Packed agenda. Before I run you through a few housekeeping items, though, let me take a moment to recognize who's in the room here today. At all your tables, you have our entire Managing Committee , several senior leaders across the bank, as well as our two-thirds, more than two-thirds of our board of directors. On that note, if I could ask, please, our board members to stand for a moment to be recognized. Elizabeth Buse, Warner Baxter, Dorothy Bridges, Alan Colberg, Loretta Reynolds, Kimberly Harris, Rick McKenney, Kimberly Ellison-Taylor, and Roland Hernandez. We really appreciate you guys being here today. Thank you again so much. Before I hit on a few agenda items, please note that the presentation materials were released this morning, and they are all available on our website at ir.usbank.com.
Throughout the day today, we will be making some forward-looking statements that are subject to risk and uncertainty. Factors that can materially change our forward-looking assumptions are contained here on this slide in our presentation materials, as well as in reports on file with the SEC. On to the agenda. Two logistical points that I want to highlight for those in the room. The first is that you will note that we have two planned Q&A segments on the day. The first will occur following Andy and Gunjan and her senior leadership team's presentations and before our first break. The second will follow Jodi and John's risk and financial management presentations towards the end of the day. Both Q&A segments will be moderated by Andy.
So if I could ask, please, if you could reserve your questions for either one of those two segments, it'd be greatly appreciated. Following today's presentations, I would invite you to please join us in Siebert Hall, where we'll have our Managing Committee , our board members, as well as senior leaders. You'll be able to interact with them over a light lunch before we conclude the day. Our goal for today is very simple. A lot has changed since our last Investor Day, five years ago. But much of what has made us an exceptional banking franchise not only remains intact, but has been enhanced by the investments that we've made in this business. Today, we are at a very important inflection point in our story, and we're excited to show that to you today.
Without further ado, allow me to please welcome to the stage our Chairman and Chief Executive Officer, Andy Cecere.
Thank you, George, and good morning. Tell us, come back to an Investor Day when you have a story to tell, and I think we do have a story to tell. We're at an inflection point, and we're going to share that today. It gives us an opportunity to talk about the strategy and the path forward, but also gives you an opportunity to interact with some of our senior leaders who are all here today, as George mentioned. So again, start with a thank you. So it's been five years since we've talked last, and to say that a lot has changed is an understatement for sure. And what we're going to do today is talk about three things. We're going to talk about what we've been doing over those five years.
We're going to talk about the strategy and path forward for the next few years, and then importantly, what the outcomes you can expect from us over that time frame, so five years ago, if you think about what's happened in the five years, a lot, so we had the impacts of COVID and all that entailed, and the downturn in the economy. We had the upward tick in interest rates, the high inflation rates that occurred, and the impacts on the banking industry. We've had an increased regulatory intensity environment that we are all facing, and I think we're doing well in that environment. Technology spend has certainly increased, and the investment and spend in banks and non-banks and how we're competing is a huge factor.
The importance of scale, probably, more than ever before, the importance of scale, because of that technology spend and because of the required investment and because of the components that really make you stand out as an organization, are probably more important than they've ever been. The competitive landscape has certainly changed. There's more non-banks entering into financial services activity, and the way banks are competing because of customer behavior changes is also dramatic, and you're starting to see the emergence of M&A, certainly in our case, with the Union Bank transaction, and you're seeing that elsewhere.
So as we think about U.S. Bank, the message I want to deliver is the things that you've known us to be strong in are going to continue, have continued, and will continue, while at the same time we've invested for the future in activities that we think are going to position us well for the next years in the forward look. So if you think about what we've known for, what you're familiar with, first of all, our diverse and very unique business mix. 41% of our revenue derives from fee income. And I know you also know it's not just normal banking fee income. It's a lot of unique businesses that other banks, our peers, do not have.
I know you're all familiar with payments, but you're going to hear about a whole bunch more of businesses, and our objective is to interconnect those for the benefit of the customer. We have a commitment and a history of strong credit underwriting. We have a commitment and a history of strong risk management and financial discipline. That has always been the case, is the case, and will not change going forward. We have proven ourselves to be an efficient acquirer of scale. You're going to hear about certainly the big deal with Union Bank, but we've done a lot of little bolt-on deals that have added to our capabilities and our reach, and we've done it exactly as we said we were going to do it. I'm very proud of the culture of U.S. Bank.
We have a culture of engagement and employee focus and a client focus of putting the client in the middle of everything we do. And I'm extremely proud of the depth of our management. Extremely proud. So as we think about those strengths that are going to continue on as U.S. Bank, we've been evolving and focused on new things. Certainly, the biggest one was the increased scale via the Union Bank transaction, which was a big deal for us, and I'll talk about that in a moment. We've been investing in the business to increase our capabilities, our reach, and our optimization, and you'll hear about some of those investments this morning as well. We've expanded our reach through distribution, through partnerships, and through those digital capabilities that we've had.
You're going to hear a lot about partnerships, but it's a very capital, cost-efficient way to extend our reach across the country. We've been focused on delivering returns and building capital during that time frame, and we did a great job on that, and I'll come back to that in a moment. And we've activated succession planning. Now, I know there's some speculation about that last point, and while it is true that we've had some changes to management, I will tell you that the entire management committee, two-thirds of them, have been in senior leadership positions at the company in the last five years. And I couldn't be more proud and confident of the leadership that you're going to hear from today, and I believe we're in a great position. So let me talk about Union Bank, because one question that would come up is, if you...
Andy, if you think about the last five years, would you have done anything differently?" I initially thought market like California. It increased million dollars. We resolved matters that were longstanding in MUFG faster than we anticipated because of our platform and technology and because of our platform and risk. So all those things were terrific. However, the timing of the deal was not ideal. The approval process took longer than we thought, and during that time frame, rates went up 500 basis points. Because we weren't certain of approval, we couldn't hedge that position, and as a result, when we closed, we had a capital implication that brought our capital ratio down to 8.4%.
What I'm proud of that we did was attack that very vigorously and built it from 8.4% - 9.9% at the end of 2023. And as we sit today, 10.3%, we're above the level we were there before the Union Bank transaction. So we intentionally focused on that, and we accomplished our goal. So Union Bank was a great deal. Would I have done it over again? Absolutely. Would I have adjusted a few things? I wish the timing was better. Yes, but it was a great deal and has positioned us for the future very well, and we're better because of it. We're also better because of the investments we've made.
We focused on a number of capabilities in technology and digital capabilities for both the benefit of the employees and efficiency within the company, as well as the customers and products and services that we can serve. I talked about the scale and partnership. We've done deals, we've done the Union Bank deal, but we've also done a lot of smaller deals that really add to the capabilities like Bento and TravelBank and talech and most recently, Salucro. These are all capabilities that we can add on to our core capabilities and build against our customer base for the benefit of providing services that they need and helping them run their business. And the products and services that we have to offer today are in a great position. They are in a great position.
I will tell you, across all these categories, versus where we were when we spoke to you in 2019, we are in a much better position. But those investments came at a cost, and we purposely over-indexed on investments on digital capabilities, technology, payments, and the fee businesses because we thought, we believed, I believed, that we needed to invest in those areas to be successful over the long term, particularly against some of the larger players in the industry and to serve the customers that we are serving. We needed those investments. And so since 2019, we've invested billions of dollars in things like our fee businesses, our payments and money movement, our digital capabilities. Now, the other component that I want to mention is that we moved on that spend from defense to offense.
In the years before 2019, we spent a lot of money in our defensive capabilities, and they're strong and we're still investing in them, but not the same level. But our risk management platform, which has allowed us to get out of the consent order with Union Bank more rapidly, is still strong. But we shifted some of that spend to offense, and that offense is going to pay off in the long term. So we are past that spend, and it's in our run rate, but we recognize that that had an implication. So our lead on tangible efficiency ratio has diminished. Our efficiency ratio went to the low 60s. Our ROA and ROE diminished, and we recognize that the lead that we had on our peer group has been narrowed because of these investments.
But again, I believe we made those investments purposefully, intentionally to position us for the future. So short-term impacts for long-term positives. But importantly, I want to tell you that we do not believe this is our end state. We fully believe that we're in an inflection point as an organization to get the payoff on the investments we've made and have a full intention of regaining that lead in the years to come. And we've done a lot to start to do that. We've started to optimize our company across the board, and probably the best example is our branch network. We've gone from 3,100 locations to 2,200 locations.
We did that by closing 1,100 locations, mainly in-store branches that were principally service-oriented branches that were replaced by the digital capabilities that we put in place, at a much more efficient method and more beneficial to the customer. And while we closed about two-thirds of our in-store branches, we also invested in traditional branches and brought on the branches from Union Bank. So our branch position today is far better and far more aligned with the way customers interact with branches than it was five years ago. We also have optimized technology and operations. We've centralized, we've simplified to share best practices and technology and to really leverage the optimization across the company, and that's true across many areas. And we've simplified the organization structure.
About a year and a half, we brought together a couple business lines together in one, and I'll talk more about that in a moment, and then more recently, we brought all of the revenue groups under one business line. We're a simpler bank, we're a more streamlined bank, and we are more technology capable than we were five years ago. So as you think about our company, I know you know a lot of these facts well. We, first of all, we have the scale to successfully compete. $666 billion in assets. We're the largest non-GSIB in the country. We have the scale in the important businesses that we compete in, and we have the ability to invest on a go-forward basis, but that investment is in the run rate.
Over $500 billion in deposits and $375 billion in loans, and $11.3 trillion in assets under management and custody. So we have the platform to be successful, but what's more important than what we are is where we're going. And this is an important slide for me because I think this tells the story of the day in a very simple framework. We believe we are in an inflection point as an organization. We believe, I believe, that the investments we made over the last five years have positioned us for success going forward. Specifically, we expect our revenue growth to accelerate and those headwinds to become tailwinds because of the investments we've made. Secondly, we expect expense to moderate and to be managed well below the levels that we were managing in before.
The investments that we've made are in the run rate, and importantly, those investments will also help us optimize our expense on a go-forward basis, so revenue is expected to grow more rapidly. Expense is expected to moderate on a go-forward basis, and that's going to deliver positive operating leverage, meaningful positive operating leverage, higher growth, which will lead to higher returns. That's what you're going to hear today. That's the objective of the company, and that's the position we're in today. We are at an inflection point, and as we think about the constituents that we serve, I want to focus on the shareholder component, because that's where all these things are going to come together. We are committed to delivering industry-leading returns again because of our positioning. We're committed to leveraging that scale advantage I talked about that we have and delivering positive operating leverage.
We've also gone from a capital build mode, as you saw today from the release that came out this morning, to a capital build and distribution mode, and importantly, we're going to do all that while continuing to invest in the company, but you won't see the expense increases because it is in the run rate, it's been platformed already, and it's in our future expectations. These are important goals from us, and what you're going to hear today is how we're going to achieve those goals, so George went through today's agenda at a high level. I want to just talk about it. We're going to start with Gunjan and the revenue leaders talking about the growth trajectory of the company. Again, the products and services that we have are really good.
What we're getting better at, and I want to thank Gunjan for her leadership on this, is working together as an organization in an interconnected way, and we're going to talk about how we're doing that across the three major business lines and the interconnected nature of those three business lines. Terry's going to lead a discussion on the technology, the AI, the digital framework, and our platform that talks about the optimization and how we've really invested in the past, and how we're thinking about the impacts to the future, and then those things that you've known us for historically, we're going to end the day with this. Jodi is going to talk about our risk management platform and our credit underwriting, which have been, are, and will continue to be strong.
John will talk about our financial risks and our financial discipline and our financial measurements, as well as providing future guidance, both for the third quarter, as well as the long-term goals that we... medium and long-term goals that we're setting. That's our story. It's a story I believe in. It's a story I'm quite proud of and a story that I believe we have great opportunity as an organization because of the investments we've made, because of the positioning that we're in today. I couldn't be more pleased with the outcome of where we have opportunity in the future today than we were five years ago. Let me start by bringing Gunjan to the stage. And as you know, Gunjan was named our president about six months ago, and in that role, she has all the revenue groups reporting to her....
She has done a terrific job about a year and a half ago, bringing together WCIB, which was the commercial and corporate bank, together with the wealth management institutional side. And the outcomes of that was terrific. More interconnected than we've ever been, putting the client in the middle, and our products and services and employees around them for the benefit of growth and opportunity. Gunjan has over thirty years of experience. She was a senior leader at both State Street and Bank of New York Mellon. She has experience at PwC and as well as McKinsey. She's done a great job. She's been a terrific partner, and I think she has a great story to tell as well. Gunjan?
Thank you, Andy.
You're welcome.
Good morning. Let me add my welcome and thank you to each one of you for joining us today. I must say, I'm very glad that we managed to find a beautiful day right in the middle of nine eleven and Friday the thirteenth. Welcome, and thank you for joining us. It's my pleasure to present our growth strategy along with my colleagues, and we look forward to the Q&A after our prepared remarks. We have spoken quite a bit about the investments that we have made in our business. It is my goal to take that down to a level of specificity to show you why we believe that the capabilities we have are quite differentiated.
We know that when we effectively interconnect our capabilities, we create enormous value for our clients, and they tell us that, and that gives us the right to deepen our relationships with them. We also want to share some real examples of how these strategies are coming to life in the three big businesses we have, to give you a sense of the execution momentum we have. So let's dive in. It has been five years since we were in front of you. So this is our portfolio as we often present it externally. The revenue pie chart is quite familiar to you. About a third of it is our consumer franchise today. 43% is our institutional and wealth franchise. That was the division I led before I stepped into my new role. Four months, Andy, not six months. Thank you very much. Those two months matter.
Finally, our payments businesses. We report it separately, but deeply, deeply interconnected with both sides of our customer franchises. What is very important is the 11 businesses underneath our three revenue lines. They are operating today with considerable scale, without complexity, and we'll bring that to life as well. Collectively, we serve about 15 million clients. It's a very balanced client base. We're very proud of our client relationships. We often celebrate hundred-year anniversaries with our businesses and fourth-generation families as we talk to them in our branches. Very proud of our customer base. This is a different look at the 11 core businesses we have, because I want to frame the strategies going forward. Start with the left-hand side. These are our 5 balance sheet-heavy businesses, collectively, about 50% of our total revenue today.
At the size that we have on our balance sheet, we would generally expect these businesses to go roughly in line with the industry. The fee opportunity here is low, and it's actually under pressure, given some of the regulatory changes in the industry. However, the balance sheet is really effective in opening doors to our right-hand side fee businesses. You only have to compete once or twice with the non-banks, and we do. Quite a lot of our competitors on the right-hand side are non-banks, to truly learn to appreciate and respect the power of the balance sheet. It anchors our client relationships in a very meaningful way. In the middle are our transaction processing businesses. You have often heard Andy talk about payments and trust as our differentiators. Those are these businesses.
I know most of you cover these in sort of the trust bank category and the payments category, and to some extent, there are very different profiles for these businesses, but they are built on the money movement foundations of the bank. Those are expensive foundations, by the way, and I don't just mean the technology. The emerging payments rails are quite expensive to keep up with, the big focus of our digital investments, but also the operational capability around it. We process about $75 trillion a year. For all of them, AML, KYC, fraud, cybersecurity, financial crimes. It's an expensive, defensible infrastructure. We are very, very unique with these product sets. Very attractive from a return standpoint and very good underlying growth rates. No one ever said the transaction volume anywhere has gone down, and our revenue models are based on that.
The third category is our advice-based businesses. Slightly baby businesses right now, 13% in total. For us, this is asset management, wealth management, and capital management. Also, very attractive profile. It'd be hard for me to make an argument that we are particularly unique in these, but we are more and more in line with our regional peers and getting closer to the, to the GSIBs. So this is the portfolio presented to just give you a sense of the complementarity we have around balance sheet businesses that open doors and fee businesses that enhance returns. I want to spend just a little bit of time diving into each one of them, and we'll start with the transaction processing businesses. Truly our uniqueness here. Just to orient you, on the left-hand side is all U.S. Bank revenue.
41% of it is fees for us, much higher than our regional peers, largely because of these banks. We have room to grow relative to GSIBs, largely around our advice-based businesses. Look at the makeup of the fees on the right-hand side and what has happened in the five years. We are now almost 60% of our fee revenue is coming from these transaction-oriented product set. As we look forward, accelerating growth rates in these set of business is one of our most key priorities. So how? The first is the conviction we have, based on hundreds and thousands of conversations with clients, is that we need to embed our solutions, not just with each other, but into the client's day-to-day lives and day-to-day businesses. It creates a level of stickiness that creates enduring growth over time.
When my colleagues present the business-specific strategies, you'll hear examples after examples, after examples of how we are doing it. And this is not cross-sell, by the way. This is technical integration to create creative products. You'll hear Arijit talk about Two Plus Two, our attempt to truly penetrate deposits into the credit card base, Business Essentials. Shailesh will really talk about the tech-led transformation that the payments teams have been going through, and Stephen will describe our vertical strategies, all of which with the mind of connecting our solutions and embedding them with the clients. Two other important areas of focus on this to accelerate growth going forward. The first is product capabilities. This is a fast, fast, fast-moving space, so we want to keep up with the capabilities. We do a lot organically.
You know, we do things like AP Optimizer or sustainability analytics or, buy now, pay later capabilities, but we also buy capabilities. Our latest announcement was Salucro. It's a merchant capability for the healthcare sector, both very important priorities for us. TravelBank was another recent acquisition. So we will keep up with product capabilities here. And finally, these are our European businesses, our global businesses. Europe is quite small for us, but it is a very important beachhead. It has grown very nicely. We launched our Luxembourg franchise right in the middle of COVID, and that has done very well for us. We acquired Opayo. That has built our capabilities, so we think that's a nice lever for truly long-term growth. So those are the three strategies to bend the revenue curve here. I'll move to the wealth and capital market strategy.
All of these businesses are housed in our wealth and institutional franchises, so Stephen, you'll cover them in some level of detail. But just to give you an overview of what has happened in the last five years, our AUM has grown from $181 billion to $454 billion. Now, you know our focus with asset management is liquidity solutions. What we are trying to do is to make sure we have a full range of solutions for our clients on balance sheet and off balance sheet. It creates fee income and gives the clients sort of a reason to stay in our- in the family as they optimize their structures. Very nice growth, very much helped by the Union Bank acquisition and our PFM acquisition. The capital market story is all organic. It has posted very steady double-digit growth, and we expect that going forward.
So if I look at these category of businesses, I don't expect it to be an inorganic growth strategy. Even bolt-on acquisitions are kind of painfully difficult to do in this space. However, we do have just a lot of ability to post solid organic growth here by growing into our client franchises. So Stephen will give you more details, but just to capture the themes that you'll hear around this product set for us, it's really client-driven outreach and introductions of our capabilities to all our clients, which is not happening at full scale in the past, and that is what we are working on. Our product set is reasonably complete here, but on the capital market side, we are steadily, steadily increasing our capabilities. And I will tell you, the reception with the clients is very easy. This is not sort of a difficult story to tell clients.
