Okay. Hey, good morning. It is my pleasure to welcome you to the Zions 2020 Investor Day Investor Conference. We're excited to have all of you here. My name is James Abbott, and I am the Director of Investor Relations for Zions. I've been here for about 10 years, and it's been a good run. When I started here, I think the stock price was about $11 or so, and it's up five times since then, and it's been a very good experience over the last little while. The conference theme for today is Building a Premier Business Bank with Highly Skilled Bankers, Great Technology, and a Solid Risk Management Foundation, and I think you'll find that that theme is consistently woven throughout. Every speaker will probably touch on every one of those parts as they go through that, and you'll just see how integrated this really is.
Let me go over a couple of housekeeping items before we get started. The presentation materials are found on our website, which is zionsbancorporation.com, and also can be found on the Securities and Exchange Commission's website, sec.gov. We are broadcasting the audio of this conference for those of you who are not in the room today. That can be accessed by clicking the link on our website. There may be some folks, and I believe there's a real-time transcription going on of this as well. If you are unable to hear the audio and you're reading this through a transcription, you may want to check your settings on your firewall or maybe change your browser or use your iPhone or something to get the audio. Sometimes that is a potential problem. The broadcast is being recorded and will be available on our website tomorrow.
Next, I want to enter into the record our forward-looking statement, which is on slide two. We don't have our slides up. Okay, we'll get our slides going here in just a second. Let me just kind of highlight a couple of things about the forward-looking statement. These are the same forward-looking statements. Terms such as "believes," "anticipates," "continue," "could," "will," "expects," those types of terms, anything related to that would be a forward-looking statement, and the actual results may differ materially from what we anticipate things to be at this time potentially due to unforeseen circumstances. We also make reference to non-GAAP financial statements here. We try to make GAAP financials the most prominent, and that is the directive of the Securities and Exchange Commission. In a couple of cases, like in the example being the efficiency ratio, that's something that the industry uses.
It's actually not a GAAP term but everybody uses that, and so we do reference that. We would encourage you to look at the GAAP, non-GAAP reconciliation tables that are at the end of the presentation. With that exciting news behind us, I wanted to introduce the main event today. The opening comments this morning will be given by Chairman and CEO Harris Simmons. Following Harris' remarks, we will move to a presentation by our Chief Banking Officer, Keith Maio. After Keith's presentation, there will be a brief question and answer session. We will have several question and answer sessions strung throughout the day today, five, 10, 20 minutes of those.
At the very end of the day, there will be a wrap-up question and answer session where we'll try to take any questions that you can come up with as at least as much as we have time. If you are listening to this at home or at your office outside of this location, if you want to send a question to me, if the people in the room are not asking your question and you'd like to, please feel free to send me an email. It's james.abbott@zionsbancorporation.com. We'll try to get it in if we have time. After Keith Maio's question and answer session, we will then move to a discussion about technology. Scott McLean will make the opening comments for our technology session. At that point, we'll move into the meat of the technology session, and we'll take it to that point.
We're excited to have you today. Thank you again for coming. With that, Harris, I'll turn the time over to you.
Sure. Yeah, great. Well, good morning. It's great to have all of you here. Welcome to Salt Lake City on a very snowy February morning. This is the greatest snow on Earth, we boast. We used to get sued by Ringling Brothers for that. I think they're no longer around. They thought that was too close to the greatest show on Earth. We hope to give you one of the greatest shows on Earth during the day today to accompany the greatest snow on Earth. We're really delighted to have all of you here, and we appreciate several of you who've followed this company for a very long time, and we appreciate the depth and the quality of the understanding of this company that so many of you bring to investors. For some of you who are here as investors, we greatly appreciate your investment in the company.
Most of you here in this room know a lot about the company. There may be a few online who know a little less about it. Zions Bancorporation We fashion ourselves a collection of great community banks. We try to operate as community banks in the markets we serve. We try to have very strong connections to the business community, to the political leadership in the community, to nonprofits. We develop very deep roots in the communities that we're in. We think that is really the hallmark of a great community bank. It's the hallmark of a bank that is creating solutions in their communities. We really pride ourselves on doing that. We have great local management teams. We try to keep the CEOs of what we call affiliate banks.
We're all part of one charter, but we operate in this local fashion with local management teams for most all of our customer facing colleagues. We think we've got some fabulous local leaders. The focus today is less on them and more on technology and some of the initiatives we're engaged in. We didn't invite them to join us today, which saves us a little bit of money. I don't want to start without acknowledging the really important roles that they all play. We are fundamentally a business bank. About two-thirds of our revenues come from serving commercial customers. That's both with commercial lending, commercial real estate, and all of the depository and fee line of business activities that we conduct with them. It's fundamentally, primarily a business bank. We have some strong consumer franchises in some of our markets, less so in others.
The common thread that weaves through this organization is a real focus on small to middle-market businesses in particular. We operate in a very strong part of the country. If you want to advance that slide, James. Our footprint is nearly unparalleled in terms of its exposure to growth. You can see here that real GDP growth over the past five years has been this is weighted by deposits in each of the markets that we and the peers that we show on these slides operate in. We've had a five-year compounded GDP growth of about 3.7% in the markets that we serve. We've got some of the strongest job growth in the nation. Here in the state of Utah, it's just been really, really strong to the point that and I think you're hearing this from others, certainly.
The major problem that a lot of our customers are facing is just finding qualified, talented labor. That's certainly true here in the Utah market, where our unemployment rate is 2.3%, which is, I think, tied for the lowest in the nation. Idaho, I think, is about the same. On the right-hand slide here, you see the current unemployment rates for, again, weighted by deposits in the footprints of some of our competitors, ourselves. Obviously, the nation's in pretty good shape, as are we. As I said, we're fundamentally a commercial bank. We're really a leader in small business lending. Many of you have seen these slides before, but it's really important as a snapshot of what we do. This is pulled from call report data, these are commercial loans from $100,000-$1 million in size.
It's not meant to represent all of the small business lending we do. It's really kind of a slice or a sliver. It's an important slice because we know it's reported in call reports and attested to by everybody who's signing them. What you see there on the left-hand side is just aggregate loans of that size. First of all, for some of the largest banks in the nation, then for Zions and some of our peers. We stack up really well against some banks that are multiples of our size. If you look at commercial loans in that size bracket, $100,000-$1 million, as a percentage of total commercial loans, also very, very strong. This is typical, really, of a lot of regional banks and certainly of community banks. It tends to be even more true here.
We have not only a very granular deposit base, which is very valuable to us and gives us one of the lowest deposit costs in the industry, but we also have a pretty granular commercial loan portfolio. I say this is kind of a slice. If we had a view into kind of the rest of the iceberg, what you'd see is we do a lot of lending kind of in the $1 million- $5 million kind of range. It's a really important part of our business. We do this, as I said, with local brands and management teams, and we think that gives us a very distinctive the kind of posture in the markets that we serve. We are consistently recognized in various ways.
In most local markets, whether it's a local business journal or some local organization who compiles lists of the best of this and that, we consistently show up in some very large markets, including Southern California, in the Phoenix market, throughout Arizona and elsewhere, as being the best bank in the market, or the best business bank in the market. Greenwich Associates, which has done research for many, many years in the investment banking industry, started doing commercial bank customer research about 10 years ago. We have consistently shown really well in the Greenwich surveys. We're one of only six banks to have averaged 15 Greenwich Excellence Awards since its inception. If you drill down into some of this Greenwich information, and this is showing both on the top middle market companies' revenues from $10 to $500 million, and then small business customers' revenues of less than $10 million.
I think what really stands out is that, especially when you look at overall satisfaction, the very far left bar there in the chart. For both middle market and small business customers, we're really very, very strong relative to some of the national players that they include in their surveys. You also note that same kind of strength when it comes to a bank you can trust. When they look at cash management or treasury management capabilities, this is something we really focus on, probably in a much greater way than most banks, most regional banks, and certainly most larger banks with some of these smaller middle market and even small business customers and giving them some tools that we think are really state-of-the-art.
Then just total customer satisfaction, in terms of our willingness to extend credit, our willingness to work with customers in a way that is, I think, more personal. When you look at our credit results, I think we're not cutting corners in terms of credit to get there. We're going to talk a lot today about some of the themes that James mentioned. I'm going to just set the stage by saying that first, over the last few years, really since 2014, we have been doing a lot of work to change this organization in some really fundamental ways, to simplify it, to reduce its risk profile, to improve its technology. We've made a lot of progress. We have achieved pretty healthy profitability. We're not where we'd like to be, but we're getting there and we will get there.
We find ourselves right now in a very challenging environment. I found myself looking recently at going back and looking over the last 30 years at how many times we've seen a flat or an inverted yield curve over the last three decades. It's happened a handful of times. This is actually, I guess if you kind of micro measure it's about the sixth time we've seen this, I believe. Every other time that we've had a flat yield curve or even a slightly inverted yield curve, we've had a Fed funds rate that was between 5.25% and 8.25%. This is the first time in a very, very, very long time that we've had such a flat yield curve with such low interest rates. I think that's what's particularly challenging for banks that produce earnings primarily with their balance sheet.
We're certainly working hard on fee income initiatives, but the bulk of our revenues are certainly coming from the intermediation of credit, and it's a tough environment to be doing that in. We are focusing on a lot of initiatives to improve our revenue. We've had to improve the customer experience, to improve the rate on deals from customer supply, better digital delivery of all business loans, streamlined account opening. There's more than one bank in this country that can open a checking account in five minutes, and we've been doing that for some time now. We are working on initiatives in capital markets, in mortgage.
You'll hear today about some of the things that we've been doing in the mortgage area that really streamlines how customers are receiving mortgage credit, in wealth management and other areas. We expect that all of this is going to pay a lot of dividends, especially in an environment where the yield curve normalizes. I would certainly hope that history will be a guide and that a flat yield curve is not going to be the new norm. It may be briefly, but history shows us that that's not how a yield curve is generally going to be constructed. We're going to talk a lot today about technology and about some of the things that we're doing, some of which, including the FutureCore project that we're going through. We're about seven years into it. These are really long, hard, expensive projects.
They're fundamentally important for the long-term health of any organization. You'll hear a lot about that. We think that we're really at the vanguard of the industry in terms of tackling some of the toughest problems in technology, which are the rails that everything else rides on. You'll hear about how we're working to provide a better experience with our people in our branches. Because we're so small business oriented, we still have a lot of connections with lots of our customers through branch managers, business bankers, people out in the field. We're really intent on making sure that we're investing in their training and their skills and creating an environment in which they want to make a career in a branch, which isn't something you hear a lot of banks talking about today.
That's actually where customers are, and especially in a bank like this. We want to be sure that we have employees that are empowered, that are educated, that understand our products and understand how to talk to a customer about their financial situation, or to read a financial statement. That we can deliver data to them so they can talk about, "Here's how you might compare to others similarly situated." We think there are a lot of opportunities there. Then finally, you're going to hear about risk management. We have done a whole lot over the last few years to strengthen our risk management. More about that in just a moment.
If you look at some of the profitability metrics over the last five years since we've embarked on this series of initiatives, we come out of the Great Recession and exposures in places like Arizona, Nevada, Southern California, where there was a lot of damage done to those economies. We're also dealing with the effects of the Dodd-Frank Act, as at the time, the smallest SIFI in the industry. I'll tell you, for a period of about four years, it just took all the energy in this organization to deal with all of that.
We found as we were coming out of that in about 2014, we said, "Okay, we've just got to pivot and focus on customers and on streamlining this place and making sure that we're really strong for the long haul, including with technology." The result is that you can see the efficiency ratio, which was up around 74% back in early 2014, came down to just under 60% and ticked up in the fourth quarter. This is reflecting some of this margin compression from the yield curve. We're really intent on making sure we continue to be intent on making sure that we're focused on getting down into the mid-50s, and not taking forever to do that. It's going to take some help from the yield curve, I think, before we really achieve that goal.
You can see the return on assets, which was decidedly subpar back in 2014, is now kind of middle of the pack. Part of the reason that we've been able to accomplish that is we've had much lower credit losses and thus, provisions. We've had exceptional credit quality over the last couple of years, and we expect that that's going to continue, and it will be a positive outlier in this, whatever the next credit cycle brings us. We've had this real drive to simplify, as I say, this organization. A couple of notable things we did. We consolidated the charters of the eight different bank charters we had into a single charter, a national charter. Then just over a year ago, we consolidated the holding company into that bank charter. That's really been a very good thing.
I was looking the other day at the last year that we were under the oversight of the Federal Reserve as a holding company. We had 43 different communications from the Federal Reserve that we were having to respond to, deal with examinations that we were having to deal with the effects of those. Those are now gone. We continue to have a lot of oversight from the OCC. We had, in 2019, 45 supervisory letters from the OCC. There's still a lot of examination going on. We're not getting the doubling up that was taking a lot of time and was just not particularly productive. That's been, I think, a very good thing. I can tell you honestly, none of us feel like there have been any corners cut in terms of supervision and regulation in this company.
We have a very strong team from the OCC, and we think, a very good relationship with that agency, and it's a very respectful one. They've got quality people, and they do a good job. We've gone through a lot of reorganization. This is a process that had started 20 years ago but has continued to evolve, of consolidating back-office functions around the organization. Most recently, a reorganization of finance, of human resources, and several business lines to make them more congruent with the new structure that we have. Of course, the FutureCore project as a replacement of our core loan and deposit systems has been a huge catalyst for simplification.
You don't embark on something this complex without first stopping and saying, "Okay, let's first see if we can make sure that we've got the process right, that we're converting this over to." There's been a lot of work on simplifying our product set, particularly with deposit products. There's been a lot of work on cleaning up both the chart of accounts in our general ledger and the way we use those accounts in creating data definitions and data governance, and a lot of structure around that. Really, a re-engineering of data flows that, in some respects, will culminate with the implementation of a customer data hub, which will be really a critical piece of allowing us to support a variety of digital initiatives that we think are really going to be first class.
We've had an ongoing list, and Scott McLean has really helmed this effort and done a magnificent job of it, of what we call kind of a top 40 list. We have a continual list of 40 projects with an executive officer in the company as a sponsor, and we track it. Typically, we will have a project manager associated with it, and we're tracking these all the time. When we complete one, we have a backlog, and we'll pull another one onto the list, and we go at it. We think we've got the bandwidth to be focused on about 40 of these. I think Casey Kasem may have had something to do with this. We've really knocked out some fabulous projects in automation, in simplifying credit processes, in streamlining how we underwrite smaller loans that produce both a better experience internally and externally.
That's a process that will continue. I'm not going to go through all of these, this will give you kind of a sample. We've absolutely been focused on making sure that this place is much safer going into whatever the future brings us. Some of this certainly was brought on by the Dodd-Frank Act and the enhanced prudential standards, Section 165. Though with the elimination of the holding company, and for that matter, with the reg reform bill that was passed about 1.5 year , maybe a couple of years ago now, a bank of our size would no longer have been subject to Section 165 of the Dodd-Frank Act. The OCC created really a companion set of standards with what they call their Heightened Standards, which mimic a lot of what was in Section 165.
It's resulted in, we think, really a major upgrade in terms of the risk management structure that we have in the company, and it's become part of the culture. With the elimination of the enhanced prudential standards, compliance with CCAR stress testing, et cetera, we've eliminated much of the tedium associated with those standards. We've retained the tools, and we continue to do stress testing and liquidity measurement and stress testing and a lot of the things that came out of Dodd-Frank. We're doing them in a less tedious way. It's just, again, part of the streamlining that's gone on. We think that it's left us much stronger. We've also been very focused on concentration limits and reposition the portfolio. We've gone through kind of a decade-long process of improving our risk profile. James, if you go to that next slide.
You'll see a number of things listed here. The things I'd focus on, maybe first and foremost, are concentrations. We came through the Great Recession. I think one of the great lessons we learned is that as we look back, we said, "Look, we didn't do fundamentally a bad job at underwriting. What we needed to really improve was on concentrations management." We had too much exposure to the wrong kinds of products in the wrong markets. We have dramatically reduced, we've nearly eliminated land development financing as an activity around here. We have, in recent years, dramatically changed the profile of our energy portfolio. We have put a lot of limitations on commercial real estate generally and kept the growth of that portfolio from overwhelming the growth of other portfolios here in the company.
I think we've had a lot of discipline around CRE, and that's important when you're 10+ years into a cycle. We've been growing some lower risk categories. Jumbo mortgages to very strong clients. Municipal finance, where we've had a long history of almost no losses in that portfolio through multiple cycles. Focusing on kind of smaller deals, typical deal size about $3 million. We've seen growth in some of these categories. They tend to compress margins a little bit compared to some of the things we were doing a decade ago. They also tend to consume less capital. We think in the balance, these are actually quite good lines of business. We've dramatically strengthened our capital. Now, in the last year, we've brought that down. We think that we overshot that, and that was, again, part of the aftermath of Dodd-Frank.
We have a common equity Tier 1 ratio today of about 10.2%. After buying back $1.1 billion in shares last year, you saw in our first quarter, in our fourth quarter earnings announcement. Well, I guess it was really the announcement we made a couple of weeks ago, after our board meeting. We announced a $75 million buyback in the first quarter. We're pulling back in the buybacks. We're getting to a point where we think we're closer to where we're going to want to be. We absolutely want to go into the next down cycle with really strong capital and with a clean balance sheet. We think that's going to put us in a great position. We have very strong liquidity. We have very low market risk.
