on their balance sheet. Then third, we've just kept a very consistent and disciplined approach to our commercial real estate loan underwriting. On the deposit side, the story there is really that 1% from 2016 to 2018. If you strip out one large financial customer who's been migrating from the bank due to an acquisition, an event, our growth is more about 4%. Looking at our competitive advantages, I've been in banking for 32 years, and I've been at U.S. Bank for 10 years, and I have to tell you that U.S. Bank has an awesome underlying platform to build and grow a corporate and commercial bank.
It's a big reason of why we've been successful in the past and have been growing market share, and it'll continue to be a very big reason why we're going to be successful in the future. More specifically, our highest debt ratings really truly differentiates us versus our competitors, particularly for certain product areas and more specifically in our markets-based businesses. Think about being a counterparty on an interest rate swap, being the highest rated on a foreign currency transaction, et cetera. We are the counterparty of choice because of our highest debt ratings. Our best-in-class risk discipline, and I would add to that our strong ethical culture, really resonates well with our client base, who view us as a really safe and dependable long-term relationship.
Our strong, significant, and unique presences in Shailesh's payments business and in Gunjan's Corporate Trust business gives us a competitive advantage where we can offer more holistic solutions to our clients across products that really differentiates us versus our competition. As Derek powerfully articulated earlier, our culture of innovation underpins numerous B2B opportunities to be value add and focus on the digital piece. Looking quickly at our strategy and key initiatives, expanding reach, that's all about going into new markets, I'll talk more about that in a second, as well as new product offerings or enhancing our existing product offerings. Second is deepening relationships. Think about that as we continue to deepen our relationships, we want to become a lead bank, which really has a multiplier effect across our product areas and especially in capital markets.
Third, which Leslie is going to hit on in a little while, is the digitization of business payments. Looking at expanding our reach, wanted to look back at time for just a second and go back 10, 12 years ago, the last economic downturn, which was not fun for all of us in banking. U.S. Bank, as far as the corporate and commercial piece, we had a regional presence. Look at the shaded area with the red stars. We were a kind of a good, solid regional bank in the CCB space. We had limited and basic loan products. We lent money, we did deposits, letters of credit, et cetera. Our competition in the meantime, during that same period, as I think we all know, was significantly pulling back or pulling out of markets and products. It was not a fun time.
We took advantage of that, and the first step was hiring Leslie in our N.Y. office to build our large corporate business. That was about 10, 11 years ago. I joined about a year later to join in Charlotte to build out all the capital markets businesses. Now fast-forward, we'll talk more about in a second, we've had a fully national presence, a lot different than 10, 12 years ago. More specifically and more recently, over the last 18 to 24 months, we've been expanding our middle market presence in key states and having really great success. Texas, Florida, North Carolina, which Tim mentioned, and N.Y. Those have been actually from a low base, actually zero from a couple of years ago, our fastest areas for loan deposit growth. That's really exciting. We've also established a mid-corporate initiative.
What we found was we were doing really well in the middle market and really well in the large corporate, there's a space in between under Leslie's leadership, which is $500 million-$3 billion, where we now have an initiative, and we're really making some great strides there as well. You can see there just on the right part of the map, the green stars, again, that just kind of fills in with the national presence. More specifically, talking on the right side just about product areas, right? We developed a new asset-backed warehouse lending business that just kicked off earlier this year. It's been very successful so far. The point I wanted to make there, it's complementary to what we're already doing. It's very complementary to our investment-grade corporate bond business. It's extremely complementary with Gunjan's Corporate Trust business.
If you may remember, it's number one in the structured trust area, which a lot of that is asset backed. We've had a lot of good reciprocal back and forth there where they're helping us win business and we're helping them win business. We're investing heavily because it's a huge product for us, and we're very successful at it in modernizing our treasury management platform. Leslie, again, will get more into the targeted money movement solutions, which obviously we've been talking a lot about today. When we say deepening relationships and up-tiering credit, that's where we're really talking about becoming a lead relationship, either the top relationship or top 3-5 relationship. I'll talk more about that in a second. How do we get there?
Our best-in-class debt ratings and our consistency that I talk about, our competitive advantages has helped us win roles as competitors pull back, or maybe they're not pulling back, but they have headline risk. The market's strong right now, but there have been banks that have a headline risk, and sometimes clients get nervous, and they come to us. We've been really successful in our industry verticals, which Leslie developed over the last, again, five to 10 years, where we've up-tiered credit relationships, become a lead bank, which has a really nice impact on the rest of our businesses. Proof in the pudding, look at the right there. Last Investor Day three years ago to today, our number of lead loan relationships has been growing at a 10% annual rate.
That's huge because lead loan relationships is the primary driver to building a deep relationship and doing other products within the Corporate and Commercial Banking with our clients. In that regard, a great example, if you look on the upper right box, is our investment-grade corporate bond business. To step back, just to remind you, 10 years ago, the business didn't exist. That's when I joined in 2009. Okay? Three years ago at Investor Day, we showed stats that we had moved up on the lead and co-manage basis. That's just being an underwriter in a corporate bond deal, okay, to number 6 with 33% share. That's 33% of every deal. If there's 100 deals, we're in 33 of them. Fast-forward to today, we're number 5 with 42%. We're in 42% of every transaction. That's what I think of as the footprint, the breadth.
The needle mover as far as our PPI or revenues is the bottom right. That's where we become a lead, and being a lead lending relationship helped that. Three years ago, we were 11th in 13% market share by number of deals. That is now three years later, number 9 in the top 10, 20.4% with plenty of room for growth. If you question that, look to the left. This is internal data, but just showing in our fixed income and capital markets businesses across all our clients within Corporate and Commercial Banking, whether we lend money to them or not, it's roughly 5%, 6% do fixed income capital markets with us. Those that are lending relationships, it doubles. Obviously, as we lead relationships, it gets even greater. There's plenty of opportunity.
I would honestly say, being banking for 32 years, we're barely scratching the surface. We have lots of runway. With that, I'm going to hand the mic over to Leslie Godridge, who's going to go into a little more detail on some examples of deepening relationships, as well as our money movement strategy.
Thank you. Thank you. Leveraging the strength of one U.S. Bank. You just heard from Jim about how we've upped here with credit, expanded our capital markets, done a lot of things, used the credit as an entry into many relationships. What you see on the screen right now is the full set of products across the U.S. Bank platform. Presently, we have a full set of point solutions. What we're working on right now is integrating those solutions to provide our customers with a seamless experience. Just like you heard they want in their retail life, they want it in their corporate life. I'm going to show you two examples where we've done this. On the left is an auto manufacturer, on the right is an iconic consumer beverage company.
As we expanded our product suite, you can see on the screen how we've definitely enhanced the relationship. You also should notice the revenue growth. We doubled with the auto manufacturer, and with the consumer beverage company, we went from less than $1 million four years ago to $8.5 million over the past four years. Why does this matter? It matters because there is such a rapid shift from paper to digital, and we have an opportunity to grow and deepen our relationships there. The market for B2B payments is $23 trillion, and 60% of the business is still done via paper. That's changing rapidly. You heard Derek talk about the digitization of money movement. As paper-based payments shift to digital, it's going to change how all of our companies do business over the next 5-10 years.
Nowhere will that have more effect than in the Corporate and Commercial Banking space. As B2B payments shift from paper to digital, we can support and add value to our customers. We know our clients' priorities. It's to simplify operations, it's to optimize cash flow. That's exactly why we're investing and focusing on those areas. Real-time payment solutions, APIs, data analytics. This will eliminate paper, it will make it easier to connect to the bank, and it will enable data-driven decisions. All this adds up to simpler and more productive ways for our companies to do business. In summary, we feel good in Corporate and Commercial Banking where we are. We've spent the past 10 years creating products, expanding our geographies. We're going to continue to leverage that investment.
Now we have a huge opportunity as we are uniquely positioned with a good percentage of our customers already with treasury management and payments, and we're going to expand into this business-to-business payment market and get our fair share. With that, I will turn it back to Andy.
Thanks, Leslie. Leslie talked about the tremendous impact that payments is having in the business environment, and we've had a big payments business for 2 decades. In fact, it's one of the reasons that a lot of you have a high interest in U.S. Bank is our payments business. I would maintain that there is no point like right now that this has become more important to banking because of the integration of banking services and payments and money movements. We're very fortunate to have this great business, and we have this great opportunity of integrating the capabilities across the rest of the bank, and Shailesh is going to talk about that. Shailesh?
Thanks, Andy. We have a really distinguished payments business. You've heard about it all day today. It's really, really important in the world we are in, where increasingly, payments activity, driven by the frequency and importance of its activity, is becoming the cornerstone of all relationships. You certainly know that on the consumer side, it is also true now increasingly both in the small and large corporate side, also in the government space. I'll share with you a little bit more detail about our business, three things really put us at an advantage. One is we have one of the broadest product sets in the marketplace as far as payments activity is concerned.
The second is we have a seamless, integrated, proprietary set of platforms that allow us to present this activity in a very meaningful way to our clients in the way they are beginning to expect in the marketplace. Thirdly, you'll find that we have one of the most diversified, distinguished set of distribution assets that we can deploy against this opportunity that is in front of us. Let's get into the details here. Payments represents about 29% of U.S. Bank's revenue stream, but more importantly, we contribute about 40%, just over 40%, of our fee-based businesses. Andy talked about this morning about the importance of a fee-based activity and how, in many times, it is counter-cyclical relative to some of the other businesses that we have under the umbrella of U.S. Bank. These are also highly efficient businesses and high-returning businesses.
Let's look at each of these businesses in a little more detail. The three businesses that make up our payments business is our issuing business, makes up about 65% of our revenues within payments. The next one is our merchant acquiring business, makes up about 25% of our business. The last piece is our Corporate Payments Business, which operates in the very attractive B2B space that generates just under 10%. You will see down in the second half of this page is we've been growing this business at fairly attractive rates. The merchant business, as you're well aware, was impacted by some of the joint venture exits that we went through over the last couple of years. You will also know that through this year, first half of 2019, that business has returned solidly to mid-single digits as we had committed.