You know, if you say to them, "Hey, we've been serving you for, you know, hundred and four years, and now we have new capabilities," they almost always give you a chance to get in the rotation or experiment, and that's sort of the growth rate. The Union Bank franchise has been very wonderful for this set of businesses. They came to us with a client base that was far more affluent than the traditional U.S. Bank client, and this kind of product set was very new to them. So we are working very much with the California teams to focus on that region in particular. Finally, our balance sheet products, half our revenue. On the right-hand side is our loan book, $375 billion.
If I just take out the Union Bank growth rate, you see the growth rate in the total balance sheet generally being in line with the industry. However, on the right-hand side, we are showing you the half of the balance sheet that is growing two to three times the average, because half of our balance sheet, we are maintaining a lot of measured discipline around. For example, the mortgage and CRE portfolios became very big because of the Union Bank acquisitions. We won't expect to see that much growth there, but we would expect to see the growth on this half of the balance sheet. So the overall growth in line with the market, but meaningful shifts underneath it. So what are the examples of the areas that we are growing? So credit cards, it's a very big priority for us.
The balances come with fees, it's a high-return business. And the four other customer bases that are consumers have become better and better at deepening the relationships with credit. Certainly, very good credit underwriters for us. You know, our customer base is very high-end, so it tends to be sort of perform better over the cycle. So very important priority for us. When I came to U.S. Bank, eight years back, everybody told me, "Rich people don't borrow money." In fact, they do, $28 billion of them. We use this portfolio, which is a very pristine portfolio from a credit risk standpoint, largely for tax-efficient liquidity for our wealth franchise, and that portfolio has grown a lot in the past and will continue to do. The commercial franchise, $101 billion.
About five years back, we started to introduce, very cautiously and very slowly, structured credit capabilities, and that portfolio, asset-based lending, subscription lines, CLOs, trade finance, has steadily expanded our loan portfolio, but also opened doors for fee businesses that we otherwise would not be able to anchor without those capabilities. This has been a very, very high growth rate of growth rate for us, and our private capital practice that you'll hear about really got accelerated because of the combination of the balance sheet and the fee businesses, so just some anecdotes to say what are we doing with the balance sheet is very intentional and disciplined use of the balance sheet to pull through fee revenue.
lot of analytics around client-level return frameworks to sustain that discipline, but also respecting the balance sheet and how much it opens doors and anchors our relationships. So those were our product portfolios. I'm going to move to our client portfolios and just describe to you what our outcomes of the efforts we have made over the last five years have been in the first column. This is customer satisfaction numbers. We have materially strengthened our customer experience, especially around consumer, which was a big focus of the digital program in its early years, and then the program focus has moved to small business and commercial. We expect at this point that we don't really need to show this kind of improvement in our customer experiences. Our clients are loyal. They are very happy.
So it gives us the right to focus now on this metric that has become very operationally embedded in how we are running the company, called the percentage multi-serve clients. There is huge leverage in this strategy. On average, a seasoned multi-serve client is three times the revenue compared to a single-serve client. There are certain subsegments that are uniquely sort of offering some opportunities, which is kind of a positive way to say our penetration is very low in these segments and needs to be improved. So young affluent, traditionally, U.S. Bank's client base on the consumer side, has skewed towards the lower mass affluent, and we have steadily, especially with Union Bank, increased the level of affluence.
The small business, which has been a very big focus for us with the business banking and payments ecosystem strategy, is really leveraging the opportunity here, 30% versus the 40%. You know, frankly, there's nothing particularly new about this strategy. You know, for 30 years we've been talking about one U.S. Bank. Almost all our peers talk about it, and just all of us see the math behind the 3X. So looking forward, the strategy is really good execution. Two years back, we started this journey to revitalize our go-to-market structures. And for background, for any of us who are new to our company, U.S. Bank has been built with about 100 acquisitions in the last 40 years or so, right, Andy? Right after the sort of the big roll-up of the 1990s.
And the operating philosophy for integration was very disciplined on technology and to take the cost out, but we tended to leave the client teams alone to preserve client continuity, client experiences. So you fast-forward that approach after 100 acquisitions, we actually had more than 100 go-to-market teams, processes, approaches. Very difficult to truly get them all aligned around deepening client relationships and consistent product knowledge. So our first big revitalization was when we took the regional teams across wealth, branches, small business, and commercial, and reorganized them in absolutely consistent processes and structures. Those were 16,000 people that were sort of in these structures that were reorganized. We then brought WCIB together to bring all of the institutional franchises and started with this experiment with private client to pull all of the teams together.
We were asking ourselves, "Can a group of relationship managers represent that level of complexity in products?" We found they could. Earlier this year, we brought all our corporate, commercial, and relationship bankers under one new unit called Institutional Client Group. It's run by Felicia. She's right in front of me here. It reports directly to me, responsible for all our product sets, but not beholden or aligned to any one of them. These are the changes that have also then given us a platform to make standard the processes around go-to-market, the technology used, the metrics, the incentives, the training, and there are sales excellence programs happening across the board. This part of our strategy has huge economic leverage, and it's less a strategy other than exquisite execution to get us there. My second last page. This is our geographical footprint.
I used to call this slide the blue states, but they are not. They are just states colored blue. It's like a debate week. This is where we have branch presence. About 60,000 of our 70,000 people live there. The brand recognition is at 77%. It's the legacy footprint. The green dots are where there's population and business growth, and the gray is where we are either largely missing or the hashtags are where we have in-store like branches, but not real, sort of real presence. So you can just visually see the problem we are trying to solve. We have a lot of blue in states that tend to be bitterly cold and have high taxes, and we are kind of a little bit missing from the smile of the country.
There's been a lot of renewed conversation around branches from our peers. I just thought I'd detour for a second to give you a sense of how we think about our branch strategy. We looked at all our numbers. We actually have a very sustained and high investment in our branch renewals, refurbishments, and new branch builds, and our branch executive, Sekou, is in the room right here. Our focus for new builds, though, is densifying. I hope that's a good English word, but densifying our branch network in the places that have high growth opportunity within our footprint, and we are using a capital-light partnership approach to attack the smile of the gray zones. So there are five expansion markets that we have really focused on.
Our digital banking capabilities truly allow us to deliver our products anywhere in the country, so that's not a constraint anymore. With our State Farm alliance, we actually learned to operationally service clients anywhere, so it is not a constraint anymore. We have, at this point, become the most attractive banking franchise to partner with if you have otherwise a large financial products like franchise. In fact, a few weeks back, when we announced our Edward Jones relationship, it's a long, long-term partnership for us. We just extended it. We must have gotten, like, ten calls from people to say, "Hey, we'd like to talk about this, too." We're going to be measured about it. We want to do a very good job and meet the promise of wonderful service for our clients. But it is a powerful, unique way of getting to the gray zones.
And all of this, while we hope we'll just buy a Southeast bank at some point, and that will just take the problem away. But until then, capital light, organic expansion geographically. So let me just close my story out before I let my colleagues add their wisdom to it. This is just one page. The left-hand side is where we are today, and then the right-hand side is our strategies and where we are going. Our products are truly exceptional, both in their breadth and the uniqueness of the portfolio itself. We will not lose our lead on that again. Our relationships are our pride and joy and the center of our focus. The client experience is very good.
They're very loyal to us, and the investments of the past have allowed us to truly sort of anchor them and sustain the client experiences. Our reach has strengthened because of Union Bank, but we have some more opportunities to be in the fastest-growing population areas of the country, but the digital capabilities have opened up this doorway to partnerships. So that's our starting point as we sit here today, so our strategies: deepen client relationships, use the balance sheet very, very intelligently, and good, good execution. Product connectivity is the sticky, enduring value propositions, very focused on our money movement capabilities and real product design that creates solutions and values to our clients, and then consistent and patient broadening of our reach, certainly arriving at a national franchise, but when we talk to you next, hopefully, a better global story as well.
But they're done in a capital-light way... and collectively building a trusted, interconnected bank. Thank you for letting me share the broad frames of what we are doing, what we have built. Much of the stories actually do come alive when you hear the voices of our clients, when you see the details around the products. So I will transition to invite my colleagues to continue the dialogue. Are you ready, Arijit? I'm going to introduce you for a second. Arijit Roy is the head of our consumer and business banking products. He joined us about two years back to lead our consumer deposits business. I don't think he realized that within a year of his joining us, we'll have a banking crisis focused on deposits.
But we certainly benefited from his leadership and his ability to not just maintain, but enhance our deposits last year in a very challenging environment. Two months back, he stepped into a broader role and picked up business banking and also joined our management committee. Before joining U.S. Bank, Arijit had leadership roles at Truist, Discover, and McKinsey. Welcome, Arijit.
Gunjan, thank you for that incredibly warm introduction. Good morning. It is a real privilege to stand in front of all of you and speak on behalf of our 20,000 consumer and business banking product colleagues. I'm here to spend some time with you talking about the pulsating heart of U.S. Bank. We are an everyday bank. We serve everyday products to our 8 million consumer clients or 1.4 million business banking clients, and we do this through our 2,200 branches, our digital app, and our national partnerships. The consumer and business banking franchise makes up about 45% of the deposits of the company, 42% of lending balances of the company, and there are a few numbers on this slide that aren't actually everyday numbers.
For being the fifth largest bank in the country, we are number four by SBA volume in the SBA space. Our digital app is actually ranked number one, which perhaps explains this most important number on the slide, a full 84%. 84% of our clients are digitally active. More on that number a little bit later. A few more numbers. The consumer and business banking unit combined generated about $4.6 billion in revenue in the first half of 2024. That's about a third of the company's revenue. You see on the slide strong secular growth, particularly in the deposit side, which, as you know, is not a given in these times, but really on both sides of the balance sheet. That is something that many of you in the room have pointed out as outperformance in recent earnings calls.
What excites us, though, is what's ahead, because this is a really strong foundation to begin with. You've heard us talk about our history a little bit, so let me set a little a moment of context. Post the Great Financial Crisis and through 2017 , we really organized our 3,000 ish branches into a more single, cohesive national franchise. Gunjan talked a little bit about this. There were disparate go-to-market models, and this was an important foundational step for us in making sure that we had common practices, common lingo, common metrics, and organizing this into a single cohesive franchise was an important step. You also have heard us talk about our business banking and payments ecosystem strategy, and I want to spend a little bit of time talking about where we're inflecting that journey.
But all of this sets us up for a really fantastic foundation. Our focus going forward is going to be deepening our client relationships with analytical, prudent approaches, building on this notion of product excellence through interconnectedness, and expanding our reach in a capital-light fashion. That's the trifecta, and I'm going to give you a little bit of a texture on each of these items. Let's start with this example that we're super jazzed about within U.S. Bank. I think most of you know of our outperformance in the consumer deposit space. Year-over-year, we've grown 4.4% while being extremely disciplined and prudent in pricing, while our peers have shrunk. I'll give you a little bit of an inside look over the last 18 months into what has actually gone on at U.S.
Bank, so you understand how we've ended up here. You know, when the very rapid rate rise march started, we saw an opportunity in investing in relationship pricing capabilities, and we actually moved quickly in that space. We kept our marketing flat top of house, but we actually changed our tactics on how we deployed those marketing dollars. You may have heard of this new campaign that we're running. It's called The Power of Us. It was actually AI-driven, and it was one of our fastest approaches in getting our marketing campaigns out. And by the way, the impact of that AI-driven Power of Us campaign has resulted in our consumer brand recognition going up six points in the marketplace.
As all of this was going on, we extended our digital capabilities to be able to fully serve a client with CDs and money market products in all fifty states. That's right, all fifty states. Our clients can open, renew CDs and money markets in their pajamas at 9:00 P.M. if they so choose to do so from their couches. That's a capability that many of our peers don't have. As all of this was going on, we, we also brought our Union Bank clients on, and in traditional U.S. Bank fashion, we were making these outbound call campaigns go out.
And we realized that adding a simple next best action pop-up actually drove and increased the amount of net new balances coming in, and it was these little small tweaks, and all of that resulted in our being able to take this playbook and extend it around the country. And by the way, the brand recognition and the name recognition that we have was a significant tailwind for us in our out-of-footprint states. When U.S. Bank calls, people take the call. And, even before interest rates have now started to come down, we are actually a step ahead, and you've seen some of that in our pricing moves. We are so excited in taking this capability and extending it into the wealth franchise of WCIB, of our, WCIB group and in business banking as well.
Another example, you've heard us talk a lot about Union Bank, you've heard us talk a lot about California, and having lived through banking M&A elsewhere, let me tell you, positive numbers on anything is not a given. Not in net new relationships, not in client satisfaction, not in growth, but look at some of the numbers on the right. A plus 7% in net new clients, leapfrogging from number 10 in deposit share in California to number four. It's not even been the full expected timeframe, and in that duration, our credit card team has deepened the credit card relationship by a 102%. In California, we're just getting started, and by the way, as goes California, in our ability to draw and bring new clients into the franchise, so goes the rest of the country.
You remember that 84% number I told you about when I first got started? Our Union Bank clients, when they came on, were only digitally active to the tune of about 55%. That is the opportunity for us. And by the way, it's not just in the consumer space, it's also in the business banking space. We think that the ability for us to continue to drive this, particularly with the most important number on the page, which is the number one in retail satisfaction four years in a row, is what gives us a lot of confidence in California. I'll switch gears a little bit and talk about our product set and this notion of interconnectedness. You know, this notion of interconnectedness is not a new thing at U.S. Bank.
Our MLOs, our mortgage loan officers, for years have been selling mortgages attached to deposit products. If you actually took the sum total of deposit balances that sat with mortgage relationships, that would be akin to adding 40 new branches around the country. What is new is being more intentional with this notion of interconnectedness. We actually spent time in the last 18 months really understanding how we could bring this to life in the business banking space. We actually talked to our clients.
We spent time talking to the micro business owners and the small business owners, and we realized that in the banking space, as you think about banking and payments together, a huge opportunity is parallel paths and underwriting, broken application journeys, reams and reams of documents that business owners have to, have to turn in, by the way, which is not what they wake up in the morning wanting to do, and so Business Essentials, a product that is actually in market today, is a solve for that. It's a very simple application with a jobs-to-be-done framework, and it's a combined application and onboarding flow, which, by the way, allows you to be so seamless that business owners actually don't have to go through multiple paths. By the way, we're one of two banks in the country that offer this product today.
On the consumer side, we actually didn't start with the premise that a checking account attached to a credit card stays with the franchise four years longer. We actually saw a gap in this young, affluent space that Gunjan mentioned, and we saw that there weren't really save-spend solutions in the marketplace unless you already had a boatload of cash sitting, and that's a missed opportunity for young, affluent folks, doctors, lawyers, Wall Street analysts, that are starting out, that don't necessarily have $75,000 or $100,000 to bring to a franchise, and so this Bank Smartly Visa, what we lovingly call two plus two in the company, is an opportunity to create an everyday save-spend solution. We, you know, two weeks ago, we announced this over social media.
It was a LinkedIn post, $0 in marketing, and in 48 hours, we had 10,000 people sign up on the waitlist. This is an opportunity for everyday Americans to be able to come in and offer a product where it meets both sides of their balance sheet from an everyday standpoint. Let me switch gears and talk a little bit about reach. I'll start with our 2,200 branches in 26 states. That's coast to coast, by the way. And as important as the numbers and the counts and the number of states are, it is even more important for us to focus on what's happening inside the four walls of a branch. And here, we're making big changes. Gone are the days we're only counting transactions and servicing clients. That's table stakes.
What is changing in the branches is the consultative nature of what happens when a client walks in. By the way, you know who loves our branches? Our small business owners, and so the ability for us to engage in needs-based dialogue and actually change the nature of the conversation is an inflection that we're making in a pretty big way every day. The second thing I'll talk about is this notion of our being able to sell products beyond just a single product. The traditional heritage, and this is what is something that we're inflecting also, has been that a client would walk in, we'd just sell them a single checking account, and we'd send them on their way, but the nature of the conversations in the last few months, and as we focus ahead, has changed.
That small business owner that comes in every Friday to deposit cash is now being engaged on conversations about potentially a wealth connection or potentially a payment terminal referral, and that is something that we expect to do more and more as we go forward. As far as the branches themselves go, we will continue to invest in them to the tune of about $200 million a year, and this will go into renovations, but also selectively building out in high-growth geographies, such as a Charlotte, such as a Los Angeles, that we actually think is going to be really important. Speaking of reach, I've been talking this morning a lot about an everyday bank. Let me tell you about our anywhere bank.
Our digital app, as you know, is ranked number one, but at the end of the day, a number one-ranked digital app isn't about a shield, it isn't about a medal, it isn't about a prize. It is about what happens in it on an everyday fashion. Our clients love the app. They log onto it, they stay on it, and they actually transact on it. It is an app that allows you to actually not have to go log into seven different sites to see how your everyday finances are playing out. It's a dashboard that allows you to see how your family is doing on a day-to-day basis. Curated custom offers specific to you? Check. How about the only consumer bank to have a relationship with Greenlight?
This is an account or a capability that allows your teenagers to actually get into banking early in the process and keep everything in the family, loaded with financial services, loaded with financial advice. Sticky, sticky relationships that actually bring banking into your dinner table. By the way, the value of having a digital app with these capabilities is not only what Gunjan mentioned, which is when another institution wants to talk about everyday capabilities, how ready is U.S. Bank, and the other component of it is, because of these sticky relationships, churn starts to come down, the ability for us to build deeper relationships with our existing clients goes up, and our application to fund throughputs for prospects actually improves significantly. Let me end my comments on reach with this notion around partnerships.
State Farm is a partnership that taught us a lot. It is a meaningful partnership that allowed us the ability to build capabilities, grow relationships, and actually figure out how, in the midst of financial conversations that happened with other analog financial players, building trust-based relationships actually works out. Edward Jones is a name that almost everybody in America knows. They're in virtually every county. The opportunity for us to take our learnings out of a partner like State Farm and extend it into Edward Jones is monumental. These are core checking relationships, not sweep accounts, not high-yield CDs, that we expect to offer eight million clients in virtually every county in the United States when someone comes in and wants to have a conversation about retirement, about financial planning. Look at these maps.
While our branch footprint is core, and that's how we will go to market in the retail footprint that we serve, our State Farm and Edward Jones relationships allow us to, in a very capital-light fashion, extend into the smile of the country, and that is something to smile about. I'll end with what excites us about this inflection point and how we expect to deliver an interconnected bank. Delivering an interconnected bank essentially means continuing to deepen with our existing clients and accelerate the pace of launching interconnected products. It's not something that we have to start from scratch on. We have a fantastic amount of momentum on this, and we expect to build on the investments that we've already made in our digital excellence and extend our reach in a capital-light fashion.
As we make this inflection happen and continue to execute on it every day, we will deliver relevant solutions to our clients, who will bank with us more, stay with us longer, and drive the generation of new clients on an everyday basis. That's what excites us. Thank you. Gunjan?