The liquidity that we have on balance sheet, our mortgage-backed securities portfolio is high quality and reasonably short duration. We've been doing a lot to change the profile of the company. I guess maybe almost finally, we've reduced the asset sensitivity quite significantly so that we're a little better balanced in terms of our exposure to changes in interest rates. The last thing I talk about in terms of just risk management is what we've done with our board of directors. We've brought on some phenomenal directors over the last five years. Ed Murphy was the CFO of the New York Fed and had been the chief auditor at JPMorgan and then CFO of the retail division. Suren Gupta had been the former EVP and group chief information officer at Wells Fargo in their consumer lending businesses.
Now the EVP at Allstate Insurance and oversees all technology and a lot of shared services there. Vivian Lee. She's running a health platform business for Alphabet, Verily. A very bright, really savvy board member who's managing in her own world in healthcare through a lot of the kinds of changes that we're seeing in financial services. In fact, a lot of interesting parallels. Gary Crittenden. Gary is a former CFO at Citigroup during the crisis. Had been a CFO at American Express on other assignments, and a phenomenal board member. Barbara Yastine, former CEO at Ally Bank and CFO at Credit Suisse First Boston. Aaron Skonnard, who just joined our board very recently. He's an entrepreneur who founded a business Pluralsight, which has quickly become, I believe, the largest provider of online technology education to technologists in Fortune 500 companies and others around the world.
He brings a lot of insight about technology, about small business and scaling up businesses, and about working in a digital world. We're developing a really interesting skill set on our board. I want to just make one comment, this last slide, before I turn things over to Keith. I want to talk a little about technology and innovation. We hear a lot of hand-wringing and concern about the ability of smaller banks, regional banks, and others to compete with technology. I'll tell you, my own bias is I think it misses the mark. I think there may be other things where it's going to be a challenge, including branding, including competing with big platform companies. I think that's where the real risk is.
Technology, if you look around at the whole financial technology world, there's a paradox that this notion that you have to be huge to do it, but all the innovation's coming out of these upstart fintech businesses. They don't have the capitalization, they don't have, fundamentally, a lot of the understanding of the financial ecosystem that I sit around in meetings with our people. I look around the table at any meeting I'm in, and they've got a lot more depth than I'm sure most of the people starting these businesses have. I think it's not a matter of size, it's a matter of just taking initiative. We've actually had a really interesting history in this company of doing some innovative things. We were one of the early banks in the industry to provide, back in 1995, called PC Banking. We have experimented with a variety of things.
Some of them that are technical in nature, technology related, and others not, including things like underwriting municipal revenue bonds and creating a secondary market in SBA 504 for some mortgages. This doesn't always involve bits and bytes. In the technology realm, we've done some interesting things in our history. I was digging through a file the other day. This thing I'm holding up here, this is what is known under the Check 21 Act as an image replacement document, an IRD. It's a photocopy of a check. It's a check I wrote myself back on August 5th of 2002, and that was a little over a year before the Check 21 Act was passed and made law by Congress. We were really instrumental in going to the Federal Reserve. Some of you've heard this story, but it's really a fascinating story.
Danne Buchanan, our CIO at the time, conceptualized the idea of why don't we figure out how to clear checks without moving all this paper? He said, a way to do that, it might sound kind of clunky, except it kind of works, is if you just take a photocopy of it, send the image to the paying endpoint, and present the duplicate. We started playing with that idea and saw some use cases for it, ended up working with the Fed, with a woman by the name of Louise Roseman down in the Atlanta Fed, which is kind of their center of excellence for payments. Took that to Roger Ferguson, who was the Vice Chairman of the Fed back in July of 2001, and did a demo. We built some software, we had a scanner.
We figured out, ultimately, to make this really useful, you needed a change in federal law. Roger Ferguson was very gracious, but it wasn't going to be at the top of his list of priorities to pursue this until a couple of months later, and you had 9/11, and all of the Fed's fleet of planes that were ferrying checks all over the country to get cleared were grounded. The Fed quickly realized we actually have a weakness in the payment system, and that they called us up and said, "We want to talk further about this," and it led to the Check 21 Act, which is the basis for every check that you take a picture of on a phone today and deposit originated with that insight that you don't need to clear a physical item these days.
We became an early leader, particularly with small businesses, in rolling out scanners and letting them deposit checks from their places of business. I call it the greenest thing we ever did because I think this technology is saving millions of trips to the bank, and it's actually led to the ability to reduce the branch footprint in this industry because you don't have to present physical items anymore. We had another early venture. You see up here on the top right here, it's digital signatures. As the internet was taking hold, we thought, if you're going to do commerce over the internet, you're going to have to figure out how to authenticate transactions and identify that the person at the other end is who they hold themselves out to be. The answer to that is really found in public key infrastructure and encryption.
We started an initiative, we commercialized it. We ended up selling the business, it was called Digital Signature Trust Company, to a competing venture. It was started by some very large banks globally when they saw what we were doing, and we saw the writing on the wall and said, "Probably Barclays and Citigroup and others are going to beat us at this game of scale." We sold our business. Back in the year 2000, Bill Clinton signed the Electronic Signatures in Global and National Commerce Act with a card we provided him. It's got his signature we embossed on it, and a presidential seal, and a chip. It was actually encrypted, his signature. He actually signed it behind a curtain with a wet signature, then came out and did it ceremoniously with this, because it was a little bit of a chicken and egg problem.
He couldn't sign it all electronically until he'd signed it with a pen. Just a couple of examples of what companies our size, and at the time much smaller, can do. We are doing something very different now with this FutureCore project. We're in the last lap, and it's a tough lap because it's deposits. We now have all the loans that are in scope done. I hope that it will prove, again, to be an initiative where we are creating something that is ahead of the industry, at least in this corner of technology, and something that will serve us well for many years to come. This can be done by smaller banks, but you have to focus on it and unleash people's creative powers. It's tougher these days. There's a lot more oversight.
Used to be you could launch a new product in a couple of weeks. Today, there's a lot of process, and appropriately so. There's a need for banks our size to be innovating, and we hope to do that. Okay, I'm going to turn the time over to Keith Maio, and he's going to expound on some of these themes. Keith is our Chief Banking Officer, and he is responsible for several lines of business, including all of our retail banking, as Keith and Olga Hoff, who works with him, and mortgage and wealth management. Keith, we'll turn the time over to you.
Morning. James, you flip those? Thanks. Before everybody gets a little too wound up about the title of my presentation today, last I looked, we're about 400 mi from Las Vegas. There are no table games this morning, okay. The presentation ought to be exhilarating. I want to welcome all of you as well, and interesting to just to kick this off with several references Harris made to small business, the leadership we have in our markets of small business. It's clearly something we're known for. As we have been thinking about key strategies for the company to grow our revenue, we talked about the fact that we're good at small business. We can be better, and it's extremely valuable, so let's double down on what we're doing.
I'll talk a little bit about what that means and how we go about thinking about double down. Essentially, we start by really better understanding our customers, doing some segmentation work, and actually listening to our customers. Many banks, including us several years ago, treated commercial customers as a one size fits all. The reality is not unlike consumers, businesses of different scale have different needs. We really wanted to go through a segmentation process with our customer base and then listen. From there, we then decided, okay, what is it we should invest in? What have we learned from these customers, and then what do we want to invest in strategically to move the needle? As well, think about some of our complementary businesses and making sure they align with our core strategy.
Harris mentioned a couple of those that I'm going to touch on. That's wealth management and mortgage banking. All of this with a goal of a meaningful revenue outcome. As we look at segmentation that we've done first James, will you hit the next one, please? We go through an analysis of it's different for every bank, but how do we go to think about our customers? For us, we decided that this small business segment is going to be a combination of micro-businesses, which there are large numbers of, but those have under $1 million of revenue. Business banking, which becomes a real core customer for us, is up to $10 million of revenue, and then commercial beyond that. It's measured by gross annual revenue of the company.
You might look at that and say, "Okay, that's pretty simple to figure out." Well, the reality is, when you get down in the business banking and micro business segments, most of those companies don't borrow money from us. That's really the only opportunity we have to gather gross annual revenue information. We spent a lot of time with our data science team tuning up various algorithms to look at deposit activity, et cetera, other attributes to determine where our customers fell in these segments. Then we back-tested that by taking actual customer names and going to our affiliate banks in our markets and just checking that against what they knew about those companies. Actually, a lot of work went into this. What I mentioned was one of the learnings that we had.
We tend, as bankers, to think about customer needs, and we start with the loan first. The reality is, as we think down market about the small business customers, that's business banking and micro, most of them don't borrow money. As they're looking at us to provide banking services, what's important is things other than loans. I mean, clearly, when somebody needs a loan, they want to have somebody who's responsive. The reality is, if we only focused on the loan, we're missing the mark. Something we learned there. At our core, I'd sum that up, and Harris mentioned this, but two-thirds of our revenue comes from these business customers. If we look at and break this down just a little bit more, business customers, we have 207,000 of them out of about 1,060,000 total customers.
It's not quite the 80/20 rule, but this is about 20% of our customers in total when you add them with commercial real estate representing, again, two-thirds of our revenue. At our core, we are a business bank first in every way, shape, and form. Interestingly, of that 207,000, again, back to these smaller customers, the micro segment and business banking segment, 90% of that 207,000 is in that $10 million and less gross annual revenue. First blush, you might think that's not really a relevant part of our customer base, but I'm going to talk about and show you why it's extremely relevant. Again, learning that most of those customers don't borrow is important. Lastly, let me touch on, there's a big elephant at the bottom of that slide that's 800,000-plus consumer customers. That's the biggest number out there.
Don't we care about them? Yes, we care about and love our consumer customers. We're really good at consumer banking in a couple of our markets. We're focused here and we're focused in Nevada. The rest of our banks have plenty of consumer customers. I would term it as a more opportunistic approach in those markets. As we are starting to drill down in that consumer segment, and where we're doing that is with another strategic initiative that has launched recently, it's an affluent initiative. It's really, how do we understand our affluent customer base? Some initial learnings that we have there, and we haven't clearly defined what that affluent box looks like, what are the attributes. What we're finding is that about 25,000-ish of that 840-plus thousand customer base.
3% of that customer base represents about 40% of consumer revenue. Guess what? Many, if not most of those affluent customers are tied to the businesses that we bank. There's going to be a clear tie there. We'll be doing some work in the future to really drill down there. Clearly, affluent customers represent another significant revenue component for our company. We'll be doing more to define how we can build better products and channels for those customers. Okay. We're a business bank first and foremost, how do we do in the business banking segment? Let's touch on a couple of things here. First is that this will show you that we're better than most at acquisition. This is over the last couple of years. We net acquire about 2,000 business customers a month. I'm sorry, each quarter.
We outpace our attrition, and we also outpace business formation in the markets that we serve. Okay? We're doing a pretty good job of acquiring customers. If you look at the attrition statistics, at first, they might seem kind of high because that is a reasonably high attrition rate. Not for business, but when you think about these smaller business markets and smaller business customers in looking at attrition, the number one reason customers attrite is they go out of business. Think about that micro segment, that large number of customers we got, they go out of business. There's a second reason, though, a second learning we had here, and I touch on what we're going to do about it later, and that is that these small customers tend to get lost once in a while in our organization or any organization. Officers change.
We have branches. Many of the branch managers have assigned to them business customers. We have branch managers that have as many as 800-plus business customers assigned to them, along with running the branch and consumer customers. They just can't touch them all the time. What we found, what we learned from this, and have applied some change, is that there's a reasonable number of our smallest business customers that don't know a banker. When they have a need all of a sudden and they don't know who their banker is, they don't really know who to call. They talk to some other business person they know and said, "Oh, you can get this product over at Wells Fargo," they leave, they attrite. It's not that we've really done anything wrong. We just haven't been there in front of them and communicating clearly.
That's another learning we have about acquisition. We're going to talk about one thing we're doing to deal with what we call affectionately the orphans, those that we're just not in front of. Let's talk about why small business, because I mentioned that at a distance you might look at these smallest customers, these micro customers, business banking customers, and why would we really care about them? This is going to point to the biggest single reason why. Harris touched on this, mentioned what we did from a lending perspective, how we were very engaged in a lending market to small businesses. Deposits is really ultimately where the action is. It's really why you see other banks in the last several years deciding they want to chase small business. A couple of things you learn from this slide.
One is that 70% of the deposits that we have, the $12.5 billion, is DDA. If you'll remember, the entire company, we're in the low 40s. Which is tremendous, but this segment is 70% DDA. It's very DDA rich. It also is a net funder, meaning the amount of the deposits for that segment minus the amount they borrow is that $5.6 billion. It's $5.6 billion to help fund other activities in the company that maybe aren't as deposit rich, like commercial real estate. These companies and their size, if you think about it, they tend not to have the corporate treasurer, so there's not disintermediation going on as rates rise. They're not chasing the next highest interest rate. They're busy running their businesses. If we're taking care of them in other ways, these deposits tend to be quite static.
The other thing was we talk about how granular they are in that micro business segment, again, that under a $1 million-dollar segment, average deposit balance for a customer is about $20,000, but there are 173,000 of them in this company. The numbers are big. If you think about that business banking segment, the next segment up, the average deposit balance, 70% of which is DDA, is $275,000. It's made up of 64,000 customers. Large numbers of customers with deposits that in aggregate really provide a lot of value to the company but individually don't pose a lot of customer risk. The only other thing I'd mention about deposits, just to give you a frame of reference as to their value, is that for these micro and small business customers in 2019, our average interest rate paid across that was 13 basis points.
That compares to 45 basis points across all of our customer segments. Again, these are really cheap deposits. They are net depositors for us. As I mentioned earlier, that's a learning we had as a takeaway here as to how to focus on being even better with this segment is really understand where the value is. You saw this slide earlier from Harris, but I threw it in here anyway just because I think that when we think about our reputation in our markets, and both from a commercial banking standpoint and a small business standpoint, the fact we rank number one across most of these, and those that we aren't number one, we're number two on as compared to our large bank competitors is really important. The importance is in trust.
Something else that I think the market thinks we're better at than we have is just our digital capabilities. Importantly, we're going to touch on this in a little bit, but the perception of our bankers is superior. When you think about that, what does it mean as we talk about this initiative? What it really means is that, these results are consistent, but that consistent, solid reputation that we have really provides what I would think about as a launching pad to double down or go deeper into the business of banking businesses. It provides for our bankers a confidence and conviction. It provides a tailwind. They have a positive reputation. They don't hit the water swimming upstream because the reputation is so positive. Let's switch now and let's say, we've learned something about our customers. We've segmented them.
We've listened to them. We understand where relative value is for the company in all of this. Now, where do we invest to be even better than we've been? It starts with really what I would call a strategy waterfall. We think about this from a product perspective. When we think about products, we're going to think about products that are specifically fit or sized for small business. Again, it's not the one size fits all. A really good example is we've got a very robust treasury management offering for our commercial and middle-market customers, but it's not a fit for small business customers. It's too complex. We're going to talk just a little bit about how we think about products and solutions that are more fit for purpose or fit for size.
From a technology perspective, there's a lot we're doing from a technology or particularly a digital technology perspective. What customers tell us there is they really want us to provide solutions that are efficient. Again, if you think about it, these are people running their own business. Time is so important. In fact, saving time is probably the single most important thing to them when they think about using bank product. They want it to be easy. Don't overwhelm them with complexity. Kind of back to that Treasury example. Keep it simple. Then lastly, when we think about people, we're going to talk about this quite a bit, and Harris mentioned it a couple times, but really fundamentally, we want to just make sure we arm our bankers with the right tools as they're out in front of these customers.
Really importantly, I think a big takeaway today is going to be just that we want to develop the best frontline bankers for small business, and that will be a key differentiator. That really is different than what most of our competitors are doing. We're going to talk about specifically the things we're doing with our people to differentiate them. Then we're also, from a people perspective, thinking about a, again, fit for purpose, fit for scale segment service center. Differentiating a service center for these small business customers, different than our consumer care center because their needs are different and unique. Just to drill down on these individually just a little.
I'm not going to go through all of these, but again, I mentioned earlier, just focusing a set of treasury management products for downmarket, again, for customers kind of in this under $10 million segment. We've got a specially prepared ACH products, positive pay business banking, a business online banking, smaller, less sophisticated treasury management set. We've designed some treasury products that are downmarket. Business Access is a loan product that we kicked off about two years ago. Business Access is really our fintech competitive loan product that's up to $50,000 unsecured, $175,000 secured. It's a four-hour turnaround. When you sign your application, either manually or digitally, that is your loan document. It's a really quick turn, score-based product. We've had great results with that product. Express CRE is something we are actually launching this week here.
This is not an attempt to double down, if you will, our commercial real estate portfolio. We found that there's a much simpler way to provide small commercial real estate product to professionals we bank, or sometimes our business owners want to own a building or two. This is a solution really to help those kinds of customers in a much easier way navigate financing for that kind of purchase. The last one I'll touch on is this Business Complete. It's a complementary set of products from non-bank partners that'll be on our web. It's launching Q2. This is one of the things we heard, is that the smallest customers don't necessarily know where to go for services other than banking. In listening to them, we're launching the most important products to them first.