Andy mentioned that we are the fifth largest bank. You're familiar with our size and scale, you will see here that we are top 5 performers across all of the payments activities that we participate in. We certainly are number 5, number 4 in our issuing and merchant acquiring businesses. We also are a leading provider in the increasingly important commercial payments business. We are number 2 in that space and number 1 in some of the activities. We are the largest provider of payment services to the U.S. government, and we are the number 1 provider of financial services to other smaller institutions. I'll get into that in a little more detail. You will see that we are operating at scale, not only on the consumer side of the house, but increasingly important on the B2B side of payments activity.
The largest of our payments businesses, the retail payments business, this is our classic issuing business. We issue cards across all three major networks, Visa, Mastercard, as well as American Express. We also are a national player in this business. Thanks to the footprint that we have, but also the partnerships that we have, we have customers across all 50 states. One of the unique advantages of this business, and perhaps the best-kept secret, is our operating platform. It's truly unique, it's proprietary, and it allows us to service not only some of the larger clients like Fidelity, but through that same platform, we can offer distinguished turnkey solutions to some of the smallest credit unions in this country. We do business with over 1,400 financial institutions, and collectively, they provide us distribution through more than 15,000 branches in this country. It's unprecedented reach.
Our aligned branded program also allows us, think this technology platform, just an analogy here, think of it as one big house. That's our proprietary platform. It has individual rooms that are these individual relationships that we have with all these financial institutions. Each room has its own entry point and exit point. They get this turnkey solution that is fully customizable to them on an almost ad-hoc basis, most of them on a self-service basis. We also have a fairly focused co-brand strategy that provide us access to great names like Fidelity and REI, but there is no concentration risk in this portfolio. We have substantial partnerships here. You see there are 13 major partnerships, but through these partnerships, we have added distribution capability of another 18,000 distribution points, again, adding to that distribution reach that I talked about earlier on.
The next one is our merchant acquiring business, roughly a quarter of the revenue. This is one of our most international businesses within U.S. Bank. We obviously have a large footprint here in North America. About a third of this business is based in Europe and growing quite nicely. Again, in this space, we have a proprietary platform, single platform that can help customers operate over 100 different currencies. That platform is available in over 25 different markets. Provides us unique opportunities places like Europe, where increasingly merchants are looking for pan-European solutions. One of the most entrenched providers in Europe can't provide that service that we can. We've been doing that for a number of years. Even more important, in this new era where merchants are buying merchant services through software solutions, this new concept of Integrated Software Vendors.
For those of you that are not familiar with ISVs or integrated software vendors, think of it as if you're a small business owner and you're buying an inventory management system, payment processing is fully integrated inside of that inventory management system. So we provide services and integrate our services into these software packages that are then bought and sold via these software solutions that are very popular. We have doubled down on this ISVs. I'm delighted to let you know that our software vendor partnerships just over last year is up 40%. The next one you're familiar with, which is our focus in this space around vertical-based solutions because many of these verticals have their own needs, distinct needs that require the need to leverage the underlying data. We've been at it for a long time. We have a commanding position in the airline space.
We provide our services to over 100 different airlines globally. We are also a leading provider, both in the hospitality as well as in the healthcare space. In the hospitality space, we service some of the best-known hotel chains in the world. We are the leading provider in the increasingly important healthcare space here in North America. What we are also doing is making sure increasingly for these merchants, providing payment services is not enough. They're also looking for integrated banking solutions, and that plays right into our advantage, having one of the best banking capabilities, along with some of the richest merchant offerings, and our ability to provide a more integrated solution to this customer base. The third piece of business that we have in here is our corporate payments business.
We've been in this business for over 30 years and positions us really well in this accounts payable automation push that is underway. We have a great set of product capabilities where our Virtual Pay capabilities is outpacing the B2B payments market growth. That positions us well in the market that Leslie just talked about, this $23 trillion of money movement that is moving from essentially paper-based to a more digitized, data-driven activity. I'll touch more upon that later. We serve over 200 of Fortune 500 companies in this space. That's, again, largely because of the relationship we have to our Corporate and Commercial Bank. That gives us a seat at the table. Increasingly, these customers are looking for more holistic solutions. We operate two of the largest proprietary end-to-end networks in this space. We provide freight payment solutions.
Just last year, we issued payments to over 5,500 carriers in this country. We also operate a proprietary closed-loop fuel servicing business, and that's through our Voyager network. Voyager is accepted in this country in over 320,000 locations. The point here is not only reach, but in this world where payments is becoming more important, the ability and knowledge to operate closed-loop networks is increasingly important. We operate two of those in ours and have been doing so for a very long period of time. This drive to Virtual Pay is fueling growth, and our ability to capture the position that we have working closely with our Corporate and Commercial Banking positions us really well to make sure we capture the flows in this transition that is taking place. Let me spend a minute about something Andy talked about at the start of the day here today.
In this era of change and digitization that we've been talking about all day, there is a change in customer expectation. It's yet clearly driven by simplicity and ease of use that Derek talked about earlier on. In the payment space, what is also important is control and security over that payment stream that is so vitally important for these businesses. Andy talked about the moat around loans and deposits that's arguably getting stronger because of AML and BSA type regulations. One might argue that the moat around simple payment activity is narrowing or maybe even evaporating. That plays right into our advantage because payments by itself is less meaningful to customers. They are looking for much more broader solutions.
Given the breadth of relationship that we have and the breadth of products that we have, we are best placed to leverage the data, which we've been doing for well over a decade, to be able to provide these customers with more holistic solutions. Let me give you a little more depth around this. Take the traditional buying and selling process, the top chart describes how payments used to get conducted. For 60% of the cases, that still occurs today. You want to buy something, you go to a separate program to create a purchase order. You go someplace else to get your invoice. You go to a third place to make the payment. Somebody else goes to another place to go get that payment, reconcile it to the back end, on and on it goes. These were all individually provided, bought, and sold.
What we are trying to do is bring it all together in one place so the underlying data can travel much more effortlessly throughout these processes. Now think about the fact that if you're making a payroll, you want to make sure that that integrates into your cash flow management environment. If you're buying inventory, you want to make sure that it ties back into your inventory management system. You're no longer just concerned about making and receiving that payment. That's a given. How well those can integrate into your back-end activities is what is going to determine who becomes successful at this, and we have been at it for quite some time. We're going to double down on it. That leads to our strategy. What are we looking to do over the next few years? You've heard about digitization, leveraging data.
I'll talk a little bit more about how we are looking to expand that reach that we have. Last but not least, is continuing to leverage these unique platforms that we have that allow us better integration at lower cost and efficiency for our benefit, but also importantly for the benefit of our customers. Digitization. Derek talked a lot about our ability to get seamless services to our customers. What is more important is not that these services are available, but how well are those utilized. Let me give you a couple of examples. We doubled down on digital acquisition for our card business. Three years ago, I talked about the fact that we are going to do that. Our digital contribution for account origination in the credit card space is up 60% over this period of time.
We launched simple services driven by geolocation-type technology that has become available more recently. Our consumer customers have adopted that over 50% of the time. It's not the availability of the service, it's how well is it integrated into the technology that customers are expecting to use. An example on the merchant side, where we are leveraging capabilities like Virtual Pay to allow customers that operate in the travel and tourism industry to make payments through digitized processes. This is a highly paper-intensive industry. When you book travel online, the back-end payment settlement between that travel agency and the hotel or the airline that you bought the ticket on is largely paper-based. That's over a $200 billion TAM for us to operate in. We are digitizing that not only through our own capabilities, but also partnering with some of the leading players like Amadeus in the space.
We are continuing to expand our distribution and our product capability. Just a few examples. You know we have acquired some very attractive portfolios over the last three years, like Fidelity. What you might not be aware is we have done over 60 such small transactions through our Elan brand, acquiring over $3 billion of assets over that period of time. We've just added over six different companies that add capabilities in the merchant and the very important B2B space. The Expense Wizard at the bottom of the page here is an interesting piece of technology, it's actually available for your review outside. It's really cool. It targets what I call the infrequent traveler. Think about the individual that's coming for an interview in one of your offices. They don't have your corporate card. How do they issue payments?
Highly paper-based, very troublesome. The back-end process of claiming that expense is, at best, friction-filled. This product completely transforms and eliminates that process. It also provides the entity, in my example, you, the hiring manager, complete control over how they travel, where they stay, where they eat, and all of that is fully automized and completely in sync with your internal corporate policies. It's not just the ability to make the payment and take out the friction from the process. It is making that process a lot more efficient and a lot less friction-filled. This is an important page for us. The left-hand side describes how largely banking and payments used to get conducted, even as recently as a few years back. Banking products had their own silos. They bought and sold through customers through those silos. Payments product had their own silos.
Merchant acquiring was largely who got first to that merchant with that point-of-sale device. That is no longer true. Increasingly, we sit across the business manager, the owner, the CFO, or the treasurer, and they're demanding the left-hand side and the right-hand side come together more holistically, not only from a pricing standpoint, but there is a much more deeper need. They want to make sure that these processes are integrated back into their back end. Allows them to manage their own cash flow a lot better, allows us to have better conversations with them about financing their needs and protecting their supply chains. This is a fundamental shift that is occurring. Andy touched upon some of the M&A activity in the payment space.
It is all coming together because everybody's recognizing that payments is better placed when it is better integrated through other activities that we provide to our customers, whether it is the consumer or certainly true in the ever more important B2B space. In summary, let me leave you with these thoughts. We operate at scale across both consumer and B2B franchises. We have a fantastic set of distribution capabilities that we are augmenting. We're doubling down on our platform to provide omnicommerce solutions to our customers. We have terrific in-house platforms that we can leverage that provide efficiency for us and for our customers. Most importantly, because we are part of this unique institution, we can provide our customers with integrated payments and banking solutions. With that, thank you.
Thank you, Shailesh. You heard from all four of our businesses. You've heard the concept of digital integration, optimization, change, looking and transforming for the new expectations of the customer base. We're going to break for lunch now. We'll reconvene at 12:30 Eastern Time. I would encourage you to experience some of those digital capabilities live and in person right outside. We have a number of individuals anxious to show you what we're able to do. We'll reconvene at 12:30. We'll talk about risk, and then Terry will wrap it up with finance. Thanks a lot. Enjoy lunch. Okay, good afternoon. I hope you enjoyed lunch, and we'll get started again with the individuals on the webcast as well as those in the audience. We talked about the overall strategy, we talked a little bit about technology, digital innovation, our brand, and our culture.
