Delighted to welcome U.S. Bancorp. From US B, we have Chairman and CEO Andy Cecere. Andy, thank you so much for being here.
My pleasure. Good morning.
Good morning, and joining Andy, we have John Stern, CFO, U.S. Bancorp, so John, thank you.
Good morning.
Joining as well. Maybe, I guess, just to kick things off, Andy, the big headline from the bank recently was the CEO succession announcement.
Right.
I'll say this, and not to put you on the spot. You just had an Investor Day update. It felt like you had a good story to tell. And the sense was maybe there was a year or two where you would still be running the bank in terms of kind of navigating, getting some of these strategic sort of targets well on their way. To give us your thought process, the board's thought process in terms of why is the right time now to announce this? And then in your role as Executive Chair, do you expect to stay on for a long period of time? Just how are you thinking about it?
Sure. Good morning, Ebrahim. Good morning, everyone. Thank you for having us as well, so Ebrahim, I've been at the bank, and I'm in my 40th year at the bank, and eight years as CEO, eight years as CFO, a couple of years as president CEO, so that's 18 years in the leadership position. It's a lot of earnings calls, and actually, for the last couple of years, I've been working with the board on a smooth transition process, and I've had the privilege to work with the board who has led the process. They've been very diligent, thoughtful, and really did a really well-planned process, and as you think about the transition and succession, from my seat, you want to think about two things: timing and the person, and from a timing standpoint, I think now is the right time for a number of reasons.
First of all, we've achieved a lot in the last few years. As you know, we successfully integrated Union Bank. We achieved our cost takeout objectives. We rectified the regulatory issues very rapidly. And so that is done, and the opportunity is in front of us. We also then built capital back very rapidly, 220 basis points from the 8.4 to the 10.6 that we are today. So from a capital standpoint, we're in good shape. And then finally, at Investor Day, we talked about the investments we made in the company and how they're positioning us for growth and how they're in the run rate. I think that's evidenced by the flat expenses that we've had for five quarters and delivering positive operating leverage in the second half of the year. So it's a good time.
And now as we think about the next step and the pivot to growth, Gunjan's absolutely the right person. So I talked about timing and person. So the board led the process, but I've known Gunjan for eight years. And I will tell you, every objective that she's had at the company, she's achieved. When she came onto the company and led wealth and investment services, it was 10% of our revenue. Five years later, it was 20% of our revenue. She's brought together the corporate and commercial banks into the fold a couple of years ago, and then most recently, all the business lines. And they're working as well as I've ever seen them work in my career. So I'm hugely confident in her ability to leverage and pivot to the growth story that we have in front of us. And the opportunity is tremendous.
In terms of my role as executive chair, between now and April 15, my objective is to do everything I can to support Gunjan and have the transition be as smooth as possible, and then it's her ship to run. There's no time frame, but I do not expect it to be an extended time frame.
Got it. Thank you for that. I guess maybe the other aspect I think it comes up anytime you have a CEO succession is, is this going to be business as usual? Should we expect some change of strategy, big or small? Just talk to us in terms of what you think investors should expect as part of this transition. Should we expect bigger changes, tactical changes? How do things evolve?
First, I'll start by the objectives we laid out in Investor Day. We laid out a series of financial objectives, and those were not Andy's objectives. Those were the bank's objectives, and Gunjan was right beside us as we went through those. So it's the team, the boards, and the banks. And objective one is to hit those financial objectives. And I'm confident we'll do that because she's focused on three things. Number one is the growth story and really leveraging the unique set of businesses that we have in an interconnected way, leveraging its technology and products and services to grow the business. Number two is transforming the payments business. Again, we're blessed by this unique set of capabilities and money movement and embedded money movement so important in terms of the banking relationships right now, focusing on really executing against the growth strategy there, is number two.
And number three is continued efficiency and productivity driven by simplicity and technology so we can continue to deliver positive operating leverage while at the same time investing in the company. So growth, payments, and efficiency.