That's a payroll provider, accounting services, and business and marketing supplies. In listening to them, that's where their priorities were. I'm sure we'll go further with this over time, but that's the initial launch, Q2. Those are some examples of how we're thinking about different products and solutions, again, with a focus on this business banking customer and what we learned. Okay, when we think about technology, I'm going to stay really light here. It's actually much deeper than this, but Jennifer and her team are going to go through a presentation right after this where they'll be making a much deeper dive. I think just a couple things that really stand out from a technology perspective as it relates to business banking. First is we have this digital loan app for that Business Access product I referenced earlier.
That's been in use for a little over a year. Right about maybe just a little bit more than two-thirds of our applications for that product are now coming in digitally. When those things come in digitally. By the way, this is a very conversational kind of application. It's very easy for customers to fill out. It's very easy for bankers that want to help their customers fill it out. It's a great solution to simplify things for customers. Obviously, it eliminates paper, and frankly, it makes us much more efficient on the back end. Everybody wins. We're going to expand that digital application in the business banking space to what we think about as the next level of credit or underwriting, a little bit more than that $50 and $175. We'll be doing that in 2020.
We also have a bank card digital application that's been used. Importantly, we're revamping and enhancing our small business online and mobile banking application, and that launches the first half of 2021. That'll be coming soon and a replacement for that business online banking product that I mentioned. I think one other thing I would mention in technology that is going to be a theme of what we're going to talk about today, and that is that the digital assets we talk about, so let's use the one that was the application for our business lending product. We don't provide that in a way to necessarily or in any way really replace our banker. It's really meant to augment what our bankers are doing with their customers. Many times, as an example, when we're taking that application, it's being taken alongside with the banker.
These are not applications we're trying to take where there's absolutely no relationship with a bank. It's really meant as a tool to augment what our bankers are doing with our customers. I think from a technology standpoint, that's a theme. Okay. Let's talk about people. I'm going to start with a quote from our chairman in last year's annual report because I think this sets the tone for what our goal is. Harris said, and I quote, "We want to ensure that our branches are staffed with real bankers with much longer than average tenure who can solve problems and build and maintain the kinds of relationships customers value." That's really our goal. That, again, I'm going to tell you, is a differentiator. How are we going to do that?
First of all, we've got a series of banker capability and authority-building programs we've put together. I'm going to go through those in a little more detail later because they're really important. Primarily, that's where that starts. I think secondly, we've built what we call centralized relationship manager teams. We've got them. We just rolled them to our third market. We've got some in Utah, Nevada, and now in Arizona. Why is that important? The reason it's important is that go back to attrition and the fact that one of the reasons we attrite customers is because they don't know who their banker is. They don't have a connection to the bank. I mentioned that we have just so many of these business customers that we can't effectively down-market.
When you think about those smallest customers, we can't effectively assign bankers like you would think about traditional business bankers or commercial lenders to go call on these customers twice a year, spend time in their businesses. It's just not cost-effective. If those customers have a touch point, they know somebody, they've got built some element of relationship with the bank, that's of value. We set up these centralized groups. These RMs then take lists of customers. They tend to be smaller. They work with the individual markets to decide, say, in a branch, what customers a branch manager is going to keep. Maybe we think about branch managers can handle 250 business customers. Anything over that gets moved to the centralized RM group. Those centralized RMs reach out to those customers, introduce themselves. "How often would you like for me to work with you?
Anything you need today?" Just creating that touch point so when that customer needs something, they have a contact. They know in the bank who they can talk to. We're already seeing that it's making a difference. We talked to some of these customers, and it's interesting. Some of the anecdotal feedback is, "Gee, I was about ready to leave the bank because I don't know anybody." Again, I don't think the expectation they have is somebody's out visiting their business two or three times a year, but just that somebody cared enough to touch base. It's in a maturing pilot stage, I would say, but it's been very successful for us. That centralized RM team is really what we've put together to address what I mentioned earlier, those orphans that are out there.
Lastly, I would mention Business Banking Service Center. This is a centralized group that we set up really to focus only on these business banking customers and really to help them from a service perspective. The bankers that are in there are only focused on small business and also to help either the customers or our branch managers, business bankers onboard products for those customers. Okay. Those are some of the things we're doing. Let's talk about branches for a minute. Harris mentioned branches. This is an annual Barlow survey. You can see that the last four years are stacked up. The most recent year, 2019, is what is in blue. It points out that business customers continue. This is not a dramatic change. They continue to value the branch and a relationship banker.
They're two of the key features that businesses are looking for when they're looking for a bank. We think about technology, again, with these smallest customers, and it's not that the technology is irrelevant, obviously, from the finding. I think the takeaway we all need to have is that branches and relationship bankers are as important as technology when these businesses select a bank. Again, just another takeaway from us, another learning about small businesses, and what are we going to do with it? I think the takeaway for us is that investing in our people is important. When we think about branches, something we've been doing for a while, and this validates, while we're not rapidly reducing the number of branches we have, there is transition in our branch network.
When we think about transition or relocation, we really now, in the last few years, are thinking about locations where business is primarily. There may be some new subdivision being built out north of town. That isn't necessarily where we're going to race to be in the future. Okay. What works best for us is let's go where business is because, again, that's our core customer, and it's how we might reorient how we look at branches. Lastly is, again, a validation of what we just talked about a minute ago, and that is that we need additional RM capacity. We can't do it by putting people out, again, calling on these smallest customers. We can create that touch point, that centralized banker so that every customer has a banker. Every customer knows a banker in this company. That's important. Okay.
We've been talking about branch and digital. If we switch now to what's going on with branches and digital. If you look at the right side of this slide, it essentially says that as we think about customers that work with the branch only or branch and digital or digital only, the customer satisfaction, and this is for our bank, the satisfaction customers have with us is pretty much the same, and it's actually very good. If you look at the left side of this, what it tells us is that those customers that have a branch and a digital, and branch being personal as well, but a branch person-human connection along with a digital connection, attrite at a much lower rate than digital only. That probably isn't completely shocking to all of us.
It just further validates that we need to make sure that that human, that branch connection is part of what we do with customers every day. It also confirms for us something that I think we all know intuitively, and that is that those customers that engage with us or others digital only, the ability to switch is very easy, and it happens a lot more often. Our goal is to, for obvious reasons, have that multiple connection point with our customers. It's that digital connection along with that personal connection. Again, that's where we're going to go. We talked about bankers. I said I'd come back to what we're doing from a frontline development perspective with our bankers. I'm going to reiterate this probably for the fourth or fifth time, but this is really a key differentiator for us.
It's something we're doing that's very different. It's a contrary approach to what goes on in the front line with bankers, but we think it's critically important, and I think we've demonstrated why for our customers, they think it's important. When we think about banker development, here's some things we're doing. We've created a multi-level and a proprietary program that both has a credit component, so learning about lending, learning about business, learning about financial statements, and a relationship management learning component. It's got three levels. For people in our branches, level 1, the base level is going to be a requirement. Everybody will have gone through that or have tested out of it. There's a base element of learning that just we think is so valuable as our bankers are engaging with businesses that we're making that mandatory.
There are two other levels that can be achieved. I think what is valuable about those is it really gives two different paths to people in the retail business today. The first is those that aspire to be commercial bankers. They now have a career path to go through additional credit learnings and some relationship management learnings, it's a lot more in-depth credit as they move along the next two levels. I think Harris mentioned this, it really creates the opportunity for certain branch managers, those in the retail business that want to remain at a branch and want to remain engaged with those customers, want to advance their career and be able to deal with more sophisticated customers. It gives them an opportunity to do that, yet remain in that branch position. That's where we're really heavily investing in those customers.
The outcome is that those bankers, as they go through these different levels, will be granted authority. That authority is a credit authority and also various operational authorities. Why is that important? I don't know that our bankers are going to be using their credit authority left and right. They really will develop a level of confidence if they really do need to take care of a customer that they know well. We run into this sometimes that one of the policies we have in our card area, a business wants a card, we have a requirement that they've been in business two years. It might be that this customer has banked at this branch for 20 years, had three different businesses. This is the fourth business. Guess what? The fourth business hasn't been in business for two years. We know the customer well.
We banked them before. We ought to be able to override that and make it happen. It's those kinds of things that these bankers will be able to do, practically speaking, but it helps them develop a confidence when they're dealing with their customers. They don't feel neutered. They don't feel like somebody who is just checking some boxes on a list as they grab application materials and send it off to who knows where to be approved or declined. That's just absolutely don't want. We want them invested in the process. We want them to own that relationship. To do that, they've got to have this kind of understanding and granting them that authority they've earned, I think really helps them own that customer and own the responsibility.
At the end of the day, just this will give them the tools and the confidence to better assist their clients. It will clearly differentiate them from bankers that a customer may work with at other banks, particularly other large banks. That's a really important program. We've invested a lot of time in it. It kicked off late last year. As I mentioned, this first wave, we've got basically a year to get all of our frontline bankers trained in the level 1 of this program. Lastly then, the other piece of this is how do we think about some of our complementary businesses? There's not time to focus on all of them, but a couple of the key ones are mortgage and wealth.
I thought I'd talk about those real quickly, and how do we think about those in the context of this core customer that we have? We've got the mortgage offering. James, you can go to the next one. The mortgage offering really has two key components, and both of these, again, fit with who this core customer is we've defined. The first is to be the bank of choice for self-employed, and that's the non-W2 borrower. Sounds simple. Okay. You want to focus on business owners. That is generally the self-employed, right? It's not easy. As you all probably have some sense, mortgage rules changed years ago. Calculating debt to income is critically important. Take some complex tax return and try and figure out what their income is to calculate DTI. It's tough. We're focused on it. We've got specific teams that focus on it.
It comprises 40% of our volume, so we're doing it and doing it well. We have the QM and non-QM product sets fit for those customers. I think one of the things specifically that we did here is we've got a proprietary mortgage portfolio product that ties specifically to a proprietary cash flow model we use when we're dealing with customers on the commercial side of the bank, commercial real estate side of the bank, private banking, et cetera. We use those cash flow analytics that drive this proprietary product that we've got. There's an ease of a customer transition in what can be a very difficult space. Secondly, in the mortgage area, the other thing we do and do really well is we've got a one-time close product. That construction perm product, again, it's somewhat unique. Everybody isn't doing it.
That ends up being about 25% of our volume. Again, very targeted to professionals and business owners. Okay. In terms of mortgage experience and bringing in technology, this just goes with the theme that you have been and will be hearing all day. It goes with the theme of pairing our great bankers with technology. We introduced Zip, which is our digital mortgage application in 2018. Our adoption rate of customers that are using this Zip is about 75%. Things unique about it or digital applications. You digitally obtain verification of deposit, verification of employment. We've got the technology will also go grab their income tax transcript from the IRS. Makes things very simple. Again, if you go back to what was important to these small business customers, keeping it simple, keeping it efficient, respect my time, does all that.
You're not uploading documents like some of the older digital applications are all about uploading documents. There's no uploading. You can just go pull everything automatically. It also creates a very transparent process for the customer. Again, just in terms of efficiency and ease for that business owner, the process is very transparent. You can look at any point in time and see what's going on. There's a great customer experience involved here. The other thing it's done is because all that information comes in digitally, it's actually since the launch of this just over a year ago, it's allowed us to reduce our cost per loan, our CPL, by 10%. It's actually made us a good bit more efficient as an outcome.
The other thing I would just say to tie this to everything else we're doing is that our bankers, when we think about our mortgage loan officers, are much more knowledgeable than what you generally see in the industry. You say, "Well, why is that?" The why is that is because if you think about the volume I just described, they routinely deal with construction lending clients. Every one of them does. They understand the construction component of lending. Secondly, we talked about the business owner, the non-W2, 40% of our volume. Again, our bankers are routinely dealing with what is the more difficult set of customers to understand and deliver to. They're just more savvy. We have a differentiated experience with our bankers and the technology.
As noted, most customers want the technology, but they also want a banker riding shotgun with them to help them out. I think that's what we find in the mortgage space. That's, again, consistent with what we find everywhere else. I think we're delivering well on the mortgage side. If you see the outcomes of that, we've had portfolio growth of 9% per year over the last several years. The credit quality in this portfolio is nothing less than exceptional. Our loss rate over the last eight years has been one-tenth of 1%. It's virtually nil. Market delinquency rates, when you look at the mortgage market and delinquencies measured as 60 days past due, the delinquency rates run in the high twos or low threes. Our delinquency rates have routinely run about 35 basis points.
Our delinquency is less, our loss is far less. We're doing this with a very high-quality portfolio. Lastly, I would touch on in the mortgage space that going back to Zip Mortgage and what we're doing there, we have found that we can be so much more efficient with that digital application, and it's so much easier for people to understand. We're actually rolling that to our branch managers in 2020 as an initiative to give them one more tool to work with their customers. Our branches either are or will be have iPads in every one of them. Why that's important is then a branch manager can sit down with a customer and start the application process with them and turn it over to them later or complete it there.
We're going to engage our branches as we try to find more that they can do with customers directly in originating mortgages. We'll touch on the wealth space last. Obviously, on its surface, wealth management is a real natural fit with banking business. Where we position this is to lead with planning first. If we think about succession planning for companies, that's critically important. We have a leg up. We've got customers that trust us. They've had a good relationship with us. Introducing the advisory component is relatively easy. When we think about business transition, it really occurs in three ways. These micro businesses tend to shut down. Remember we talked about how businesses attrite and those smallest customers, a lot of them shut down.
We think about that on the wealth side with helping those customers plan for retirement outside of their business activities. We think about business banking customers, that next step up or commercial customers, they're either going to transition to family generally, or they're going to sell. Again, there's a planning component that we bring there, and things you introduce on that side tend to be insurance kinds of products. We offer family business services. It's something, again, that's proprietary to us that we offer to these companies. If they're thinking about transitioning to family, there's a completely different set of dynamics and issues that come up. We've got experience there, and we provide that to them. If you look around the wheel, you see that we have a full suite of products that we offer. I think a couple of things are important.
One is that our offering is free of any conflict. We don't accept compensation from any fund companies. It's all advisory. We've done this with some strategic partnerships, something we've done a little bit differently. Our advised brokerage and mass affluent advisory product is offered by the largest independent broker in the world. We have the largest independent research firm that offers advice for our mass affluent high net worth offering. Finally, we've had for a number of years, Zions Direct, which is our self-directed broker-dealer. We have, in the last couple of years, paired that with one of the largest broker-dealers to run the back end of that, so we can do it more efficiently but still have that breadth of offering for our clients. When we think about our wealth model and how that has changed.
Before 2016, we offered wealth but we offered it through a variety of affiliates and disparate offerings that were disjointed. We had three broker-dealers, three trust companies, we used seven clearing firms, and we had three RIAs in this company. We simplified the structure dramatically. It was very confusing to our bankers. I would say, not in its entirety, but many parts of this were not really, again, targeted at who is your core customer. We talked a lot about who's our core customer. We needed to target it there. We revamped what we were doing in the wealth business, targeted the offering for who that core customer is, but yet have an entire breadth of an offering up to the ultra-high net worth.
The outcome over these last few years is that we've been growing revenue at a nice low teens clip, importantly reducing cost all the way along and complexity from the things I described. Along with that, what's happened is we've used technology and automation on the back end to make things more efficient and redeployed some of those assets into more highly skilled customer-facing people. More advisors we have out there, but also more planners than we ever had. Talked about how important planning is when you want to serve this market. Portfolio managers and trust professionals. We've reduced cost, reduced complexity, but oh, by the way, also reallocated resources to the front end. Lastly, again, just along the theme of everything we've been talking about and will talk about today, we have a next generation offering that's launching this year.
It's called Wealth Select, it's essentially an advisor-assisted digital offering. It's not digital, it's not robo on its own, but it's advisor-assisted digital offering that again, pairs people with technology. You're going to hear that all day, it's about pairing people with technology. Just in terms of looking at the advisory growth we've had. We all know that the landscape's changing. There's a regulatory push. There is constant pressure these days about moving things more away from brokerage, more to fiduciary. We have an incredibly high level of recurring income. We built our offering and our growth on advice, not commissions, which I think will serve us well in the long run and also positions us, I think, best to take care of our clients' best interest. We've grown AUM substantially. Really, we think about brokerage in a way that we provide it.
It's for customers that need or want brokerage as opposed to a primary product offering. I think we've got this well-positioned today and going forward. This recurring revenue piece that you see in the right-hand of that slide I think really tells the story. Let me wrap this up and try and bring this together. Clearly what we learned is our business customers, and particularly these small business customers, are the core of who we are. We continue to acquire those customers, and we have a positive reputation in that market. We've got some momentum there. We have provided and continue to think about providing technology and products that are scaled for them. That I think is one takeaway for us. We're repositioning ourselves to provide products and technology that are scaled for them.
That doesn't just mean the small customers, but improving their level of sophistication for our large commercial customers. A big takeaway is that they equally value the branch and relationship manager with the technology, whether it's sophisticated or simple. We double up our efforts on building business-savvy bankers who work with our customers and giving them real authority. We believe that's going to be a key differentiator. That real authority, that savvy banker in the market in front of customers will be a differentiator. We align our complementary businesses, okay, with that customer base which is something we've done and continue to do. The result is that we think we'll be able to accelerate our growth and revenue with this valuable customer segment. With that, questions? We have time for questions, James?