We gave a business line update, and we're going to wrap up the afternoon talking about some of those core disciplines I mentioned earlier, starting with our risk management discipline. You've known U.S. Bank for a number of years as being one of the strongest credit risk managers in the industry, and that continues. And we're going to talk about that today, but we're also going to talk about some of the other emerging risks that we face as an industry, as a bank overall, and applying some of those same strengths to those risks as we think about the way we manage risk management in the company. With us this afternoon are Jodi Richard, who has been Chief Risk Officer for just under a year and with the bank for five years, and Mark Runkel, who's been Chief Credit Risk Officer for over six years.
I'll hand it over to Jodi.
Thank you, Andy. Good afternoon. It's my pleasure to be here today to talk to you about our risk management strategy as well as our risk management processes that are time-tested in a core competency of U.S. Bank. When I became CRO last October, I was fortunate enough to inherit a strong risk program. You heard this morning from Andy, we've invested a lot in our compliance and risk programs over the last three to four years. We've done that in our people as well as our technology. One of my roles stepping into this was to say, "How do we take what we've built, and how do we optimize that for the future?" That's a lot of the strategy that you'll hear me speak about today.
Before I go there, I do want to reinforce that the building blocks and governance that underpin our risk discipline will not and have not changed. When we talk about our strategy, really what I'm talking about is enabling that strong or ensuring that strong risk discipline and control environment to enable business and revenue growth. We're always evolving our thinking. When I look at the areas I want to focus on, I want to focus on ensuring that we have sustainable programs in place. I'm not going to take the eye off the ball on what we've built. We'll maintain those and mature those into the future. We also want to look and stay ahead of emerging risk and incorporate those into our programs and manage those for the future.
A lot of our emerging risks tie to our strategy, and we need to sit side by side with the business and the technology groups to manage those risks as they're being implemented. The last three items that you see on the left side of the slide are all around optimization. How do we simplify our processes? How do we use and leverage data in a better way to optimize, if you will, our risk management capabilities? How do we remain agile to support the business growth? On the right-hand side of the slide, you'll see our core principles for risk appetite. I wanted to stress that the business line strategies that you heard earlier today are aligned with our risk appetite and set the strong foundation for our governance.
We have invested, as I've said before, in building up our risk programs over the last several years. We did that around our AML, BSA, and our compliance programs, but we've also built our other programs. In that building process, we've learned a lot, and those lessons learned, if you will, are what we call keys to success. I just highlight a few of them here. The need to ensure we have top talent in specialized areas. We need to have consistent processes, tone throughout the organization that is consistent, good reporting, and escalation. We need to make continued investments in new technologies and automation. We need to promote more of the value, if you will, of relationships with regulators, with industry participants, experts, as well as law enforcement. I mentioned these elements are present across all of our risk programs.
Our structure is sound and sustainable, and we have mature risk routines in place. That said, we're always looking around corners and staying ahead of emerging risks. We're investing in people, data analytics, and technology to mitigate those risks. Our key and emerging risks, a lot of what we've already talked about today, Andy mentioned some this morning, reputation, customer privacy, tariffs that are going on. A lot of these risks are operational, as well as some of the risks that you see on these slides actually directly tied to our strategy, digital interactions, competitive environment, real-time payments, emerging technologies. What this means is we understand our strategy, but we also understand the risks that that strategy employs. The risk organization sits with the business, sits with technology to enable, if you will, that business growth in a prudent and safe way.
I want to take a moment and highlight a few of our key risks, one being cybersecurity. Jeff mentioned earlier today the investment in our cyber defenses and controls. The risk organization sits side by side with the technology and security group to ensure that we also, from a risk management perspective, are testing those controls as well as understanding our risk exposure. We've done several things. We've built an executive cyber dashboard that has key metrics in order to escalate items of our program in a quick manner. We conduct independent assessments using a series of industry experts to test our controls, identify potential gaps, as well as help us identify potential vulnerabilities and stay ahead of the evolving industry best practice. We are constantly refining our playbooks, our scenario planning, as well as learning from others.
We have our Board here today, and I'm sure they would tell you that cybersecurity is a key Board focus, and we dedicate time at every meeting to this topic. One of the largest changes over the past few years is the changing risk landscape in money movement. You've seen this from, you've heard from Leslie and Shailesh, this is a core in our business strategy. This is an area that Jeff also talked about, that we've invested in technologies and people to enhance our fraud detection capabilities. We have fraud behavior analytics that we have on the front end. We've also enhanced our real-time transaction processing. We've moved from a batch environment to a real-time environment. We also are ensuring our operational processes are resilient and meet real-time needs on that 24 hours a day.
As I mentioned, while we focus a lot of our technology enhancements here, they also are supported by the risk organization. Let's talk a minute about optimization. We've been talking about this all day, and nowhere are we doing it more than in the risk organization. I want to start first with how we're supporting business growth. We're aligned with the business in the Agile Studios. Derek talked about how risk is embedded in those Studios, providing real-time feedback in an effort to support business growth. I want to pause a minute and reinforce to you that agile does not mean fragile. We are not cutting corners in risk management. We are applying our same underwriting standards, our same compliance policies, but we're sitting with the business side by side, giving them real-time feedback, and this has been extremely successful for us.
If I move over to the other side, this is how we're acting within, if you will, risk management, how we're innovating, simplifying, and optimizing. We have our own risk studio where we have a dedicated team that helps the entire risk organization across credit, operational, compliance, BSA, AML, to look for those opportunities that might be pain points that we feel we can be more efficient and effective. We also look at our org structure and look to see where maybe we could consolidate to avoid duplication and overlap and to better streamline. We did that earlier this year in our second line of defense testing teams, combining those to bring consistency, reduce gaps, and drive for the future. I would say where we have the most opportunity for optimization is leveraging our data and analytics. We are advancing our risk processes here.
I took a moment, and you'll see I've highlighted some real numbers on the slides for account originations and transaction monitoring. These are investments in new tools and models that have proven effective in annual loss avoidance in the space that crosses both the credit and fraud spectrums. We're also using what we've built. You heard Jeff talk about the system and the platform that has transactional data in it that was built for AML KYC. We are using this in advancing our AI and machine learning to detect suspicious behavior in our AML monitoring programs. We've doubled the accuracy in this, improving our efficiencies. Finally, we're using data and automation in a smarter way that has allowed us to be more efficient, but most importantly, effective in our quality assurance testing. I'd like to transition over to Mark to talk about credit risk.
Great. Thank you, Jodi, good afternoon. We have a strong risk management and credit culture at the company. That strong credit culture is critical for us to be able to support and grow throughout the economic cycle. The second piece is it enables us to be the most trusted choice for all of our key constituents, including our customers. Finally, it produces consistent results. Our culture is really built on five pillars. I'll start with that we're a relationship-based lender. Second, we're a cash flow lender. We look at the collateral in our underwriting analysis really as a secondary source of repayment. Third, we stay very consistent in our underwriting throughout the economic cycle. We're not making major adjustments to our underwriting over time. Fourth, we're proactive in our portfolio risk management approach in terms of active portfolio management.
Finally, we have great portfolio diversification. We think of our diversification from a product type, asset class. We think of it from a geography, property type. All of those key characteristics help us deliver consistent results. You'll see here, during the last economic downturn, we had the least amount of volatility compared to any of our peer group, and is one that we know is true and tested, and is why we're not going to be making any changes to our culture as we move forward. It's at this point in the credit cycle, we're beginning to see others in the industry starting to go down market. You're not going to see that show up in any of their credit performance statistics today because it's too early. What you want to stay focused in on is the origination quality.
You'll see, we continue to be very disciplined in our originations. On the consumer side, we continue to be a prime-based lender, and you can see that based on the quality of the credit scores in all of our consumer-originated portfolios. We do not offer any subprime programs, and we've stayed out of that business. On the commercial side, we continue to be investment-grade quality or equivalent. We do have what I would say is a much smaller leverage loan portfolio compared to our peer banks. It's less than 2% of the commitments of the overall company. The only place we participate in leverage loans is really to support existing customers who are doing strategic acquisitions, where their senior debt may be greater than three times and total debt is over four times.
It's a relatively small portion of the portfolio, but areas that we will support existing customers. In our commercial real estate business, that's another area that we've been very disciplined and consistent because we've been in the business for a long time, and we've been through many cycles. That approach served us extremely well coming out of the last economic downturn, where you did see us taking market share and really growing that portfolio. At this point in the credit cycle, we're seeing others becoming more aggressive in offering structures that we're not comfortable with. We're not going to change our lending standards. That's why you've seen us lag in terms of from a growth perspective over the last couple of years, but we're comfortable with that. We talk about proactive portfolio risk management. That's both looking internally within the portfolio as well as externally.
When I look internally to our portfolio, I think of the delinquencies, risk rating, non-accruals. All of those are very strong across all of our portfolios, stronger than we were at going into the last economic downturn. We're also monitoring the external environment. When I look at the unemployment market and what's going on in the labor market in particular, I look at unemployment claims, and I look at the rates. You can see on the chart on the far left that those remain at very low levels. Housing continues to be strong, the BBB bond spread is probably the only place we've seen any kind of what I would say movement in any of the key external metrics that we're monitoring, just due to the flattening of the yield curve.
As I look at the portfolio internally as well as externally, I have great confidence that in the near term that we think credit quality will remain relatively stable going forward. Finally, on our through-the-cycle expected loss, when I was here three years ago in 2016, I shared this slide with you as well. Our expected losses through the cycle we said was going to be between 95 and 100 basis points. We've continued to grow the portfolio the last three years in a very prudent approach and diversified across all of our assets and businesses. That, through the cycle, has not changed and remains at 95-100 basis points.
In summary, I want to end where I started, that risk management processes are time-tested and a core competency of U.S. Bank. Through our strong and proven risk discipline, with our deliberate focus on the changing environment, we are proactively managing emerging risk, supporting business and revenue growth, and are set up for long-term success. Thank you.
Thanks, Jodi. Thanks, Mark. We've talked a lot about strategies, initiatives, key areas of focus, strengths, and areas of investment. I know for this audience, what you really want to know is how does this all translate into financial implications and numbers. Terry Dolan has been with the company 20 years. He and I have worked together for a long time. He's been in the CFO role for three, I think there's no one better to bring it home in terms of the financial implications of all this than Terry. Terry?