Got it. And tied to that, I think one of the targets at the Investor Day was an ROA of 1.15%-1.35%. Just talk to us, I mean, I think I've had this conversation with investors around it implies pretty powerful earnings growth for the bank over the next few years. So if you don't mind spending some time around the big building blocks around how do we go from an ROA, which is sub 1% today, to maybe the 1.25, 1.30 midpoint of that range.
Yeah, why don't I start and then John add in. So I think, first of all, if you think about net interest income, which was a headwind for the last few years, I think that headwind becomes a tailwind. Becomes a tailwind because of the rate scenario, but also because of the potential for loan growth. I think the environment right now is fairly constructive. We haven't seen significant evidence of growth yet, but I do think the tone has changed for sure. I think the fee businesses are a second component of it. A number of them have been hitting on the mark for a number of years. Commercial products, our trust businesses, our fund services businesses. Again, we have this unique set of capabilities. And then payments is another big component of it. And then continued expense management.
So driving top-line revenue growth, having very significant positive operating leverage will drive additional ROA to that targets that we talked about. John, what would you do?
Yeah, absolutely. It's an operating leverage, and we can get into the various components of that. But the operating leverage is a very big focus for us right now, not only for this year, but future years as we go down the road. And then it's about the asset, the denominator part of it, which is how do we make sure we're excellent stewards of balance sheet and making it as tight as possible. Part of our strategy on the net interest income side is making sure we're optimized as much as we can on the asset side. So that might mean we shrink certain loan portfolios and grow in others. You've been seeing us do that for a number of quarters.
I would continue to expect that to happen and making sure we're creating enough efficiency so that we're generating higher returns on the equity side, higher ROTCE as an example, as well as ROA.
Got it. So maybe if we can deconstruct that a little bit, I think you had a pretty strong message with earnings around 200 basis points plus of operating leverage this year. One, give us a sense of, from an expense standpoint, just the efficiency opportunities available to the bank. And when we think about that operating leverage, is that a 2025 story or is it something that investors can count on for the coming years or the next few years?
Yeah, we're really focused, obviously, on 200 to the plus for 2025, and we expect positive operating leverage going forward. We feel like we have a lot of runway. Obviously, it's part revenues. It's going to be part expense. You commented on expense, so maybe I'll start there. On the expense side of things, as Andy alluded to this, we've made all the investments that we've needed to over the last several years, and a lot of our investments are now offensively natured, which is really in a very good spot, and so we don't feel like we need to increase the amount. It's just maintaining the investment levels that we're at, and so that should ensure that we have a flat or we have a flatter expense horizon on that component of our expenses.
And then beyond that, we have expense levers that we can pull if things aren't, the revenue isn't as rosy as what we would assume. And that can include things like third-party spend, real estate expenses, certain efficiencies that we make from a technology standpoint, or bringing like groups together from a people standpoint, ensuring that we get additional flexibility there. So a ton of levers that we have, and so we feel like the operating leverage is a long-term play for us.
It's both components, Ebrahim. It's more revenue growth, accelerated revenue growth, and managed expenses. I think both sides of the equation will be positive.
And maybe on that, in terms of the revenue side of the equation, Andy, you mentioned the net interest margin and NII. If I go back and look at pre-pandemic, U.S. Bank consistently had a 3% plus net interest margin. Give us a sense in terms of, one, is that still sort of the right way to think about where in a steady state world the margin should be? And if so, what's the time frame before it gets there? Is it just about the backbook repricing? And if so, how long will it take?
Yeah, so I think when we look at our long-term targets, we talked about revenue targets, operating targets, and all these sorts of things. Embedded within that is certainly returns on net interest income, which should increase our revenues. And while we don't manage to net interest margin per se, a 3% or north of 3% is something that we feel that we can easily or we can maintain and get to given those medium-term targets. Three really big drivers out of that are going to be the backbook repricing. We have the investment portfolio that's $3 billion per quarter. We have fixed-rate loans that are $5-$7 billion per quarter. This is on average. And those are repricing at 150-200 basis points positively in this rate environment, which has been beneficial given we have a little bit more of a steepness of a curve.