Digitally enabled, everyday bank, anywhere bank. Thank you, Arijit. It's next my pleasure to introduce Shailesh Kotwal, our Vice Chair of Payment Services. Most of you, I suspect, have met Shailesh sometime over the last decade or so that he has been with U.S. Bank. Shailesh has a nearly thirty-five-year career. Very, very well-known, well-respected executive in the payments industry, with prior experiences at Amex and TD Bank. Shailesh chairs our European bank and sits on many of the industry payments units, TCH, EWS, and represents us there as well. I think many of you might know that Shailesh has shared with us his intention to retire next year. So first, Shailesh, thank you for giving us ample notice so we can plan a meaningfully thoughtful transition.
It is our intention to retain focus on payments as a specific business unit, so I look forward to working with Andy and Shailesh to appoint the next generation of payments leadership. But in the meantime, Shailesh, welcome.
Thank you, Gunjan. You know, the wonderful thing about payments and money movement is what we call internally, is everybody needs to move money. But to be able to do so well for our clients, it's important to have two things. You need to have broad set of capabilities because every customer's needs and how they want to move that money is different, and you need to have good reach. And you'll hear today from me that we are doing great on both those counts, and I'll spend a little bit of time on that. Now, you may have heard about our payments business, but allow me to spend a little bit of time highlighting a few things about our payments business that you may not be familiar with here. One is, it is a terrific entry point into our relationships.
And we have scale in this business, scale that matters. Matters a lot, because of the investments that you've been hearing about. You see in the middle of the page there, accounts for just under 25% of U.S. Bank's revenues, about 40% of our fees, but the important numbers are down below in terms of our scale that I just mentioned. We are number three in commercial card issuance in this country, and we are number five in credit card issuance here. We are the number one provider in freight payment capabilities here, and we are a top five bank-owned acquirer in this country. So significant scale across each of our products that we offer here. But on the top right, you will see some interesting data around our reach.
Of course, we have a reach through our almost 2,200 branches that we offer these products through. Terrific digital capabilities that you heard both Gunjan and Arijit talk about. But a few other important elements. We have great, great partnerships. I'll spend a little bit of time on that, that allows us access to almost 50,000 points of distribution. I'm sorry, 50,000 points of distribution. And we have this very unique franchise, externally known as Elan, where we offer essentially credit cards to a lot of other financial institutions. 1,200 financial institutions distribute our products here in this country. And of course, we offer our payment services through our international footprint as well, mainly in Canada and in Europe. Let me dive a little bit deeper into what constitutes our payments business, the three businesses underpinning this.
The largest is our credit card issuing business, that you see there in the green, accounts for about 65% of payments revenues. This is what you would traditionally know as the credit and debit issuing business, but also houses our co-brand business, and the unique Elan franchise that I just touched upon is also part of this particular franchise. And when I say soup to nuts solutions to 1,200 financial institutions. And when I say soup to nuts, it really is. From talking to our clients about product propositions, marketing, selling those products, servicing those cards, the credit risk, collections, everything is offered to these clients through one singular platform that we offer. Truly unique.
There is no other player in this market that offers that kind of, capability of size and substance. The next is our merchant acquiring business, externally known as Elavon, and this is where we offer merchant acquiring. But the unique part here is, A, it is a significant differentiator for us at U.S. Bank, but also this is where we focus on profitable growth on select segments. And this is where Salucro, Gunjan talked about Salucro in her comments, was a very good acquisition for us in a very interesting healthcare space, where we are able to provide services to doctors and hospitals, payments that are complicated in this space. And Salucro is a terrific solution that allows us to, to further expand our reach in that particular segment. And the last one there is our corporate payments business.
That includes commercial cards that I just touched upon. It also includes our freight payments business. By the way, the U.S. government is our largest client in this particular space. You see the numbers down below. Obviously, COVID threw a real curveball for our entire industry, particularly in the payment space. But you will see on the right-hand side there, we've had a very substantial and robust recovery, and we have regained our position, and you see some very healthy growth rates in our revenues over the last few years post-COVID. You heard Andy talk earlier this morning about the significant investments we have been making in what I call building our future-oriented foundation in our technology. This is what has allowed us to build what you hear through our earnings call about our payments ecosystem.
This is exactly what allows us to build these extensive relationships that we have, the partnerships that we have, that extend our reach beyond the footprint that, that U.S. Bank enjoys. Going forward, our focus is going to be on continuing to build on the story you've been hearing this morning about this interconnected bank, where we can offer a broad set of solutions, to our clients. And we have the broadest set of payment capabilities in this marketplace here that allows us to serve consumers, small businesses, middle-market companies, all the way to large corporates. And that allows us to service a very wide set of franchise that we have here. Equally important is, through these investments that we have made in our technology, not only we do payment processing, which is what you might think about our payments business, but building what we call value-added services.
That's providing adjacent capabilities. This is in addition to banking products, providing adjacent capabilities that matter to these customers. Let me give you just one example. You're aware that we focus in serving the airline business, where, by the way, we have lion's share in that particular space. 50% of our revenues in serving these airline customers come from these value-added services. So it's a significant addition enabled by the investments that we've been making in our tech platform. This really provides us a great opportunity to continue to build on the business that we have here. So let me spend a little bit of time focusing on the path forward from here. We are focused on building and deepening these relationships by making sure that we embed our capabilities in the environments that our clients are accustomed to.
This is what we call interconnected banking and payments by embedding our capabilities. Consumers want to make sure that their payment credentials are available in the apps that they're comfortable using. Same thing is true with small businesses. Small business owners want to make sure that their acceptance capabilities are embedded in the software they use to run their businesses. Treasurers want to make sure that their payment capabilities are intertwined together with the software and the capabilities they use for their cash management purposes. So payments is not a standalone activity. It is integrated with our clients, and it's integrated in the environment that our customers are accustomed to, and frankly, that's where they're comfortable using these products.
On the left-hand side, you see some industry trends, but one is worth highlighting, and that is, over the last few years, we're starting to see an emergence of financial discipline in the marketplace. And that plays to our strengths. As you know, we are a very focused, financially focused, disciplined player, and when the industry focuses on creating or offering value-added products that are financially focused on returns, that plays to our advantage. And so we see the tide turning and allowing us to continue to compete on the basis that we have operated in this marketplace. But more importantly, as I said, our goal here is not to have an independent, monolithic payments offering, but to have a payments offering that is fully integrated, holistic offering, that allows us to have good, meaningful dialogue with our customers that then ensures that these relationships last longer.
Why this interconnected bank? Let me give you one example on the left-hand side that you see on the page here, which is an example in a small business arena, where when we add banking and payments together in a merchant relationship, revenues almost double. More so when we add a card offering with banking and payments to these merchant customers, business customers. Revenues go up tenfold with these relationships. That is why this interconnected bank that we've been talking about is so crucial, because we see the value, but more importantly, our clients see the value in it.
Deepening relationship is easier said than done, but we know how to do it really well, and the example on the right-hand side is our newly acquired Union franchise, where you see in a short one-year period, we've been able to deepen card relationships in that particular franchise by almost 700 basis points. But more importantly, there is substantial room for growth when we compare the penetration rate of these products to where our penetration rates are with our traditional U.S. Bank franchise. We know how to do this, and we know how to do this really well. Yeah, this concept of integrated payments started in our merchant acquiring space several years ago with the investments that we started making. But we have taken that same concept and now expanded it to all of our payments products.
What you see on the graph on the left-hand side is the result of that, where we simply embedded payments. For those of you that might not be familiar with the terminology, is simply what, what it means, embedding our capabilities in the environments, the websites, the commercial portals, the apps that our customers are accustomed to. Embedding our capabilities in there, that is where the future is, and that is where our investments have been, and you see the very substantial growth rates there in our revenues, almost 20% CAGR. More importantly, when we have these capabilities embedded in our clients, engagement goes up materially. And it is exactly this approach that drives us to acquire capabilities that we find meaningful in the spaces that we, that we choose to operate.
Healthcare is one of them, and the investment we made in Salucro on the bottom right there, 100 new clients we've been able to bring on board as a result of this capability. TravelBank, which is another recent acquisition that we made, you see there eightfold increase in payment spend in a short period of time. And that is because when we are able to offer these capabilities that are, that are embedded and convenient in the environment that customers are accustomed to dealing with, that engagement goes up, which results in these terrific numbers that you see here. Let me spend a minute on reach. On the left-hand side is this, what I shared earlier in my conversation about this very unique franchise called Elan. 1,200 financial institutions gives us access to 15,000 branches in this country.
27 million households can be reached through this particular franchise. This is underpinned by our unique proprietary platform that allows us to serve very large co-brand customers that we have, but also very small credit unions through this very unique proprietary platform that we have, that doesn't exist. There is no other parallel in this marketplace. There is no other offering, which is why we see 98% renewal rate in this particular franchise. Oftentimes, when we lose that 2%, it's not because they don't like our product, it's because the bank got acquired by somebody else.
So it's truly unique, and even more importantly, these institutions are recognizing the importance of technology, investments that they may not be able to afford, the importance of regulatory and compliance needs, and frankly, they're also recognizing that the cost of getting it wrong can be substantial for these entities. Cost of capital is going up. All of that leads to this franchise becoming more and more attractive to these institutions. These are long-lasting relationships. Started this business over 20 years ago, and now we are beginning to see that these institutions are also taking our merchant acquiring. 15% of these institutions also sell our merchant acquiring products. Another 13% of these institutions also sell our corporate payment products through their branches to their customers.
They're recognizing that they may not have the know-how or the expertise or the investment, and we see more opportunity here by taking expertise that we have, like in our foreign exchange capabilities or in our capital markets business, that Stephen will talk about now, to bring those capabilities and offer these to these institutions so they can serve their clients, the relationships that they have, with their clients. On the right-hand side, you see the other component of our partner business. You will see here nationally recognized institutions and again, terrific reach. 109 million households is what we can reach through these partnerships, some of which Arijit touched on earlier in this conversation as well. But you will see it goes beyond financial institutions.
Some very, very attractive tech names are our partners as there, because they see the investments we have made that are playing to their, to their advantage. More importantly, on the partnership side, you will notice that we don't have the same concentration that some other institutions might have in very large co-brands, and frankly, there might be a lot of volume in those relationships, but I'm not convinced that the revenue relationships are particularly favorable. We don't have that dynamic in our business, so let me leave in closing a few thoughts for you. Payments is a key differentiator for U.S. Bank, and these integrated solutions that I just talked about are helping us drive deeper relationships with our clients, with our clients across the bank franchise.
We have the broadest set of payment capabilities across our peer group here, and we have scale that matters, that will allow us to continue to build this business and continue to offer these broad-based capabilities that we have to serve our clients, as well as leverage the very unique distribution reach that we have in this business. Thank you.
So everyone moves money. It is next my pleasure to introduce Stephen Philipson, who leads our WCIB products. Stephen joined us about 15 years back from experiences at Wachovia and Morgan Stanley, and his mission, which he chose to accept, was to build out our capital markets and our structured credit capabilities from scratch. They have now become enormously successful franchises for us. Stephen and I partnered last year when we had this vision of bringing all of our institutional franchises together. And four months back, when I stepped into my new role, Stephen took over leadership for our WCIB product sets. Stephen, very proud of your partnerships and what we built on the institutional strategies and how you're growing it, and welcome.
Thank you. Very excited to talk today about our WCIB businesses. And as you heard earlier, this combination of businesses was formed about a year and a half ago. We brought together our corporate and commercial bank and our wealth management and investment services businesses. And the idea was to unify our balance sheet and fee generating businesses to cover our wealth and our institutional clients in an interconnected way. And as you can see, it's a pretty formidable force. WCIB accounts for about half the bank's deposits and loans. We generate about 44% of the fee revenue. All of these businesses are national in footprint.
Some of these businesses are actually global in footprint, like our corporate trust business, fund services, and parts of our capital markets businesses, and we've got a fantastic client franchise. We've got 500,000 wealth clients. We've got tens of thousands of government institutions and corporate clients, including serving 90% of the Fortune 1000. And it's a great combination of businesses. We've got businesses that we're dominant in, like corporate trust, where we're number one in every market that we serve. And then we've got businesses that are more nascent in their stages of development, like capital markets, wealth, and asset management. And we're really uniquely positioned in the marketplace when you consider that combination of businesses.
A lot of trust banks have these dominant investment services businesses like we have, but they don't tend to have the strength that we have in the balance sheet and the capital markets and wealth management businesses. And then, when you think about traditional banks, they have the strength in the balance sheet businesses, wealth management, capital markets, asset management, but they don't tend to have the strength in the investment services offerings. So it's a very unique combination of offerings within the marketplace. And again, the power of this business is combining the balance sheet with all of these great fee products that bring diverse revenue streams. And in terms of the balance sheet, you can see on the bottom left, we've got a great deposit gathering franchise. And again, it's a little bit different within the marketplace.
Like a lot of traditional banks, we gather a lot of deposits from our corporate clients, our commercial real estate, wealth management clients. But what differentiates our, the deposit side of our balance sheet, is the investment services business, where we also gather a lot of deposits, about $75 billion in operational deposits that are very sticky. And then, in terms of the loan side of the balance sheet, as you can see from the center chart there, we've grown that loan book very nicely over the past several years in a little bit of a differentiated manner. And Gunjan mentioned this, we added these structured credit capabilities, and these were products that our clients had used for many years and were looking for us to add the capability.
We brought in teams to be able to offer some of these products, and they're very well-established products in the marketplace. ABS, warehouse lending, CLO, triple A loans, subscription finance, or capital call facilities. What's great about these offerings is they're very capital efficient. On a standalone basis, they have a great return on capital, but they also lead to a lot of incremental fee generation as well. It's provided that nice balance sheet growth, but also some really nice fee growth, which we'll talk about a little later. In terms of our journey, we've invested a lot in these businesses over the years. We've made a lot of digital and technology investments, things like unified customer onboarding.
We made a large multiyear investment in our FX business, where we put in a whole new platform and trading system, which added some capabilities. We have made this pivot towards capital-efficient growth, and that doesn't mean not growing our loan book, but doing it in a more efficient manner, selling more of our fee products into our relationships, and adding these capital-efficient lending capabilities that I mentioned in structured credit. We've also expanded our product set very nicely, particularly in capital markets, which I'll elaborate on, but also in areas like asset management, where we acquired PFM and picked up OCIO capabilities , as well as some new liquidity products to serve our government banking product clients, rather. We're in the early innings of leveraging the Union Bank opportunities.
We've got several opportunities to drive more revenues from that combination with Union Bank. For instance, in consumer foreign exchange, Union Bank had a great strategy for selling foreign exchange out of their branch footprint. Now we're working with Arijit's team in taking that strategy and applying it across the 2,200-branch U.S. Bank footprint. We also have an opportunity with our Union Bank customers with equipment finance. We have one of the largest bank-owned equipment finance businesses. That's a product offering that Union Bank did not have. So we're just in the early innings of starting to sell that product into the Union Bank customer base. So we've built this strong foundation, and going forward, we've got a great opportunity to continue to grow through client depth, product excellence, and reach.
And what I'd like to do over the next several slides is just provide you six examples that are gonna bring to life how we're leveraging this foundation to grow the business going forward. And I'll start in terms of going deeper with our clients. We have a great opportunity to marry our balance sheet with our product set in serving our institutional clients. So much of our growth in these businesses over the last 10 years came from entering a credit facility with a client as a participant, educating that client on all of these products that we have to offer, that you see on the right-hand side of the page, and then being in a position when the client's up-tiering banks to up-tier to a lead bank, and gain a larger share of their fee wallet as a lead lender.
When you look on the left-hand side of this page, of our 2,500 syndicated credit relationships, today, we lead 44% of those syndicated credit facilities. That compares with 23% ten years ago and 36% from five years ago. When we move from a participant to a lead, we're better positioned to compete for the client's fee revenue, and our overall relationship revenue typically increases four to five times. When clients determine that they want a new lead bank, we're typically the bank of choice, and it's because of that differentiated product set that you see on the right. I'll just share a quick example of that. We're meeting recently with a commercial real estate fund manager, and they were talking about how they wanted to increase their credit facilities with their banks.
They see a great opportunity in their business, given dislocation in the commercial real estate market. And they said to us, "You know, we're asking all our banks, what are the incremental fee products that you can offer? Because we know if you're providing us more credit, we need to support that balance sheet with fee income, and what can you do that's different?" And it's very easy for us to look at this wheel and say, "You've got a huge fund complex. We have a great fund administration business. We can provide those services. You'll love the services we provide, but it'll also provide an annuity fee income stream.
To us, it's gonna support larger credit commitments." And the client said it was the easiest bank meeting they'd had because we're the first ones to actually show them something different. And that happens over and over when we look at this wheel, and we meet with clients, and we see what fits our clients, the solutions that fit them, that we can provide, that no other bank can provide in this combination. Another example of where we marry that benefit from up-tiering in credit facilities together with our product suite is capital markets. And this is a business that we established coming out of the financial crisis in 2009 . There was a huge opportunity for the bank. Now, the bank came out of the financial crisis in with a pristine balance sheet.
Corporate clients were looking in the capital markets for new dealers. They'd seen some of the banks they work with go away overnight, and there was a great opportunity from a talent perspective. We were able to attract talent from across Wall Street that we would have never been able to attract at another time to start a de novo capital markets business. So we started by focusing on loan syndications and corporate bonds. We followed that playbook of starting as a participant in loan syndications, moving our way up to a lead lender, starting as a co-manager in the bond deals, and moving our way up to a book runner in the bond deals. After a few years, by about 2012, we really established credibility in the marketplace.
We were leading a lot of syndications, a lot of bond deals, and so we came behind those businesses by building out our interest rate derivatives and foreign exchange businesses. And it was a very natural evolution, a very natural discussion with clients to say, "We're leading your bond deal now. We're one of the highest-rated counterparties in the marketplace. Why don't you let us execute the rate lock associated with that bond deal?" And with those four foundational businesses, we experienced tremendous growth and have what is today around a $1 billion business with a 15% CAGR. And going forward, we're really confident that we have the opportunity to grow at a similar rate, and there are two primary, very simple strategies to do that. One is the one that you saw on the page before this, that up-tiering strategy.
This business very directly benefits when we go from a participant to a lead lender. It flows very quickly that you end up leading the capital markets businesses. And the other is continuing to add to our capabilities. As we've built out these products from a standing start, we've found there are a lot of capabilities, there are a lot of products that our clients use that we have the opportunity to build out and then gain our fair share of our clients' wallet in those products. And I'll give you two recent examples of that. One is the commodities business.
For many years, we've been a lender to clients, and in the credit agreements, the client is required to hedge a portion of their commodity price risk. So naturally, when they go to do that hedging activity, they do it with their relationship banks. Historically, we missed out on our share of that because we didn't have the commodities capability. A year ago, we found a great team and built out that business, and in the first year up and running, we generated $30 million in hedging fees in that business, and that's incremental fee revenue on existing loan commitments. We didn't have to commit another dime in the loan facilities. It was just extracting our fair share of the client's hedging wallet.