Thanks, Andy. Good afternoon, everybody, and thank you very much for being here on Investor Day. It's really important to us to be able to share our story with you and to help you understand some of the great things that are really happening here at U.S. Bank. What I think you have seen during the day, Andy started by really giving a nice strategic overview in terms of what's happening in the organization, but also some of the changes that are happening in the environment out there, some of the challenges that exist within the banking industry, but more importantly, some of the opportunities that exist for a company that is willing to invest in the business and to take that opportunity. You heard from Kate about our culture within the organization and some of the things we've been doing from a brand perspective.
You heard from Derek and Jeff about above the glass and below the glass, and that above the glass is really focused around all the great things that we are focused on with respect to our customers and the experiences we're trying to drive and the interactions we're trying to create.
Focused below the glass in terms of how we're going to be able to deliver that from a technology standpoint, the microservices, the APIs, the tech stack, our cloud strategy, and all those things that are going to be able to drive efficiencies as we think about the business going forward. Then you had an opportunity to see how some of those broad strategies tie into the things that the lines of businesses are doing. I hope one of the themes that you saw is that many of those things are interconnected. Payments helping to drive small business loan growth in the future, et cetera. What I want to do is maybe provide kind of a capstone for the day with respect to how that translates from a financial management perspective for our organization.
What I want to do is to talk a little bit about the last three years and the performance during that timeframe. Andy talked about the fact that we feel like we are well-positioned, in a position of strength. That'll be my second segment. I'm going to talk about long-term strategic objectives for the organization over the next three years. Let me talk about first of all, bottom line net income and earnings per share. Three years ago, we said that our goal or our expectation with respect to net income was to grow at 6%-8%, and for earnings per share to be able to grow somewhere between 8% and 10%.
If you end up looking at how we ended up performing, we actually ended up getting there, but we ended up getting there in a lot of different way than maybe what we had expected. Probably not on a core basis the way that we had hoped to see. Our revenue was a little bit lower, and I'll show you that here in a minute. Our expenses were a little bit higher in the sense that we weren't able to bring that efficiency ratio down as much as what we would like. We also made up with that by great credit quality and our ability to have lower credit losses than what we were anticipating. Then we got benefit with respect to the Tax Reform Act in late 2017.
If we think about the balance sheet from a loan perspective, we grew the loans in line with the rest of our peer group. Mark talked about the composition of our portfolio. Between 2017 and 2019, that composition really hasn't changed. Maybe commercial real estate has come down a little bit. You think about that overall growth during that particular timeframe, though, I want you to think about at least three things, maybe four things. One is we sold our student loan portfolio during that particular point in time. We sold off our FDIC-covered loan, insured loans, during that timeframe. We made some very conscious decisions with respect to our commercial real estate and the construction aspect associated with that particular portfolio to downsize that, thinking about the risk associated with that type of a portfolio and how it performs in a recessionary environment.
Those are three things that we consciously made some decisions on. With tax reform, loan growth in 2018 was very challenging. That certainly was one of the factors in terms of why revenue growth in terms of net interest income was a little lower. If you think about deposits. Deposits, we, over that three-year timeframe, grew a little bit faster than our peer group at 10.4%. The composition, again, is roughly 50% retail, 50% institutional, made up of the wholesale deposits within Leslie and Jim's world, as well as our Corporate Trust business, which is a significant deposit gatherer for us. About 50-50 in terms of how we think about the mix. The mix between non-interest bearing and interest-bearing deposits shifted a little bit, but that's something that we certainly anticipated and expected three years ago because we were expecting a rise in rate environment.
Jim mentioned the fact that a couple of years ago, we had a client that was acquired by a financial institution, and a lot of their deposits migrated to their parent. If you end up backing that out, our deposits actually grew at about 13%. Relative to our peer group, we actually performed fundamentally very well with respect to deposit gathering during this particular timeframe. Let's talk about revenue growth. Net interest income grew at about 5%. We had set a target of 6%-8% three years ago. One of the primary drivers associated with that is we got some additional tailwind related to the rise in rate environment, which is what we were expecting, although the yield curve flattened on us a little bit.
The other thing is that in 2018, because of excess cash, tax repatriation, corporates going through the restructure of their balance sheets, we saw a little bit better capital markets activities, but we saw loan paydowns, et cetera, occurring in that particular timeframe. You saw in 2018, loan growth was a little lower. Fee income, quite frankly, was a little bit disappointing for us. We had expected and guided that our fee growth during this timeframe would be somewhere between 5%-7%. Ultimately, it was about 3%, 2.9%. Couple of different things that were driving that. Mortgage banking revenue was actually a drag during that three-year timeframe, some years as much as 18%-20%. Our merchant acquiring business, as Shailesh talked a little bit about, we made some decisions with respect to divesting joint ventures.
We also made some decisions to exit certain businesses or relationships that were high volume but very low margin, possibly even break even. There are some things that ended up influencing. The positive, if you think about it, is that we have now hit an inflection point with respect to our mortgage banking business starting to grow in the second, and we expect stronger growth as we think about the third and fourth quarter and into 2020. Our merchant acquiring business has been accelerating over the last several quarters, and we continue to expect that to continue to accelerate as we think about the future. We had some headwinds, which we believe have now hit some inflection points. From an efficiency standpoint, we ended up in 2018, '20, and early 2019 in that high 54%. We didn't really make the progress that we expected.
We certainly expected in 2016 that our efficiency ratio would start to migrate down and probably be in that 53 sort of percentage point range at this particular point in time. One of the biggest drivers, and we've talked about it, is that in 2015, 2016, 2017, and even in a little bit in 2018, our risk and compliance costs were elevated, in some of those years growing at an excess of 25%. What was a headwind for us during that particular timeframe from an efficiency perspective and from a cost perspective has moderated, and that should be an opportunity for us. Also, during this entire timeframe, we were continuing to invest in the business, and we also stepped up our investment, and I'll talk a little bit about that in a moment.
Clearly, we added 5 to 10 pounds, and we really didn't expect to do that during this timeframe. Let's talk about returns. U.S. Bank has continued to be an industry-leading organization with respect to returns. Our profitability is driven by a lot of different factors. It's driven by our mix of our business, the fact that we have a lot of businesses that are capital efficient, we have disciplined capital deployment, et cetera. In every one of the categories that we end up measuring, though, U.S. Bank's returns are at the top of the industry. If you think about sustainability over the course of the last three years, really over the course of the last 10 years.
Bank has demonstrated, because of our lower credit risk profile, our diversified mix of businesses, that we are able to sustain our earnings power during difficult times, and we are able to reduce the amount of capital depletion for credit losses during times of stress. Those things translate into our ability to sustain a dividend over a period of time. If you look at dividends over the last three years, our dividends have grown by 11.8% on a compounded growth perspective. Two years ago, we increased the dividend by more than 23%, this last year, 13.5% as part of the CCAR cycle. Our dividend growth has been very nice during that timeframe.
I'd like to talk about why we feel like we're in a position of strength, and we're well-positioned as we think about the future, and I'll talk about a number of different things that Andy gave an overview before. The first is that we have a diversified business mix. Now we talk about four different businesses, and you heard from all those businesses here today, but underneath that is really 50 different businesses that all act a little bit different in different points in the business cycle. That enables us to be able to have lower volatility with respect to our earnings throughout various types of business cycles, and particularly in terms of fee-based revenue. We have a couple of businesses that differentiate us. We have our payments business.
I'll tell you that among our peer group, there are peers that would die to have our merchant acquirer and our payments business because they know and understand the importance of payments is going to play in the future of banking in the next several years. We've talked about that throughout the day. Gunjan talked about our Corporate Trust business. Our Corporate Trust business is capital efficient. It's a huge deposit gatherer, particularly in times of stress. It is fee based, it's relationship based, and it is a business that generates high returns. All these businesses help to contribute to our fee and net interest income balance within our company. More importantly, we feel like we're in preferred businesses and the businesses that we really like. It's the right businesses for U.S. Bank.
Importantly, our payments revenues are overweighted relative to our peer group, and our trading and equity M&A sort of activities is underweighted. Those are businesses that typically have more volatility, where you have to rub two sticks together every quarter in order to make your numbers. As you go through stress, are significant requirements with respect to capital. Those tend to be more challenging as you think about resolution plans and planning through a stressful cycle. We do not have that particular business. Now we do have a capital markets business. It's in the fixed income side of the equation. It's very much tied to our wholesale and our Corporate and Commercial Banking business. What it does is it ends up, as Jim talked about, really leveraging that credit relationship that we have with our customers.
It actually acts as a way of reducing volatility because oftentimes when the yield curve flattens, the fixed income capital markets picks up, even though you may see payoffs occurring on the lending side of the equation. It actually helps to reduce volatility in our situation because of the type of businesses that we are in. Our credit ratings are among the highest, not only in the U.S. but in the globe. That has some significant competitive advantages from a financial standpoint to lower cost of funding for the organization. It provides us with a pricing advantage. You think about it from a loan growth perspective, our ability to be able to price more effectively in terms of being able to grow the balance sheet. It tends to be a flight to quality. U.S.
Bank tends to be a flight to quality during stress. As a result, enables us to be able to gather deposits at a point in time when you want it. It reflects that trust that we've talked about in consumer confidence. Asset sensitivity and liquidity. We believe, again, that these are competitive opportunities for us as we think about the next three years. Let me talk about liquidity first. If you think about our risk profile, we have liquidity coming out of our ears. We have more than enough liquidity. In fact, we believe that that is an opportunity for us as we think about the tailoring rules change that will enable us, we believe, to redeploy, optimize, or think about our investment portfolio in the tune of $10 billion-$20 billion.
That gives us a lot of different options, which I believe is going to be beneficial in this sort of a rate environment. With respect to interest rate sensitivity, we are relatively neutral in terms of our asset sensitivity compared to our peers. While we give up a little bit when rates are rising, we end up performing relatively better in a declining rate environment. I believe that based upon where the Fed is today and what 2020 looks like, that will be a competitive advantage for us. We tend to be balanced, about 50% short-term, 50% long-term. The durations of assets and liabilities are pretty well matched. Of course, the interest rate environment is going to be an industry-wide challenge for the near term. Let me come back to cost structure. When you think about cost structure within U.S.