The second is deposit normalization. We are seeing stability in non-interest-bearing or low-interest-bearing accounts that have been rotating into higher interest-bearing accounts. That has been stabilizing of late. We continue to expect that going forward. And the third is the remixing of our portfolio. I mentioned this a little bit. So reduction in certain assets that have been yielding or returning lower levels and remixing into higher returning books of balance sheet. Those are going to be the tailwinds that will help us get to that margin level. Now, the gravy, or what we'll tweak that a little bit, is loan growth. What does that look like and what does the yield curve look like? The more steep that the curve is, as an example, the better off we will be, and faster it gets to that more of that normalized level.
Maybe you mentioned loan growth. So taking a step back, talk to us in terms of your view around the operating outlook. As you think about for the bank, what are you hearing from your clients? It feels like you spent all last year waiting for certainty on monetary policy, elections, et cetera. We have some of that today. Do you think we have the right policy environment where clients can begin to actually undertake investments and that begins to translate into loan growth?
Yeah, I think talking to our clients, I would term it constructive and positive. I think there's a lot of activity and discussion going on within our businesses, small, large, and medium. I think the activity is right now leading to relatively stable utilization rates, but I think the tone is such that I would expect it to go up. I think the activity in the markets and commercial products, as you're seeing, is positive. I think the stock market has certainly been positive last year as you think about it. So I think overall, generally speaking, just taking a step back, there's a growth story out there that people are constructive around and sort of thinking about aspects of their businesses that would participate in that.
It hasn't been completely evidenced in loan growth yet, but I do expect it to come because the tone has changed significantly in the last few months.
I would just add that the resiliency of clients is just amazing as well. I mean, we've gone through inflation cycles and all sorts of different cycles and things like that. And credit is not a thing. It's incredibly stable. It's something that it's very beneficial as well as we go through this. And so that gives us hope that no matter what macro gets thrown to us, we saw some numbers today on the inflation, obviously, that people are resilient and there's still that optimism out there.
So on that, I think you're right. The inflation data came out. The yield curve is higher across the board. When you think about both for you in terms of the margin, it seems like it's a positive story even if you see yields higher. But how detrimental is that from a client activity standpoint? Does the cost of borrow, yields moving higher, keep clients on the sidelines for longer?
Yeah, I think there's certainly that can be that aspect to it. I think that part of the things that we look at is constantly stress testing, making sure we understand where our clients are in terms of 5%, 6%, 7%. What do those rate environments look like or if it even goes lower? And we know there's just a lot of volatility. So two fundamental things for us is maintaining as much neutrality as we can on the balance sheet. Our balance sheet is fairly neutral as constructed in terms of the mix of retail and institutional deposits, loans, fixed versus floating, all those things. We have a relatively neutral balance sheet overall, which is very helpful. And the second is then the credit underwriting.
Back to my point, we're not talking about credit as much, but when you get shocks to the market and everything like that, that's when people talk about it. We have a very good process in terms of underwriting, and that's been a hallmark of our institution for a number of years. So we understand that markets are going to move, the macro and everything will impact our clients over time, but we feel very good to operate in those different environments.
Got it. I want to move to some of the businesses, but you mentioned deposits earlier. Just give us a sense of when we think about deposits, should deposit growth resume from here? What's your expectation on the growth outlook? And from pricing, what are you seeing in terms of the market around the competitive pressures? And if the Fed is on the sidelines, just how long can deposit costs continue to decline?