Similarly, in structured credit, we started that ABS lending business a few years ago, built out a critical mass in that ABS loan book, and then in the last year, added sales, trading, and origination capabilities. And year to date, we've led about a dozen ABS bond deals and capital relief trades and generated over $20 million in fee revenue. Again, didn't have to increase our loan commitments at all. It's just extracting that incremental return on the existing loan book that we have and commitments that we have to these clients by adding those capabilities. So we think we have continued opportunities there. And one of the nice things, when you think about a capital markets business, it can be volatile based on market activity.
But one of the nice things with these opportunities to deepen relationships and add the capabilities, it helps offset that volatility in the business. Another source of both past and go-forward growth is our dominant corporate trust franchise. And you can see here on the charts on the left, this is a $2 billion-plus business with consistently solid growth rates, and we're number one in every market that we serve in this business. And what's also unique about this business and how it fits in with all of our businesses is it's an anchor in what I like to call the lifecycle financing solution. So when a customer, I'll give you an example. When a customer acquires another company, we can lead the bridge loan to finance that acquisition.
We can lead the bond deal that takes out that bridge loan. We can provide the hedging activity for a rate lock or currency exchange associated with the bond deal, then we can serve as corporate trust, trustee on that bond deal. And when the client takes in the proceeds from the bond deal, we can serve as an escrow agent and hold those proceeds in escrow, either on our balance sheet, in a deposit, or in one of our money market funds. We're very uniquely positioned that there's no one else who can offer that cradle-to-grave financing solution and serve that client in that interconnected way. And the wonderful thing about this business, which is an anchor in that lifecycle solution, is there are high barriers to entry.
It's very capital efficient, with consistently strong fee growth, and it's a great source of operational deposits. We bring in about $65 billion in operational deposits, and it's a great source of flows into our money market funds. We consistently have about $80 billion in our First American Funds coming out of this corporate trust business, and it's also a very easy business to understand why it is so stable, consistent, and predictable. When a company issues a 10 year bond and we're the trustee, we know for the next 10 years what our fee revenue stream will be from that transaction. We know for the next 10 years what our deposit flows will be from the interest payments on that transaction. So it's very, very predictable, and we're going to see continued growth out of this business going forward.
It's going to grow just based on the growth in fixed income market volumes, based on expanded market share. Even though we're number one in every market that we serve, we continue to build a moat around this business and see opportunities to gain incremental share, and then we have continued opportunity in Europe. We built out Europe several years ago. It now accounts for about 7% of the revenue in this business, and that's still a very fragmented market, so we have a great opportunity over there, and then the last piece is the growth of private capital. Private capital is a big feeder into this business, whether it's CLOs and structured finance and escrow, so as that activity out of that client segment continues to grow, it will continue to feed this business.
That corporate trust tying with private capital really highlights our opportunity to deepen our share by bringing unique products to these high-growth segments like private capital. You see two examples of that on this page. One of them is private capital, the other is healthcare. Two high-growth segments in the economy, and they're high-growth segments for U.S. Bank. Each of these, we already generate about a billion dollars in revenues in each sector with 30% plus CAGRs. We're able to achieve that differentiated growth in these segments, given our unique product sets. In private capital, we have this entry point with fund services and corporate trust. In healthcare, our entry point is payments.
These products, payments, investment services in each of these sectors serve as gateways that ultimately open the door for us to sell our full product set. That's what's led to that differentiated growth over the past three years, and that's what's going to lead to continued growth in these sectors going forward. Another opportunity that sits within the four walls of U.S. Bank is wealth. Our wealth growth over the past few years, it's been driven by advisor productivity, digital enablement, and the Union Bank acquisition. We acquired, as you heard, a lot of highly affluent customers coming out of Union Bank. This business, wealth business is, as you know, really tough to build. It's a slow grind.
But these businesses also provide an incredible amount of stability and ballast, and even a small amount of growth drives annuity-like value. And we see continued opportunity to grow in this business, and it's through customer acquisition, continue to add Union Bank customers. We still have a huge opportunity in front of us to add our existing U.S. Bank customers as wealth clients. We also are leveraging digital tools to drive referrals, and we're in the early innings of this. You know, Arijit mentioned how we're providing more solutions out of the branch. Earlier this year, we added what we call a pop-up tool for branch bankers, where it's a digital tool that pops up on their screen that allows them to instantaneously refer a customer to a wealth advisor, make an appointment with a wealth advisor.
Just by adding that digital tool, we saw our referrals into wealth coming out of the branch double year to date. We've added, in the first six months of the year, 7,000 new funded accounts with $1.3 billion in additional AUM, just coming from adding that one digital tool into the branch. Then the last way we'll grow in this business is expansion markets, which I'll talk about a bit on the next slide. This is a key part of our strategy, both in wealth and in our institutional businesses. It's to expand via what we call a client center. A client center is a beautiful physical space. We have one right here in New York at Bryant Park, which you can see in the photo here.
It's a place where we can bring together and serve our wealth clients, our institutional clients, our mortgage clients in one physical setting. And it's a much more capital efficient way to expand than a traditional branch expansion. If we wanted to go into a new market, say like Houston, with branches, we'd have to open a dozen, two dozen branches to start to penetrate that marketplace. With these client centers, we can offer one space and cover all of these clients. And we think it's a great opportunity to expand our national reach. And we're putting 50 of these around the country right now. A lot of them are in our existing footprint.
And going forward, where you'll see a lot of the growth in those green dots are in those blue expansion markets, as we leverage our national brand and leverage the national footprint we have in a lot of these businesses. So in closing, I hope you see that we've got a very comprehensive wealth and institutional business. Our key differentiators in these businesses are our unique product mix that make us increasingly the bank of choice, the relationship focus that we have. So we have a very high touch approach in these businesses. It contrasts, we consistently hear from clients. It contrasts with the more assembly line approach of a lot of our larger peers.
Even though we have that, we're able to deliver that high touch approach. We also have scale, and it's scale that differentiates us from regionals in these businesses and allows us to compete head-to-head with the GSIBs across these businesses. We're going to continue to grow going forward. It's going to be by deepening relationships, becoming a lead bank, and delivering our full product set, by continuing to nurture and grow that differentiated product set that we have, and by garnering a greater share of our clients' wallets, both in our dominant businesses like corporate trust, and in our more nascent businesses like capital markets, wealth, and asset management.
Given that, that unique set of product offerings we have, that opportunity to go deeper with our clients, we feel we have a real differentiated opportunity for growth in these businesses and look forward to showing you what we can do in the years to come. Thank you.
Are you exhausted? A lot of dense material to start the morning off. Thank you for hanging in there with us. I really do appreciate your engagement and your interest. We're going to move into Q&A, and just before I invite my colleagues and Andy to come up to facilitate the Q&A, I did read somewhere that you have to repeat a message seven times before people believe it and truly absorb it. So for the final and seventh time, in closing, with all of these examples, I hope you will remember the three things we were trying to register and convey, this morning. One is we have invested very heavily over the last five years, but it has created really unique differentiation with our peer group.
To drive this and translate that to growth, we are focused on our three strategies: client depth, product connectivity, and better reach. And finally, I hope we gave you a sense that we have focus and momentum on our execution. So thank you again. Andy, can I have you come up? And Stephen, Arijit, and Shailesh.
Thanks, Gunjan. So we're going to have a Q&A session right now. And as a reminder, we're going to have two Q&A sessions today, one on this topic and the things we just talked about. Then we'll have another one after John and Jodi and Terry talk this afternoon, and we can answer all your questions. If I could ask you to just... If you have a question, raise your hand, I'll bring a mic to you. Please identify yourself, and we'll respond to your questions. I'm looking forward to the engagement. Eric?
Thanks so much. Erika Najarian, UBS. First of all, I have to commend you, Andy, for not only look much younger than your proxy age, but for, and to your board, for, you know, having the presence of mind to not just tell us that you're thinking about succession, but to show us. I think Gunjan did a great job, and there are some money centers that don't even let us know what's happening, right? So first, I have to commend you on that.
Thank you.
I guess I have two questions. Number one, one of your biggest peers in transaction services, the number one player, just had a huge investor day, just focused on that business, and technology was one of the big themes and topics of that day. And I'm wondering, it's really hard for us to take those bars and understand where those are distributed and allocated in terms of investment.
Mm-hmm.
So if you could tell us, how you have invested in transaction services in terms of technology for the corporates, as well as maybe the pipes globally, whether you're into Asia, not just Europe? So that's the first question. And the second question is that, your non-blue colored states, you know, Stephen mentioned had shown in the map that you have corporate presence in Texas, Tennessee, North Carolina, Georgia, and Florida. That's the right part of the smile.
...But what is the opportunity as you think about it? I mean, the $5 billion buyback sounds great today, but if opportunities arise, and I'm not just talking about buying a bank, you had Huntington lift a bunch of teams organically over the past 12 months. You know, is that something that you'd be very, you know, forward-thinking in terms of, "Okay, we promise this $5 billion buyback, but look at all these opportunities that may fall out of, you know, whatever happens next year?
Thank you, Erika, for the question. There were really two questions in there. Gunjan, maybe you can start on the technology, then we can go to you and the team on the reach and the expansion.
That sounds good. Good morning, Erika, and thank you for asking the question on investment services. So we are at $11 trillion, but as you have pointed out, we have many competitors at $30 trillion , $40 trillion , $50 trillion here. So I'll say two things: We are quite disciplined about not creating complexity to chase after scale, because it will really kill us from a technology spend standpoint. We are a very profitable franchise. It's about $3 billion in revenue for us. It's domestic, and we are very focused on UK, Dublin, and Luxembourg. We have resisted the temptation to accept client mandates that reach into Asia because of the scale issue. But within these confines, we are very, very well supported from a technology standpoint. There are two areas we really invest in. Here, we spend our dollars on product expansion.
We have moved really to do complexity well for the alternative side, so there's a level of sort of technology on just the product support there. And then we ride Salucro's coattails on the money market side here, because all of the sort of, you know, basic rails are quite common, so you get scale advantages of a U.S. Bank, not just the investment services, so it's a very sustainable business model at the level of technology investments that we have. We just need to be quite disciplined, which this is almost a message for my own teams who bring business cases to us to, like, set up a shop in South America and stuff. We have a lot of room to build scale without complexity here.
I think that's terrific. And, just compiling or just adding to that point, a lot of the investments we've made are to the points that Shailesh mentioned, which is embedding the financial money movement component into the banking component, integrating those pieces and helping the companies run their businesses with tech-embedded components that run around money movement and traditional banking and merging those two things together. That would have been the bulk of our investments over the last five years.
I'll just add here, Erika, the unit cost impact of globalization in this business is quite significant. The U.S. is very efficient at scale, but when you get to a point when you need to have, like, ninety country distribution points, the business model is really very different.
Gunjan, why don't you talk a little bit about the expansion opportunity?
Expansion. So, Erika, I think your question was, we would love to just buy a bank and get the franchise there because it is... We do acquisitions very, very, very well. There are hundreds of them. I've observed the way Union Bank was done, and it was just sort of marched through to execution within months. The question is, the regulatory environment makes that a very uncertain strategy. So instead of just waiting for that to be, we are quite focused on this capital-light way. So our brand spend, for example, has been shifted to the five markets you talked about. While 55% is not high, it's about five or six points higher than it was just two years back. So we're a very talented leader in our head of marketing. So we'll continue to use the national businesses to get our name recognized.
I hope these partnerships, certainly Edward Jones, begin to recognize our name as well. So I would say it's not a sensational strategy, but it's a disciplined, measured way of expanding our presence in the places we need to be. And we're very satisfied with that. It's the growth rates in the expansion markets run easily three to five X times, although it's off a very small base, so you don't want to over-index in it, but it's certainly enough to stay focused on it.
We have seen tangible results just from leveraging the businesses that are national. So with WCIB coming together, we've seen a huge uptick in the commercial banking referrals into wealth. So our institutional banking business has a national footprint. Now, all of a sudden, we have wealth offices or these client centers in places like Naples, Florida, and Greenwich, Connecticut, and it's much more seamless for a commercial banker to refer their client that's in those markets into our wealth business. And so it's been an 87% increase year to date in those wealth referrals coming out of the commercial banking business.
Thank you. Why don't we go...
Oh, hi. Thanks. Can you hear me?
Yes.
All right. Betsy Graseck.
Hi, Betsy.
Thanks so much. I had the same question that Erika had, but I just wanted to unpack it a little bit more, in follow-up here. Just as you're thinking about the capabilities that you have with the relations with Edward Jones and, you know, with State Farm, how far to your branch capabilities do you think it brings you? If you feel that this is a, "I can get 25% of where I could if I have a branch there," 50%, I'm throwing numbers out there, but I'd love to hear your answer to that.
Gunjan?
Yeah.
And also, give us a sense as to what does the branch bring in, you know, to the equation that when, you know, there's an opportunity time, et cetera?
Yeah.
that you get the opportunity.
Yeah.
... Yes, Gunjan.
Shall I start, and then you'll add on? So Betsy, good morning. The partnerships are narrow, so that's the biggest trade-off. Like, we cannot. For example, Edward Jones, we wouldn't be able to offer wealth products to them. That's their core business. So the trade-off, firstly, is around how much you can deepen the client relationships. Now, they are branded U.S. Bank, so they are U.S. Bank-bank relationships, but it's not the multi-service deepening of the client relationships don't work with that. So there is a trade-off here. You know, we would prefer to have our own branches in certain locations if we could, but this gives us so much, so much reach. Outside of that, the economics of the core banking products and the core credit card products or whatever you've negotiated with are very healthy.
So the economics are much better because you don't have any of the capital maintenance, you don't have the headcount, like, you don't have to sort of manage the distributed networks. You're just using your digital capabilities. And, you know, Dominic will come up. We're not really adding that much cost to try and support these relationships. You know, our mobile apps work, our digital capabilities work. So the trade-off is the cross-sell and the deepening of the relationship.
The add I have, Betsy, is, if you look at the history of where we've been with these partnerships, you know, it's often forgotten that these relationships are multi-product partnerships. So in the case of State Farm, it's not just deposits, but you've got a very healthy credit card franchise. And if you look at the growth that you've seen from the time of the State Farm partnership, that's akin to the relationships that we would drive out of hundreds of branches and credit card production as an example. In the Edward Jones case, what really excites us is the nature of the conversation with an Edward Jones wealth advisor is one about an operating account.
As Edward Jones clients are sitting across and having the wealth conversation or the retirement conversation, a gap in the Edward Jones offering today is the inability to relatively quickly open an account while you're sitting with the client on the spot in a matter of few minutes. Those are the fixed cost investments that we've built that allow us that capability. Edward Jones, by the way, is in virtually every single county in the U.S. As you think about bank deserts and being the last game in town, this is a unique opportunity that very few of our peers could be able to mimic.
And Betsy, on your last question, I think as we think about potential M&A, a couple of things. We look at strategic fit and make sure it makes sense, and the financial dynamics include accretion, tangible book, tangible return right away, as well as the opportunities and the cost takeouts like we achieved and the opportunities for growth synergies. But I will tell you, to Gunjan's point, what we're focused on is internal organic growth right now, with perhaps some bolt-on acquisitions, because the environment from a regulatory perspective is too uncertain. So we're not going to hinge our strategy on some large deal or even some small, medium deal. Right now, we're focused on internal. We're positioned to take advantage of that should it occur, because we've proven that we are good at that execution. But that's not our hinge on our strategy right now.
So thank you. Mike?
Andy, I love you, but I don't love the results. On the one hand, it's a logical story you presented today. The positioning, now in California, you're number four, the penetration. Syndicated loans, you're lead at 44%. The products, the consumer, 84% digital. The platform, 10 years of modernization is done. But it was also a pretty logical story five years ago, and you fell short of those targets. And so my question is really about accountability, and I'll blame this on Erika. She brought up your age. But the targets for 2027, three years from now, who will be accountable if you're not the CEO? And I understand two-thirds of the board is in the room.
Who's the next likely CEO, and under what circumstances would you consider the next CEO from outside of U.S. Bancorp, given, you know, several years of underperformance? Thank you.
Yeah. So, we are fortunate to have ten board members, including myself, in the room today. And I'll speak on behalf of the board because we have a very robust and thoughtful succession planning process. The board meets on this almost every meeting, discusses it, and it has really good strategies around how to do this, with the objective of making sure the company is best positioned for the long term as well as the medium term. So, I'm very confident it's a thoughtful process, and it's the board's decision. But I will tell you that the team that we have today, the team that you heard about and you hear more about today, I'm really confident on. Mike, I've been at the bank forty years.
I'm in my fortieth year at the bank, and the company is a 161 years old, so about 25% of the life of the company I've been here. I can't tell you how much this means to me personally when you talk about accountability. I felt that five years ago we needed to make an investment to stay ahead, and it was a short-term bump for sure. You're right. I think we're better positioned because of it, and we're going to- we are at an inflection point. We are going to deliver on the revenue, we are going to deliver on the expense, but we had to make those investments, particularly given the changing dynamic of the banking environment and the competitive dynamics that we're faced. That's a decision, intentional, that we made.
We're well positioned for the future, and the board is thoughtful about that in their process.
Then one follow-up on the level of your conviction. You said meaningful positive operating leverage ahead. How long do we have to wait, and can you put some numbers around meaningful? Because it's been a tough 10 years, where expenses have grown almost twice the pace of revenues. It's really not the U.S. Bancorp efficiency of old. Can you... And you said mid- to high-50s, so-
Yeah.
Directionally, but what's your level of conviction to put a number around that? Thank you.
My level of conviction is high. John will respond to that question more specifically in the afternoon session, but we, as we talked about, we expect positive operating leverage in the second half of 2024 here, and we're, we are going to deliver on that and then expanding it into 2025 and beyond. Thanks, Mike. Is that Gerard? Yeah, Gerard. Gerard's in the back there. They're making their way to you.
Thank you. Can you hear me?
Uh, yes.
Yes. Thank you, Andy. Gerard Cassidy, RBC Capital Markets. On slide forty-three, your integrated payment solutions commentary, do you guys need any further bolt-on acquisitions? Like you pointed out to us that you had some acquisitions recently. And the second part of the question, you've had great compound annual growth in revenue, about 20%. If you peel back those acquisitions, what would the organic growth be?
Shailesh, why don't you start with the additional capabilities or bolt-on acquisitions, and Gunjan, you can talk about the growth.
So I'm fairly comfortable with the capabilities that we have. We've had several acquisitions over the last four or five years, as you well know. That's not to say that we will not or never look at but it would need to be reviewed on a case-by-case basis. There isn't a gaping hole in the chosen verticals that we operate in and where we choose to compete, and I'm feeling very, very comfortable with the capabilities that we have. The investment profile that we already have in our business allows us to continue to organically build the capabilities that we have. If something comes up in the marketplace, the unpredictable piece here is technology evolves so quickly. Two years from now, there could be something out in the marketplace that is mind-blowingly great. We will need to look at that differently.
But as I sit here, very comfortable with the capabilities that we have, I don't feel the need to stretch out and get something that might be missing.
Bill, can we throw up that slide that Gerard was referring to so Gunjan can speak to it?
Thank you. I was making everybody dizzy by trying to find it till they cut me off, so.
I think it was slide 43, Gerard, you said?
43.
Yes.
Yeah.
Yes.