Bank, relative to the industry, we're pretty fit and lean. We know, as I said, that we put on a few pounds. Andy is a cyclist, and in fact, when he comes to New York, he oftentimes goes to the Peloton studio. I want you to have this thought process in your mind. Everybody on the management team, when they come to work, they get on the bicycle and they work hard. They push hard in order to be able to drive cost efficiencies, to be able to think about above the glass and what we're going to do with respect to driving and improving our customer experience, which is going to translate into revenue growth. Jeff talked about the efficiencies within our technology stack and moving to the cloud. All of those things are in play.
When we think about the next three years, we have the opportunity to be able to optimize more of our business and do things like rationalizing our risk management programs to make them not only more efficient, but more effective in the future. All those different sort of opportunities exist. We are fit and lean relative to our peer group because of the fact that we have single processing platforms. We fully integrate acquisitions when they occur. We have businesses of scale, and they run efficiently. They are capital efficient as well. There is a lot of opportunities as we think about the future. Now I'd like to talk a little bit about the long-term strategic expectations.
Maybe to frame that out a little bit, what I'd like to do is start by talking about some of the competitive challenges during the last three years that now are starting to become opportunities. I talked a little bit about our asset sensitivity. That lower asset sensitivity in the future results in stronger relative performance in terms of net interest margin as rates decline. The elevated risk and compliance costs that were driving up our efficiency ratio in the past have moderated. We have an opportunity to be able to either reinvest those dollars in other parts of the business in order to be able to digitize and get the efficiencies in terms of DIY that Derek ended up talking about, or gain other efficiencies within our organization.
Andy talked about the fact that AML, BSA, and the consent order was a bit restricting with respect to our branch optimization. That has been lifted at the end of 2018. Tim and his team have been working on physical asset optimization and moving forward with respect to reducing our branches on a net basis somewhere between 10%-15%. We believe that we have the opportunity to be able to increase that as we move forward, especially as many of the digital initiatives that we talked about take shape. Our credit risk profile, it sometimes moderates growth in a rising rate environment and a robust economy. We're prepared for a recession in the event that it takes place. We will perform well in a recession. In the last three years, there has been significant capital distributions that have occurred within the industry.
We started at a lower capital level because of our risk profile, but that run associated with capital distributions, higher capital distributions, is pretty much coming to the end. U.S. Bank is in a position with the tailoring rules to be able to take advantage of that and to be able to manage our capital a little lower in the future. I'll talk about that here in a minute. When we were putting together the next three years from a financial perspective, I just kind of want to share a couple of key considerations. Like the Fed, we don't see a recession occurring, but if it does, we're ready for it. Business is relatively robust, consumer confidence is strong, and employment is relatively low. When we end up looking at the economy, we feel pretty good about it.
The thing, obviously, that is creating a lot of uncertainty in the markets is really related to geopolitical issues, trade or tariff wars, and things like that that are happening. From a global perspective, global rates are very low, and when you end up thinking about the economic growth in Europe and in China starting to slow. You have a lot of global investors that are coming to the United States buying treasuries because on a relative basis, they can find yield. So those two things are causing short-term rates and the Fed to reposition itself to move downward, and we think they're likely to move down to a target of 1-150. We've assumed 150. The long end of the curve is also going to be relatively flat, we believe, at least through much of 2020.
Credit quality will be stable. I'd like to talk about, from a financial perspective, four things that we're very focused on. The first is portfolio management of our businesses. One of the things that we have done over the course of the last couple of years is really take a hard look at all of our businesses to think about their market attractiveness, their growth characteristics. Are they principally cash-based businesses? Are they paper-based businesses? Are they businesses that we ought to be thinking about divesting or exiting? In fact, a year ago, last year, we sold our Elan ATM processing business. We got out of retail lockbox. We're exiting that particular business. We sold our student lending. We sold our FDIC-covered loan portfolio.
All those things really for the purpose of taking the capital that you would have to dedicate to those activities and reinvesting it in digital activities, agile studios, and all the different things that you end up hearing about. The second thing from a financial perspective is physical asset optimization. Most importantly, we believe that there is an opportunity to be able to accelerate that, to be able to increase the repositioning of our branches in the future. When I talk about that, I think about it both in terms of the reduction in terms of branch closures, but also the reinvestment that Tim talked about in new branches in high-growth areas, remodeling branches in high-growth areas so that we are creating a better experience for our customers, and creating revenue growth opportunities as well as optimization of the branch.
Of course, what we will be doing is taking into consideration the pace of the digital adoption and the digitalization, digital transformation that is occurring in the bank in order to be able to make that decision as to how and when to do that. The third area is really around cost structures, cost optimization, and focusing how we end up thinking about that. We talked about the Experience Studios. A great part about the Experience Studios is we have the customers right there helping us to design the experience and to help think about it from the perspective of how that will help revenues to grow in the future. It's also about simple, better, faster.
Many of those Experience Studios are focused on the business process on how we make things below the glass more efficient, better speed to market, et cetera, that is really around that pillar of simplification. We have cloud computing, technology stack. We have organizational design, all these things that we're looking at. Management spans and layers. We pulled the trigger on some of that. We have other ideas. Tim, in taking over the Consumer and Business Banking, has restructured his management team in order to be more centered around the markets and more central to our customers within those markets. As a result, being able to get efficiencies in this business as well. We are looking at every one of those things when we're on our bicycle every day.
All of that is really to help us focus around how do we take that to reinvest for the future growth of the company. There's a lot of different initiatives on here that are identified that we've talked about during the day. What I'd like to leave with you with respect to this aspect is we've stepped up the amount of investment. It's more than doubled in terms of capital expenditure over the course of the last four or five years. Where it used to be focused around defense, now the majority of it is really focused around offense. We spend about $2.5 billion on technology each and every year. As Andy said, we do believe that we have the scale, the simple business model that would enable that to be more than sufficient as we think about the future.
One of the things that I know I've gotten lots of questions on as I've sat through different investor conferences is really around CECL. It's been interesting because all the questions on CECL have been around the Day-1 impact. Let me kind of go through that. Day-1 impact for U.S. Bank is going to be somewhere between 25% and 35% of the existing reserve. Our existing reserve at the end of the second quarter was about $4.5 billion. We anticipate that when we adopt CECL on January 1 of 2020, that the impact is going to be somewhere between $1.2 and $1.6 billion increase. The amount of that increase is influenced by whatever the macroeconomic factors are at that particular point in time.
At this particular point in time, again, when we think about whether or not there's a recession on the horizon, we really don't see that. The other thing that's influenced in terms of the size is really around the characteristics of your portfolio. To the extent that you're more higher weighted with respect to credit card, your assets are longer dated in terms of having a higher mix of mortgage or installment loans, you'll tend to have a higher percentage of reserve build on that day of adoption. In our situation, that's going to be the case. That represents today an allowance of about 1.5% going to an allowance that's about 1.9%-2%. The thing that hasn't been asked by anybody is what is the Day-2 impact with respect to CECL, and how is that going to affect organizations in the future?
That's going to have industry-wide sort of implications, but I think one way just to kind of simply think about it is that this is an expected loss over the life of the loan, which means that the provisioning that you have to do will be higher than what you have had to do in the past. If we are growing loans in order to keep our reserve at 2%, assuming that credit stays stable, you're going to have to provide for that growth at roughly 2%, which is going to be higher than what it's been in the past. I think that's an important question for everybody to keep in mind.
I think there's two other things that I would just say, and that is that under this methodology, there's going to be greater volatility that's going to occur under stress, and the comparability from one firm to the next is going to be difficult. The reason for that is our economic outlook for the next two to three years is most likely going to be different than firm A's outlook and firm B's outlook. I think one of the things we'll end up grappling with within the industry is how do we look at that comparability across the various firms? I'd like to also spend a moment on capital management. When you think about capital management, when we think about capital management, we have certain objectives.
We want to be well-capitalized, we want to maintain that high credit rating that we enjoy, and we want to be sustainable throughout the business cycle. We have a capital target of 8.5%. Currently, we're running at about 9.5%, and we believe that after the adoption of CECL and the tail end rules, that's going to be about 9.6%. What that represents is opportunity from a buyback perspective because our expectation is that we will start to manage that 9.5%, 9.6% down somewhere between 8.5% and 9% in the future. That is an opportunity for our organization as we think about the next three years relative maybe to our peers. Let's talk about long-term growth expectations over the next three years. From a revenue perspective, in 2016, we had identified 6%-8%. We brought that down a percentage point, 5%-7%.
That is going to be probably a little bit more over that 3-year timeframe, maybe a little bit more weighted on the balance sheet side than on the fee-based side because of things like integrating merchant acquiring into our small business lending and being able to do POS sort of lending capabilities in the future. We think that there is opportunity for growth in that area. Expenses we're guiding to 2%-4% in the future. Net income at 5%-7%, which is revised down by 1 percentage point, and earnings per share at 7%-10%, the lower end being revised down a little bit. This assumes the adoption of CECL, a relatively stable credit environment. The other thing that I would say is that this isn't what 2020 is going to look like.
If you end up thinking about the rate environment that we're in right now, that's going to create revenue pressure across the entire industry. This is how we think about 2021 to 2022, kind of in that sort of timeframe. Long-term profitability expectations. Andy talked about this earlier. Essentially unchanged, although we've increased the return on equity target from 13.5%-16.5% range up to 14.5%-17.5% range in the future. This assumes the adoption of CECL in the first quarter. From a capital management policy perspective, we're also making some changes relative to 2016. Our capital distributions have been in the high 70s over the course of the last several years based upon the growth characteristics of risk-weighted assets. I want to kind of point you to the right-hand side of the screen, though.
One of the things that when we think about our capital distribution policy, we really want to be overweighting a little bit more on the dividend side than we have in the past. We've increased our target payout for dividends from 30%-40% up to 35%-45%. We've decreased the reinvestment in acquisition target from 20%-40% down to 15%-35%. What that implies is over the course of the next three years, as we see balance sheet growth of kind of in that 5% range if we're distributing out at that 75%-80% level. Again, as we think about our capital level being at 9.6% after CECL, we have the opportunity to be above this range for some period of time. I want to leave you with this thought. Andy started by saying we manage the company for forever.