Yeah, I think we assume a couple of cuts this year. Now, we're eyes wide open that there may not be any, especially after a day like today. We certainly understand that. We obviously are thinking about the deposit pricing metrics, and right now, I'd say pretty balanced. Both on the retail side, we've been able to take down our CD rates. We've been able to reprice our CD book that has been maturing into lower-cost deposits. There's certainly areas and markets that have higher competition, and then I would say it's actually balanced as well on the wholesale and institutional side. We understand those markets. We know where the pricing is. It's very clear to us if we raise rates X amount of basis points; we know the elasticity of that. We know what sort of deposit growth we can generate from that.
So it's pretty stable and well understood. I think the things we're watching is obviously quantitative tightening that has continued to persist. I know it's slowing, and it should end at some point. But until that happens, it's hard for us to see material deposit growth. We have planned for modest deposit growth for the course of the year. I don't see a lot of deviation from that unless loan growth takes off or the QT component ceases.
Got it. Maybe just moving to the bit, you mentioned payments earlier, historically viewed as a differentiator for U.S. Bank. Just give us a sense of how you think about the competitive positioning of the business, whether it's underinvested, do you need to invest a lot more, or do you think it's well positioned, be it competing with the larger banking players or some of the digital native players?
I think it's well positioned. Let me start there. As you know, payments is actually three unique businesses, and I'm just going to hit them a little bit at a time. Corporate payments is where we're well positioned. We have the great platform. We've got big agency businesses with the U.S. government. We have a number of freight businesses. And it's well positioned, and it's showing good growth. That's number one. On the card issuing side, that is doing well as well. We have two opportunities. Continue to leverage the penetration of the U.S. Bank customer base, including the Union Bank customer base. We're making great progress on. That's one of the great benefits of taking on those million customers from Union. The second component is Elan. We are a processor for 1,200 banks across the country.
Because of the platform we have, the technology we have, the service standards that we have, and that has growth opportunity going forward, and the third is Merchant, and I would say Merchant has been the number one source of investment over the last few years, building our tech-led capabilities, building verticals that we're focused on, and I think they're well positioned right now, so the opportunity is to take the investments we've made, embed the payment process in those businesses, focus on the verticals, and grow, but we're really well positioned. It's unique. It's important, and it's something we're focused on.
Just talk to us also in terms of two things around the payments. One, the connectivity of that business with the rest of the bank and the advantage of being a bank, bringing a balance sheet to the table when even pursuing some of these opportunities on the merchant side.
I think one of the benefits of being a bank is twofold. One is we have a balance sheet that a customer can utilize and have a banking relationship and a payments or money-moving relationship all embedded in one comprehensive offering to help them run their business. You think about the add-ons that we recently acquired, payables and receivables, TravelBank, and Salucro, and a deep vertical in healthcare. These are opportunities to use the technology around payments and money movement to help businesses run their business and embedding the money movement in the banking relationship. Putting it as a comprehensive and using the balance sheet are two advantages that U.S. Bank has. Then a lot of other pure plays have the balance sheet, and not a lot of other pure plays have the banking component. That's what we're trying to focus on.
Embedding payments in the business of banking is a huge opportunity, and that's where our emphasis is.
Yeah, and I would just add that on the product side, just some examples. On the retail side with our Bank Smartly card, we've had a lot of success in launching that product where we have high rewards tied to savings and checking and things of that variety, having a lot of balances there that create additional rewards for clients. It's been very well received. It's allowed us to grow our savings balances. It's allowed also for us to maintain or grow checking accounts as well and preserve folks that were coming off of CDs. We can protect those even at a lower rate, but deepen those relationships. So it's not just a CD product.
And then on the institutional side or small business side, there's the Business Essentials that we're launching, which is going to be the tie-in between the merchant processing as well as the card and making that as seamless as possible for folks to run their business, payables, receivables, as Andy was just talking about.
I just want to reemphasize, Ebrahim, that we've invested a lot in the payments business, and I am comfortable with the technology capabilities, the platform that we have, and the products and services. We have terrific risk management. We have the balance sheet component. We have good controls. The growth side is where I think the opportunity is, and I'm confident we'll get to that because of this concept of the interconnectedness and the embedded component of money movement.