Slide forty-three, Bill, if we can get that up. Thank you. Terrific. Thank you.
Gerard, you know, I'm not seeing the 22% number that you, you're wanting us to unpack, but I think your, your question, if I'm understanding it, is how much... Like, what's the organic growth trajectory of the payments business, right?
I think that's it.
That is what we are talking about. So, Shailesh, we can both tag team on this answer. So you know, when you look at our payments businesses, and as I have understood it for the four months that I have been in my new role, there are some very attractive, meaningful, organic growth rates on the core of the business. And then we always explain these one-off factors, like the prepaid market, which became huge during COVID and then collapsed for the industry, or freight that got absolutely impacted by the energy shocks during COVID. So the way we think about the business, or the way I'm thinking about it, is the core is very, very, very attractive, and it's attractive for very fundamental, enduring reasons. Merchant has a big emphasis on small business. They've seen a comeback in the economy.
The need for the merchant services is very real, and we just have to manage the portfolio around the debit card, for example, create this huge interchange fee issues. So, you know, Shailesh, that's why I know you talk about it from a core standpoint versus these one-off factors, but these one-off factors have been consequential in the organic growth rate.
All right, right up here. Thanks. Thanks, Cam.
Hi, Saul Martinez, HSBC.
Hi, Sal.
Andy, you... I think the point, I think the point you were trying to make on the ROTCE delta was that you're at a point in inflection where that delta, that difference, will start to widen out versus where it is today. And I guess the question is, why are you confident that, that we're on the cusp of that? If I look at that slide, a lot of that deterioration or that narrowing occurred in 2014-2019 , and it sort of, kind of stayed similar since then. But, you know, as we look out from here, you are still going to have to build up, build up some capital. You know, the revenue improvement, operating leverage story is not unique to U.S. Bancorp.
But, so I guess, why do you feel like you're really at the cusp of outperforming your peers in terms of profitability?
Thanks-
I guess my, if I could just add, get in my second question really quickly before you answer. On the payments business, the 2.2% CAGR seems a little bit underwhelming, even considering the COVID dynamics. It does, you know, 2021 -2 023. That improvement is misleading because of inflation and the explosion in digital payments. So I guess my question there is, what do you feel like you're doing well? What do you feel like you need to improve? Can the interconnection strategy really work? Because it's not an easy one in that business, and you see that with, you know, bank merchant acquirers really struggling. So just why do you feel confident? What do you feel like you need to do better?
Why don't I start with the tangible return question, and then we'll go to the payments question with Shailesh? So I feel confident for two simple reasons. Number one is I think the revenue growth trajectory is going to increase for all the reasons I talked about. The investments are in place, the returns are there, the organization structure and everything you heard about from Gunjan and the team, I think are in place as well, and we're going to execute against those objectives now that we have the products and services in place and the technology that's going to support us. So I'm confident about the revenue. Secondly, on the expense side, I'm confident about that too. The investments are in the run rate.
They're going to return, and we've had a simpler structure that we're going to optimize operational expenses, technology expenses, and I'm confident that our expense growth will be far less than our revenue growth, which will be positive operating leverage, which will drive to higher growth and higher returns. That's, that's the essence of my confidence.
... Shailesh, on the return?
Yeah, so, you're absolutely right. The overall revenue growth rate over the five years from 2019 onwards was underwhelming. And the simple reason there is COVID. Our business, as you all know, rides on spend activity, and spend collapsed in 2020 for the entire industry. So it was a substantial rebuild, and the reason I had that chart on the bottom right of that page you're referring to is to showcase to all of you post-COVID where we stood, is the robustness of our recovery post-COVID, and we are hitting those growth rates that we believe are achievable in this space. The second part of your question is the interconnectedness, and why do we believe we can continue to thrive, I guess, is the sense of your question.
A couple of thoughts there. One is, you know, take small business as an example. Increasingly, we find that small businesses want a holistic solution from their provider. They're. And the two needs that small businesses have, one is money movement. They obviously, everybody needs to move money, particularly small businesses every day. But they also want to make sure that their banking service provider is closely connected with their payment activity. And that's why when we look at our small business activity that you would have seen in our earnings calls, over a three- or four-year period, our relationships have grown by 35% in that small business. Revenues have grown by 30% in that business.
So when we bring that solution together, that Arijit talked about in his commentary about the newly launched Business Essentials, it is that core strategy that we've been building, which is bringing banking and payments together in a simple, holistic solution that customers can embrace. And that same story is true in our corporate payments business. It's true in our GTM business, where we are able to build broader relationship because of the closeness that we have in the payments activity that these clients have.
Yeah, and I'd also add that interconnected revenue doesn't necessarily show up in your P&L. For instance, with your Elan distribution, we started working with those Elan clients on interest rate derivatives a few years ago, and went from a $2 million a year business to what's now a $40 million interest rate hedging business, leveraging that distribution that Shailesh has out of Elan. So it's... That's not in your P&L. It's in my P&L, but that's a lift from that interconnected approach.
Good point, Stephen. Thank you. Ebrahim.
Thanks, Andy. I guess just going back to ROIC and revenue growth, like, as far as I can think, revenue growth for the banking industry is a function of the macro backdrop. And you've talked about, you've given guidance on fee revenue. One, talk to us, how big is loan growth as part of that? Like, what do you expect in loan growth? And tied to that, you mentioned the power of the balance sheet, the disruption risk that you see from private credit to bread and butter, middle-market commercial lending business.
Gunjan, I know you have good answers to those.
Good morning, Ebrahim. Nice to meet you. So, on a balance sheet strategy, one is we respect our balance sheet and its ability to open doors, even though you don't see the growth rates within the balance sheet. On the private credit side, we have just never been in the leveraged lending middle market space, which is where private credit is impacting it the most. We don't do sort of take out loans. We don't do direct loans there. So we have a partnership strategy with them, where we are providing the liquidity to their structuring capabilities because they can pay us back by very big pools of fee revenue. So it's a very unique position we are in.
The reason they like us, and we have heard very directly from them, is we are not in competition on the actual private capital or private debt business or private equity business, like some of our larger peers are. But our balance sheet is big enough to support very aggressive growth. Now, is there a point of time, fifty years from now, where we might sort of not like that equation? But, you know, that's a long time coming. But in the meantime, our product set is very complementary to theirs, so that part of the balance sheet, that's why I was trying to show you this 45% of the balance sheet is actually growing much faster than the industry, because we see the return characteristics being attractive.
Thanks, Gunjan. Why don't we have time for one more question? And then a reminder, we're going to come back from break, and we'll have another set of presentations and another Q&A session. So if you have other questions, we'll do that. Let's see. Do I have a hand up? Erika, did you have a follow-up question?
Since I still have the lines of business heads here, this is specifically to that.
Yep.
Two parts, one on card and one on WCIB. On card, the Smartly press release reads. The product reads similarly to the BofA card, where they were leaning into their wealth management clients, which is spectacular if you're, you know, a Merrill account holder. That being said, you do compete with giants and a giant getting even larger in consumer card. And from the outside, if you're not a BofA cardholder, they're kind of samey in card. And so I'm just wondering if, you know, deepening consumer card is still the right strategy. And on the business banking side, those are really compelling slides that you showed in terms of the opportunity. I'm wondering if you plan to be as robust on marketing as, you know.
We hear about Ink and Amex and all the other different products all the time, and for Stephen, you know, wealth and capital markets are clearly very expensive, in terms of, you know, building out. So ... How do you keep the top of the house enterprise promise for positive operating leverage, especially in the 12%-15% CAGR in banking, you know, while delivering on that revenue push in both of those businesses?
Why don't you start?
Let me start with card. We have a fairly unique franchise in our card business, and we have shown over a decade, certainly since the time I've been here, we are able to maintain our position in the industry despite the giants that you referenced in your comments there. And that is because of the efficiency of our distribution model. Our revenue model is very different from what we see with some of the large players in the marketplace. We don't have the same dynamic in terms of having to share a lion's portion of the revenue stream with a co-brand that may have a dominant dominance in the relationship. We don't have that dynamic.
As far as this new product that you're referencing here, the comparison to Bank of America, it comes down to the efficiency of reach into our own franchise, and our reach into our franchise is second to none, in terms of, you know, you saw the 40% statistic that I shared in comparing our, when we compared the depth of relationship into the Union franchise. In a short one-year window, we moved the depth from 20% - 29%, 21 %- 29%. We know how to do this really well because the back-end engine around identifying where creditworthy individuals are, making the offers at the right time, digital engagement through our app that we have, all of that leads to a very efficient distribution model, which is why we are able to sustain our place in this marketplace in a very effective way.
Erika, the other thing I'll also add, and I won't name the competitor you named, but a big difference in our value prop is the ability for folks that don't necessarily have the $75,000 or $100,000 to bring to the franchise. The way we've structured the product actually allows you to grow with us. The entire premise is, the more you bring to us, the more of your relationship you bring to us, the more you unlock as you go. And so this ability to offer a solution that is more accessible, particularly focused on young clients that we think will grow into affluent clients. You saw Gunjan's mention about how that's an opportunity for us.
Again, going back to Shailesh's point, that is an area that we've traditionally underpenetrated, and this product actually helps us in a pretty significant way.
Stephen, on the non-GSIB?
So, Erika, on the wealth side, you know, we've made a lot of the investments and have built the scale. We have 1,300 advisors today. We've invested a lot in the digital tools that Dominic's been helping us implement into the business. And so we think we're able to build on that scale, and actually, instead of having to make more investments or add a ton more advisors, it's more about leveraging the infrastructure that we've put in place and improving the advisor productivity that we've had, and that's been driving the growth the last year or two, and we think we have further opportunities for that. And again, it's just, it's leveraging the investments we have in place.
Arijit talked about in the branches, making our branch professionals more productive in terms of offering more solutions, and so leveraging referrals like that, we can grow that business without having to make meaningful investments, and on the capital market side, it's also a very scalable business, and we're in more of the consistent businesses. We're not in equities, we're not in M&A that go up and down, and you have this huge cost base that, you know, sometimes it's going to result in positive operating leverage. In a down market, you're going to have very negative operating leverage. We're in the much more consistent, stable, particularly fixed income-oriented businesses, where we'll continue to be able to post positive operating leverage, and our only cost is really that human capital.
So when we built out that commodities business, we needed to hire four people. We already had a lot of the systems that we were able to leverage from the other businesses. It's more investing in the people, and it becomes very scalable, as we grow relative to that headcount that we have today.
I'll just add, though, Erika, it is true that wealth, growing wealth is a very tedious expensive because you have to just lift out these advisor teams. So I think your question, I don't want to be sort of disrespectful for the question. You know, our advisor productivity has gone up, not just because of the technology, which does help, but we are also trying to use the rest of our distribution. You know, when the advisors don't have to hunt themselves, and they're getting pop-up referrals from the branches, they are getting commercial referrals from other people, it does create the advisor productivity to be quite meaningfully good. And it's our break-even point on a new advisor hire has come down from eighteen months to about eleven months, and that's quite a meaningful bend of the expense curve.
So I just wanted to add a point to say we are not sort of blowing out the operational, positive operating leverage instead of chasing after growth by hiring massively expensive teams here.
Thanks, Gunjan. Thanks, Stephen, Shailesh, Arijit. So why don't we take a break now? So, why don't we take about a 15-minute break and reconvene at 10:30 bottom of the hour. Refreshments are in the back of the room. Restrooms are out through this door. We're going to come back, with Terry leading the discussion of our tech strategy, as well as digital and AI. And as a reminder, we'll have a second Q&A session at the end of the day. Again, thanks for your questions and your attention. See you in a little bit.
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Even when the tears are flowin', there's diamonds on my face.
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What did she say?
...
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What you say?
What did she say?
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Please be seated. The program will begin in five minutes.
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What you say?
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What you say?
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What you say?
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Welcome to the stage, Terry Dolan, Vice Chair, Chief Administration Officer.
Good morning, and welcome back. During this segment, I'm gonna have Dilip join us, and while they're coming up, maybe I'll just do some quick introductions. Dominic Venturo is our Chief Digital Officer at U.S. Bank, and he's been with the organization for about 25 years. He's served in a number of different roles, and you know, he has a unique experience that has had an impact in terms of our operating leverage and our efficiency ratio over the short term. But on a long-term basis, you know, we feel very comfortable that you know, this is gonna have great dividends for us from a couple of different perspectives. One is that it's fully in our run rate.
Today, that $2.5 billion that we spent is fully in our expense run rate, and we're at the investment point in that investment curve where we're seeing cost efficiencies, but more importantly, the revenue opportunities that are being developed along with that. So with that, why don't we get started? And I'll start first, maybe Dominic, with you. You know, could you maybe give us a little bit of insights with respect to the digital strategies that we've been talking about and some of the key initiatives that you've been focused on?
Yeah, absolutely, Terry. Thank you. So I think, as you know, our digital strategy is really focused on strategic prioritization that drives growth, engagement, and loyalty. And we do that by delivering amazing experiences. And we really haven't changed it recently because it's working. A key point that you've heard about is reusability, and you've heard a little bit about all of the interconnectedness, and I want to try to explain how that ultimately works and gets brought to life through digital. We think it's a competitive advantage, and as Terry said, it's an outcome of the investment we've made for the past five years. So let me explain. We now have enough of the components off the shelf that allow us to create about 80% of new experiences, which means each incremental investment that we make doesn't need to be as much.
This allows us to be faster also, and more efficient with that delivery. We've adopted the principles of a product company. That means that we've developed a vast IP library. We're able to compose at client speed, which allows us speed to market. We have a consistent authentication, a common application platform, and a common set of servicing capabilities, and a robust API portfolio that allows for that embeddedness into client systems and the like, and we're able to leverage all of that to bring new things to market, so let me give you a couple of examples. You heard about Elan co-brand, Edward Jones, and State Farm. In all of those cases, we're using the investments we've made to be able to minor customization and then be able to deliver those solutions to market.
So, you, thanks for the insights with respect to, you know, how the investment that we're making really help us deliver against, you know, a lot of these initiatives that we have. Maybe you could give us some specific product examples that... and then kind of how, what you're focusing on as you go forward.
Yeah, absolutely. Well, you heard about a number of them, so I'm just going to talk about a couple. We were one of the first, as you heard from Arijit, to have nationwide, fully digital CDs, selling and renewal. Now think about this, the environment and the rising rates happened very quickly, and so we needed to be able to make that happen rapidly, and the platforms and the capabilities that we have allowed us to do that at speed and allowed us to achieve the results you heard from Arijit. Now, as we shift our investments, we think about small business, corporate, and wholesale. Now we're able to open corporate trust, money center, and other institutional accounts digitally through our other employees. And what that allows us to do is massively reduce the onboarding time, which is faster time to revenue and time to market.
So, Dominic, what you've heard earlier today, you know, people talking about our number one consumer app and those sorts of things, and I'll tell you, every person that is probably on one of these stages is talking about how they're ranked number one in something. But you've been recognized across many different organizations, and so maybe you could talk a little bit about that. But more importantly, why does that matter?
Yeah, and I think that really is the key question because, you know, of course, we're proud of the ratings, and of course, a number of folks can say, "Hey, we have this rated." You think about mobile banking and online banking, those are the cornerstones. But what you see here on this slide are a number of our other solutions that are also highly rated. So why does it matter? We know that when we have higher client satisfaction, we have better retention and engagement, which means we have better customer performance. We also know it allows us to reduce expenses. You heard about reducing things like in-store branches. Part of that is because we have both the capabilities and the experience that allows those experiences to move out of the branch and into the digital channel.
Reduced call volume, reduced time spent on calls, and reduced delivery through the retail franchise. This robust suite of interconnected products also enables customers, as you heard from Arijit, to come back to us every day, and that engagement allows us to do data-driven product recommendations and service recommendations that help drive the growth. The footnote of that is that this investment that we've made, as you heard, is in the run rate, but it allows us to get to these strong increases in adoption and service capabilities, and then we can shift and continue to build against the other areas we have prioritized. The digital engagement, as a reminder, is at 85%, which is pretty incredible.
That is incredible. So, you know, one of the... if as long as you're talking about digital adoption, I think the Union Bank integration is a really good example. So maybe you can tell us a little bit about what we saw as we went through that integration.
Yeah, sure. So as a reminder, we wanted to make it as easy as possible for the Union Bank customers to be able to use our digital solutions. We had more capabilities than what Union Bank had, and so think about taking those customers and putting, you might have heard me say, putting them in a time machine forward by a few years in terms of the capabilities we would unlock. What we saw was 70% adoption within the first month alone, post-integration. We saw more customers using digital than had used digital previously as well, and that's because we made it super easy to enroll and use. And as you heard from Shailesh, we saw the good results on the credit card sales and the incremental positivity, and part of that is because we can present that offer at the right time in that experience.
The other thing I'll mention, and I've talked about this before, the engagement in sales overall leads to real results. You saw this in Arijit's slide, but I'm going to mention it here, which is we saw two times growth in digital sales share in consumer and four times the growth in small business from five years ago. These platforms and the capabilities allow us this reach through the distribution partners. We also have doubled the number of products that we can deliver digitally since 2019 for consumer and small business combined. Another item that we don't talk a lot about, and you'll hear more about, is our Spanish capabilities have been an investment that we've also unlocked. That means we have now Spanish language capabilities in digital and mobile. You can simply flip a toggle, but our digital assistant is industry-leading.
We're one of the only ones with the Spanish language. Why does that matter? It's one of the largest, fastest-growing demographics in the U.S. It's key to the California strategy, and we have those capabilities today. So as you can see, all of this unlocks the potential that Shailesh and Arijit have talked about, and now we're building on those strengths to shift in small business and corporate, and it's reshifting, not incremental investment, that allows us to deliver that. And lastly, a really good example in corporate... is unified onboarding, so a consistent experience where we've played that playbook, and being able to deliver that out for the institutional customers as well. Thank you, Terry.
Fantastic. So in summary, if you think about the digital strategy, we're enabling our product growth through a lot of different things. One is that comprehensive digital capabilities, having that library, that inventory of different reusable things built on an enterprise platform. So it's not built within silos, but it's built across the organization, which helps to support that interconnectivity that we've been talking about. You talked about the APIs and other tools, and if you think about Edward Jones, or you think about State Farm, having that type of capability with all the partnerships that we have, really help to drive success in terms of that digital strategy.
It enables speed to market, and I know we'll talk a little bit more about that when we talk about the modernization of our tech stack, but it also enables that, a national reach, if you will, and so a lot of different elements of it that enable us to be successful. So, Dilip, I'm gonna turn next to you, and maybe what you could do is to kind of give us an update on some of the things that you're doing to support that digital strategy, and with what, you know, other sort of key technology initiatives that you're focused on.
Terry, our technology strategy is basically focused on enabling business growth and supporting all the strategies you just heard about from Gunjan and others, but doing it in a very financially prudent manner. To get there, we have undertaken a variety of initiatives, which you see on the screen here now. Let me just walk you through some of them. The first is the customer applications. You know, we've invested quite a bit in the customer-facing applications, as Andy mentioned, and this has allowed us to, you know, get to the market-leading applications and interfaces, connectivity interfaces for our partners. What makes all of this possible is how we leverage our data.