Let's go ahead. Thank you, Keith. We're going to go ahead and do a few questions. We're obviously running a little bit behind schedule, but that's okay. We're going to be all right with that. You guys have come a long way. We're going to take some questions. We're going to have two microphones that are going to run around the room. Lanta and Julia, thank you very much for your help. Let's go ahead and just raise your hand, and we'll run the microphone to you. Over here to Ken Zerbe from Morgan Stanley.
Great. Thanks. I guess the slide you had on there about empowering the employees, right? To help them make better lending decisions themselves, more pricing decisions themselves. There has also been a trend in the rest of the industry that has kind of said, "Okay, we tried that, and it didn't really work out as well as we expected. Let's centralize everything. Let's really make sure the bank, you guys, the bank management, has a much better handle on what the pricing decisions are, the lending decisions." You're not getting too far out of the credit box. The question is, if a lot of other banks have moved towards centralizing after trying what you're doing, why is doing it this way the right choice for Zions?
I think there's a couple of things. One is, let me paint a picture of the reality of how this plays out. There's not a unilateral pricing authority that everybody in the field is going to get. It's limited. The same with credit authority. I don't want you to go with the impression that every branch manager in our system, all 425 of them, are going to have $1 million of credit authority. It doesn't work that way. The reality of how the credit process works is they're best off having that underwriting done centrally. They have the ability at a very low level and largely probably in the card space to make a credit decision. I just want to make sure from a scale standpoint, I'm clear about that.
I think what's different is you have to be willing to engage in educating and helping train up our bankers. I think that's what's difficult, particularly with the churn that you typically see in retail banks at the branch level. There's so many people coming in and out that to keep up with some kind of really consistent quality training program is difficult. That's where we've spent most of our time, frankly, in this initiative in the last 12 months is developing a robust training program that can live beyond an initial training period that will live working with or training up that next group of bankers that comes in. Clearly, that is the most labor-intensive part of this. That's where frankly the big commitment is.
Next question.
James, I might just add to that.
Yeah. Scott and Harris and Paul.
Yeah.
If you want to jump in here, feel free.
I might just add to that it is a contrarian view that we're taking, and it's based on the fact that our customers already see us making decisions. They see us doing something that's different today. This isn't a new thing we're taking on. Our customers already experience this. This is what surveys tell us, and this is what they tell us. In addition to the branch managers, we have this layer of what we refer to as business bankers. Okay? They are credit trained, highly experienced. They have more authorities, and they're the ones that are really facing off with our borrowing, the 20% of our small business customers that borrow, 80% are deposit only. They have a much longer tradition of actually making credit decisions. We just think it's what customers have expected of us. It's why they bank with us.
Rather than go away from it, we're going to, based on what Harris noted in the shareholder letter last year that Keith read, we're going to lean into it, not lean away from it.
Marty?
Two quick questions and then something very specific. These employees that you're getting, when we're talking to banks across the country, the hardest thing is to get employees with some history or experience with these credits.
You're sending them through a training program, are you seeing that you're being able to because your system's different, attract other employees from other places or kind of just tell us a little bit about where these employees are coming from?
I think we'll find that. It's a good observation. I think we'll find that across the enterprise. What I would say is that we're actually a few years into this program for a different reason in Arizona and in parts of California. What we find is at first, we just need to recognize you have to attract a different kind of person, somebody who actually has an affinity for this, who has a desire to learn and grow as a banker. Once you do, then you get known in your market for that. That it is a different kind of position. It does have a different kind of opportunity. It becomes a positive thing. There's clearly a transition period that goes on.
The value you're adding to these customers, do you see that they're less price sensitive? Because that's the other thing that we're hearing is the price competition that's out there.
Yeah. I think the biggest thing we see is that they feel there's a value add. When we look at those attrition statistics, I think most particularly, that's where we have started to see, and I think we'll continue to see less attrition, which net, that means you grow customers. We historically have thought as a company that this kind of approach, particularly on the commercial banking side, yields something on the order of 25 basis points of value that we can sell over just based on relationship. I think that's kind of what our history has shown.
Lastly, on page 32, it was interesting that your actual satisfaction across those four categories wasn't very different. I mean, it was 8.6 at the top to 8.2.
Right.
The attrition rate was three times higher. I just was curious why the satisfaction rate wasn't picking up some of the difference there as well.
I think the satisfaction rate, you're absolutely right, and touched on this the same. I think the big thing is that the ability to unplug here and plug in somewhere else when you are a digital-only customer and you don't have any kind of real relationship you've developed, is so easy that that's why we see that happen. I think it goes back to what I was mentioning early, that it's not that we've necessarily done anything to anger a customer, but they see a bright, shiny object down the street. They don't really know anybody here. If you only bank with us or anybody else digitally, unplugging here and plugging in there is not a big deal. I think that's why you see that churn at more than two times.
John Pancari, Evercore.
Keith, just a question on wealth. A lot of other banks are also focusing on it. Could you give us an idea about what your target is there? I mean, it's about 2% of revenue here, so not the largest contributor. How big do you think you can get it, and what's the time frame?
We could give that to Rebecca Robinson runs our Wealth Management.
Rebecca, come on up.
My answer is going to be it needs to be a whole lot more. I think it's got a longer sales cycle than most products. We need to recognize that. Rebecca's the one that's led this complete realignment, and so it just takes time. We now have things realigned. We have momentum. Where do you think this ought to go?
I think realistically right now, just with our own organic growth, right now all of this growth is organic. We're not out acquiring books, we're not paying for it. It's not unlikely to see it be four to five times the size it is just to put us on par with our competitor banks. There's a lot of organic opportunity there. The other piece is because we're focused on the advisory piece and the recurring revenue, we do see a slower, obviously, burn-in from that. It's also the type of revenue that we start with that base every year. It's also less fee sensitive, it is a much longer-term relationship as well.
What's the time frame to get that four to five times the size?
Well, I can't commit to that now.
Very good.
I think within a five-year period we will see significant growth, but it really depends on our integration at this point.
I think the other thing comes back to is we talked for a minute about business transition. We've got all these businesses, and so the first thing we've had to do is just get introduced to these business from a wealth planning perspective. As we have done more and more of that, now if these businesses transition, we've been there. It's just that's an investment in time. I think if that transition accelerates, that's where you'll really see acceleration in the wealth business.
Okay. Thank you.
Steven Alexopoulos, JPMorgan.
Hi. So far this morning, this was in Harris's presentation, you showed us that Zions is in one of the best geographies in the country. You're leading in technology. Customer satisfaction's better than the average bank. You're putting experienced bankers in front of your customers. Why are you not showing better growth? When I look at fee income growth, you're half of peers. If you look at loan growth with municipal, you're in line with peers, but ex that, you're trailing.
I think Scott's dying to jump on that one.
No, no, I'm happy to. It's a great question, Steven. I think part of the answer lies in what we don't do. I think what we don't do is going to serve us well if and when we go into another downturn. What we don't do is we have really slowed and reduced our construction lending. I think we have a slide later in the risk section that shows the growth of construction lending of banks our size and smaller, and ours is virtually flat for the last four or five years. Our peers are through the roof. What we don't do, we are not nearly the construction lender that we used to. We're not a big card company. Okay? We don't have big growth in card. We don't have big growth in auto. We don't have big growth in leveraged lending.
Our leveraged lending portfolio is, by Moody's estimate, materially smaller than our peers. The answer is more in what we don't do, and what we don't do, I think, is going to serve us really well in the next downturn. What we're basically shooting for is kind of mid to moderate single-digit growth in commercial. That's 50% of our portfolio, C&I, kind of mid to moderate single growth. That's what we've done recently. To see our one to four family portfolio, which is about our residential portfolio, one to four family and HELOCs, to see that portfolio growing mid to moderate single-digit growth. We'll see CRE coming along at kind of mid to less than single-digit growth. We can operate just fine with mid-single-digit loan growth the way we're structured. We're having great deposit growth.
Happy to talk about fee income more, but I think I'll stop there and allow another question.
Can I ask a follow-up?
Yeah.
At the last Investor Day two years ago, we spent a lot of time talking about fee initiatives.
Right.
It's a little bit like Groundhog Day hearing these again. You've compounded it less than 2% over two years. Peers are double that. I hear you why some of your lending has been slower. Why haven't you seen better traction on the fee income side?
Yeah. We'd have to unpack fees for you. Our customer fees, okay, if you look at customer fees, which is about 95% of our fee income, customer fees over the last four or five years, it's been growing actually about 4%. When you take out businesses we've sold and accounting changes that we've made, we don't disclose a lot of that. The way we look at our customer fees, they're growing about 4%-5% over this four or five-year period, which is the mid-single-digit growth that we stated back on June 1st of 2015. That's nothing to write home about. It's not terribly exciting, okay? It's what we said we would do, and it's what we based our financial model around. We're seeing really strong growth in the area of capital markets, which is about an $80 million revenue business for us.
It was a $40 million revenue business for us two years ago. This is foreign exchange, syndications, interest rate swaps. It's almost doubled in revenue in the last two years. That's about $78 million last year. We are seeing growth in wealth, as Rebecca talked about, and as you saw some of those numbers. We're seeing growth in our corporate trust business, a small business for us, but really a nice growing business. We think we're going to see really nice growth in our consumer conventional mortgage business. With this new Zip Mortgage, we have originated very few traditionally consumer conventional mortgages, which is where you generate mortgage fee income, okay? We think it's one of the single largest fee income opportunities we have in terms of short-term growth, is the origination of conventional consumer mortgages.
Our traditional businesses, our big workhorse businesses like treasury management, personal and business service charges, et cetera, those are all going to be kind of low single digit to mid growth businesses, but they are outstanding businesses for us.
Can I just add? I think the other observation I would make is that if you take the whole portfolio of fee income businesses, there's still a big chunk of consumer kind of deposit-based fee revenue there, and it is a real drag. It's just not growing. I think that's probably kind of generally the case across much of the industry. Customers are becoming much, much better at avoiding overdrafts. We're giving them tools to do that. Back in the day, you just kind of routinely increased overdraft service charges every year. They just topped out. You just can't do that. We've reached a point where customers won't take that. That's a challenge. It's kind of an anchor. We've got some other businesses that are growing actually really well. We're seeing really good growth in corporate trust. We're seeing really good growth in capital markets.
Wealth management is coming along nicely. I think some of the places where we're really trying to focus are coming along nicely. Boy, the consumer piece is a heavy weight to drag around in terms of the total number.
Thanks, Harris. Brock Vandervliet, UBS.
You even got the last name right. That's awesome. Just a follow-up for Keith. You talked a lot about many different things, but you didn't touch on comp. Some of your competitors, particularly some of the smaller banks, have done, I think, some pretty radical things to incentivize bankers to really require deposits, even going so far as writing them into loan agreements or that they require the operating account or have liquidity requirements for a loan relationship? How much have you worked around comp?
Just a couple of things there. One, all of our bankers, particularly think about the front line and the more retail business banker-focused, have comp plans that generally have multiple components in them. It's not just loan-driven because we've recognized that's not where the value is. They typically have a deposit component. They typically have a fee income component that they're responsible for. I think that when I think about comp and what we talked about, the one thing we're going to be working on in 2020 is revamping the comp structure for our front line, again, branch manager, business banker employees.
If we're going to go so far as to invest as we talked about in making them better bankers and giving them better opportunity, we need to think about compensation a little bit differently, or what's going to happen is those bankers are going to get picked off and taken away. That's probably the biggest thing on my mind from a comp standpoint right now.
Let's go to Paul Shifflett from Eagle Bank.
Thanks. I'm curious if you could speak a little bit about maybe the secular threat from fintechs like Square. They're kind of expanding their capabilities and serving small businesses beyond payments. Are there parts of your small business and micro business portfolio that are more at risk as a result? Also, thinking about that chart on 32 that Marty referenced, how has that evolved over time in terms of propensity to attrite for the different reasons?
The second question, we've just started looking at it, so I don't know how it's evolved over time. I don't know if it's any different today than it was three or four years ago. It's just point in time. As we think about the fintech competitors, I go back to actually that slide and this ease of plugging in and unplugging when it comes to a digital-only relationship. The competitors you're talking about are digital-only. I think there are two things. One, they're digital-only, but they're very attractive from a digital perspective. From a product set standpoint, they're relatively limited. If there's an issue that we see, it's on the smallest end of the scale of those customers that we have that have an attractive fintech alternative.
If, in fact, they're digital-only with us, it's easy for them to unplug with us and plug in there. I think as customers, I know as we talk to our customers and as reflected in the material multiple times, as businesses grow and become a little bit more sophisticated, that relationship with a banker becomes critically important. As you saw, a branch located near them becomes more important. I think where there's pressure for us, it's down in that micro segment, that smallest segment. As those customers mature, this is what you see. They want a branch, and if we've got a multitude of touchpoints with them, we're not going to lose them.
Can we take maybe one more question if there are? Then we'll move to the back. Back in the back.
If you could talk a little bit about just the different regions you operate in and maybe any of the differences in applying some of these plans, say in Southern California versus here in Utah. You've got great franchises around the country. I'm kind of curious if there are areas where, for instance, mortgage is a bigger opportunity here versus, say, wealth management in another area. Thanks.
Okay. A couple of things. As we think about the geographies we operate in, there are strengths and weaknesses with the organization. Each one's orientation is a little bit different. Let me start with the strategic objective. We talk about this one we spent time on today, this double down on business banking. Every one of our markets is owning that. It's important to them. What's different is the level of maturity by market. Again, maybe the most mature market with where we want to take this is Utah and Arizona. That's where there are groups of bankers, frontline bankers in the retail side of the bank that really understand businesses and how to deal with businesses. Now, obviously, we need to go deeper in those markets.
If I think about some other markets we're in, maybe Colorado, where we've had more consumer retail-oriented people, we've got further to go. That doesn't mean that they're not engaged with this as a strategic objective. I hope that helps answer your question. As we think about other product, it's interesting. Mortgage is becoming more universal in its acceptance across the company or adoption as a key product. Three or four years ago, a substantial amount of the mortgage we generated was in Texas. That was kind of where our mortgage team had started. Today, the percentage of production that's out of Texas is a good bit less than it was three or four years ago. That adoption is more universal. I think it comes from all of the regions owning it as an objective and then digesting it, and that's the outcome.
That's what we hope for on the business banking side. On the wealth side, I would say it's kind of hit and miss. Ownership in the wealth business by affiliate is almost as much by just relationships in those organizations. Rebecca, I don't know if you have any comments there.
Yeah, just on the wealth side, predominantly, historically, it's been here in Utah, but you look at our markets and you look at the growth in wealth and the transition of businesses, we really see substantial opportunity in all of our markets. Also, just because we have a very low level of customer penetration at the moment, there's a lot of room in all of those economies to grow.
I would say the one that stands out particularly, though, is we talked about how to simplify the business a few years ago. Probably where there was the most damage done internally was in Texas. I would tell you that in the last couple of years, Texas has re-engaged and onboard with the new program, and the results out of Texas have been awesome.
Good.
Great. Thanks.
Thank you. Thank you, Keith. Thank you, Rebecca, for joining us. I'm going to ask Scott McLean, our President and Chief Operating Officer, to come up and introduce the next section, which is technology.
Thank you very much. Good morning to everyone. We are about to go take you on a really deep dive into technology. You need to get ready for that. This is going to be much deeper than just a glossy PowerPoint presentation of a lot of cell phones and what you can do with cell phones. You're going to get a chance to interact with a lot of the leaders in our company that are leading these initiatives for us and these technology projects. I hope it gives you a better understanding, certainly about us. One of the goals we had in designing this period, this next section, was to help you be better informed on what questions to ask our competitors. Okay? We do have sort of an ulterior motive there, and I think that should be good for you.
By you understanding better how to talk to our competitors, I think that'll help you understand us better as well. As you can see on this slide, on the right-hand side, there are some key themes. They're just five buckets. I'd really encourage you to just sort of tear this page out, and as this next, probably close to 90 minutes goes along, I'd really encourage you to just write some notes because you'll fill up these five buckets with examples of what these themes are. First, acting as one company with no silos. Not a company with many silos. Our competitors fundamentally operate with a multitude of silos. They have retail banking, commercial banking, wealth, capital markets, blah, blah, blah, okay? We fundamentally operate as one company.
That may sound like corporate speak, but I'll tell you what it looks like on a day-to-day basis. What it looks like when we're making decisions is we make decisions, it helps us prioritize, and it helps us spend less money, fundamentally, in our technology dollars. I tell you, the other piece that is most important is our customers want to feel that they bank with one bank, okay? If you're a customer at a bank that has many silos, which is almost all of our peers, you might be, quote, "owned" by the private bank, or owned by the retail bank, or owned by the commercial bank. First of all, customers don't want to be owned, okay? Secondly, most customers have needs that are well beyond the silo that owns them.
What they will tell you is that if they're a private bank customer and they happen to own a small business and they happen to need three other items, they feel like they have five, six different relationships with that bank. This is how we are fundamentally different. We are a contrarian in terms of leaning into building the capabilities and authority of our bankers in the field, and we are a contrarian in wanting to be silo-free, okay. It absolutely makes a difference. You heard Keith talk about these Greenwich survey slides.