Got it. And the other thing you mentioned, the freight business has been slow. That's weighed on the commercial payments or commercial fee side. Just give us a mark-to-market on where things stand today. Are you seeing any recovery there?
Yeah, so I think most of the headwinds that we faced in freight are behind us. That was a volatility function of the environment and the economics and COVID and so forth, but I think most of those headwinds are behind us, and we have great relationships, and we have a great platform, so I think that's an opportunity.
Got it. Maybe looking at some of the other fee businesses, I remember you've talked a lot about we saw significant growth in the commercial products revenue over the last year or two. Just take a step back and tell us, what are you doing? Is it just all macro? Are there things that you're doing differently today which is driving that growth?
We have a lot of relationships with companies. We do business with 90% of the Fortune 500 companies. And oftentimes, we have the opportunity to leverage the banking business, traditional lending or depository for other fee businesses. And we built those capabilities over the years. It's been 10 years in the making. It's now over a billion-dollar business. So the focus is on really leveraging the relationship to get these other fee businesses. And those other fee businesses include bond underwriting, FX, things like everything that you think about in terms of traditional non-banking activity except equity underwriting that we can leverage the relationship with to get that fee business together. And again, this concept of interconnectedness. And Gunjan has done a tremendous job of really linking the banking side of it to the commercial product opportunities over the last few years.
Yeah, and I would add that certainly there's a market dynamic of just growth from that. But we think most of our growth really is going from a smaller player to more of a lead left on certain transactions on the underwriting. It allows us more gateway into foreign exchange and interest rate derivatives and things like that. But then we've also grown with new products. So asset-backed, our desk, commodity desk, and all those sorts of things. That's adding growth. So all these are major components in terms of us winning share. And we think a very strong growth rate as we've talked about in forums like this in the past.
When you think about those opportunities, are we in the early innings or is there just a lot of runway when we think about the growth? Could that be sort of the driver of, I think you have a mid-single-digit fee revenue growth over the medium term?
So I think there's more runway for sure, but that's just one business. We also have a number of unique businesses. Our corporate trust business is another great business, very unique. We have a number one market share in most categories. It's a great depository business, but also a great fee revenue business. It's high barriers to entry. We have a platform that we've invested in, and we're very good at it. Fund services is another business unique to U.S. Bancorp, where we do fund admin, fund accounting, and transfer agency for mutual funds and alternative funds. These are all businesses that are unique that can extend relationships and deepen relationships and leverage the banking component. So commercial products is one, but we've got a number of them. Payments is another one, but corporate trust, fund services, there's a whole set of businesses that are unique to U.S.
Bank, which is why we're so confident about the opportunity on the fee side.
Got it. Maybe switching gears, just talk to us about the brand strategy in terms of brick-and-mortar expansion. I think at Investor Day today, you talked about ambitions in growing in the Southeast. So is that going to be we've seen some banks announce 50, 100 new branches across certain markets. Just one, is expansion of branches part of the play there in terms of the Southeast? Or how are you thinking about pursuing market share and growth there?
As you know, Ebrahim, the role of the branch has changed dramatically in the last 10 years from a place where transactions occur to a place where consultation and sales activity and advice is given. The density of the branches does not need to be as you don't need as many branches in the market. We're doing two things. We're trying to optimize the footprint, which we've done. We've reduced branches by half the cost efficiencies. Then we've also densified where we have opportunities in fast-growth markets, Tennessee, Chicago. There are areas that we have opportunity to have more. We've done the same with the Union Bank transaction in California.
I think the other opportunity that we have are these partnerships with State Farm and Edward Jones, which is a way to capitally efficient extend our reach across the country through 19,000 plus 19,000 agents selling our products and services. So it's a more capitally efficient, capitally light way to extend the distribution. So branches are still important. They're important in high-growth markets. We're focused on reinvesting in branches. But this concept of partnerships and other ways to extend our reach are, in my view, a faster, more efficient way to do it as well.