You know, we have created a unified data platform that kind of breaks down the silos and pulls together the data, not just from different systems, but makes it accessible through more modern interfaces and so on, which makes it possible for us to deliver two things, to be able to both improve the performance to our customers, as well as to reduce the cost of kind of the whole, you know, process of serving and so on. We are also modernizing and upgrading our core systems. Core systems are the systems of record that, you know, hold the critical customer data, the account data, and all of the, you know, the daily balance information. As with most banks, these tend to be mainframe-based systems, very reliable, but you know, somewhat difficult to change.
And so we have, you know, consistently and continuously modernized, chipped away, upgraded, and replaced these systems. You know, for example, we replaced the FX system recently, which, you know, Stephen spoke about in terms of the implications for the business growth that it delivered. We're also working right now on the payments core systems, the broker-dealer system, and have been continually modernizing and upgrading our core DDA system as well. So, you know, a variety of these things actually help us, in effect, get products to market much faster.
Hey, Dilip, can you just remind us where we're at with respect to the cloud strategy and the migration?
Sure, so our cloud strategy involves us migrating about two-thirds of our applications from on-prem data centers to Microsoft Azure and Amazon AWS, and we are about, you know, midway through that journey and making steady progress. When this is done, the value that this will provide is a set of financial benefits, certainly to do with kind of reduced costs, but more importantly, improved performance, improved ability to scale up and down on customer demand, as well as essentially bring products to market much, much faster and at lower cost of incremental build.
In summary, really driving efficiencies in your organization, speed to market or development, as you would say, and that interconnectivity very much focused on that. Cloud migration, you're about halfway through, so you know, we would expect. That's probably more around speed to market and the development process and being able to support that business, but it's also cost efficiencies once we get through it, which I think will be good. Then at the same time, modernizing and replacing our core systems. These are all investments that will help to drive growth and efficiencies in the organization as we go forward.
So, Dilip, why don't we also shift and just talk a little bit about when you think about our $2.5 billion annual investment spend, you know, can you elaborate on areas that you're investing in and how that translates into modernizing the stack?
Sure. So I described earlier the key modernization initiatives, but what's equally important is the how and how do we actually go about it, what's our approach? We're going about this modernization effort with a very sharp focus on a simple, well-defined architecture with a high degree of reuse. And what this means, for example, and Dominic mentioned common platforms, we have common set of code modules that are used for a variety of tasks. For example, regardless of this is a consumer or a small business customer, someone applying for a loan, any application uses the same set of code modules, fewer SKUs, you know, much larger kind of reuse. Not only does that improve the ability to get things faster and cheaper, but also reduces things like error rates and, you know, rework and so on.
You know, this particular approach, we think, is kind of quite significant in a variety of our kind of deliverables.
So, we've talked a little bit about time to market. Maybe you could also talk about how it enhances system performance and some of the things that, you know, from a technology standpoint, being able to upskill your talent and to be able to support those initiatives.
... It's a good point. So we're equally focused on, essentially on speed and release frequency. Over the past few years, what we have done is we systematically simplified the development processes, automated wherever possible, and tried to consistently get to a, you know, finely tuned, nimble kind of internal operating process. This has allowed us to reduce our, you know, improve release frequency, for example, by 20%. Likewise, you know, I mentioned earlier about our modernization of the core systems and data and so on. What this has allowed us to do is, for example, each time a customer looks up at the, on, for example, on the mobile app, looks for a balance, it serves it up from much more modern systems, which are kind of tuned for higher performance, you know, lower latency.
It kinda, kinda loads them much faster. But this also, you know, helps us reduce, for example, expensive mainframe consumption by literally we've reduced mainframe consumption by over 20%. Now, the important part here is, you know, all of these I spoke about, you know, related to our technology and our development processes and all, but technology is constantly changing and evolving. So what is critical is to make sure that we have kind of the right talent, the right human capital, to kind of support all this. So we've engaged, we've gone on a journey of kind of upskilling our work in our workforce, a lot of certifications, a lot of training, internal hackathons, and a variety of things designed for that.
And I'm, you know, very proud that over, you know, about 3,000 of our, you know, over 5,000 engineers have actually just in the last three, four quarters alone, have taken up, you know, advanced certifications in AI and cloud and, and other digital capabilities as well. So, ultimately, kind of, you know, what I'd say is this disciplined focus on having a simple, simplified architecture with a high degree of reuse and a nimble operating process is what truly, you know, sets us apart, I'd say. And importantly, we have successfully built many of the primary building blocks from a technology standpoint, and the next... You know, what we need to do next is to simply snap these together to leverage them for business growth.
So some of the things you're focused on, that simple architecture that you're talking about, and that kind of ties into, you know, U.S. Bank's philosophy around, you know, single core platforms. You know, one platform to support loans, one platform to support deposits, one platform to support trust. That is, you know, I think that's still something that's very important, and one of the things that it does is it helps with business execution, not only in terms of what you're trying to do, but you think about the Union Bank transaction. One of the reasons why we were able to do that is because of that simplicity, I guess, if you will.
And then the modular platforms that you talked about, kind of being able to bring those modules together in order to be able to support different businesses, business initiatives across the organization, those are all things that are very important. So, Dominic, I'm going to turn it to you next. And you know, one of the areas that's been a very strong focus, at least in the forefront, has been artificial intelligence and machine learning. Maybe you could elaborate on some, how we're focused on that and kinda how you see that developing.
Absolutely. So, absolutely, artificial intelligence has been a hot topic. But it's I think it's really important to understand that we've been investing in artificial intelligence, machine learning, data platforms, and importantly, talent for a number of years, so we're not new, we're not new to this. We already have numerous solutions that are adding meaningful value that are in production today. We continue to innovate and test the emerging technologies and use cases, of course. A good example is our conversational AI virtual assistant. It's best in class, which is awesome, but more important, more than half of our customers have used it, and when they use it, they tell us they love how it works and that it helps solve problems and answer questions.
It's important to understand also that while a lot of the conversation around AI today is on generative AI, we really have most of our stuff that's in production that is more traditional AI and machine learning. So piloting, experimenting, bringing it to market, but we'll do that carefully and appropriately over time. The strategy really is focused on the enablement of human potential and AI. And just a couple of the areas where we're driving value. Improved marketing performance, this is the largest area of impact so far. The advanced and digital assistant I mentioned, but also now we're piloting a generative AI solution with our call center reps. It allows them to get to the right answer faster, which improves the client experience and reduces talk time. Real-time fraud prevention and avoidance, and end-to-end operational efficiencies focused in these areas that you see behind me.
So as I said, we have the talent, the tools to be very successful at that. We're leveraging the same digital model, so that's proven to be very successful, and we have business leaders assigned to these objectives that are driving those business priorities.
So you're making good progress, there's more opportunity to come, and we're in the early stages of piloting some of the generative AI aspects.
Absolutely.
Maybe this question is really for both of you, and when you think about the things that you're focused on, how are we punching above our weight in terms of the digital and technology transformation that you're going through, and what gives you that confidence to be able to say that?
Sure. When I think about it, first of all, the first part is pretty simple, right? We're supporting the growth initiatives that you heard about across the business lines. Digital and technology play key roles in being able to do that, and we have a model that allows us to do it efficiently. We then focus those investments on the items that make it simple for the customers to digitally connect and engage. We do that across the entire customer journeys, the front end of the marketing funnel, all the way through the servicing and delivery, and all of that works across the products from an interconnectivity perspective. And then lastly, on the efficiency side, we have about three hundred DIY and DIT capabilities. These are either self-service or do it together capabilities, and that's about double from what we had four years ago.
And importantly, we enable the branch, the call center, and the customer all to use the same platform, which means we don't have to develop it for three different interfaces and experiences, and that's reusability come to life. ... And Dilip, I'll have you talk about tech.
Sure. You know, as I've said a few minutes before, we made significant investments in technology. And, you know what? The way we have done it is equally important. We've focused on simplicity, reusability, and a very nimble operating process. All of these, kind of, combined, give us essentially performance benefits, speed to market benefits, and, you know, financial efficiency. These, I believe, are in a truly both position us well, and set us apart. But let me actually go through a few examples of this. You know, Shailesh earlier had talked about a variety of integrated payments solutions. Because of our modernization, we were able to launch the advanced kind of point-of-sale capability in literally in record time.
Second example, we were one of the first banks to enable real-time capability support for our customers using RTP and FedNow, and so on. Our core modernization progress was what made it possible to launch the customized CD pricing that Arijit spoke about, and finally, I know Stephen spoke about the foreign exchange and the growth, and this is driven in large part by the modernization of the underlying platform and kind of the upgrading of the platform. The most interesting example, though, is I would kind of point to our Union Bank conversion.
Because of the nature of the technology stack and the modernization that we had undertaken under our data capabilities, we were able to migrate over 1.2 million customers seamlessly, all over a few hours on one day on a weekend, and so, you know, collectively, I'd say, taken in all, our technology strategy is basically effective at enabling the business growth priorities, and doing so in a very financially efficient manner, and as I said before, we have built the primary building blocks needed, and now it's the, you know, matter of time for us to essentially leverage them appropriately for business growth.
So just maybe to summarize everything that we've been talking about, you know, we made a lot of great progress. We've been very intentional with respect to the investments that we've been making. We've believed that we've done it in a smart way that enables both reusability and speed to market with respect to the product development as we go forward. We're making good progress with respect to the modernization of our technology stack, and these investments will have a very positive impact as we think about the future. More importantly, or very importantly, is that this is in our run rate, and so we're at the point in the investment curve where we should see the expansion of revenue and cost efficiencies as we go forward. So thank you, both of you.
Thank you.
Thank you.
Thank you, Terry, Dominic, Dilip, thanks for that oversight on technology. I'd like to move to risk management now, and I'm going to introduce Jodi Richard, our Chief Risk Officer, leader. Jodi has been in the position of Chief Risk Officer for six years. She's been at the company for over a decade, and she has over thirty years of experience in the industry, having been at HSBC Americas, as well as the Office of the Comptroller of the Currency . I have to tell you, the Chief Risk Officer position at a large bank is a critically important position to the company overall and to the CEO. And Jodi brings three attributes that are critically important. Number one, she's damn good at this, and she's damn good at managing risk for the company in a long tradition of what we've done at U.S. Bancorp.
Number two is she has the trust and respect of the regulators that regulate our company. And number three, she has a great partnership and trust with the business lines that she's working with to partner to deliver the products and services that are here. She's going to talk a little bit about our risk profile as well as our focus areas in the future. Welcome, Jodi.
Thank you, Andy. That's quite an introduction. Good morning, everyone. It's a pleasure to be with you here today to talk about risk management, and as you heard, it is a core competency of U.S. Bank. Before I get into my slides, though, I want to share a little risk management story with you that occurred over the last 12 hours, and it's one on proper contingency planning. So last night after dinner, I received a text that my son, who's here attending NYU as a freshman, was unresponsive in Times Square and was being transported to a hospital by ambulance. So I immediately left dinner and jumped in an Uber, and through digital technology, I'm, you know, following his phone of where he's at, not knowing what hospital he's going to. And spend...
The long story short, spent the night traveling around Manhattan, following him to the emergency room, sitting there, not being able to see him because he's eighteen and an adult, and going back to the hotel, going back to get him, and pick him up, but while I was doing all of this, contingency planning was in action with George and my stand-in, Troy Remington, our Chief Credit Officer, who was immediately prepping to stand in for me today if I was unable to make it, so Troy, I want to thank you very much for that. The good news is my son is discharged, and he's doing just fine, and he's actually in class today, believe it or not. I had no sleep overnight, so my heart-...
is still racing a little, but in true U.S. Bank fashion, I'm not going to let a good crisis go to waste, and I'm going to use this as a risk management learning opportunity, and I'll be working with George to update our Investor Day playbooks to have ready understudies for every single presenter that you see up here tonight, and no doubt, we have the talent in the room to step in for any one of us. So with that, let's jump right into credit, which I'm sure you are all interested in, and credit risk management, as you've heard from Andy at the beginning, is a differentiator for us that positions us for long-term success.
We have a proven track record and through the cycle, and we have a consistent underwriting approach that will support the business growth that you heard about earlier today from the business leaders, and that has not changed. Our core principles are listed on the left-hand side. They start with one, with diversification. We want to ensure that our credit risk, as well as the revenue streams, remain diversified. We want to avoid undue concentrations in any one portfolio or sector, and we do that through using robust limit structures that are constantly stressed in order to help us set the limits that we think are appropriate. And then finally, we're very proactive in reviewing our credit risk ratings as well as our reserve levels, so that we can capture that risk early on in any time of economic uncertainty or stress.
And you can see that reflected here in our loan portfolio. That comprehensive limit structure that I mentioned, our desire to keep our well diversified across products, sectors, and geographies. And then those reserve levels appropriately reflect that loan mix within a particular sector, but also the risk characteristics in a series and range of economic scenarios that are prudently accounting for those uncertainties and potential downturns. So the through-the-cycle performance. You've heard us talk about this, our proven through-the-cycle performance. You've maybe seen the graph on the left-hand side. As you know, we managed through the 2008 and 2009 Great Financial Crisis without a quarterly earnings loss, and we weathered the COVID, COVID pandemic as well as the current market stress around CRE office. We're doing that very proactively.
And then you can see on the right-hand side of the slide that through the cycle credit loss estimates, and you can see through proactive risk management, underwriting, and portfolio risk management, that annualized loss rate has decreased fifteen basis points since we last spoke with you in 2019 . So what is our through-the-cycle expected loss rate? It's meant to capture an average annual expected loss through an economic cycle. We generally look at a ten-year period, anticipating that we'll have seven to eight good years, two to three bad years, and we look to measure that. And we constantly want to be taking that level down and managing it across the portfolios. So how did we achieve that? A lot of that is driven by that proactive balance sheet management, as well as our prudent credit underwriting.
I'll highlight a few of them that we have on the list. One of the biggest lifts was in small business. That's mostly due to mix within that portfolio, where we have a lower volume of the SBA at the smaller end of the small business segment, which tend to have a higher loss rate. When you look at the other retail category, this is really due to our proactive balance sheet management, where we had a reduction in auto loans, manufactured housing, as well as student lending. And then if you look at the residential mortgage portfolio, this is largely driven by the strength in the housing market, our proactive underwriting and account management strategies, but also the integration of a high-quality Union Bank portfolio. And then the rest of the areas you can see are relatively stable.
If we turn now to credit quality, I know there's been a lot of attention over the last few days on what are we seeing in credit card, because it's a driver or a result of what is happening in our consumers. As you can see here, our credit card delinquencies have stabilized as expected and are returning to those normal seasonal patterns. We expect the credit card losses to follow the same stabilizing patterns. As expected, our credit card net charge-offs did increase in the second quarter, but we anticipate they will go back down in the third and fourth quarters to that first quarter level that you see there. As a reminder, we are primarily a prime credit card lender, so we don't receive the same stress as you see in other issuers that maybe are at the lower segment of that market.
And then total criticized assets reflect that early identification of risk that I mentioned. We get in there early on, assess the risk ratings, make sure we're appropriately reserved. So you often see that ours are increasing, our criticized assets or even NPAs, maybe a couple quarters ahead of others, but then now we're stabilizing, and the other institutions you might see are catching up. Again, this is reflective of our core, excuse me, our proactive risk management. Let me shift gears a minute and talk about our enterprise risk management capabilities. Our governance that underpins our risk appetite ensures that we have alignment between our strategy that you heard about this morning, our capital availability that John will talk about right after me, and then our risk appetite capabilities.
To this end, our risk appetite capabilities supports and enables that business growth that we heard about this morning. That has not changed. If anything, it's constantly evolving. We're improving the ways that we are managing risk, and we continue to invest in technologies, processes, and people. We also continue to navigate the evolving regulatory expectations. Our strong risk culture allows us to address those in a quick manner, and this was evidenced by the Union Bank consent order that we were able to meet, as well as exit very swiftly, that we talked about also a little bit earlier. It also allows us to be more proactive in managing some of those emerging risks, and we incorporate those right into our routine governance processes. These are things like ESG, climate risk, as well as AI machine learning that Dominic just talked about.
And then regulatory relationships. Andy brought this up in his introduction to me. This is extremely important. We focus in on transparency, communication, trust, and respect, and this is a priority of mine, as well as a priority of the entire company and Managing Committee . And this is what gives me the confidence that we'll be able to meet the heightened expectations, increased regulatory examinations, and prepare as well as we grow and get to Category II. I wanted to highlight a few of the key and emerging risk areas, those of fraud and cyber, and we've strengthened our resiliency around these external threats. We've recently realigned our cybersecurity function from technology into risk management. We did that at the middle of last year, and then earlier this year, we moved the fraud strategy operations into risk as well.
What this has done is put cyber, fraud, AML, BSA, privacy, third party, physical security, all of those functions that deal with internal and external threats under my leadership in one umbrella. But what this also does is allow them to be able to share intelligence, processes, technology, and incident response. And so they're not competing of, well, who's going to manage this incident? Is it fraud? Is it cyber? Is it a privacy event? It doesn't matter. They all work together. And so while this naturally creates some efficiency, it also creates effectiveness, because we're able to respond to that incident immediately. And then our AI, detection and patented data science capabilities, again, that Dominic talked about, have supported a very meaningful improvement in our fraud detection, prevention, and loss, preventing losses.
And then I talked about crisis playbooks, and we're constantly refining our crisis playbooks, testing and learning and adapting. We also test with our third parties as well, to make sure that we're prepared if they have an incident or we do, so that we can make sure that we have resiliency in place and make sure that we're protecting our clients as well as our own reputation and brand. Looking more at cybersecurity, and I wanted to take a moment to do this, because this is a priority of our board of directors, and several of the directors in the room here sit on our cybersecurity committee, and they're very interested in our response, and they've been very helpful in guiding us in our governance processes.
This is an area we continue to invest in technologies and people, and we need to make sure that we're continuing to detect, prevent, and restrict those intrusions that come. We know the number and sophistication of these cyberattacks continue to increase, so we are constantly training our employees. We constantly are working with our third parties to understand their capabilities in making sure that we have backups and others in that form of resiliency. And then we maintain those strong relationships with our peer banks as well as other federal agencies, because we want to share that intelligence, and we want to make sure we have a coordinated response. So this is my last slide, and I'll close where I started, that our credit risk discipline and risk management are a core strength for U.S. Bank.
We have a proven track record through times of economic cycles as well as varying regulatory environments, and our strong governance and risk culture is embedded in the 70,000-plus employees. I have no doubt that any one of the management team could have stood up here today and given this presentation, so we remain very proactive to identify and mitigate emerging risks. We have contingency plans in place, and we'll continue to build and invest in our capabilities as we continue to grow. Thank you.