They're very nuanced, but when you really get behind the Greenwich data, what it says is our customers, our business customers by a significant margin versus our global bank peers, okay, they think that we value relationships more than our global peers, the four or five big global banks, and they believe that we're a bank that they can trust. Those are two really important things. Harris talked about capability building, Keith did, and our bankers. Our customers, our business customers value relationships. In our technology spend, what you're going to hear over and over again, we're not trying to replace our bankers. We're just simply trying to extend and enhance their ability to build relationships. This is really fundamentally a very important element because many banks will tell you, "Hey, we're trying to make it totally digital, totally automated. You don't need anyone in a branch.
You don't need to talk to a human." It's not where we're going. We're simply trying to take what we know our customers value and enhance it with technology. The third item is, I think if you're going to compete from a position, it's really nice when your customers believe that you're on par or better when it comes to digital technologies. This is what external surveys say. It's what Greenwich says, which is sort of the gold standard for this kind of surveying. It's what others say. Our business customers already believe that we're on par or better than our global bank competitors. That's an awesome place to compete from when you hear about all the things that we have been rolling out in the last couple of years and the things that we have coming. Finally, well, fourth, our commitment to our Core Transformation.
We're not just that crazy bank trying to replace its core loan and deposit systems anymore. We're not the only bank in the U.S. trying to do this with heavy emphasis on the word trying. We now have virtually all of our loans on one modern core system. There is not another major bank in the country that can say that. Okay. I say this in public all the time. I have never had another CEO or President walk up to me and say, "You can't say that anymore." It is true. Deposits will be here right around the corner. At that point, every other bank in the country is about six to eight years behind us. Why is this important? If you want to survive in a digital world, you have got to be digital to the core. Data is absolutely critical. Flexibility is critical.
In our case, I think we have a powerhouse partner in TCS, Tata Consultancy Services, arguably the largest IT consulting firm in the world. This is a distinct strategic advantage for us versus our competitors. Finally, you're going to hear about continuous improvement. This is an awesome topic. I'm sure we'll talk about expense and cost control later. The discipline we have around automation and AI and what we're doing in this area, it's creating effectiveness gains, whether it's customer satisfaction, employee satisfaction, work avoidance, cost savings, revenue growth. It is just producing a bucket full of examples that are making a difference in our company. These are themes we're about to take you really deep.
We're going to dunk your head under the water for about an hour and 15 minutes here. I would just keep asking you to refer back to these themes because everything you hear will be directionally supportive of this. I now want to introduce Jennifer Smith. Jennifer is our CIO. She joined us about 14 years ago as head of our audit practice in the company as our Chief Auditor. For the last four or five years, she has been our CIO, having moved into our technology and operations group several years before that. Before joining us 14 years ago, she was with Wells Fargo for 11 years in their operations area, heading up a large part of their risk practice. Then had responsibility for audit in their technology and operations group. She brings great experience to us.
She's also been recognized by American Banker on a number of occasions as one of the top executives in the country. Every year, she's recognized by some technology group, either regionally or nationally, as one of the top technology executives in our country. Jennifer is a fantastic leader for our company and a wonderful colleague. I'm going to turn this part of the program over to her now. Jennifer.
Thank you, Scott. As you've heard over and over again, relationships are critically important to our organization. Relationships with our community, with our customers, that ethos starts within these walls. Today, I have the honor of representing the good work of my partners across our entire organization. You will hear from some of them as well in our panel discussions. Those partners help us deliver on three strategic imperatives, customer first, empowered local bankers, and digital to the core. As we move through this conversation, we have a few demos to show. Unfortunately, we can't broadcast those. We'll get those demos posted online while we show them in the room. Be patient as we flip back and forth between them. If you enter into an unnamed global branch in Manhattan, maybe some of you have, you may meet Pepper, a humanoid banking assistant.
Pepper will give you product advice just by speaking to her. If that freaks you out a little bit, you can click on her screen and get the product advice that you'd like. You will not find Pepper in our branches. What you will find when you walk into one of our branches is a human and a banker who knows your name. She will know your name not because there's an RFID chip in your credit card in your pocket that just alerted her that you walked in. She will know your name because she has been solving problems with you for years, helping you grow your business. She may know the names of your children.
Soon, she will be equipped with a digital device that will have insights on how to better serve you and productivity tools that will help her get out from the branch and even go into your place of business to better serve the work that you're doing. As you continue to hear about, we're spending a lot of time on our core banking replacement. That work is not work for the faint of heart. It takes the commitment from the board, it takes the commitment from the CEO, and the entire C-suite for years. It takes resilience, and it takes courage. It takes some money to do this important work. As many other banks are now starting to look at replacing their core systems, their ability to stay focused on this for multiple years will be a key to their ability to execute.
It won't be easy. Going back to when computer technology actually started to capture the attention of bankers was decades ago, and I want to share a video of a banker, Lloyds Bank in London, this is a real banker, in about 1980. We'll see if that plays back there.
Nowadays, this is due principally to the increase in the number of customers and the transactions passing through their account. When I joined the bank at first, all of these transactions were recorded in a ledger very laboriously by a clerk, where he sat and posted the various entries, debits, and credits. Now, of course, all of the information is contained within the computer, and it produces, on our behalf and for the benefit of the customer, statements on the transactions that they have carried out over, say, a period of a month.
All this information, debits, credits, and so on, has to be held by the computer. Here at the computer center, information is processed to keep customers' accounts up to date.
That takes you back to the early 1980s. The reason I show this is because that's fundamentally the same technology architecture that is running all large banks in the country today. It was running those ATMs. It was running those sorters. It was running those Bunker Ramo terminals that plugged right into the mainframe. That's fundamentally the technology running organizations. Legacy technology is something for any bank that's been around for a long time needs to address. All right, we'll flip back. Okay. Let's see. I think we're missing Back one. There's one slide before this. Yeah. Okay. I think we're missing a slide. What I will share with you in regards to our technology spend. Some numbers you might want to write down. Our technology spend is approximately 10%- 12% of our revenue. A third of the total technology budget is on technology new initiatives.
We think 10%-12% is on par with our peer organizations. After we've made significant investments in what we know as transforming the banking organization. Transforming investments are those investments that are generational in nature. They are the investments that our organization has taken on over multiple years. We've been able to shift some of that spend to digitizing our front-end customer experience, as well as increasing the spend supporting some of our investments in improving and strengthening cybersecurity controls, reducing end-of-life system footprints as well. I mentioned our spend is 10%-12% of revenue. We think that that's on par with our peers. There's no magic formula to determining what to include in technology spend for apples to apples comparison across organizations.
The fact still remains is we don't have the same scale as these large national banks, even though the percentage of spend is similar. What's important to know is that we have a disciplined process about being deliberate and effective in how we spend our dollars. There are four areas to know about how we manage that spend. Scott mentioned the first one is how we lead as a leadership team. We debate often, are we aligned with the strategic initiatives of the company? Are we developing common practices so we don't create technology silos? A technology silo is when we implement a similar system in different product lines in our organization. That increases our spend. It's the ability to knock those silos down that allows us to be more effective. We also aren't chasing bright and shiny objects.
We have strong practices here, but we do have some technology debt from years ago prior to Charter consolidation of having some of those technology silos. We are relentless in understanding what our customers want. This is a developing practice, but it's important because as we look at what a customer wants, it saves us from having to go and invest in areas that are bright and shiny objects or humanoid banking assistants that are actually pretty cool technology, but they're not cost-effective technology, at least for us. We leverage our banking relationships. You continue to hear this, and I know we spoke about Greenwich data showing that our relationships and trust with our customers is rated very high next to our peers. They also, those small businesses, midsize businesses, rank our technology digital capabilities higher than our peers.
We haven't broke the news to them, our digital technology is on par with our peers. It's the large national banks. The difference is how our customers see us. We're so focused on doing what we need to do for them, and we're coupling that with a relationship. In their eyes, we win on all measures. That is more cost-effective than pursuing some niche investments in the digital space. Lastly, we are not afraid of making transformative generational investments for the decades ahead to continue to ensure we're relevant and that we're able to provide fast solutions in a more cost-effective way long term.
A couple of years ago, as I stood up here in front of you, I shared what our technology roadmap is. We've delivered on what we said we were going to deliver at the time, including replacing all of our treasury and internet banking systems, the enrollment process for those treasury customers. As a reminder, those treasury customers support $100 million in revenue for our organization. We've also, in the last couple of years since we last were together, have replaced or implemented digital account opening channels for almost every product that we have. Again, as Harris mentioned, we can open accounts five minutes, have funding quickly for our customers. Our customers rate us nine out of 10 in the customer satisfaction scores in our digital account opening capabilities. We have a lot more on our roadmap. We're going to get into that in panel discussions.
How that's going to work, we're going to have three panels around each of our strategic imperatives. I'll ask some questions to get us going, at the end of each panel, we'll invite you to ask questions on that topic. The first panel will be on customer first. We'll probably spend 20, 25 minutes on that topic. I'd like to invite up to the stage to join me, my partners from around our organization who are focused on delivering the right products to our customers. Olga Hoff is our Director of Enterprise Retail Banking. Jake Heugly, Director of Fee Income and Commercial Products, and Jason Brock, Director of Digital Banking Product and Strategy. I think we can grab some mics. Yeah.
It feels like a YouTube video.
Right. In our customer-first space, we have three key areas of focus. The first is the welcoming first impression, the front door, where our customers land when they come into our digital channels. The next is fast and easy account opening, and finally, a digitized end-to-end customer experience. By the way, I want to comment on this digitized end-to-end customer experience. Fintechs are really good at that first impression. They're not as good at automating and digitizing the entire experience end-to-end and having the robustness around compliance and risk and availability that, and I'm speaking from a banking industry standpoint, we'll have in place. We're going to jump right into this topic. I mentioned that understanding our customers, our relentless focus is important to us, not only from a customer standpoint, but also in just managing what we're delivering to them.
Jake, this is an area that you spend a lot of time focusing on. What do small business and middle-market customers want?
Hey, it's a great question. First of all, it's good to be with you here today. When we look at our small business customers, I think we have a really good grasp on what they want from us digitally and in general. In fact, if you were to talk to a lot of these small business customers, what they value most is time. That's the limited resource that most of these small businesses, when we're in front of them, that's what they complain about is not having enough time. What they want is access to technology that makes them more efficient, that makes their business run smoother so they can compete in a really aggressive environment. Where Zions is unique in the industry is we've invested a lot into our treasury capabilities that Harris and Scott have mentioned.
We make those available to all of our customers, regardless of size. Keith talked about that not every small business customer is going to use lockbox and all of the different technologies that we have, but they do find value in some of the services that are available that are unique to them. That's what the differentiator is. When you go up market into that middle market space and you talk to those customers, they value data integration. They value cutting-edge products and capabilities, which we deliver. It's really today, it's the relationships, the advice that we're partnering with that technology that is the key differentiator in educating those small business customers on what's available. Today, I think what's making us succeed is we're challenging our clients to think differently on how to manage their business.
Thanks, Jake. One of the other areas that we're focused on is bringing a new digital platform to our treasury customers, the landing page, which we call Treasury Gateway, and that whole new customer experience front end. We've learned a lot as we've completed some of the customer studies and user testing. Can you talk about the digital experience platform and what is your view on how Greenwich thinks about our digital capabilities for these treasury and small business customers?
Well, first of all, I think Greenwich is correct. I think we do a great job with our products. We are at parity with our competition. If you look at the digital experience platform, first thing to note is that we've done a great job at continuously improving our digital capabilities over the years. We're consistent at it, and our clients have come to expect that from us in having upgraded technology. What we offer, though, today is 16 different digital products that our clients leverage from us. That's how they're accessing and working with the bank. The DXP or this gateway or the doorway that they have digitally at entry into the bank is what we're enhancing that experience for them. I liken it to like this.
When I used to do my Christmas shopping, I would go to Barnes & Noble, then I would go to Target, and I'd go to Gap. I'd buy those products. It would take me multiple weeks, and I'd get it wrong. My wife would tell me I did it wrong. All of a sudden, those websites became available from those companies, and I could go online and buy the products. That experience was really improved, and I enjoyed it. It took me then a day to get done my Christmas shopping. Now I use Amazon. Amazon does everything for me. They know who I am. They know what I'm used to using. They know what kind of products that I'm buying for my children, and I love that experience. The DXP is like that for our customers.
They have access to all of the different digital capabilities, but with a single entry point. We take the things that they're commonly using to transact their business and making it at their fingertips instead of having to go into Gap and then go into Target and the different websites, we make it available all at the beginning. That's what's changing that experience, and we're looking forward to that for our customers.
That particular system, one of the systems that sits behind it is a workhorse for us. Our customers log on to that system on average 60 times a month. It's tied, too, to our onboarding process digitally for treasury customers. This is another area that we've been moving like gangbusters on to improve the experience. Fundamentally, it's using our digital signature capabilities, and DocuSign is a key component of it. Everybody here has used DocuSign. Why is this different for us? Why is this a game changer for us, Jake?
It's a great question. First of all, not all digital signature applications are created equal. You talk to your customers, and they'll be the first ones to tell you that with our implementation of DocuSign, we have seen that our wet signature process, what we went through. Because remember, we went in and tried to enhance the agreements and tried to cut down as many signatures as possible, making that the convenience. That's not what they were looking for. They were looking for a digital signature capability. That digital signature went from seven days on average for us to get an agreement back from a client to right now we're averaging two hours. Think about that. Seven days to two hours. That's why it's convenient for us. Our customers are getting access to technology quicker than they ever have before.
You don't make the sale, you don't get the revenue until the client is using the product. If it's taking you beyond seven days in order to get just the signature and the agreements back, you've sometimes lost those clients. The second thing I'll mention is this. Our improvement on the abandonment rate has improved by 27%. That's clients who start the application and then say, "I'm not interested anymore." They're tired of it. That manual process was cumbersome. Moving from what we have down to two hours is a game changer. The other thing, it's making our officers more efficient. Our calling officers aren't going out there and tracking down signatures and following up with a client. They're out having additional conversations with our customers.
Amplify an item here, too, that goes back to how we lead in our organization. We had multiple different agreements, and it was easier to implement different agreements because then we didn't have to go through the process that all organizations have to go through with risk and compliance and other bankers out in the field to get consensus. We went through that together in order to arrive at this solution, even though it was hard work to provide a better experience for our customers. In this space we've been speaking about the products that are primarily impacting the deposit and payment side, but we're doing a lot of work as well in the small business lending side. Digitizing their onboarding process as well. Credit cards and small business lending, Olga. Olga, would you share with the group here what problems were we seeking to solve?
Yeah, that's a great question. Happy to do that. First of all, we looked really at the needs of our customers in the lending space. As Keith mentioned previously, if you look at our business banking customer base, starting from the micros to large commercials, 68% of that customer base is really micro businesses. We know that this customer segment is increasingly being targeted by fintechs, and they've come to expect the quality of experience that typically gets delivered by fintechs. We also know that given the size of this customer base for us and given the size of their lending requests, being able to complete these loan origination requests in a very efficient way was a key priority. To really summarize what we were solving for, we were really solving for experience and efficiency. Our digital application was built in partnership with a fintech.
What's truly amazing about the results we've been able to demonstrate is that in less than a year since its launch, we converted from 100% paper to over two-thirds of these applications are being completed as digital applications. I hope the demo plays. Let's take a look. It does play. Great. What you'll see is a clean, uncluttered user experience that creates the perception of simplicity. It's not just a perception of simplicity. The experience is really fully optimized to render on any device so the customer can apply from a mobile device. We know that our customers really value mobility, and so that was one of the key features we were solving for.
In sharp contrast to where we started from, that was a seven-page paper application with intimidating fine print of legal disclosures sprinkled throughout it, kind of interrupting user flow, which, by the way, is still very much the experience that many of our competitors offer in this space. What you see here is a conversational style application that expands dynamically based on the questions that the customer is completing. We know that security of their data is incredibly important to our customers. We highlight these capabilities during the application experience in a very prominent way. Finally, with less than just two minutes of their time invested in this process, we are able to give the client certainty about the product they're applying for and their pre-qualification.
What we found is that this pre-qualification approach is fundamentally incredibly helpful for us in transitioning this client from a prospect to a customer and helping them complete their shopping journey with us.
Thanks, Olga. One of the things I love about this product is, a mom who's at home late at night after her kids have gone to bed, she can apply for a small business loan for that business that she may be running out of her home. If she gets stuck, she can go in and speak to her banker the next day at the branch. Olga, how is it different, though, from a fintech experience?
That's a great question. I think we've demonstrated that we're really happy to deploy the best of what the fintech community offers in terms of user experience. What we're truly focused on is what makes us different, and that's really the expertise and experience of our bankers. This particular experience was really built as a collaborative experience between the banker and the customer. The customer can start the application themselves, and if they, for example, encounter a problem, it will be picked up by the banker who will help them complete the process. The banker could start the dialogue and kind of the selling process with a customer in a different context and then invite the customer to apply digitally.
Finally, in an experience that no fintech is really positioned to replicate, the customer can come into a branch, learn about the product, and apply at a branch. What makes this experience really truly unique is the fact that we've given our bankers the ability to start building a relationship, really explore the customer's needs, understand their business, and really move the relationship beyond just the origination of a single financial transaction.
Thank you, Olga. What we've been speaking about is new product offerings for our small business customers, for some of our larger treasury customers. At the end of the day, the real workhorse is our digital banking platform. We are in the middle of a replacement of that platform, and we are really excited about it, Jason, of what we're going to be able to deliver. We're closing some gaps as well. Perhaps you could walk through what we're doing there.