Maybe just double-click on those partnerships in terms of how profitable these are, how good are these at converting clients who are coming in through those channels into a more stickier, broader someone who's consuming multiple products from the bank.
Yeah. So I think the partnerships evolve from entities like State Farm and Edward Jones that have determined that their clients need a banking relationship. And they partner with us because we have the technology and the products and services that their clients could use: credit card, checking accounts, core depository products. So it's a benefit. It's a win-win. They have a stickier relationship with their client, and we have the opportunity to distribute our products across the country in a capitally efficient way. So it's not the same as a branch build, which may take a few years to break even or be profitable. It's much more rapid in nature. And it's much more sticky in terms of the client relationship because they have a core client who now has core banking relationships with U.S. Bank.
So those partnerships are a great way to extend our reach across the country because it's a partnership. It's a win-win. Edward Jones has clients that have banking need. We have the services and products that they need and the platform to allow that to occur.
The technology platform to do those partnerships are effectively the same. Once you build it, I mean, obviously, you have to tweak and customize for the next partnership. It's ready and primed to be what we would call reusability from a platform standpoint, which gives us additional economics and scale as we build up these partnerships. That's another benefit to these as well.
And are there a lot more such opportunities in terms of partnerships, or were these kind of the big ones?
We're focused on really executing it across the two that we have. We have 38,000 agents or insurance brokers that we can leverage right now. So we're focused on that first, but maybe down the road, there may be more opportunities.
You mentioned Union a few times. Just give us an update on, in terms of that franchise. I think there's a lot of opportunities, not just on the expense side, but on the fee revenue side. Where are we in terms of monetizing that? Is it fully in the run rate today, or is there more to go?
The expense is fully in the run rate and achieved the $900 million. The opportunity with that client base is significant. It's over a million clients, 200,000 small businesses, a number of corporate entities. They had a tremendously loyal, long-standing customer base, but they were also not very deep because U.S. Bank has a more robust set of products and services, a lot of the ones we talked about, we have a great opportunity to extend and deepen the relationships. One great example is card. Their credit card penetration of their retail customer deposit base was half ours, and we're already making great progress in getting to our levels. That's one example. On the commercial corporate side, the payments components, treasury management, all those things I talked about that we have capabilities extend the relationship and provide revenue opportunities. Small businesses.
There's more small businesses in California than anyplace else in the United States. To the extent we can embed payments and the components of the small business relationship only extends the opportunity. So the expense is done. It's in the run rate. The customers are loyal U.S. Bank customers right now, and our opportunities to continue to deepen those relationships.
Got it. I guess maybe switching back to the change in administration, I think one of the expectations is we could see a bit more of a shift back to a balanced, more predictable regulatory environment for the banks. One, do you share that view? And then in what tangible ways can the regulatory environment make life easier for you in terms of how you run the bank day to day or how you manage capital?
I've been in banking for a while. The last four years have been rather intense from a regulatory standpoint. Part of that was informed by the many banking crises that we had. I do think we're in a time now that we're not going to eliminate regulation, but have more rational regulation. There's a lot of overlap in activity. I think some tangible ways that we can think about it is the Basel III Endgame as an example, being more capital neutral versus where it started, which was a significant increase. That's just one example. But I think what was perhaps a little bit of a headwind from a regulatory standpoint will be just dissipated and will be more of a normal operating environment. That's what I think will happen.
On capital, just remind us in terms of how you're thinking about managing capital, adjusted for AOCI or not, and how we should think about, yeah, remind us of the just hierarchy of where capital will be deployed and your priority set.