It's important for us to be able to balance both our short-term objectives with our long-term objectives. Our business mix, and the characteristics of our organization generate consistent, predictable, and repeatable earnings. Our low-risk profile enables us to be able to manage through a stressful environment and the ability to sustain that dividend over a period of time. We have a long track record of being able to generate best-in-class returns, and those returns result in best-in-class growth of our book value per share. It's those factors that we believe supports the valuation that we have within the industry, and it's something we've earned and something that we're going to protect over time. Now I'd like to just shift gears from the long-term expectations to just give a little bit of update in terms of third quarter guidance for 2019.
Net interest income will grow, but it'll grow modestly. When we think about our loan growth, our linked quarter loan growth for the third quarter is going to be very similar to the second quarter. At the last earnings call, we had guided that net interest margin was likely to decline 8 to 9 basis points from the second quarter. We actually think because of the rate environment and the volatility that's existed, it coming down roughly 25 basis points across the curve. That net interest margin is probably going to decline somewhere between 10 and 11 basis points. I remind you that four basis points of that decline is related to having to balloon the balance sheet after the European regulatory agencies changed some policies related to transitioning deposits between outside of the European Union.
That's a one-time idiosyncratic thing that will impact the third quarter, but won't really carry over into the fourth quarter. You just have to kind of keep that in mind. From a non-interest income perspective, we continue to guide that non-interest income is going to grow in the mid-single digits. Although mortgage banking revenue is likely to be a little stronger than what we had expected, and our capital markets business is going to be stronger than what we expected. Keep in mind that both those business are commission-based type of businesses, and so salary compensation related to that revenue is likely to go up a little bit. From a positive operating leverage perspective, and Andy talked about this earlier, we have been guiding to a range of 1%-1.5% on a full-year basis.
Because of the interest rate environment, it's likely that we are going to be slightly or somewhat below that range on a full-year basis and on a core basis. From a tax rate perspective, we expect the tax rate to be at 20% on a taxable equivalent basis, and credit quality continues to be stable. Thank you very much.
Great. Thanks, Terry. We're going to bring all the presenters up on the stage to answer any questions you may have to close it out. While we gather the chairs, I want you to take a look at this commercial. Kate talked about being there for the moments that matter. Tim talked about centrality. I think this ad represents both of those concepts very well. Why don't you guys come on up?
Hey, I'm looking at the numbers now. You sure I can do this?
Yeah, it's what we've been planning for.
Thank you. Hey, boy.
Hey, baby.
You know how I said I've been working on something big, right?
Sure.
This house is officially yours. You own it.
Oh, my.
At U.S. Bank, we believe hard work works.
That's the boy.
Our integrated approach to wealth management helps make sure your money keeps working as hard as you do.
Yeah, there you go.
I think that's a terrific ad. I'm going to take it off your third-quarter earnings. Otherwise, they're going to be focused only on that. All right. What can we answer for you? Because we're webcast, we have some microphones that'll be brought to your table so we can ask the question over the web. Why don't we start with Mike right up front, Mike Mayo?
Mike Mayo with Wells Fargo Securities. Andy, we talked a little bit about this. Look, over 10 years, best-in-class performance. Over 3 years, best-in-class performance. Today, best-in-class debt spreads. We've seen other companies, going back, Sears, Kodak, Xerox. Within the banking industry, we had legacy Wachovia, legacy JPMorgan, great debt spreads, but they didn't evolve. What can you do to prevent complacency at your firm? Maybe we can just go down the line. I mean, you talked about the positives. What's the biggest risk to you and each one of you not achieving your objectives?
Yeah, Mike, I'm going to try not to go down the line because we'll probably take too much time, but let me give you the essence of the question because we talk a lot about this. In fact, we were just with our senior managers. We do this once a year with the top 200 managers of the company, and I actually use that example, is that one of my objectives is to not be Sears Roebuck, right? We're performing very well, and you're absolutely right, and we've performed well for a long time. I believe strongly, as does this team, that we need to pivot in these areas that we've talked about to continue that strength. We're not going to lose what got us here, but we have to recognize that we have to change.
I will tell you that this team's all on board, that senior managers at Denver, that Denver off-site are on board, and we recognize that. Part of it is the proof is in the pudding in terms of what we've been accomplishing. Not only do we have the belief that we need to change, we are changing in every single way, in the way we're delivering, the way we're operating, the way we're performing, and the way we're developing. Thanks for the question.
One more time.
Yeah.
When you say Pivot-
Yeah
What exactly do you mean?
What I mean by pivot is that keeping those strengths around financial risk discipline, the business mix that we have, but being more agile in our approach, more innovative, and more digital in terms of everything we're doing. Thank you. Right there.
Hi, John Pancari, Evercore ISI. Just a quick question for Terry on the revenue guidance, the 5%-7%. That still seems a bit aggressive when you look at where you've been running at in the 3%-4%, maybe in the previous years. Granted, different operating environment.
Yep.
Could you just talk about why you believe that five to seven is achievable?
Yeah. If you think about it, I talked a little bit about this in my presentation. We think that from a net interest income perspective, that was a little bit subdued because of some of the loan growth issues and some of the portfolios that I ended up talking about. The real question is what happens with respect to fee income, how does that end up accelerating? Again, some of the biggest drags over the course of the last three years has been a significant drag related to the mortgage banking revenue and then some of the drag related to merchant acquiring. Both of those businesses have really shifted. They're starting now to accelerate. I think it's from a couple of different reasons. Some of it is just kind of the macroeconomic environment being a little bit different.
If you heard today, from a mortgage banking perspective, we've made some significant investments to shift away from third-party correspondent sort of mortgage banking into retail-based mortgage banking. The digital app has made a huge difference in terms of being able to capture those applications and be able to kind of get it to closure. Even though the macroeconomic environment right now supports growth, we actually expected before that the mortgage banking revenue to start to accelerate and become not a drag but an opportunity as we thought about the future. If you think about the merchant acquiring space, I think there's a couple of different dynamics, and Shailesh talked about the fact of tying that into our banking products and services. That's an important part of our strategy. You think about Square and other organizations that have done some of that.
The opportunity from a revenue growth and a balance sheet growth perspective is significant. The other thing is that we've been making some significant investments in our payments space. He talked about five or six acquisitions that we've done over the course of the last couple of years, some product capabilities in terms of integrated software solutions and all sorts of things. That revenue is now starting to accelerate. We're seeing sales growth in the 7%, 8%, 9% within that space. We feel pretty confident that part, which is a big part of our revenue from a fee perspective, is going to be positive.
Just one quick follow-up. Are you able to break out that 5%-7% by spread income versus fees?
Yeah, we ended up talking about that. Here's what I would say is that I think it's probably a little bit more overweighted to spread and a little bit underweighted relative to fees if you were going to come up with that. Again, the thinking behind that is because we have some fee-based businesses that we can tie into small business and consumer lending activities, et cetera. Again, the example that I gave is the merchant acquiring. We think that that helps to drive loan growth in the future.
Is that Betsy?
I think it's Betsy, yeah.
Yes. The light's in my eyes, sorry.
Hey, thanks. Hey, it's Betsy Graseck, Morgan Stanley. Thanks so much for the day. A couple of questions regarding the tailoring rule. I think I'll start with Terry first on, you mentioned the $10 billion-$20 billion of liquidity improvement or utilization that you talked about. Could you just give us a sense as to what the dynamic is between that flex point of $10 billion-$20 billion? What's going to drive the $10 billion improvement? What's going to drive the $20 billion improvement?
Yeah. They're still trying to decide whether or not we would be subject to kind of the modified LCR or just kind of bringing the LCR requirement down from 100% to 85%. That really kind of helps determine the extent of it.
Over what timeframe do you think you'd be able to utilize that?
I mean, we are hoping, and we believe that the tailoring rules, what the Fed has said is that they want to be able to adopt those rules by the end of the year so it is a part of the next CCAR cycle. That means that it is most likely to be effective sometime in the first quarter. From a timing standpoint. I think we need to make some decisions as to what do we end up doing. Do we end up selling securities and paying down debt? What do we end up doing? We have not quite decided, in any of those situations, I think the opportunity for net interest margin expansion exists because of it.
Andy, could you just give us a sense as to strategically how you think your positioning changes once tailoring rule goes into place?
I don't think it changes our investment philosophy and the areas of focus that we talked about. I think that tailoring rule will affect us principally financially in two areas. Number one is the securities portfolio and the amount of liquidity we have on the balance sheet. Number two is the capital component and our ability to manage closer to our target capital levels. In terms of our strategies, in terms of the investments we're making, I don't think there's a lot of impact. Thanks, Betsy.
Hi, Erika Najarian, Bank of America. This question is for Derek. When we're back here three years from now, what would be the top three accomplishments that you think you could tell us about?
Thank you for the question. First off, that we're a DIY organization where our customers, not just in the retail bank, but across all of our businesses, the four humans can DIY across the bank. Two is that we can visibly demonstrate the power of data in helping those humans make decisions. Three, that we've built trust with them to where they can trust us to help make decisions on their behalf to create essentially the self-driving bank account.
Four, we're all wearing jeans, so he's converted the company.
I'm taking my tie off right now.
The second question is a little bit more boring. In terms of CECL and how we should think about earnings volatility for banks in the next downturn, clearly, I think most of the room accepts that U.S. Bancorp has a more resilient credit profile. In theory, given that you're already going to 2% on January 1, does that mean that the incremental impact to your earnings is simply due to the increase in charge-offs rather than reserve building as well? Is the math on CECL in a recession just way more volatile than we're thinking it's going to be?
The math is way more volatile than you're thinking it's going to be. You won't be able to just look at changes in charge-offs. The reason for it is that, think about it, one of the things we end up doing and what the industry is still kind of working through is this idea of having a forward-looking view with respect to what's going to happen in the economy, which is really hard to do. What you end up doing is you end up probability weighting the likelihood of a recession versus a recovery, et cetera. When you're moving into a recession, you know it's going to be, let's say, a moderate or a hard recession. That probability weighting is going to go way up with respect to a recessionary sort of outlook.
That has a multiplying effect with respect to the volatility of the provision that you're going to have to take in that quarter, in that year, or whatever might be the case. Again, this is an industry-wide issue that's going to end up existing that is going to create that volatility.
To your point Terry made earlier, not only does it create volatility in the company, it creates comparability challenges across companies because each company's making their own economic assumption. We could be projecting a downturn, bank A could be projecting stability or actually improvement, and we're going to have very different results. I'm going to go right here in the front row. Table 12.