I think we have a demo for this as well. If we could play that, and I'll just speak over it. You'll see here kind of a modern look and feel, but beyond that modern look and feel, as Jennifer mentioned, we're going to close over 50 competitive gaps just out of the gate kind of day one. As Keith mentioned earlier, launching with small business in the first half of next year, but we're actually already live with the platform in production, kind of taking a minimum viable product approach here. It's live software. It's not just paperware. Consumers should largely be migrated by the end of this year onto this new platform. You may be asking, how does this stack up, right? What's the baseline? What's the benchmark versus big banks, and how does this compare?
I'd say in the eyes of our customers, this is going to be just as good as what big banks offer. How that's possible is really kind of twofold. One is, again, this is really based on open technology, and it's a modern platform, and so it's highly flexible, highly extensible. We can build on it ourselves. We're not tied to the roadmap of a vendor. You've heard from probably other CEOs at smaller banks who complain about their vendors and their dependency on their vendors. This is really a platform that small banks aren't sophisticated enough to really build on themselves, and so they'll still kind of be behind in this sense. For us, we're large enough, and we're sophisticated enough that we can actually extend this.
If it's an integration with a fintech solution and we want to plug that into this platform, we can do that without having to wait for a vendor. Really out of the gate, it's on par with the best technology out there. Secondly, Jennifer spoke a lot about this earlier, we avoid chasing the very tail end of a diminishing return curve. I'd say two things about that. One is we avoid chasing the tail, all those shiny objects, all those really marginally impressive features that a big bank or a fintech may provide. We avoid chasing that by understanding our customers and what they really value and what they'll actually use. The other thing is, I would challenge you to think about the differences between a big bank's diminishing return curve and ours. I'll give you an example.
As we replaced our commercial loan origination system several years ago, we dealt with five or six integrations. A competitor bank recently merging, I guess you can guess which of the two I'm talking about. When they moved, they had 70+ integrations that they had to deal with. We have far less complexity. Big banks have to spend fundamentally more to get to the same place just because of their complexity than we do. Again, the other part of that story is that we're not chasing every bell and whistle out there. We're really focused on understanding our customers, what they'll actually use, what they actually value.
Yeah. Can you give an example of a bell and whistle we may not be chasing?
Yeah. When you think about what's in digital banking, you've got alerts. You've got card controls today. You've got personal financial management capabilities, so that's budgeting and personal financial management tools. This platform will have a very strong PFM offering out of the gate. There's a lot that you can build around that. Lots of, again, bells and whistles on there. We know that only about 3% of our customer base will actually use that functionality when we go live. It's important to have, right? It can be viewed as a competitive disadvantage not to have something in that space. We're not going to chase every last little feature that you could build around personal financial management software because we understand that our customers largely aren't going to use it.
Just to punctuate maybe this point from a perspective of how we think about product development. What we learned from listening to our customers is that interesting and compelling products come from solving interesting and relevant problems for the customers. That's what we're really chasing, not really overloading applications with features that essentially create feature bloat. That creates maintainability, supportability, and long-term cost.
Thank you. As we think about our customers, I hope you've heard our focus on our relentless understanding of what our customers want, what problems they want us to solve, and how we use our relationships to augment our digital capabilities. Let's open it up to questions from the group.
Make sure we're on. Chris Farwell, Wells Fargo.
Thank you. Does the different affiliates cause any problems with implementation or rollout, or have you had any customer confusion? Obviously, your customers are not going to be stuck to just one's particular boundary.
That's a really great-
On a related note, just doing a quick search, all of your ratings on the apps have different scores across your different affiliates.
Great question and great observation. Jason's team studies this and actually has been deeply involved in the implementation. Jason, I'll let you answer that.
Yeah. To be honest, it adds a little bit of work. I would challenge you, and I think Harris speaks to this frequently, to find a large organization that doesn't have some sort of matrix to it, where you're dealing with across one dimension or another, layers of complexity. For us, the affiliates and having to work with multiple partners there is a slight drag. I wouldn't say it's pretty nominal. We also have partners like Olga for enterprise retail banking that helps sit kind of in between to help us kind of consolidate the different affiliate views. When we release technology, it is the same technology across our affiliates. That wasn't always the case, we no longer have differences in the versions or the things. The App Store ratings, longer conversation there in terms of root causes to why you may see different ratings there.
It is effectively the same technology.
Ryan Nash, Goldman Sachs.
Jennifer, this is more of a bigger picture question for you. When Harris spoke earlier, he talked about the seven-year technology journey you guys have been on, and then the hope over time to potentially get to a mid-fifties efficiency ratio. I guess when I look at the listing of all the things that you've done and things that are still on the come, it seems like over the next two to three years, we should hit an inflection point with most of the major initiatives being completed. Given where you are and will be from a technology standpoint, what does this mean for both the cost structure and the efficiency of the organization? Does all this investment eventually result in better than peer profitability, better than peer efficiency? Help us understand what this does for the overall bank over time. Thanks.
Yeah. A really good question. First, I expect our technology spend to remain about the 10%-12% of revenue where it's at. As we complete our major projects, there's a depreciation schedule, and then we continue to need to reinvest it. Next is the technology spend is actually helping us be more efficient. Whether that's talking about, as Olga was mentioning, some of the benefits we've received by automating the end-to-end process with the digital loan application that Keith mentioned in terms of our mortgage application, that it costs us less now to produce a loan. You'll hear more in another panel about the benefits of automation that we're seeing, and I won't give away that punchline yet, but in very specific places, technology on its own will absolutely help us in reducing our efficiency ratio.
As you know, there's a lot of complexity that goes into those numbers, and technology is only one driver of that.
I'd probably add on to that. There's obviously the two major components to an efficiency ratio. She spoke, I think, largely about the cost side of it. I think what we've been doing for the last several years is really kind of winding up the spring and really kind of loading it up from a revenue standpoint. I think that those take time to develop. We've got a lot of building blocks that we've been working on. I think you'll see us over the next year in particular, but over two years, really increasing our focus on digital marketing. All of these tools that you're seeing demos of right now, they're either recent or forthcoming. I think your observation is accurate. In the next two years, I think you'll see a big lift on the revenue side.
I guess just as a follow-up to that, cost is just one part of the equation, but what do you think this means over time for revenue enhancement, getting products to market faster, and the overall customer experience?
Yeah. As it relates to the overall customer experience, and essentially everything that we're putting out there from a digital standpoint is helping the customer experience. We have to couple that with the banking relationship as well, because those two together create the best customer satisfaction scores, the best retention scores. As Jason mentioned, we're making investments in digital marketing that will help on the acquisition side. That's really critical as well from a revenue growth standpoint. I think I missed one element of.
Other questions? Marty?
I think this will lead us to the next section too. I think there's two ways in technology. If you're a big national firm, you have to use artificial intelligence and technology to run the whole decisioning process. The reputational issue that's haunted one of our peers in the industry, I think, has taken away the ability for people in those franchises to be autonomous. You have to be controlled by what's happening in the control center. What we're talking about, I think in the next section, is engaging the person. I think that's a completely different technological rollout and model. Costs are different. The whole experience will be different.
Just explain those two different avenues because to me, I think that's pretty critical in understanding what you're saying and how you're trying to automate and engage a person versus take away the person's ability to help in the process.
Thank you. You're right. We will get into that a little bit more in the next section. I'll just briefly touch on it, and then we can go deeper later. First, you heard Harris talk about putting more out with our bankers and giving them some authority to make some decisions that in the past have been more central. That's one aspect. The other around the artificial intelligence, it's really analytics and analysis that we have at play here, is going to be focused initially on offering insights to help our bankers better serve and sell to our customer base. In terms of using intelligence around credit decisioning process, we're still relying on the models that we have in place.
Can we be one more? Jennifer, does that keep us on time?
Yeah, one more.
Okay.
I was curious on the new digital offerings, Jake, I think you said there were 16 of them. How much of this are you doing on your own? How much are you doing using fintechs? Thanks.
Great. Jason, I think I'll let you take that one.
Yeah. To be clear, the 16 are underlying applications within our treasury portfolio of offerings. That was specific to the Treasury Gateway discussion with Jake on the digital experience platform. I think where you're going though is a really important point that these platforms now. Technology's really evolved. This goes back to scale, and this kind of supposed advantage that big banks have in scale. It actually doesn't take a lot of dollars anymore because of the openness of the technology and the architectures out there. We have a digital experience platform vendor for the Treasury Gateway that sure they help us, they give us some advice, but we're doing basically all of the build ourselves on that platform. The platform gives us a bedrock of accelerated development. It's a really powerful platform, but we effectively own it. We own the experience.
We build whatever we want on that platform.
Is that the digital platform?
You'll hear a little bit more about our platform strategy. I feel like I keep deferring to the next conversation. The digital experience platform is essentially a concept and tools, multiple tools that allow us to control the relationship with our customer and not outsource it to a vendor's interface. What we can do is we can plug in all sorts of products into that platform and create a cohesive experience for the customer from a UX standpoint.
This is James Abbott. I'll just add that one of the comments that I've heard from other banks is that it's really critically important to build our own from scratch so that it's universal and looks the same across the board, and the customers value that and so forth, and the smaller banks can't possibly compete against that. That's kind of what you're speaking about.
It's a really good point. Large national banks do have the ability. They may not have a platform. They may do all the development themselves. This platform approach allows us to control that user experience by accelerating our capabilities, as Jason said. Going down market to small business and middle-market customers, this is a place where small community banks aren't able to offer the same kind of experience that we can, and large national banks aren't spending the time to build a relationship with these customers. It's those two things together that allow us to win in that space. Thank you. I'd like to thank Jake, Olga, and Jason for joining me, and we'll move to the next panel. We have two repeat panelists up here, and I'd like to welcome Brandon Thomas as well to our panel. Brandon is the Chief Data Officer for the company.
We are going to spend some time talking about empowered local bankers. This is a subject that has been enlightening to me as I hear from my partners on the business requirements. A few months ago, Jake, you shared with me how the sell cycle has drastically changed in the last decade, and the reliance on technology for selling and actually customer acquisition has changed from a banker's standpoint, not only a customer standpoint. Can you share more about that?
We were talking about how the buying dynamics have really changed from our customers, and it's forcing us to pivot on how we engage our clients and having conversations with them. If you looked at it two decades ago, I would tell you that the sales folks, when they would go out and talk to clients, they focused on the features and the benefits of the product. They were trying to raise the awareness of what we had built because if you build it, they don't come. You got to get out and have a conversation with them and use technology or ways to engage clients to educate them. If you look at what they did last decade, the sales folks would focus on value selling.
They would increase the importance of the product, the value of that, so that they didn't focus a lot on the price, or they looked at the cost of what we were offering and making sure that there was a higher value to cost ratio. Today, the dynamics have really changed, and it's on insight. It's finding information and trends and things that our clients care deeply about and educating them, making them smarter. There was a study done by Gartner recently that did talk about the customer purchasing journey. They said that 57% of that journey is completed before we walk through the door now. Years ago, that wasn't the case. It was a matter of just trying to raise some of the awareness and the education.
If we don't change our banker's mentality in getting the team focused on the 43% and partnering with Brandon and the other groups in our company with information, we're going to find ourselves as a commodity. That's where we've really differentiated ourselves. It's not a race to the bottom when you're adding value and discussion around where we can help make our clients smarter.
Take that. Salesforce is a tool that everybody, every bank uses. Jason, this is an area where we actually believe we're doing something different than other banks are doing with the financial services cloud, our Financial Services Cloud implementation. Can you share why it's different?
Yeah. Thanks. It definitely is different. We've talked already today about why we're taking a contrarian approach and being more people-oriented than large banks. I hope that you'll see this when we talk about Salesforce. Before I get into this, I just want to make sure everyone in here familiar with Salesforce? Okay. All right. Good. How many of you know what positive pay is? Anyone? None. Okay. That's why we have people like Jake sitting here because as much technology is already out there, as much digital is already out there, none of you know one of our top treasury management products that we sell day in and day out, and we sell it as well as big banks. In fact, we outpace them on that product by a long shot.
We have almost as many positive pay users as the big banks do at a fraction of their size. This is why there is this coupling, and it's so critical to get the coupling right between what you're doing digitally, right? Actually, let me take that back. Digital is pervasive across everything, okay? There isn't a non-digital. Think of what's not digital today. You can't open an account in a branch without using a digital tool. To say there's this kind of dichotomy or this tug and pull between digital and not digital, I don't even know what not digital means. There's really a spectrum of self-service, kind of totally on your own banking transactions and activity that go on, something that leans heavier to human assisted. There really isn't a digital side of that spectrum. It's all digital.
What we're doing with Salesforce really is unique, and this is not just by kind of the competitive intelligence we receive from bankers coming to Jake's team, for instance, from large banks, and kind of what we learn about what they're doing there, but also from Salesforce itself in terms of what we're doing. We are getting to their latest and greatest Financial Services Cloud built for banks version of Salesforce, and we're going to one solution. At other big banks, you will see that they have deployed multiple versions of Salesforce. Each business unit tends to have its own version. They've customized the data around it. They have different function features of it, and it makes really taking a holistic approach to relationship management, it really makes it difficult, if not impossible.
Linking different versions of Salesforce is actually really hard if they've been customized like you find at pretty much all large institutions. That's very unique. Why is that important? Well, think about your favorite doctor's office experience, okay? You call up, you got a pain, you explain to the person on the phone, "Hey, I got this pain. Who do I need to see?" Set the appointment. Days later, you walk into the office, the doctor's office, you fill out a form, you re-explain everything you've already told the first person you talked to on the phone. You wait in the waiting room, you get into the doctor's office, finally. You sit down. A nurse comes in, you explain to him everything you've already explained on the form and when you made the appointment. Goes on and on, right? Doctor comes in, you re-explain everything.
This is probably something we all can relate to. Oftentimes, what do you get? You get a prescription, you get, "Hey, you need to get a brace for your knee that you can buy on Amazon." It's kind of a very frustrating, painful experience to go through. This is actually the small business experience at large banks today. They get tossed around, they go from one product group or business unit to another. That's not what a small business wants. We've talked a lot about the fact that they are very time-constrained. Time is kind of the highest value commodity they have. They don't have the time to get tossed from department to department to get their problems solved, to get that pain solved. Our installation of the financial services cloud will be unique in the industry.
Again, don't take it from me, you can ask other banks, you can ask Salesforce directly. It will allow us to get to that more seamless when a human is involved. Which again, granted shows that they care about, all the surveys show that they care about it. Not all the time. Some stuff they want to do on their own, right? We'll have those self-service capabilities as well. When the banker is important to the discussion, when they want to get a holistic approach to solving their problems, our version of Salesforce will be very different and unique, and it will couple, again, the technology to our human interaction and personal relationship management.
Let me jump in real quick on that. From the sales side, I can tell you what Jason's talking about is a game changer. Having the information available at the fingertips is what we're doing today in empowering our bankers with information through their mobile capability. One of the surveys that I did recently to our new hires, we asked those who had been new to our organization within the last two years, how many of you use the tablet in order to conduct your daily sales activities? Only 20% used a tablet in their day-to-day activities, and of those, the majority only had preloaded marketing material or a demo that was available to them. If you think about that's just digitizing a brochure, and they would put it in front of the customer. That's not really empowering the banker.
When we've had an attracted talent over here and showing them that we issue an iPad or a mobile capability, putting Salesforce this type of information, in addition to all the other tools, the productivity tools that we're adding to it, is going to be a difference maker. In fact, when we did the survey to those who currently have our tablets that have been out there, they've seen a 50% improvement in getting out in front of customers. The name of the game is getting in front of the clients and having these conversations, augmenting them with this insight and the data that Brandon's team's done a fabulous job at providing for us.
Thanks, Jake. I didn't give Jake an adequate introduction. I think he's one of our best salespeople in the company, and when I hear him speak, I want to go out and start selling myself. Brandon, to do all the work that Jake and Jason were talking about, it requires a lot of data. Data has been characterized as the new oil, that's a lot riding on your shoulders as the chief data officer. How are you approaching this?
Oh, thanks, Jennifer. Jake has put a lot of pressure on us as well as Jason, and it's good pressure. I wanted to maybe spend a minute with you just on the foundation and get you thinking about the foundation that needs to be put in place. To do that, I thought I'd pick an example that you might relate to. How many of you are using SNL or it's new I know it changed hands. Many of you are relying on that. I want to walk through a scenario with you just if you'll play along with me a little bit. Imagine if today I was to just right now remove your access to SNL or any of its competitors, and you no longer have the ability to have that data just right at your fingertips.
That means you're in a scenario where now banks are sending you call reports or you're going and hunting them down, financial statements, press releases. You're coalescing all this data yourself. While you're thinking about that, I want to take it one step darker and imagine that I also remove from you the regulatory definitions that exist around all this data today that all of you rely on. Now you're in a scenario where banks are producing their own net interest margin definitions. They're not disclosing it, or maybe you're arguing with one of your fellow analysts about the total asset size of a bank. That's the kind of scenario that banks are dealing with and have for a long time.
I just wanted to paint that picture for you so you can understand why this role and what we're doing is so foundationally important to the analytics that Jason's been speaking about. When I was put in this role in 2015, it's not that the bank wasn't focused on data governance and on this foundation, but in order to deliver the real time, the expanded data needs, we needed to strengthen it. We've been hyper-focused on delivering the most critical data elements to our company so that we can do that. Focused on not only just general data governance stewardship, but data lineage, understanding these definitions, understanding and being able to speak to them in a very specific way. I know today that we have 4,000 data elements in our company. That's our universe of data elements, and 575 of those are critical to our business.