Sure. So we've already mentioned we've done a lot in terms of capital build over the years. And we're still building toward where we need to be. We have 10.6 as our Common Equity Tier 1 and a Category III. Looking at Category II, we're at including AOCI is more like 8.6 or so, right? And so to get to that 10% level, we have a glide path to grow there. And the reason we know that is because we generate on average 20 to 25 basis points per quarter of capital. And then we also know that we won't be a Category II not earlier than 2027. So those are two important facts that we have. And then from that, since we have this glide path, we have the ability now to grow, but also distribute at the same time. And so that's why we started the buyback program.
We announced that, obviously, at Investor Day last year. We started with $100 million this last quarter. We'll have a similar amount in Q1. And then after that, it's going to just depend on the macro, where the bank's performance is, where interest rates are, all those sorts of things. Loan growth would be another example of that. And so we'll throttle based on kind of how those things play out.
Ebrahim, when we were at 8.4, we said we were going to build rapidly in 2025. And we did exactly what we said, in fact, a little faster than we said. I'm confident we'll get to the point we need to. We have a glide path to do there. And we're both in a mode of we're in a balanced mode of both continuing to accrete capital, but also distribute capital. Capital is not an issue for the bank. We're in a great spot.
Great. So we should expect some level of buybacks and capital return as continuing.
Yep.
I guess the other conversation with you about USB or even outside of USB is around maybe the administration, the regulatory environment will be a lot more conducive to do bank M&A. I mean, you obviously did the Union transactions has gone well. Give us your sense of where bank M&A may be in the Southeast, like doing an acquisition. How big of a priority is it? Banks are sold, not bought. If something great came through, the likelihood that you would look at it and pursue a transaction like that.
So our focus is on organic growth. And we've been very clear about that. We have a lot of opportunities. A lot of them we talked about here this morning. So there's still a lot of uncertainty with regulation. There's still the asset marks. And there's still the time frames in terms of valuations, both the buyer and the seller and expectations and beliefs. So a lot of unknowns on the regulatory front. And so because of that, our focus, and because we have so much opportunity, is on the organic side of it. So M&A is out there, but it's not something we're focused on. It's not something we have prioritized. Our focus and our priorities are clearly on the organic opportunities we have in front of us.
Leveraging those investments we made, taking our focus to the interconnectedness of the businesses, the unique business lines we have, we have tremendous opportunity to grow, to grow both net interest income and fee businesses. And that's where our effort is.
Very clear. I think on going back to lending and loan growth, when you think about expectations for this year and if we do see a pickup, what are the other two or three areas within sort of your loan book where you expect to be the drivers of loan growth for 2025?
Yeah, I think it's probably more of the same of what you've seen over the last couple of quarters. So where we see potential opportunities for growth is going to be in the corporate book, corporate C&I, things of that variety. That's certainly an area of opportunity. Credit cards, I've mentioned the Bank Smartly product. That's just one component of multiple things in terms of partnerships that we have in terms of whether it's on the corporate side or on the retail side. We think there's opportunities there. Mortgages, in this environment, it's hard to see that going up or down because of the environment that we're in right now with interest rates, and auto loans, we've been more or less shying away from just from a return standpoint and an ROA standpoint, not as conducive to the return profile that we're looking for.
So to answer your question on the growth, it's going to come from the corporate side and the card side of things.
Got it. And we talked about efficiency, operating leverage, all of that. Talk to us a little bit about where the investment dollars are going today. Is it banker hiring? Is it branch expansion? Is it technology?
So, big picture, we've gone from maybe 10 years ago, two-thirds defense and one-third offense to just flipping that, two-thirds offense and one-third defense. And that offense is everything from products and services, payments capabilities, employee productivity, activity. So the shift is on offense. And I would say one of the areas that we're on offense on is the platforms we have, the products and services, but also AI. And maybe you can talk about some of those investments.