Hi, Saul Martinez from UBS. A follow-up on credit. How much conservatism are you building into your through-the-cycle losses? The 95 to 100 is much higher than what most banks at least are saying they think their through-the-cycle losses are, and I know there's some mix element to it, but it is materially higher even within the businesses or within the lending segments. How much of that is actually filtering into your CECL calculations? Because obviously your annual loss rates are a very important input into that.
There is an argument to be made, and I know there are a lot of safeguards in terms of what you can do with CECL, but there's also a lot of flexibility within the frameworks, and it can be argued that there's an incentive to reserve as much as possible within the construct of CECL to withstand and have some cushion if things are worse than expected.
Mark, you want to address that?
Yeah, no, I can go ahead and answer that one. On the through-the-cycle expected loss, I would say we don't build extra conservatism into that process. It's how the portfolios have performed, our underwriting strategies, and what our expectations are. As it relates to CECL, what I would say is we use a completely set of different models that we use to be able to look at the portfolios that we use to drive those results. They're kind of separate processes, but one does not have more conservatism than the other.
One of the reasons for the differences versus other banks, Mark, is our mix of credit card versus the overall. It's a prime portfolio. It's a wonderful portfolio, but the charge-offs are a high 3%-4%, and that mix being higher than most other banks in our peer group causes us to be a little higher through the cycle.
What's your reasonable and supportable for CECL?
We typically disclose the reasonable. It's typically a three-year time horizon.
Thank you. Right there, then we'll go back there, okay?
Chris Kotowski from Oppenheimer.
Hey, Chris.
Moving from the accounting to the economic reality. If we could just take a hypothetical. Unemployment's currently around four. Let's say it goes to six, so that's a 50% increase. What would you expect the actual loan losses to do? Would they increase 50%? Would they increase more than 50%? If you could give any color on that relative to your expectations on consumer versus commercial, Laura. Again, assume the slowdown's kind of uniform across the economy just as a simplifying assumption.
Yeah. With that assumption, what I would say is, we run many scenarios. One we run is what is more of a moderate recession, which would be under the CCAR adverse scenario, which unemployment actually goes up to about 7%, and we see GDP declining about 4%. Under that scenario, we see our loss rates moving from maybe around that 50 basis points we're at today up to closer to 150-175 basis points. What I'd say is when we model it's probably on the lower end of that range, but within that range.
Chris, you brought up a good point. Everything we're talking about is an accounting change.
Yes
not an economic change. It's not going to change the way we think about underwriting or the portfolio mix or what we have.
Yeah
When it gets better, it's going to be a lot better from a volatile standpoint. It's going to be more volatility back and forth, but the economics don't change at all. We judge and underwrite on economics. Matt?
Matt O'Connor, Deutsche Bank. A couple of bigger picture questions. First on M&A, you talked about evaluating a potential bank deal by whether it makes you a better company looking three to four years out. Maybe you can elaborate on how you would define what makes USB a better company.
Yeah. Matt, thanks for that question because I had a couple of questions at break, I want to clarify something. What I said is, we will look less at that time zero impact. I did not mean to imply that we're going to do something hugely dilutive. In fact, it was just the opposite. What I meant to say is, given our P/E ratio, we could do a lot of accretive deals, right? That's not the best way to look at it just because we could do accretion at time zero. Will it be a better company three years from now? My focus is on that three years from now. Specific to your question is, are we going to be better positioned with better capabilities and scale that's materially different than we are today and against the progress we're making today?
What that tells you is we wouldn't do some small transaction that's going to take our eye off the ball and the progress we're making. It'd have to be material, they have to add the capabilities and/or the product set or the scale in a material way.
Financially beneficial.
Financially beneficial. Always financially beneficial.
Just following up on the M&A. I think the perception is that you're more open to doing deals now than maybe you've been in the past, and I don't know if that's true or if it's more that you weren't able to do deals a couple of years ago, and that you're always kind of open-minded but never really anxious.
It's a good question and a fair question. We were constrained during the consent order that we couldn't do M&A. We were very limited in the type of M&A we could do. We have been doing transactions, more capabilities transactions as opposed to whole banks or traditional transactions. A consideration is now today, Tim talked about entering new markets in this digital first branch light strategy. We're able to go in a new market without buying a high-premium deposit base that's going to have runoff and closing of branches and paying up for that, then losing it at time zero. The financial dynamics have changed a lot. If it's a material opportunity, we'll take a look at it. We were a little constrained, but it's always something we think about.
Just separate topic. I think one of the challenges for the banking industry right now and how investors and analysts look at it is the revenue growth outlook is very challenging, whether rates go as low as the forward curve or maybe not as bad. It's tough to see whether it's the five or seven%, or even a little bit less. It's a tough revenue outlook out there. The question is, if your ROE is 10, there's not much you can do to juice revenue growth. If your ROE is in the high teens, you can make the decision to sacrifice some of your returns to drive revenue. That's the position that I think clearly you guys are in and want to get your thoughts on potentially sacrificing some of your returns to drive revenue growth.
We'd like to retain the returns in the 14.5%-17% range. I think we have opportunities to grow within that return dynamic. If the revenue opportunity is less than the 5%-7% that we're projecting, we'll manage expenses consistent with the revenue outlook and what we can achieve. We're still focused on that performance in the near term while investing in the short term, but we'll manage for whatever the environment offers us.
Right here.
Hi, Scott Siefers with Sandler O'Neill. Terry, when you look at the capital targets, the 8.5% common equity Tier 1. Can you discuss for a second just the circumstances under which you do start talking more vocally about the range? I mean, it'd be better to manage to 9% now versus the 8.5%, only because I guess it represents about half the excess that you have if you take out that 50 basis point gap.
Yeah. Well, the way we think about it, again, we have those different objectives. The 8.5% is really driven based upon when we think about sustainability through the cycle, we think about volatility that could occur, unexpected losses that could occur. To be able to have sufficient capital to be able to absorb that and still be able to sustain our dividend and all those sorts of things. When you end up looking at our risk profile, our 8.5% relative to our peer group is really set relative to those peers based upon the risk profile that we have. How we end up making decisions with respect to do we end up managing closer to nine or to eight and a half or whatever is in part driven by currently the fact that we are subject to volatility in the investment portfolio for unrealized gains and losses.
We have been running slightly higher than that. The other thing is that we always have to take into consideration the credit rating agencies and how they view our risk and what it's going to take in order to maintain that credit rating. We're always in active kind of discussion or dialogue with respect to that in helping to make that decision in terms of where we're going to manage the overall capital level.
Thank you.
Gerard. Table 12.
That I think. I don't know if that's focused.
Gerard Cassidy, RBC Capital Markets. When we go back in time and look at the different cycles on credit, it seems like it's always a different area that blows up. 1990, it was the office market. 2001, 2002, we had the frauds with WorldCom and Enron. Of course, the subprime was the last one. Can you guys give us some color what you think the next credit Where are you kind of keeping your eyes extra peeled where we could maybe have some problems?
Mark, why don't you start, and I'll add.
Yeah, I would just say we continue to remain focused in on kind of the leverage market. Especially a lot of the lending is happening outside of the banking system today, right? In the highly leveraged space. That's an area that we think potentially could lead to some economic downturn or slowdown and would be some pullback. We'd probably see that show up first in maybe some of the consumer portfolios as unemployment begins to rise. We're focused in on both of those areas. I'm really focused in on that leverage market that's, again, outside of the banking system.
Probably, Mark, the second category would be commercial real estate, which is one of the reasons we're being a little bit more conservative in that market because we're seeing some structure out there that are a little aggressive.
Okay.
Yeah. Maybe I would add, the Fed has, or the regulators in general have been just concerned about looking at lending within the corporate world. When I say that, primarily in that what I would say third tier, fourth tier, middle market type of corporate America that maybe doesn't have the same access to the capital markets, et cetera. Many of them have been leveraging up. I think that they've been leveraging up not necessarily through the banking system, but through the shadow banking system. I think that's an area where they have a concern. The concern maybe from a banking perspective is what sort of spillover effect could that have if you had stress in that particular sector.
Right. Just to pivot on a second question. Obviously today you spoke a lot about digitalization. Many of us go to these investor days of your peers, and they too talk about digitalization. Do you look at it as more table stakes, and it really is how you can execute rather than the digitalization itself is the competitive advantage? As a tie-in to that, how can a new retail consumer customer test your app before opening up an account so that you could then show them that you are better than JPMorgan or better than bank? Because to my knowledge, you really have to have an account open to test those apps.
Derek, why don't you start and Tim add on on the apps. Tim's right there. Okay.
Yeah, I think we see this. The easiest way to articulate it is the way I started this morning, is that we're excellent at finance, we're excellent at risk management. We have appetite to be excellent at digital. The definition of excellent is pretty established based on our financial track record. Digital DIY is absolute table stakes. It's absolutely essential. I do want to make it very clear. DIY can translate into very positive financial jaws. That gets into, is it DIY available? How are interactions flowing through and the positive revenue and cost dynamics that flow through that? When it comes to the application itself, we do have demos that are available online for customers to be able to see, as well as getting into the application.
Just to build on that, I think as Derek alluded to, the basics of digital will be essential. There'll be table stakes, just as you said, Gerard. I do think there are two sources of potential advantage. The first is around personalization that comes from data, and you heard some discussion of that already. The second is the ability of the organization to continue to adapt. How quickly you can implement new innovations is also a key part of the advantage that I think can be built up over time. On your last point about the app, not only do we have the videos and things that Derek described, but our app is available to prospects now. That was a strategic choice so that people can do exactly what you say and test it out a little bit.
Thanks, Derek. We have a question in the back there.
Thanks. Ken Usdin from Jefferies. Two questions related to the engines of growth. You talked a lot about through the business lines, but when you think about the loan book especially, and you look out to the next three-year period, what do you see as the best opportunities for growth and return inside the loan book? I'll start with that one and then come back to the follow-up.
Terry talked a little bit about this, and you hear some of the business lines. I see a lot of opportunities in many portfolios. Our auto portfolio is doing wonderfully. Our mortgage portfolio, Tim talked about that, which is saleable. We also have it on the books. The commercial and corporate products I think are strong. We're in some new areas of growth. The card portfolio is growing tremendously. The only area that's lagging a little bit is that CRE area that we talked about as well as the leverage lending. Across the other portfolios, I'm seeing strength across all of them, both consumer as well as institution.