Thank you, Jodi, and we're all glad that your son is doing well. Thanks for that. ... presentation. Our final speaker today, before we get to the last Q&A, is John Stern, our Chief Financial Officer. John's been with the company for 24 years. He served as our treasurer for eight of those years, working and focusing on balance sheet management, interest rate risk, capital liquidity, all the things that are so important right now. So he has a deep skilled knowledge of that. I think importantly, John then also spent a few years running our global corporate trust business, which gave him the business line perspective, which I think makes him an even better CFO. He brings a skilled, knowledgeable, calm hand to our financial management wheel, and I'm proud to introduce John and bring him to the stage. John?
Thank you. All right. Good morning, everybody. We're almost there. All right. Well, thanks for being here with us this morning. We know it's a lot of your time, and we appreciate that dedication. So, as Andy had talked about previously, the last five years have been very volatile, a lot of uncertainty. We, along with all other banks, have had to deal with things such as COVID-19, inflation, higher interest rates, a challenged regulatory environment, given the failures of last year. We also have the added... With Union Bank, the integration that we had was highly effective and efficient, and it was really something that I was very proud of with the management team in managing through that very effectively.
And so through this cycle, the ability to manage through that has been really outstanding, and it has to do with our interconnected and developed business strategies that we have. This development that we have has allowed the businesses that we have to move our capital ratios about 200 basis points in six quarters. Truly outstanding, and it has allowed us to maintain our return on tangible common equity lead that we have, which is industry-leading. However, as Andy mentioned, we understand and we recognize that our lead has narrowed with respect to return on tangible common equity. The intentional expenses that we have brought on, that you've all heard about, have been obviously, as we've said, quite intentional, and it's taken some time to get that into our run rate.
At first, these investments, as you can see on the graphic, were more on the defensive side, meaning we're investing our capabilities in terms of our risk management capabilities that Jodi mentioned about, or technology build-out and platforms that we had to make sure to install. Lately, though, these platforms have been more on the offensive nature, and this is something that's been much more exciting. Two-thirds of our investment recently has been on the offensive side, where we've been building digital capabilities, new products, and all the different type of engagements that we need to service our clients moving forward.
And so, what's important, though, for you to know about this slide, and has been mentioned before, and I'll say it again, the investments that we have made is in our run rate fully, and we can continue to invest at this current run rate without increasing our expense and continuing to invest offensively as we move forward. And so with this in mind, we certainly know that there are going to be uncertainties in the next five years, just as there were uncertainties over the last five years that we had to deal with. We will always be in uncertain times. However, I would submit to you that our bank is structurally much more equipped to handle these situations, and it's in this environment where we have a lot of our headwinds that were a part of the past are now part of our tailwinds.
Let me give you some of the examples here. So if you think about the inverted curve that we've been with over the last two years, a record amount of time, if you look at the two-year versus the ten-year Treasury, over two years, that, that curve has been inverted, and now it has finally started to move into more of a positive environment. Now, we still have an inverted curve if I look at Fed funds versus five years, but we are getting to be at the point where the Fed is starting to go through a cutting cycle, and we'll see that benefit with a more upward-sloping curve as we move. Second thing is that the rules are more well known.
Just the other day, we heard from Vice Chair, Michael Barr, about Basel III Endgame, so we have a little bit more certainty there. We understand the long-term debt rules. We understand some of the other things as it relates to Stress Capital Buffer. So the known factors of the rules from a regulatory standpoint are much more well-developed than they were a couple years ago. Third is really the investments that I just talked about, fully in our run rate, as I just mentioned, and we can continue to invest in that going forward. And along with all these things and all the presentations that you've heard today, in terms of the business line growth, the technology, the risk management, all of this gives us confidence as it relates to our capital.
We now can talk about capital, not only in terms of a capital build, but balancing that with capital distribution moving forward. Therefore, we are at an inflection point for this bank from a financial management perspective. When I think about managing these tailwinds, I think about how do we manage these from a financial management standpoint? I think about four different pillars. The first pillar really is around the balance sheet and making sure that we have the ability to utilize our balance sheet in a very steadfast way, being excellent stewards of our balance sheet in terms of pricing loans and deposits appropriately so that we get the adequate return.
It also means about liquidity strength, making sure that we have an investment portfolio that is strong, having cash on hand, and having a well-diversified deposit base as well. The second thing is really about the risk management component, and Jodi just mentioned about this. It's a hallmark of our company in terms of ensuring we have the right credit infrastructure in place, from an underwriting standpoint, it's critically important for us. In addition to that, making sure we have appropriate risk management as it relates to our financial management capabilities, interest rate risk, liquidity, capital.
Business performance, the third item, we've said a lot here about the investments that we're making, and it's our job to make sure that the initiatives that the business line have, the investment dollars are strategically going to those business lines, and while we're doing it, making sure we're prudent in our expenses. And then finally, on the capital management side, again, making sure we understand our targets and balancing our growth of capital that we know we need to do, along with distribution moving forward. So let me talk about each of these pillars in a little bit more detail. I'll start here on the capital efficient side. You know, we've made a lot of great strides over the last several years. We've been positioning the balance sheet very effectively.
We've been being good stewards about ensuring that we are leaning more into high relationship, high ROE relationships, and shying away from more areas where there's more capital intensity and where there's more single service and things of that variety. That's been a very important outcome. What's resulted in that is what you see on the right-hand side of this page, which is really the RWA density that we have, has declined over the last several quarters. That's a reflection of our efforts to make sure that we are as efficient as possible with our balance sheet. It allows us to have a leaner balance sheet so that when there are times of growth, we can step in for our clients when need be, which is a very important thing for us as we serve our clients.
Turning to liquidity. You know, the investment portfolio is a big part of our big asset that we have on the balance sheet, yet it provides a lot of liquidity for us, obviously, and the returns are starting to improve on this as well. We're starting to exit lower yielding securities for higher yielding securities, and the mix shift from mortgage-backed securities more into Treasuries has been happening over the last several quarters. Our cash position remains strong. Obviously, it's been growing quite a bit over the last several quarters, which is a very important thing from a diversification standpoint from liquidity. And then finally, our deposit base. Now, it's really nice to show that our uninsured deposits, we have a vast majority of these are really, in nature, operational. But beyond that, we look at it beyond just operational or non-operational.
We look at it from a diversification standpoint. Having a well-diverse deposit base is critically important. We want to make sure that we have a from a geography standpoint, from an industry standpoint, small business, retail, middle market, consumer or commercial, corporate, institutional, all sizes of institutions, very important for us as we think about the diversity. So let me talk a little bit here about our interest rate risk strategy. Let me shift to that. You know, we think about our interest rate risk in a number of different things. There's three objectives that I think about. The first is really on risk management, taking a risk-managed approach and making sure that we're not taking bets on interest rates.
We may lean into positions here and there when the position of travel is obvious, but we want to make sure that we're doing it in a prudent fashion. The second is taking a holistic approach. You know, anytime we do put on a loan, a deposit, make a decision about an investment portfolio, purchase or not, we are always looking at what's the trade-off between capital, liquidity, earnings, all these sorts of things. So making sure we take that from a holistic approach. And then finally, from a flexibility standpoint, making sure we have the reporting in place, the capabilities, the hedge tools, all those sorts of things, so that we can move nimbly. And that is the capabilities we've been building out for the last several years. So a couple of examples here.
If you look on the right-hand side of the page here, is our loan book, and this is how we manage our interest rate risk. So from a holistic standpoint, our loan book tends to be 50% fixed, 50% floating. What we've been doing over the last several quarters is introducing receive fixed swaps, and this is going to help us in a down rate environment. And so you can see that we're a little bit more overweight as it relates to our fixed rate position in the loan book, which we think will serve us well going forward. The second is on deposit performance and making sure that we're set up appropriately for the next cycle.
We've worked hard to have the right diversification of deposits and to make sure we have a nice mix of 50% retail, 50% wholesale, so that when we get into a situation of a rate cut, we're well positioned for it. So as an example, if you look on this graphic, in a rising rate scenario, we obviously rose our rates a little bit quicker from a beta standpoint, but us versus peers, we all kinda ended up at the same place. If I think about the down rate scenario, or when we're starting to go down, we will fall a lot faster than our peers.
This exhibit from 2013 -2021 , that was during a cycle where the Fed funds rate was much lower, and we would anticipate that our beta on the way down, at least in those first couple cycles, will be higher or better performing than they were in the previous cycle. Moving on to our, the flexibility and making sure we have the right tools in place to manage interest rate risk. If the balance sheet shifts, then we can have the ability to shift with it. So what we have done is increased our hedging capabilities. So on the left-hand side of this graphic, you see receive fixed swaps. I just mentioned that on our loan book and what we've been doing.
We have a variety of swaps that are hedging both the loan book as well as some of our debt, our fixed rate debt, so that we're positioned for when rates are to fall. We have some spot-starting transactions that are accruing today, and we have some forward starting that will start to be introduced over the next several quarters. On the other side of that, we have pay fixed swaps. These pay fixed swaps really hedge and are matched off against the duration of our investment portfolio. It's really there, these are longer-term swaps that will help protect us if interest rates increase on the long end of the curve, so that we will not have as much AOCI impact that will be introduced into our capital. It's very important that we have these tools.
These two programs that we have here, actually, when we look at that in combination with the balance sheet, give us a holistic answer of a neutral interest rate risk relative to our sensitivity of our base case. It's a very important concept of where we want to be. This is exactly where we want to be, given our outlook on the base case as we move forward. As a reminder, the sensitivity is based off of the sensitivity from our base case outlook in isolation. So you need to know what is our base case to help define what that sensitivity looks like. Our base case over the next couple of years is three rate cuts here in 2024 , four rate cuts in 2025 , settling in at 3% at the end state with a slightly upward sloping yield curve.
That positions our balance sheet very well, and therefore, we like the position of having neutrality within that, within that interest rate component. Now, that just doesn't mean we will always be neutral. There may be instances where we want to take a different position. I'll give you an example. If the Fed were to cut rates aggressively and much more, deeper than what we would anticipate, let's say it goes to 1%, then we would likely become along the way, we would eventually become asset sensitive, just similar to how we were back in 2020. And so it's this dynamic nature of management that we are very focused on from an interest rate risk management standpoint. So how does this drive into revenue? And how do we drive the company and make sure that we're moving forward in that sense?
From a net interest income standpoint, I think of a lot of things to help drive net interest income. The first thing I would think of is in terms of higher returning relationships that we have on the balance sheet, shifting toward that and de-emphasizing lower returning areas. I also think about things in terms of asset repricing, in terms of our fixed-rate portfolios, mortgage, investment portfolio, other fixed-rate assets that we have on the books. And the third thing I think about, and most importantly in my mind, is deposit and the performance of deposit behavior over this over this time horizon as well, especially as we're gearing up for a cut cycle in this instance. So you'll notice that I didn't talk about loan growth.
Loan growth, of course, can help drive, and we expect that to drive net interest income over time, but it's been quite tepid, and I would anticipate that our growth in loans would be matched with the industry going forward. So we really want to make sure we're focusing in on these three items in terms of growing NII, which will help drive NIM expansion as we think about that moving forward. On the fee side, if we shift over to fees, it's really important what Gunjan just and the team laid out for you. It's very exciting how we're laying out both the transactional and the advice-type businesses. This is where our growth has been and will continue to be.
We've obviously had headwinds in fee income from mortgage, which everyone understands, given the rate environment from consumer, given some of the regulatory environments. And so this is the areas of growth that we are going to have is really going to be on our transactional businesses, which is our payments, fund services, corporate trust, all the things you just heard about, in addition to the advice businesses where we've had excellent growth in wealth management, asset management, and capital markets. It's this confidence that we have because we've been making investments in these businesses over the last several years, which is aligned with the strategy that we have. And that gives us confidence in our mid-single-digit growth for 2024 . It also gives us confidence in mid-single-digit growth as we move forward as well. As I shift over to expense.
Expense is obviously something we've been talking about quite a bit. Again, the investments that we've made, Gunjan, I think you said seven times to take it to repeat. I'll say it for the seventh time. Our investments are in our run rate, and we can continue to invest in the business going forward without meaningfully increasing our expense base. We've had five straight quarters of expense decline. Some of that, of course, is the Union Bank acquisition. We recognize that. But along the way, we've been making efficiencies operationally. We've been making efficiencies with third-party spend and other sorts of things. As an example, we told you that our expense base was going to be $17 billion during this year.
But when we found that the revenue outlook was not going to be as what we would have thought, we actually lowered our expense outlook to $16.8 billion or less. This is the confidence that we have and the levers that we have to pull, if need be, on the expense side, and that confidence leads to commitment in terms of positive operating leverage. If I look at credit, Jodi just mentioned credit, so I won't go into great detail, but from a financial standpoint, we feel very comfortable and appropriately reserved with our the levels that we have here now at just over 2%, which is appropriate given the mix that we have of different items on our balance sheet. We also have not changed our guidance as it relates to credit in terms of the net charge-offs approaching 60 basis points.
That remains intact as credit has largely stabilized, as Jodi has mentioned. This all leads to capital, and capital, of course, is critically important for us, and we've been able to grow our capital in a very meaningful way. Again, about 200 basis points over six quarters. The objectives on the right-hand side of the page have not changed over many, many years. We continue to want to be well capitalized, top-rated, and making sure we're sustainable through the cycle. So as we think about capital going forward, one of the questions that is always asked is: Well, what should your target be in this new environment, in this new world? So let me build up to that. Let me give you some key facts and assumptions.
The first is that previous to COVID, and for a long period of time, we operated our Common Equity Tier 1 ratio at 8.5%-9%. That was where we operated. Today, we are a much bigger company. We have new rules that are coming online. We have our AOCI that will impact the volatility of our capital moving forward. And so therefore, we believe at this point in time, given the rules that we know today, the stress test results that we have, et cetera, we believe that approximately 10% should be our Category II Common Equity Tier 1 target. We say approximately because there may be some factors as we finalize rules and things of that nature that can make that change a bit, but we wanted to give you an idea of where we stand today.
So then the next question is, "Well, okay, John, that's very helpful. So what are your next actions? What are you going to do with that, with that target, and how do we think about this?" So let me give you some more key assumptions here. The first is that given our projections, we do not believe we will be a Category II bank until 2027. The second thing is that our AOCI impact today is about 220 basis points as of the second quarter. Obviously, that has burned down this quarter with interest rates falling and will continue to burn down as we go through time. The third thing is that we will continue to build capital in the area of 20 - 25 basis points per quarter.
And so the combination of all those things and understanding our target allows us to understand that we will have a glide path from a capital perspective, from where we are today up until where we need to be in the future. And so with that information, the board has approved a $5 billion share repurchase program, which you all saw the announcement today. And we anticipate that we will utilize this share buyback program, which is open-ended. There's no time, horizon on it. But we would anticipate using this by 2025, and we anticipate that during the first quarter of the usage, it will be in a modest amount. And by a modest amount, I would define as approximately $100 million.
After that, the pace and level of share repurchases going forward will depend on a number of different factors: credit, interest rates, economic activity, performance, et cetera, just to give you an idea of where we will be. So then, however, as we think about capital as we move forward and think about the long term, this provides us an idea of how we think about it from a distribution standpoint over a long cycle. And obviously, we're not at this cycle at this moment, given our capital position. But as we grow into it, this is where we expect to be.
And as an example, if you take the midpoint of all these distribution points in terms of share repurchase, dividend, and then plowback into the company, and you assume a high teens from a return on tangible common equity standpoint, we can grow the balance sheet in a low to mid-single digit form and maintain capital levels as we move forward. It's a very powerful thing for us as we move forward in this sense. And that brings us to our financial targets. And you can see the assumptions on this page of what we're using. It's on the right-hand side of the page. I won't read all of them, but they're... In broad strokes, they're very much aligned with the expectations of the market at this particular juncture.
These are our medium-term targets, meaning, what do we think about our targets financially should be over the next two to three years? So I'm thinking 2026 and 2027. And it's what we feel comfortable with, given all the conversation that we've talked about today, all the initiatives that we have, as well as these headwinds that I've talked about moving into tailwinds. And importantly, in terms of 2025, we will provide that specific guidance and in January, when we have our normal course fourth quarter earnings discussion. In terms of shifting to guidance for the third quarter and the full year, very simple. There's no change to our guidance that we've provided since the last time we talked during the July earnings call. Our third quarter net interest income will be relatively stable, as it relates versus the second quarter.
On a full year basis, the range of net interest income will be between $16.1 billion and $16.4 billion. Our fees will continue. We continue to expect mid-single-digit growth relative to the prior year, and our expenses on a full year basis being $16.8 billion or less. So with that, Andy, I'm going to turn it back to you. We covered a lot of ground, and I know we'll cover Q&A with them in a moment, so I'll give it back to you.
... Jodi, to join me on stage?
... All right, come on up. Thank you. All right, I'd be happy to take any questions that you have around the topics that we covered this afternoon, which were, again, technology, risk management, and finance. Start right there.
Hi. Good?
Yeah, we can hear you.
Hi, John Pancari, Evercore ISI. Just a-
Yeah
Quick question on buybacks. You know, I hear that regarding the $5 billion program, and that you're likely to start off modest at first and accelerate. Can you maybe help us think about the pace as we look at 2025 and 2026 , and how that could ramp? And then secondly, just want to see if you could provide a little bit more color just around how we should think about balance sheet growth, the pace of balance sheet growth under that medium-term target. I know you gave us some pretty good color around the profitability expectations, but how do you see the pace of balance sheet growth, particularly on the asset side, in that medium-term view? Thanks.
Sure. Absolutely. I'll start. Maybe I'll go with the second question. You know, from an asset standpoint, I would expect that our loan growth will follow industry. And, you know, our loan growth over the last couple of years have been kind of in that 2%-3% area, like kind of low single digits. You know, maybe it's faster than that, maybe it's not, but we will follow industry in terms of loan growth. We want to make sure that we're available to support our clients, balancing that with returns. That's obviously a hallmark that I just mentioned before.
In terms of your second question on share purchases and the pace, I did mention, as you said, about approximately $100 million, as being during that first quarter, and then the pace and level of that going forward will just depend. It's going to depend on a number of different factors. I don't have specifics on what that's going to look like. I mean, I would think of it as over time, as you saw my distribution from a lower long-term basis, that will continue to grow over the long term, but there's a lot of distance, obviously, between here and there.
Ebrahim.
Thanks. John, maybe just... I think your slide implied neutral asset sensitivity, but I think part of the issue with the efficiency ratio is where the net interest margin is today. So give us a sense. You mentioned three cuts this year, four cuts next year. What that implies for the net interest margin as we think about 2025 or where you end 2025 relative to where the margin is today. And when the Fed begins cutting potentially next week, is that a negative event for the net interest margin, and then it comes back with a lag? Just give us a sense of how the trajectory will evolve on the back of Federal cuts.
Sure. So, if I think about net interest margin and therefore income, you know, we don't manage to margin necessarily. You know, that's going to be up to how we really manage the net interest income because the balance sheet can fluctuate over time. However, what I would say, though, you know, we're in kind of a high 2.60% area from net interest margin today. I talked about a number of things that will help drive net interest margin and income going forward in terms of asset repricing, in terms of deposit performance and things of that variety. And so that is what's going to lead us to growth in terms of net interest income.