We're monitoring and watching those and delivering those in a way that's new and unique, and for me, exciting.
All of that work.
Creates the insights that Jake spoke about and Jason did as well. Our bankers have the information at their fingertips to drive increased production. We will turn the time over to you now for questions to this panel.
Questions. Going back to Chris. Chris, we should have had you sit at the front.
Thanks. Of the 4,000 data elements that you're talking about.
Yeah.
How much of, do you think of are completely leverageable, usable now? How is I guess you have this coming up in the next presentation, FutureCore impacting that and, I mean, are you going back and going through and rethinking how all the old data you have been at? What I'm getting at is like, how sophisticated is your data lake?
Yeah, that's a great question. I mean, the way to do that is to work with all of our partners in the company, with the business, and have them help us define what's most critical. You can't just attack all 4,000 at once. That's why I called out that 575. We have to allow our partners to say, "This is what I have to have in place." Has our ecosystem been changing? Absolutely. We've been expanding it to deliver those data elements faster than ever before. We're really letting our partners drive what's critical. Does that answer your question?
I'd like to add to that is we have we have one data lake. We aren't an organization that has multiple data lakes or data warehouses sitting around the organization. We've brought that together for us to leverage. Next, our lending data is in better condition than it ever has been because of the work of FutureCore. We went through an enormous amount of effort to make sure it was consistent across all of our affiliates as we went from six instances of our lending systems to one. Could actually maybe say that was more when we consider construction lending as well. Our data is in a pretty, particularly in the lending space, in really good shape.
Maybe if I could add, I mean, that's something that's unique. Big banks really struggle with. Big banks have multiple data warehouses. What they're doing, data governance perspective, often is just business line focused. What we're talking about with you today is enterprise wide, and we think that's competitive advantage for us.
Next question. Jennifer Demba with Truist. SunTrust?
Still SunTrust Robinson Humphrey. This may be a stupid question. You've talked about where you think all these investments are. They're going to give you an advantage. Where do you think, once all that is complete, based on what you know about your larger bank competitors today, where do you think you could still be at a competitive disadvantage versus those larger competitors once all the dust shakes out here?
That's an excellent question. As long as we stay focused on what problems we're trying to solve for small businesses and middle-market customers, because the national banks are focusing. They serve this client segment poorly or at least in a fractured way. As long as we keep focused there, we're going to be in really good shape. If I think about, just from a digitally competitive standpoint, there's likely something that's going to grab hold that we're going to have to catch, we may have to play catch up on. There's not anything immediately coming to mind, Jennifer. I'll give it some thought to see if something pops up. Anything you would like to add?
The additional thing I'll say is on the large competitors, the biggest challenge, I go back to a story years ago when I was talking to a customer. The customer said, "I'm tired of hearing from your competition what products that you have to offer." I think the biggest challenge is making sure that we continue to educate our clients and our bankers and keeping them informed of what we've built, what we're making available, and that's why the strategy and having everyone talking to each other around this table is what's making it a competitive advantage. We're not built in silos where I don't know what I'm doing in foreign exchange and what we're doing in international, what we're doing in card. We have awareness on all of that, so when we have conversations with clients, they're not feeling left out, that they're not getting the full technology.
That's how we're competing against the bigs.
A quick unscripted question. Jake, talking about Salesforce, and one instance of Salesforce may not sound like a big deal, but I think we hit this pretty hard. When you're operating in a company that has six, seven, eight, 10 different instances of Salesforce that really don't talk to each other, describe the friction that exists for fee income groups that are just trying to get referrals from the line, pursue referrals, close business, just that friction because there's no communication for a fee income group.
I have a lot of the different fee income product groups. Scott, your point is well said. It is really difficult when you have multiple Salesforce instances and trying to get referrals routed to the right people, making sure that people are monitoring the right queues, integrating the data into one instance that uses definitions differently. It is extremely challenging. What we're doing with the Salesforce.
Unification is it puts everybody, the definitions are the same. The way that we talk from a fee income standpoint, we're going to get that information in our employees' hands quicker. You don't have Texas who understands really well what's going on in treasury and maybe California who doesn't. When you consolidate those Salesforce instances, you get access to all of that information across the board from all of the product groups. It's going to help us be more effective in generating revenue.
Rick Roberts, Spoken Capital. The bank sits at this unique nexus of having all commercial relationships or predominantly commercial relationships, and you have this two-sided network really embedded in your client base. I'm just curious on the digital side how you are thinking about monetizing that from a digital perspective. The second part of the question is the process of building tools prescriptive for the bankers? Is it just data for them to use on their own in ways that they choose?
If I could restate your question to make sure I understand it is, I really hear you saying how we're giving them these capabilities, how do we monetize the investments that we're making?
That's the second question.
Actually, the first I may need you to clarify.
The first one was that you've got commercial relationships, and you're building this digital platform, and I'll pick on a specific example that may or may not be on your roadmap, but like accounts payable.
Automation. Auto-rec capabilities for financial statements.
Gives you information and insights into the business for credit. I mean, there's just.
Host of ways and interchange and all sorts of things. I'm just curious whether things like that are on the roadmap and how you think about them?
You'll have to let me know if I don't answer your question. I'm actually really excited by what I'm hearing in your question is. You're right. There's a lot of information that banks have that we gather on our customers' payment information. We can offer insights to a customer on how they're performing against their peers simply from the information that we have. There's real power in the data that we can offer to our customers. That's an opportunity for us. Second, I think Keith spoke about this, too, which is the investments that we're making into our digital ecosystem and an open architecture allows us to plug in providers around the entire financial life cycle, whether it's payroll providers or other providers, maybe insurance providers, into one place that allow our small business and middle-market customers to be served by a marketplace overall.
That's the opportunity with the investments that we're making now and that we'll be bringing online further down the road. Did that answer your question?
Yeah. The word marketplace answers the question.
Okay.
Yeah.
Thank you.
Thank you.
Integrated receivables, integrated payables, those types of solutions are absolutely what we offer to our customers today. They're part of that 16 different digital capabilities that we spoke about. Taking the information, the data that Brandon's team is doing and making it actionable, we're doing that today and informing our bankers, not just providing the data. We're not giving them call sheets and saying, "Good luck, and call these and see what they're out there." We're being very prescriptive on who we want them to talk to, what kind of conversations to have. Steven Alexopoulos, JP Morgan. After this, we'll move on to the next group.
I get the strategy of empowering bankers, right? To act on the robot. When you think about the capabilities you're building, what are the thoughts on a national digital-only bank just selling to that digital-only channel to small businesses, even separately branded from Zions?
Yeah, we certainly are in those conversations on an ongoing basis if that would make sense in our marketplace. We're discussing if that's viable. It's probably all I have to say on that unless someone else wants to say something. Okay.
Okay. Thanks very much. Thanks Steven, for your question. Thanks to this panel. Thank you so much.
All right. Thank you very much. We are going to move into our digital to the core conversation, and I'd like to welcome to the stage my colleagues David Stirling, Head of Technology Governance, and our Chief Information Security Officer, Kenneth Collins, our Director of Business Technology, and Christianne Kuntz, our Director of Banking Transformation and Future Core. We'll jump right into this dialogue. Everything we've been talking about is powered by being digital to the core. I know that sometimes talking about the fundamental architectures and infrastructures of technology could be kind of boring, but I get really excited about it because of what it's going to create for our organization. It will allow us to move with much more speed.
It will allow us to get features out to our customers when I feel like about 2022 is when we really start to see vast acceleration from these investments. We're already seeing the benefits from them today. Legacy systems in banks is a huge issue. All you need to do is simply Google legacy core banking systems, and you will get a plethora of information on the size of this challenge for our industry. As I mentioned earlier in the day, we believe we are six to eight years ahead of our peers in replacing our core banking systems, and that others are going to need to do it. It is a huge investment of time, and it can't be accomplished unless you have a dedicated, committed leadership team and board to be successful.
We're going to jump right into the history of core systems to set some context there. Christianne?
Thanks, Jennifer. I think we saw this in the video, but I just want to unpack it a little bit. This is the video that Jennifer shared earlier. If we go to the next slide, you can see here, before the 1970s, bankers had paper ledgers and branches to record customer transactions and balances. In the '70s and '80s, this became mechanized through terminals in those branches. These were systems that were built for internal use only. They were designed for high accuracy and reliability, and they required these long overnight batch processing systems to be able to open the bank the next day. As new technologies were developed over the coming decades, these channels were layered on top of these core systems, channel over channel.
The difference here was that these were often designed for externally oriented communication instead of those internal ledger functions that these cores were originally designed for, particularly in the 1990s when we got to the advent of online banking and mobile banking. We're now in the era of the Internet of Things, or in our context, I'll call it the Internet of Everything. Yet, no bank in the country has fully re-architected their 40-year-old core systems to be compatible with this modern era of real-time, externally-oriented interaction. Quite frankly, these systems, I'm outing myself a little bit here, they're older than me, and they've been here longer than 95% of our employees.
Maybe you can share a little bit more about what are the imperatives around replacing a core system? It's a big investment. Why do it?
Absolutely. We see four key drivers, Jennifer. One is just simply the legacy vendors here, especially those Big Four. They're either ending their support for the platforms or they're forcing costly upgrades onto the banks. Second, over time, these systems have become heavily customized, that customization becomes very expensive to support and to integrate and take advantage of all of these new digital technologies that we've spent the morning talking about. Third is because of that heavy customization, these systems are inherently risky. They've been stretched to their limits over four to five decades of customization. They're prone to code flaws, to lack of understanding internally about how these systems work. Just due to their age, the folks that do understand how they work are now retiring.
The last key driver is really the exciting one that I think we've been touching a lot on today that actually many of your questions are starting to get at, and that's around those digital customer experiences, digital regulations, and that next Gen Digital Operating model. In the context of the core, this is partly about speed and it's partly about function. On the speed side, with these old cores, banks are finding that they can't integrate new technologies and solutions quickly or cost effectively. Then on the functionality side, they can't do those truly digital data-driven real-time products and services.
A modern core. Can you put this in layperson terms a little bit?
Yeah.
Please.
Definitely. I'm going to try an analogy here. I want to be clear, actually some of the really wonderful questions earlier were hinting at this as well. This core investment is just one component. It's one investment that gets paired with many other investments that you heard my colleagues speak about earlier to create a digital operating model. This digital operating model, when paired with the investments in data, in our digital front doors, and in our API platforms, is what will help us to create a model that's optimized to cost-effectively deliver on those customer needs while also supporting the ability to double down on our bankers like Keith and others spoke to earlier this morning. I'm going to try an analogy. Bear with me. Dave, will you take out your phone for me?
Sure.
Roll with me on this.
Okay.
I want you to think about your phone like it's a modern core banking system. For many of us, it's a pretty sleek one. For many of us, we've become sort of inseparable from our phones over the last decade. What makes your phone so essential to your daily life?
Well, I guess like all of us, it's got everything I need. It's easy to use, it's versatile, and it integrates. Whether I'm doing communication or business travel or whatever it is, it's all right here.
It's got everything you need. There's an app for that. Awesome. In that example, for Apple, for them to create all that customer value and all that revenue, they didn't have to go out and create all those apps themselves. If they did, it would have taken them years longer to do that. Instead, what they did is they created the platform, and then they allowed developers to build on top of that in a controlled way so that they could actually answer all of those customer needs. The App Store, right? Those apps, they pull data directly from the phone system as well as from across the Internet in order to deliver those rich customer experiences.
When you combine that really easy-to-use user interface of the iPhone with the richness of the App Store, it's one of the things that continues to give Apple devices a leg up over other smartphones. In our future, we'll have that same thing?
Maybe touch on this as well, Christianne.
Yeah. This actually goes to the question that was just being asked. We think about how do we use this. How do we use this combination of investments that we just saw here in order to create those incremental opportunities? This is actually our API marketplace from TCS. It's one of our partners. We've also just launched into production Google's Apigee API management platform. We're looking at different ways. With our customers, we can pull data out of the core and do advanced insights, analyzing those transactions in order to offer them cash flow analysis. Someone was talking about accounts receivable, procurement, et cetera. All of these sort of value-added services that either we develop and deliver or that we partner with fintechs to deliver.
Internally, we'll use this to very seamlessly and quickly connect new applications, new technology capabilities into our environments without having to repeatedly rebuild the same thing by being able to pull those out through APIs.
This is one of the advantages, as Scott mentioned, having a partnership with TCS. There aren't other core providers who are thinking about creating a marketplace like that allows us to tap into their API environment. This has been a long journey, Christianne. Where have we been? Where are we going?
Yeah.
When will we get there?
That's a fantastic question. As was mentioned, I think, a few times this morning, we're about 70% of the way through our journey with the completion of all of our loans onto a single integrated modern core platform. We're in the seventh inning, so to speak, and this will be, as you can see here, a 10-year journey for us. This is really hard work, and it's work that not every CEO or leadership team will sign up for because the benefits of this type of work take years to realize. Oftentimes, at many other banks, the CEO won't be there to take advantage of the benefits. It really takes a very different kind of leadership and kind of organization to be committed to these sorts of long-term investments.
I'll also say, I think that we've arguably now, because of the seven years that we've been on this journey, we've developed one of the best teams in the industry at doing technology-driven banking transformation. I don't say that to brown-nose to my boss or to toot my own horn, but I share that because every single one of our peers is going to have to go through that kind of transformation. We are years ahead of them in the making. They may not find that they have the capability or quite frankly, the stomach to do this kind of really difficult work.
That is true. Great. I'm going to shift gears here. There's some questions on the digital experience platform. Steven, you had some questions about that too, and the marketplace capabilities that we will have. The Treasury Gateway that you saw earlier was using this technology, but it's a little bit broader than just Treasury Gateway. Can you share more about that, please?
We're focused on eliminating legacy system architecture from our environment and building solutions where we can control the experience that we give to both our customers and bankers. Our digital experience platform allows us to do a lot of things. It allows us to create portals, intranets, extranets, websites, forms, workflows, it allows us to integrate with other systems and other fintech solutions to create and deliver a cohesive and connected customer experience. That's different than many banks we've talked about that are dependent on or reliant on numerous vendor point solutions that deliver a disconnected, inconsistent experience that's no longer acceptable to customers, nor does it allow bankers to effectively service customers.
This is in Christianne's analogy of the iPhone. The iPhone operating systems, the core banking system. On top of that, you have the experience that Apple offers through their digital experience interface. Eventually, you start to plug applications into that interface to create a great experience for our customers. If you recall way back when we were on the customer-first segment, there was an element around digitizing an experience end to end. What we can do differently than what we think fintechs are doing, and this is true probably for the banking industry of digitizing that experience. Automation is a key area for us to win or to reduce our costs and take advantage of these technology investments. Ken, share some of the work we're doing in the automation space.
Sure. Automation, when I am talking about automation, it includes artificial intelligence, IQ Bot, machine learning, robotic process automation, all types of different technology and tools. Automation is a lever, just like other levers like lean process redesign, digitization, or advanced analytics. All these levers are creating tremendous value. Just to step back and talk a little bit about what Scott said, the driving force creating operational effectiveness and efficiency for our company is our culture. Our culture is more important than any program or lever because it enables and empowers our team members and teams to improve their work utilizing all the various levers. Speaking specifically about automation, as you guys know, most big banks have dozens of automation solutions spread across their organization.
In order to maximize value, we've created an automation center of excellence, and they use a variety of automation platforms and tools to deliver value. Everyone in the organization has access to the automation center of excellence. So far, it's delivering tremendous results. In 2019 alone, we automated over 200 processes that have saved us 78,000 manual hours of work.
That's huge in terms of the impact that your team is having. Could you take it down a level and share an example of some of the automation that the team's accomplished?
Sure. I'll share a couple of examples. The first one, which was on a slide earlier, we're leveraging robotic process automation bots. These bots don't look like Pepper, but they have digital skill sets, and they interact with systems just like people do. In the fourth quarter of 2019, we updated over 2,000 telephone numbers to our core systems that were provided through customers.
200.
Sorry, what did I say? 2,000. There's nothing 200,000 phone numbers provided by customers through digital channels. This would have taken one person 1,500 hours to complete, which is half a year, over half a year. The great thing about these RPA bots is we program them to do this work in less than two days. Another example is leveraging our automation platforms to streamline the end-to-end process when a customer changes their name, address, or tax identification number in the branch. The previous process looked like this. The banker would fill out the change information on a form. They would send it to the back office. A person would key all those changes into numerous systems. How it works now is the banker enters the changes. They hit a button. It automatically populates all those systems.
In that example, it saved 4,000 hours, eliminated 4,000 hours in back-office work. In addition to eliminating the work, it drastically improved the quality because you don't have two people entering the same data. Just a couple of examples.
Thank you, Ken. When we were putting this presentation together, there was a lot of dialogue. Should we talk about cybersecurity, or should we not talk about cybersecurity? It's something that organizations don't want to put a target on themselves as they talk about it. We knew we would be remiss, though, when we're speaking about digital and not acknowledging how that footprint is expanding and the risks it can create for an organization. Dave, as our chief information security officer, what's happening in this space that you will share?