There's not like a new or different area where you either are becoming incrementally more focused on and putting more capital to or taking away outside of the ones you just mentioned?
Well, yeah, small business might be one area that we're going to have more opportunity, and this gets back to the integration of the payments capabilities with the banking capabilities.
Yeah. The second thing is that in the past investor days, you have talked about potential growth rates across the business lines. This year, not giving so much specific color, but can you help us understand, is anything different versus last time? Do you think that there's a relatively stronger engine of growth versus one that's a little softer just because of the prospects or the secular growth that's available? Thanks.
Let me just kind of start. When we end up thinking about the various lines of business from a revenue growth point of view, I would say that the characteristics of slightly bringing down our overall targets is really kind of cast across all of those lines of businesses a bit. I would say that, again, we tend to think that the payment space and the wealth management space has a little bit higher growth sort of opportunities in the future relative to the other ones. That's very consistent with what we've shown in the past.
I also say one of the thoughts is we talk a lot about this concept of one U.S. Bank and this integration across business lines. Take that small business merchant opportunity. It is an opportunity for multiple business lines. As we think about where the growth's going to come, it's going to come in many places. We wanted to think about it in a one U.S. Bank way. Yes, Vivek? She's coming on right there.
Coming.
Thanks.
Thanks. As you're thinking about your long-term growth rates, if rates stay low for an extended period of time, what does that do to your timeframe for achieving those growth rates, for one? For second, sounds like you're factoring in that for 2020, at least mortgage banking's a big driver. You probably got some benefits from the LCR tailoring rules, that gives you a lift up. Once those are done, if you can weave that thinking also into your longer term, what's the timeframe?
Obviously, that question is really hard to answer simply because I have no idea where rates are going to go from one week to the next, as opposed to 2020 or 2021. If you just kind of make the assumption that rates are going to be lower and the yield curve is going to be flatter at least through 2020, I think that creates a revenue challenge at least through 2020. Then I think that that tends to stabilize, and the underlying fundamentals of the growth of the book of business is what's going to end up driving net interest income kind of going forward from there. That's assuming things kind of stay stabilized relative to where they're at today.
Terry and Andy, as we then look out, say, a year or two out or even three years out of the next investor day, given that you're expecting loan growth from some of these small business payments-related initiatives to pick up, LCR tailoring to help on the NII, what should we expect the mix of NII to fee revenues start to look like?
Yeah. It's roughly 42% today. As we kind of think about out three years, just based upon kind of our assumptions, we expect it's going to stay fairly close to that going out into the three-year sort of time horizon.
I agree with that. The one caveat I would give you, Vivek, is that what I think is going to also change in the industry is the way we're paid for the value we deliver.
The traditional spread on the balance sheet component and the fee component may adjust over time as we think about things like real-time payments and treasury management compensating balance fees and the like. We'll get revenue, but it may be in different buckets versus what we're traditionally thinking about. Right here. John?
Hi. John McDonald from Autonomous. I wanted to ask about the operating leverage dynamics. Terry, maybe a near-term question, and Andy, longer term. Terry, for the near term, I think it's understandable that it's a little tougher to get to that goal for the year given the rate environment.
What changed in your equation? You did 98 basis points operating leverage in the first half. You were kind of expecting some things to get better in the second half. Just maybe a little bit of color there. Andy, longer term, how'd you come up with that one to one and a half for this year? Is that kind of a longer-term goal? Could you see that evolving differently over time? It'd be helpful.
Yeah. If you look at the first half of the year, we're basically at 1%, so that 1.0. If you remember at the end of the second quarter, we just said from the time we set that guide to the end of the second quarter, that guide was really set in September or December of the year. Of course, the yield curve flattened a fair amount. You can manage, I think, through some of that, but at some particular point in time, you have to make that decision between short-term and long-term. The other thing is that when it's happening in September, the levers that you might be able to pull relative to the year are just difficult to be able to both execute and see the benefit of within a relatively short period of time.
We have to kind of take that into consideration. Again, when we think about where the yield curve is today, and I know John Stern here, so it might be different about 10 minutes from now. In terms of where it's at today, I think it's going to be somewhat lower than that 1%, but we're going to do everything we can to manage the expenses the way that we know we can.
Our timing is impeccable. September 12th, we picked for Investor Day. 60 days ago, we were in July in the earnings call, and we expected the one to 1.5. In the subsequent 45 days, rates went down 50 to 60 basis points. We went from one rate increase decline expectation to three. All that, we're doing all the modeling. In the last week, the 10-year goes from up 20. All these, it's changing dramatically as we speak. We're always trying to achieve that positive operating leverage. As we talked about, John, I think we have a lot of opportunities in the company while retaining the investment that's necessary for success in the future to optimize what we're doing today.
I'm very confident in positive operating leverage, and I think that range is the opportunity that we have on a go-forward basis.
Yeah. I would come back to one of the questions that was earlier, that is, if you don't make the investments in your business to evolve, you're going to find yourself at the valley of death. We need to make sure that we are making investments to digitize and move this organization forward. That gets back to the balance of making some maybe short-term decisions that are going to benefit us in the long term. Again, where the yield curve ends up, who knows? We're just going to end up having to manage whatever comes at us.
Thanks, Tim. Mike. She's coming right behind you. Thanks.
Well, I sent a text to my wife, and I asked her, we're in New York City.
Yeah.
Have you heard of U.S. Bank?
Yes.
What do you think her answer was? It was.
Is she a football fan? What'd she say?
No, she did not watch the Super Bowl. She said, "Why are you bothering me?" No, she hasn't heard of it. So I guess the question here is, as you move out of market in retail, half the country, you don't have branches. I don't feel too nervous saying three years from now, I don't think your out-of-market retail expansion's going to make a big dent in your firm. If that's the case, then how can you look at customers for lifetime value the same way some of the largest banks can? If you can't look at your customers for total lifetime value, and we put this in our preview report, I'm raised in Cincinnati, I go to school at WashU in St. Louis. I moved to Milwaukee. I then get married and moved to New York City, and I'm not dealing with U.S.
Bank anymore. Some of your larger banks can do that. You might not be able to do it the same way. Therefore, doesn't that change the way you think about bank acquisitions? Another thing is, what is your retention rate these days with your retail customers, say, over decades?
Right. Kate, why don't you start on the brand, and Tim, talk a little about retail customers, and I'll close it out.
Sure. Of course, you're right. There are many people that have not heard of U.S. Bank, that haven't been exposed to the brand. However, we're being really smart about how we acquire customers out of footprint. For example, and I think Tim mentioned this, we have hundreds of thousands of customers outside of our retail footprint that may have a mortgage with us or a credit card with us. What we have been doing is doing tests to understand, okay, well, what other rights do we have to that customer, for example? How do we groom them to be a broader U.S. Bank customer? We've been very successful in some of those pilots. We're getting smarter and smarter about how we do it, how we optimize it with the data and insights that we have.
I also think that there are many examples of now through digitization and other product improvements, that we can move across geographies. We are working on many other initiatives that enable us to have sort of a ubiquitous capability versus being married to our geography.
I would just add a couple points, I think, to that, Mike. The first is that, as Kate alluded to, we do have customers all across the country, and we are demonstrating the ability to, particularly through digital tools, serve them in multiple ways. That's one of the real benefits, for example, of having mortgage servicing as part of our app. Someone who is a mortgage servicing customer actually downloads the app, but to Gerard's question, can actually see all the different parts and offerings that we have, and that turns out to be a terrific tool. It, by the way, does solve your Washington University student problem because they move from geographies and keep the same app. That's a big part of it.
You're right that we will need to build branches, just as we have indicated we will in some high-profile markets to build some more awareness. We're seeing very strong retention of our customers, and we're seeing a real openness to the kind of offering that we have, in part because the digitization is good, and in part because they're seeing our credit card, auto, or mortgage experience be pretty positive, and that opens them up to other possibilities that they may have with the bank.
Thanks.
Do you have any retention?
Mike, I'd add one thing to it because we tried to enter new markets in a digital-only, no branch, new customer basis. What we actually got was negative selection. We got either customers who we had to pay very high rates to attract because there was nothing else attracting them to U.S. Bank and/or they weren't able to bank at other banks. This concept of these customers who already have U.S. Bank in their wallet in one way, shape, or form and extending the relationships across the markets that we have branches and don't have branches, and sometimes they have branches in this digital first, branch light strategy, I think is the right way to go.
Do you have figures on retail customer retention? How has that changed this decade or over decades? That's the dream, right? That you can hold these customers for life.
Yeah.
Are you actually seeing that in the data? How does your data compare to industry data?
What we've looked at over a long time, I'm not sure I can comment on the industry, for ourselves, when we look at this concept of centrality that we talked about, which is a combination of are we your primary bank? Are you engaging with us a lot? Do we have a broad relationship with you? When we look at those customers, they are substantially more profitable, they have much higher retention than a typical customer. That's why we're so focused on that metric and moving that number.
Thanks, Mike.
Other questions? All right. Thank you for your questions, and thank you again for your attendance. Why don't I close it out with just a few remarks? We started the day in talking about the three components of how we want you to think about the company. Number one, we're starting from a position of strength. We have a lot of capabilities and core competencies that it is our intent to retain. At the same time, we recognize that we need to adjust and pivot for some of those new capabilities around agile, innovation, and digital. You saw a number of business line initiatives that take that into account. We talked about the business mix we have, the high return businesses, the capital efficiency that we have, the industry-leading returns, and industry-leading risk management.
Importantly, throughout the day, back to some of the questions we were asked just now, we recognize that we need to change, retain what we're strong at, but adjust and change for the future. That requires investment, it requires an attitude of adoption and agility, and it requires us recognizing we need to do things differently. The way we're thinking about this is optimizing today, recognizing those things that we can get better at to continue to invest in the future. Now, the thing I didn't talk about this morning is what gives me the most confidence is the team up here on the stage. I think we have the best leaders in banking. I think we have the best business leaders, the best risk leaders, and the best finance leaders. I couldn't be more proud of what we've accomplished thus far.
I want to leave you with this thought. We're managing for the long term while delivering near-term results that support a pathway to the future. If you're an investor in U.S. Bank, thank you. I'm confident your investment is well-placed. Thank you for your time today, and thanks for the questions. Have a good day.