Yeah. I mean, we've been a lot of investments are around productivity. Part of that, of course, is AI, which is starting with a couple of different use cases that we've implemented. But we have some opportunities for sure going forward. Areas like fraud prevention and real-time areas like our call centers, areas like marketing. Those are just a couple of examples where we've deployed. The call centers is a great illustration of where we rely on AI as well as automation and combining our workforce. We used to have multiple call centers. Now we've kind of combined those into certain areas. We've used AI to help with what we would call next best action. So as a call's occurring or a chat's occurring, what are those things?
And then the training and the process improvements that we have to make within the call centers to make sure that those individuals are equipped to handle that client's needs. And what we've seen is very promising. We've been able to reduce staff. We've been able to improve satisfaction scores. And that's just an example. So it's not AI for the AI's sake, the end-all, be-all. It's just another component of other optimization and other automation that we can do to help ourselves going forward. And I expect more case studies like that as we move forward.
Remind us where the bank is in terms of migration to the cloud, upgrading some of the legacy infrastructure.
We've been on a multi-year journey to both hollow out or simplify the core and migrate to the cloud. We're in about the middle of that path right now. We have a number of utilities and applications that are already in the cloud, and we have more than we're planning to do it. We prioritize it. We're doing it in a very risk-controlled way, and it'll continue to drive efficiencies and capacity capabilities on a go-forward basis, but the whole concept is hollowing out the core, simplifying the core applications, and migrating processing to the cloud from both the capacity and the cost standpoint.
Got it. I guess one more, going back to the leadership bench at the bank. You announced, I think recently, expansion of the management committee, a few more members. Give us a sense. We've seen a fair amount of external hires at the bank over the last five to, I guess, 10 years. Give us a sense of just when you look across your businesses, the leadership team that's in place, is that the right set of people, or do you think as Gunjan takes over, maybe there's a need for a shuffle, bring more talent from the outside?
So I think Gunjan has done a terrific job of bringing a combination of new talent in. You saw Courtney, who has years of experience in the card-issuing business, combined with some tenured individuals, Stephen Philipson and Felicia, who've run the businesses for a while. So we have this good mix, and she's really done a great job of creating a management team, two leaders for each of the three businesses that are now in place and ready to go. In addition, we've had great stability on the enabling functions, risk management, technology, operations, John. So we have this good mix of new and tenured. And I think we're in a good spot from the team standpoint, and it's a team that's going to take us forward.
Got it. I guess one last question. Maybe I should have started with this. U.S. Bancorp is the largest regional bank in the United States. Give us a sense of there's been forever this debate around the right size for the banks, benefits of scale. Give us your perspective on given where you sit in terms of your balance sheet size and scale, the advantages that you have relative to some of the other regional banks and being able to win business, gain market share, etc.
No, Ebrahim, importantly, I think we have sufficient great scale in the businesses that we're in, and that's important because you want to be able to continue to invest, which we've been able to do. You want to be able to leverage marketing dollars, which we're able to do, and you're able to leverage the reach that we had, and we talked about that. So at $670 billion, we can do all those things, and we're not in every business in the country. We're not in every country in the world, but in the businesses that we're in, we have great scale. Corporate Trust is a great example, number one player, great platform. So I'm very comfortable with the scale that we have, and being at the size we are, the largest regional bank, as you said, offers us that opportunity for reach, scale, investment, and leverage.
With that, Andy Cecere.
I would just want to add one more thing. I've been at the bank a long time, and so I'm the ultimate insider, right? But I will tell you, I'm a large shareholder in U.S. Bancorp as well. And I have great confidence, and my intention is to continue to be a large shareholder because of three reasons. I have great confidence in Gunjan and her ability to take this company to the next level in growth. I have great confidence in the management team, and I have great support and belief in the bank itself. We have a unique set of businesses that I'm confident will return. And I know the opportunities in front of us because I can see it. So I'm looking forward to the next many years.
I guess the message for shareholders who've kind of felt some pain over the last year or two is sit tight.
Sit tight, Andy. It's going to be a positive story. I'm very confident.
On that note, thank you both.
Thank you.