You know, if I think about a big picture through the cycle type of net interest margin, you know, we've been as high as 3.50%, we've come down to 2.60%, you know, and anything in between. I think of the net interest margin being north of 3% in kind of a through-the-cycle component. So we certainly see that, and, and maybe to dive into that leads into your second question was, in terms of rate cuts, that's going to be beneficial to us because over as we're going to be able to cut our deposit rates faster, given the mix that I just mentioned. That will allow the curve to steepen. Again, I kind of look at Fed funds to five years being a, an important component.
Right now, it's very heavily inverted, but as that starts to moderate or come into either be flat or start to be positively inclined, that's going to be beneficial to us. And so that's those are the kind of puts and takes as we think about net interest margin.
So, John, as you said, rate cuts are beneficial-
Yep.
in the short term. We plan for, we forecasted for three for this year, but we're also not hugely sensitive if there's two or four-
That's right.
around that number.
That's right.
Yeah. Okay, Mike?
Yeah. Go down the line. Terry, if you just elaborate some on the, the Spanish aspect of the digital mobile banking. During your discussion, you had talked about that and the advantage of that, and then going down the line would be the fifteen basis points lower through the cycle credit losses. Are you able to price better for that? And then, John, to my earlier question, what does meaningful mean when it comes to positive operating leverage? You know, is it like revenues growing one dollar more than expenses, or are we talking meaningful in 2025 ? Thanks.
Yeah. So let me start with the Spanish capability within the digital space. You know, that's been an area of focus for us, and you know, we think about that as something that's going to be very important. Obviously, if you look at the demographics in the United States and the growth of Spanish-speaking customers, or future customers and prospects, we just believe that that's something that's going to be critically important. So we have the ability to kind of support that today. There is... When we think about the $2.5 billion of investment, we'll continue to be focused on expanding that capability, but that's certainly an area of focus for us.
As far as pricing, we always take into account the credit loss rate, but we also take into account the operational cost of the various products in which we have in order to serve those clients. And so we'll be looking at the proper risk-based return as that comes into play. So not necessarily a one-to-one correspondence.
... Then on the positive operating leverage question, no, it won't be a dollar. But let me think about it in the two different components. So on expense side, we've talked about the investments going through the run rate, and so we believe we can manage expenses as need be. The revenues, we expect to grow, given all the comments that we made here in terms of our revenue outlooks for fees as well as net interest income, and that should drive meaningful positive operating leverage. Now, whether that's a 1% or plus above that, we'll give you that specific guidance as we get into 2025 . But we expect positive operating leverage and high teens in terms of return on tangible common equity, which is where we've been at over the last several quarters.
John, as you think about that guide on efficiency ratio, mid to high, that we expect positive operating leverage. We were at 60.7% in the second quarter.
Yep.
As we get into there, we would start at high and work our way down.
We would work our way down. That's exactly right. That's what it's based on our projections and our medium-term outlook, Andy. Exactly.
Thank you. Thank you. I'm gonna go in the back there. Is that Chris?
Yes.
Hey, Chris.
So as analysts, it's our job to take all these strategic, slides that you have and try to turn them into a financial model. And the slide that I most want to turn into a financial model is slide number ten, which, you know, shows the OpEx kind of having lifted and then flattening out now and turning from defensive to offensive. But when, you know, you look at the financial numbers that we look at, you can't tell the difference between the OpEx, CapEx and OpEx. And quite honestly, when you look at things like technology modernization, it doesn't sound that different from digital capabilities. So how would you advise us, you know, looking at the outside financial, reports to kind of track your progress on getting that, operating leverage?
Well, Chris, I think about, you know, the spend that we've been that we show you in that. You know, we have about $2.5 billion in terms of OpEx, CapEx from a technology standpoint. And obviously, like you say, it's hard to tell what's in there, what's not. I think what we've been saying is we've been ramping up that expense over time from a CapEx standpoint. When you spend $1 billion, you're not gonna recognize that billion. Obviously, it's gonna amortize and come in, and that's why it's taken some time for the curve to ramp up to where it is. What we're saying to you is that we're at this run rate now, where CapEx and OpEx are equal year to year.
And so as I look at 2024 expense base versus 2025 outlook for expense base on the technology side, it's flat, right? And then there's other components to expense, obviously, personnel and all these other things, but we feel like we have levers in place to manage all these sorts of things, and that's what gives us the confidence on the expense side from a big picture standpoint.
Thanks.
Right here. I'll come to you next, Betsy. Thank you.
Thanks. Hi, Ken, Ken.
Hey, Ken.
Hey, Ken.
Sorry. Ken Usdin from Jefferies. Thanks. Just one more follow-up on that point. So I think that was clear that you're expecting that the investments are in the run rate. I think you guys have, in the past, talked about, like, 2%-3% being a pretty normalized growth rate of expenses. And again, I know it's not a formal guide here, but, like... So understanding you're not going to give us a positive operating leverage target specifically either, but it's a goal. You give us mid-single digit fee growth, talking about NII growing. But just when you do those components, you just add it up, John. Like, is there just an organic type of, like, what normally should happen, and then you have some flex above and below that, depending on where revenues are, up or down?
Yeah, I think that's a good way to describe it. Again, the tech component we expect to be flat. The other components of expense, obviously, personnel, if our fees are growing from a revenue standpoint, we should expect good expense growth from that standpoint. I say good, right, in terms of where the commission and sale incentive and things of that variety that comes into play. But we have a lot of other levers to that can help offset some of these things. We've talked about combining of our operations centers, call centers, things of that variety. We're gaining efficiencies there. On the technology side, Terry talked about, and the team talked about, our modeling and our making efficiencies in that same point.
So all that gives us additional levers that we have from an expense standpoint, with the goal of achieving positive operating leverage. And that is what we are absolutely striving for as we think about the second half of this year, is what, you know, getting a positive operating leverage in the second half as well as into next year and beyond.
Can I ask just a follow-up? Is there any way... You gave us this nice new detail on the active and the forward starting swaps and then the pay- fixed. Is there any context you can provide about what the receive rates are on the two buckets of the loan side and what the pay rates are on the security side? Thanks.
Yeah, I would say they're relatively neutral, you know, from from that standpoint. If I think about, you know, the receive-fixed swaps, you know, we have some that are spot-starting that are underwater today relative to Fed funds, and even the receiver, the forward-starting have been done over the last several quarters. You know, if you look at swap rates over the last couple of quarters on a forward-starting basis, they've been kind of in that mid-to-high 3% range. The swaps on the pay-fixed side are going to be kind of an equal amount, and so at the end, the swap income is really quite immaterial at the end of the day because of the offset.
But they're serving two different purposes, and what I was trying to convey is that we have two programs that help us holistically manage the interest rate risk of the company, and that's what we're really focused on. But we want to also focus on the yields on the short-term basis for if there's rate cuts, but then the investment portfolio capping or helping hold down AOCI if long-term rates increase.
Thanks, John. Betsy, I'll go to you, Gerard. Okay, Betsy? Right here.
...Molly, thank you.
All right, thanks. Betsy Graseck, Morgan Stanley. Two questions, one for Jodi, one for John. Jodi, you highlighted and discussed a bit about how resiliency is obviously critical. Is there any way that we can see that from the outside in terms of, you know, stack ranking or seeing your performance over time? I'm wondering how you, you know, determine, measure, manage your resiliency, if there's anything you can share with us on that. And then the follow-up to that question is just should we care about, you know, this next level of quantum computing? Is it-
Hmm.
Should we care at all today? Is this something science fiction, 20 years in the future?
Mm-hmm.
Or should we actually really be investing to care about it today? Anyway, those are my two questions for you.
Yeah. So I'll start with the resiliency. We have various internal measures, obviously, that measure our uptime and other resiliency that we have. None of that is really, I don't think, external, but what you can see external is more measurements of our cyber resiliency and our protection from the outside looking in. We commented on one of the screens, our BitSight score, which is an independent third-party assessment, and we have one of the highest scores amongst all of our large bank peers. We actually use that service as well to measure all of our third parties to understand their cyber defenses in order from a resiliency, you know, capability. We manage our third-party relationships incredibly strong, always making sure we have that backup capability. And then your last question was?
Quantum computing.
Quantum computing. Yes, that's a very interesting question, and I'm glad the board members are here to hear that. We've been challenged by our board members and our cybersecurity subcommittee to understand what our quantum computing defenses are. So we do have a strategy around that. We are preparing early. We feel that we have a couple year runway for that, but we don't want to wait. So yes, we definitely have a playbook. I believe it is real, and it's not something that we want to be complacent on. So that is something we're managing. We give our board updates on where we stand on that, and they're really, you know, pushing us to make sure we are prepared.
Okay, great. So that's been running expenses, too?
Yes.
All right.
It is.
And then, John, just a question for you. As we're thinking about the ROTCE goal, and I looked at it versus clearly, you know, five years ago, which is a long time ago, a different era. But you've got the, you know, mid to high teens, right?
High teens.
High teens, sorry. High teens, and you know, the expense ratio mid- to high 50s, right?
Yes.
And then you have a slightly lower ROA because of that, but the same ROTCE, so your goals, you know. So you're really talking about a slightly more levered balance sheet, yet you're looking for CET1 to be 10%. So I'm trying to unpack that and just understand how that all fits together.
Sure. Yeah. You know, so, maybe I'll start with ROA. You brought it up, and that has declined since our last time. A lot of that has to do with added liquidity, enhancements, and things of that variety. We've added a lot of cash, as you saw, in our investment portfolio, as a percentage of the balance sheet has been higher, and so that is a component that has driven that down. As I think about the interplay between ROTCE and efficiency ratio and all those sorts of things, as Andy mentioned, we're just kind of in the low sixties right now from an efficiency ratio. We expect positive operating leverage to occur, which will help drive that into...
At first, which will be the high in our goal over the medium term, of course, is to get into the mid fifties as that relates. In terms of ROTCE, obviously, we're at high teens right now, and the push-pull there is we expect higher earnings, but the denominator is going to get bigger as well as we're building capital and our AOCI burns off. So those are kind of the push-pull, which gets us kind of to that high teens from an ROTCE standpoint.
Your CET1 goal, is that? That's on your current category status. As you transition to Category II, should we anticipate it's, you know, same ratio, just different denominator?
Just to be clear, we're approximately 10% being our post Category II ratio. So we anticipate we are looking at that as our binding constraint moving forward. So today we're at 10.3%, so clearly we're above it, but we're going to continue to build and glide into that level. Again, I talked about the timing of Category II. When that occurs, and along the way, we can balance now build of capital, which we continue to need to do, but then do that with distribution, which is the start of the buyback program, which we just talked about.
Perfect. Thank you.
Thank you.
Thanks, Betsy. Gerard, do you have a mic? Yes.
Thank you, Andy. If I could circle back for a bigger and broader question for you. You were very clear today about the inflection where U.S. Bancorp is today. The operating revenue is going to grow faster than operating expenses for this positive operating leverage. Your colleagues talked a lot about interconnectedness to achieve. That's kind of the bedrock to achieve this positive operating leverage. How do you motivate your colleagues to be able to break down the silos so that you can take a holistic approach to your customer, where maybe one department has to sacrifice its P&L to allow another department to succeed? And then second, as outsiders, what should we be looking to measure that success of the interconnectedness? Is it as simple as just consistent positive operating leverage year in and year out, or some other measure?
Thanks, Gerard. So first of all, I think my colleagues are very motivated to do this for the benefit of the bank and well, the customers we serve, because I think what we're able to do is provide solutions to customers because of the products and services we have. As Gunjan and Stephen and everyone talked about, when we have a depth of relationship, the relationship delivers much more revenue per relationship than a single service. So it benefits both the customer and the bank. The opportunity, I think, is us working together, and I think you saw a lot of interconnectedness in the discussions, even today in the presentations that Gunjan led, and Stephen, and Celeste, and Arijit, talking about the connections across the bank and the opportunities of leveraging the balance sheet for the benefit of transaction fees.
I think Gunjan made an excellent point, which was, you know, as we think about our integration of acquisitions over the years, we've been wholly focused and very good at the technical integration, the expense takeout. We've probably I have not been good at, as good as the go-to-market component and making that streamlined. We're doing that now. We're doing that now, and Gunjan is leading that across the business lines. She demonstrated strong abilities to do that within WCIB, and I'm very confident we're going to do that across the company in this new structure. So that's big picture number one. As you think about what will be the proof points, what will we show to demonstrate that? I think it's gonna be accelerated revenue growth and positive operating leverage, the things that John and everyone's been talking about.
Those are the two key proof points, and making progress on that, back to the question Mike asked, that it starts at a lower level, but builds over time, and that's our expectation. Erika?
Andy, this question is for you. So just to set up the question, ever since the GFC, it's been very hard for a generalist portfolio manager to care about banks and owning a lot of banks that are not named J.P. Morgan. And so I do feel like, in that context, when I talk to generalist investors about U.S. Bank, because they don't pay as much attention to the space, it's almost like you're trapped by the narrative that was created by your predecessor, of low efficiency ratio, lots of distribution, which is clearly not realistic in this environment, where you're growing and the regulatory construct is different.
As I think about a relatively thoughtful investor day, but the stock not responding, I think, in terms of how you'd like, what is the one or two liner that you would like to tell a generalist portfolio manager about your bank, right? Because positive operating leverage is something that PNC and Truist and whoever will say. So what is it? What makes it special that a generalist PM should own you guys alongside J.P. Morgan?
Thanks, Erika. So I would say two things. Number one, in any bank, in any environment, what you want to make sure is you have a strong defense, and risk management is a core attribute of banking, and if you're not a good risk manager, you're not gonna be a good bank. I think we have that component and that attribute in a very strong fashion, and that's an important for the negative consequence. On the positive consequence, I think we have a unique set of businesses. We have corporate trust, fund services, payments, businesses that are less impacted by the regulatory challenges that we are all facing as an industry. You know, at U.S. Bank, over $500 million has been taken out of fee income because of regulation, and that could grow even more in the future years.
That's the slide that Gunjan talked about that was growing negatively. We have a bunch of businesses, transaction services, that are growing and not impacted by regulation. So it's that strong defense in a negative environment that we have, that we've proven, and this opportunity to leverage those unique businesses in this interconnected way. Those are the two things I would mention. Vivek?
Thank you, Andy. A couple of questions. Firstly, when I look at page 91, your financial targets, it seems like you've got quite the Goldilocks scenario there. You've got a lot of GDP growth, stable unemployment, stable credit. Everything is sort of best environment we could hope for. Walk us through what could go, what these numbers would look like, especially in the near term, if things start to slow in 2025, 2026. Cycles are never just that perfect, right? So we're going to go through that. And if Jodi could put that credit numbers in some perspective, because your 60 basis point charge-off ratio, when we look at the top 10 banks or so, it is at the high end of that.
You know, despite the fact that cards is not higher than some of the other banks included that you would put into that category. So, you know, if you could talk through that.
John, why don't you start on the scenario, and then Jodi-
Yeah.
- Can address the... Stephen.
Yeah, on the scenario, Vivek, you know, we run a lot of different scenarios, obviously, to ensure that we feel comfortable with that medium term. So what we want to do is at least give you our base outcome in terms of where it's at. Clearly, we know not all those things will hit. Some might be positively inclined, some negatively inclined, but that's why the flexibility on the expense side is so critically important. Because we need to make sure we have the levers to react and ensure in case interest rates don't go the right way, that we would think or credit becomes a little bit tougher for all banks, et cetera. We want to make sure that we have that ability so that we continue and expect to deliver positive operating leverage, is the simple answer.
And Jodi-
Yeah.
60 basis .
Yeah. From the 60 basis point perspective, you have to look at the mix. So you have to compare the mix of our portfolio to others and look holistically at what that loss rate is, and our mix has shifted over time. The lower amount that we get in residential real estate, which has very low loss rates, will influence, the other in the total amount. As it relates to our credit card loss rate, you have to look holistically of how we're pricing for that as well. And are we making the ROE and the return based upon the risk that we're taking? So we might have a higher, little credit box in that space for the prime borrower, but our return on that is achieving what we need-...
Given the expenses that we have against it, whether it be rewards or marketing or other things that might come into play at other institutions, and then finally, I think you'll see our reserve levels more than appropriately account for that level of risk that we're taking from a charge-off perspective. Currently, right now, we are weighting a lot more towards the downside scenario. I think you know CECL, you have the various weights of scenarios, so we are weighting towards the downside scenario, given the uncertainties that still revolve around CRE and some other asset classes, and so we feel appropriately reserved for the loss, the expected loss rate we have.
Jodi, if unemployment continues to creep up, where should we expect the sixty to go over the next couple of years, even if it's just a modest increase in unemployment?
Maybe I'll reach out, so I'll phone a friend. So do you have anything, Troy? So Troy is our Chief Credit Officer here.
Yeah. Good morning, everybody. You know, I would say it depends on the nature of the unemployment rate increases we've seen going from even the mid threes to where we are now. We really haven't seen any deterioration in the consumer credit because it's largely coming from, you know, increases in participation rates. People who have jobs are not necessarily losing them. So I think it'll be the nature of that. But certainly you can't decouple consumer credit, in particular, from the unemployment rate. But again, to reiterate Jodi's, we're well reserved for where we're at now. Our reserves do contemplate higher unemployment rates as we're weighted to the downside scenarios, and we feel that's appropriately covered.
So I want to be respectful of your time. You invested a lot of time this morning, and we appreciate it. And it's the top of the hour. I know a lot of you have commitments outside, so I'm going to ask the team to-
Mm-hmm.
Let me just close out for the day. If you have additional questions, we do have a lunch that we're going to have, an informal lunch right next door. So we'll be around, myself, the management team, senior leaders as well as the board will be around there to answer any other questions you have. But let me close it out. And a little bit, maybe, Erika, to the question you asked, when you go home tonight and you think about, you know, what we said, if I wanted to maybe leave you with a few things, these two slides are what they would be. Number one is that we are committed to focusing on shareholder and shareholder returns. We're going to regain the lead on the returns and the ROTCE that we've had. We're going to get back to the mid-fifties in the efficiency ratio.
We're going to grow revenues faster than expense, and we're going to deliver positive operating leverage. And importantly, as John talked about, we're going from a capital build mode to a capital build and distribution mode, and we're going to do that while continuing to invest in the businesses. We had to catch up a little bit, but we're not going to stop investing. We're going to just flatten that investment on a go-forward basis. So if you think about the three things that I would leave you with is, number one, I hope you heard today that we are an interconnected set of individuals and businesses, that we're focused on leveraging better than we have in the past. And we have a set of unique businesses that we think we could do that with.
Number two is that we recognize that we're at an inflection point, and we believe that we are at an inflection point on both the top-line revenue as well as the bottom-line expense. And those jaws, if you will, are going to widen over time, and that positive operating leverage will be delivered. And thirdly, and importantly, we're confident in these numbers. I'm confident in the numbers. John is, the team is, Gunjan is. We are going to deliver on this, and when we come back to talk to you in three years, you're going to see that we have. So again, thank you for your time. Appreciate your investment, and we will meet you at the lunch right next door. Thanks a lot.