Thank you, Jennifer. Cybersecurity is top of mind. You just see it every day, right? When you look at the world and some of the data here on the slides, it's a little alarming in the trend. What we're doing at Zions is really homing in on those areas that are most relevant to what we're trying to do. Our businesses, our processes, the way we do business, and where those threats are. That threat intelligence takes a lot of work. We've got a great team that puts a lot of effort into this. We look at where we target those investments and focus our energy there, where it's going to give us the best return. In the 2018 annual report last year, the statement I almost made was that our cybersecurity capabilities have a nearly unconstrained budget.
That creates its own challenge of how do we focus and what do we do with that? What we've really focused on is a formal framework where we measure across all the cybersecurity domains and figure out where we can strengthen and improve. This is things like how we respond to an incident, how we secure the bank with these various controls that are available. Not only do we measure it, but we bring in independent advisors to give us guidance. They measure us, and they score us, and they give our executive team and our board that information. That really helps us guide the investment along with our threat intelligence that's kind of real time seeing what's going on around the world. You've seen all the headlines just as we have, and that helps us to prepare appropriately.
The last thing I'll say on our investment is with all these technologies and capabilities we've been discussing today, the cyber team is embedded and very closely engaged in all of these. It's certainly the one team concept, and our goal is to just make cyber part of our regular dialogue here. All of these initiatives are advancing with cybersecurity top of mind in the investment in lockstep.
What should this community ask other banks as it relates to cyber?
Yeah, certainly. I think every bank or every company will tell you all the bright and shiny new technology they're buying. I would encourage every institution to look at this holistically, and by that I mean they look at both sides of the equation, both the technology and the people. At Zions, we've really put an emphasis on building the cyber literacy of our workforce, and we do this in a number of different ways. There's a very aggressive phishing program, phishing testing and simulation program, which my colleagues will routinely stop me in the hall and note how distasteful they find it, but it's helpful in building awareness. We're also taking a lot of steps toward training, both baseline training for our workforce around cyber literacy and then advanced training for our technical people. Much of that's delivered electronically.
Lastly, we have a very strong culture and commitment of playing the way we practice. It seems like every other month or so we're spinning up some kind of a tabletop or a test or a simulation just to keep these things top of mind for folks. I would say other institutions that naturally gravitate toward writing the checks to technology vendors and thinking that's going to solve a problem, they need to look at the big picture and make sure that their people side of the equation is coming up to speed as well.
Thank you. Let's open it up, James, to the audience.
Can I borrow your microphone? Hey, thank you, everyone. Let's see. I've got all kinds of people. I'm going to go to John Ash. Ken, you already asked a question. I'll come back to you in a second, though. Someone's asking John Ash.
I'll sell you my question. You talked about the richness of the App Store as one of the keys of the iPhone. In the future, Zions Bank will have the same thing. I didn't hear any examples of you positioning partnering right now with fintechs. I guess is TCS currently not able to add fintechs to the product suite? A lot of the examples, and I could be wrong, that you gave in terms of offerings, you're talking about developing on their own.
Yeah. I'm so glad you asked that question. First we're creating, of course, the ecosystem as you alluded to, of plugging in fintechs into our environment. I'll speak specifically about TCS and then just more broadly. TCS has a significant investment in their innovation work. They have an entire network called the Co-Innovation Network, which is of fintechs. Not TCS, but fintechs that are part of their environment in order to help create that marketplace to plug in, and we haven't taken advantage yet because our platforms aren't completely built, but we'll be able to take advantage of those offerings once we get through this aspect of our work.
I also want to clarify. We actually are leveraging fintechs for some of the development that you heard my colleagues speak to earlier. These are not all homegrown systems. We're building on top of platforms, but we're plugging in already with some of these investments, especially around origination capabilities. That's what Jason and others spoke to earlier, using other fintechs.
Let's see. Let's go to Elena Shannon.
Thanks. Two questions. One, I was wondering if we could get an update on what the end cost is going to be for this digital core banking system by the end of 2020.
The I'm sorry, the end?
The total cost of the upgrade of the digital banking system.
I might-
For the core banking system.
Yes. I might defer to James on what we've disclosed.
Yeah. This is Scott. I'll be happy to take that.
Go with James.
Yeah.
Keep that one up there.
Basically what we've said is that in our P&L run rate, we expense about $40 million a year. Okay? That's our current run rate. We expect that number to go up slightly in 2020 and 2021, it's going to stay in that same area code. To think about it, we expense about half of our investment each year. Okay? Most of this is the part that we capitalize is being amortized over a 10 to 15-year period. We've not said how much the total project will cost over the total time period. One reason we don't put a number out there, this is similar to when banks reveal their technology spend. There's a lot of voodoo in that math. Okay? We've said ours is about 10%-12% of revenue. A lot of the voodoo is being taken out of this in the industry.
Still, if I told you a number, I'd have to force you to sit there while I explain to you, okay, we changed our general ledger as part of this process. We upgraded certain utilities like our customer data hub. We did all this other work that Harris talked about that goes into kind of our overall cost base. Fast-forward to what consultants would say. You can go to a lot of different consultants, and they'll tell you what they think big banks are spending around the world because this hadn't been done in the United States. If you read what they say, you'll find that what we're spending overall, what they think we're spending, is going to be right in line and comparable to what other major banks in the world have spent.
Thank you. Just one more question. Other banks have talked about using these technology investments to offset or get expense saves in areas like reduced headcount, reducing branches, it may be a little bit different for you guys because of the business focus, but could you talk about if there is opportunity over time with this technology spend to see savings in other areas like headcount, personnel, and branches?
I'll give that. Ken answer that question.
The answer is yes. Just the example I gave in relation to the back-office keying information in, that's 4,000 hours that was eliminated. That's essentially two FTE. As we continue to automate, improve processes, digitize things, we're going to need fewer people doing things that they've historically done. For instance, in several back-office areas, on an annual basis, we continue to reduce headcount by 10%, and it's all due to continuous improvement, automation, digitization of services. It will continue to really help drive down operational expense.
I would just add to that real quickly that the question of how do you monetize this investment, this big of an investment? The first thing you have to get your head around is this is a utility. It's like your plumbing or your electricity in your house. It is a utility fundamentally, but it's a really critical utility that you have to have. Secondly, as Ken said, it supports automation, whereas our current legacy systems in the industry don't really support automation. The third thing is what Christianne was talking about, which is it supports in a much lower cost and quicker time to market the rollout of new products, et cetera. Those are the three ways that you monetize this kind of investment.
I just tack on a little thought. I keep thinking about this. It's very much, in my mind, like building the interstate highway system in this country back in the '50s. It was built by Dwight Eisenhower for defense purposes. That was part of our national defense strategy. It's become everything but that. It has facilitated all kinds of things that we never envisioned. When we set out on this, it was really to replace systems that we knew were going to be end of life, and because we had a complicated environment, we were still going to simplify it. It has fundamentally been critical in allowing us to do something that is, if you look, and Paul will talk about this, but most of you know. We've held our expenses pretty flat for the last five years. Four years going on five years.
It would not have happened had we not embarked on the project. I think of this as something that's already been paying for itself, and we haven't even begun to see how it will pay for itself because we haven't seen all the interchanges and the commerce and the shopping malls and sort of the, by analogy, the equivalents that will develop around having a modern digital core and an ecosystem that can work with that will allow all kinds of things that I'm not sure we even fully understand yet. Anyway, that's my two cents.
We got to get Ken.
I know we're going to go to Ken Zerbe's question. Before we do that, though, Kenneth Collins, you had mentioned to me that for every bot that you employ, there's a ratio of bots to people, and we love people, but they are expensive. Do you remember what you told me?
Yeah. Essentially, for every bot that we acquire, and bots can do multiple things at the same time, but every single bot is equivalent to what 20-25 people can do. As we continue to purchase bots, they're replacing the people that were historically doing that work.
You can't have the bots. The bots don't work unless stuff is streamlined.
That's right.
consistent, automated.
You have to have things.
Right
standardized, a lean process, consistent data before automation really works well.
Just to amplify that point and to amplify a point that Harris made is when we've embarked on FutureCore, it actually has forced us to get, as I mentioned, our data cleaner than it ever has been, standardized. It allows us to take advantage more easily on the automation front, as Ken mentioned. The interfaces with a modern system versus a system that was architected decades ago in order to facilitate automation is much simpler for us to deploy. Okay. Ken Zerbe, Morgan Stanley.
Okay. This question is actually for anyone who wants to answer it. You guys have mentioned several times you're six to eight years ahead of competition, that you're the only bank that's actually done this. I've heard that for years, and I believe it to be true. Of course, I use you guys as an example. I go up to other banks, I'm just going to say banks maybe slightly larger than you, and I say, "Okay, this is what Zions is doing. Do you need to do this, too? When is it going to happen?" Their answer, pretty much across the board, is, "No, we don't need to do this." Whenever they upgrade their Fiserv core system, they kind of downplay it.
I don't know enough to know whether they're lying or what the truth is.
That's the truth.
I just don't know. Help us understand, because other banks are literally saying they don't need to do what you're doing.
Yeah.
You tell such a great story. How do we reconcile?
Yeah. I'll start and ask Christianne to jump in as she would like. There's some banks just recently that are embarking now on this journey, and they've been public about that. Our research is that there are 12.5 at least that are now actively looking at core banking replacements. I'm curious about whom you're asking the question to because it really does require to have someone who has the vision of a CEO like Harris around what the possibilities are because it's a large amount of spend, and it's a scary project to take on. I'm going to let you, Christianne, speak a little bit more about the specific technical reasons it's important.
Yeah. That's right, Jennifer. I actually think some of these banks didn't think that they needed to do this for a number of years until they started hitting a wall from a digital perspective. They realized that they could only go so far. You can build some good integration, loan origination, account opening, et cetera, and you heard how we're doing all of that in parallel with the core. When you try to go to a fully digital operating model, that's where you start to hit the wall with these legacy systems because they're not able to pull data in and out as easily. Right?
Bringing a customer on through a digital front door, it's a much simpler use case than truly knowing and recognizing who your customers are and using that data to bring a differentiated experience to help them find products and services that they may not know that they need yet, but that you can help them discover that also deliver incremental revenue opportunities. That's part of it. I reached out to a Big Four consulting firm before this week just to get what's their pulse, and they shared with me that they're having conversations or knowledge of about 20 different core banking replacements that are either contemplated or starting to kick off from an RFP perspective just in the U.S. I think you're going to start to hear a lot more about this.
I'm going to take this down to the five-foot level. Okay? There's a joke among CIOs that in any industry that take on core replacements, like in the airline industry or the utility industry or the banking industry, CIO stands for career is over. Okay? Here's the deal. In major banks across this country, go back to what I said, they all operate in silos. They all have technology executives for each silo, and they may report to some technology executive for the whole company. Okay? You think about the length and complexity of these projects, and you think the head of retail at You-Pick-It Bank is going to convince the head of commercial technology or wealth management technology or capital markets technology to bet their career on coming up with a core replacement? It ain't going to happen.
That's why they don't want to do it. They say, "Hey, I can't get that done. I don't have the political power to do that. I'm not going to be in my job long enough to do that. No one's going to pay me to do that." That's what's happening. They say, "I got enough bubblegum and string and others tape that I can put around my core system. I'm going to go another way." That's what happens at the five-foot level.
That's good, John. Thank you, Christianne.
When you look at this and talk about all the complexity and everything, and this might be something that I'm assuming Harris might want to dial in here, but once you replace this, once you get the deposit system done, you have this new core system, does it make you a better acquirer of another bank? Does it make you a much more efficient acquirer that it's more plug and play? Then conversely, I'm not saying you're going to want to sell yourself, but could a larger bank go on to your system more easily if they were to buy you because you've got this upgraded core system?
I'll speak to the technical aspects of that, and Harris, do you want to start or?
Yeah.
From a technical aspect standpoint, our ability to bring other organizations on will be simplified for us to bring on other organizations. For them to acquire us and convert. The conversion process of the data is significant. It will be a big effort for them to go through that process for us. Harris.
Yeah, I guess I'd say that's not why we're doing it. I do think it will make us a more interesting acquirer because I think we'll have really fabulous products and technology. As far as becoming a more interesting target that certainly wasn't the intent of it either. I think it does make us a more valuable company that way, for sure. This is like building pyramids. It takes a lot of slave labor and a lot of time. Christianne drives them pretty hard. It's a long, hard thing to do. It's not something that anybody does lightly. I totally agree. We're going to see more banks having to do this. How many of you are using BlackBerrys? We all used to use BlackBerrys. BlackBerrys came along way long after most of this technology was developed. Core systems are designed to last a long time.
Different kinds of applications have different life cycles, still, the systems that this industry is built on were not designed to handle the kind of real-time interactive. They're built for batch processes in the middle of the night and all that kind of thing. Everybody's made them work. This isn't slowing down. We don't know what comes next. One of the things that was actually really appealing to me about the whole venture was partnering with someone like TCS. It's not owned by private equity firms, going to flip it gets flipped again, and all of a sudden, everybody's gone. They're not supporting the product. They're going to be around forever. This is 450,000 people supporting 150 big banks around the globe. They're going to have to support this technology.
That's one of the really valuable things we pick up out of this, is having a really strong partner. Anyway, just more thoughts.
Hey, Harris, you've shared this with several investor groups over the years, can you just share, in the decision-making process to go with TCS, you called up a person who's recently passed away, Clayton Christensen. I don't know if you'd be willing to share that discussion that you had with him.
Yeah, I will. Many of you know the name Clayton Christensen, probably. He passed away 1.5 week ago, and I found myself thinking about him a lot last week. He was kind of the father of the whole concept of disruptive innovation. Legendary professor back at Harvard Business School. He grew up right about two miles from here. His first real job in life was as a teller down on the first floor of this building. Somebody I've known for a long time, we went to business school together. A phenomenal human being. In fact, it's said that Steve Jobs had one business book on his shelf, and it was Clay's The Innovator's Dilemma, the book he published in 1997. Reed Hastings, kind of the same thing. He really changed the landscape of how companies think about innovation.
Anyway, he told me one time that he'd gone on TCS's board because he thought it was going to be a really interesting window into how one understands the economy in India, which is, in terms of population, you got China and India are two really interesting places. When we were talking to TCS, I went to him, I said, "Tell me a little about TCS." Because he was on their board. I knew he wouldn't sugarcoat things because he's not that kind of guy in the first place, and because he was a personal friend. He said, "They are the real deal." Clay is somebody who'd dealt with. He fundamentally transformed Intel. Andy Grove, the whole history of Intel is really wound around Clay's influence there in a lot of important ways, and other tech companies.
He said, "TCS is as good a technology vendor as you'll find in the world, and they have as much integrity. When they say they'll get something done, they'll get it done. They're just a great partner." We found that to be the case. That was kind of instrumental in my own thinking about, yeah, this is the kind of partner we want.
Thank you. Appreciate that, Harris. Is there maybe one last question for this panel? Okay. Paul Hamelos.
Thanks, James. I'm interested in hearing how much cloud is involved in your strategy. I don't think I heard that word once today, whereas if I listen to Capital One talk about their cloud transformation, their journey to modernize their architecture, it's all around cloud. Can you just talk about how much cloud is included in your strategy here?
Yeah. Happy to do that, and anybody else can weigh in, too. Most of what we do today is in our data center. We do have some heavy cloud use, as you heard about Salesforce. When it comes to the core, what we're really doing is starting with the capability in the future. The versions of the core platform we have in production today and the version that we'll be going live with deposits are going to be running out of our data center initially. Our conversations with TCS and with all the other vendors in the ecosystem are, don't box us in. Don't make it so that we can't have the option to be in a hybrid model where what's critical for the cloud, what makes sense for its elasticity or its capabilities. We want to be able to leverage that.
We're not sticking our head in the sand. If you look at what happened with Capital One, you can also go too fast, right? For us, we're really focused on those capabilities that are going to allow us to do what we need to do. If you look three to five years down the road, it is going to be cloud pretty much. That's the way the entire industry is moving. The decisions we're making today with our base architecture and the technology and the partnership with TCS and others are designed for us to be able to get there at the appropriate time with the appropriate controls at the appropriate cost model.
Jennifer, do you want to just highlight one of the things I thought was interesting, somebody, one of your teammates shared with me once upon a time is that there are use cases for the cloud and use cases when you don't want to use the cloud. Recently, a couple of software vendors that I've been using require, like Bloomberg, for example, those of you who use Bloomberg, if you want to use their Excel feature, it's all done by the cloud. You're actually going out to the cloud, and it takes a really long time to save the file if it's a big file and to download stuff and update stuff. SNL, Capital IQ, S&P Global has gone to the same thing. Again, you open the interface, takes a while to get to the cloud and come back from the cloud.
Maybe walk through the use case of when you should use the cloud and when you should not use the cloud.
Dave's point around going at the right speed, right controls is important and making sure the vendor's in good shape. For example, earlier this week, we used Teams. Microsoft Teams instance went down around the entire world, impacted our productivity and all of their customers as well. It has to be implemented very strategically for specific use cases. It's great to help when you have unpredictable demand, and you have to offload some of that demand to a different vendor, or use the capacity provided by a cloud provider. Our demand is predictable at this point, and there's other reasons that allow us for faster deployment. There's some capabilities that we need to build at the right pace to be ready for that future, including really speeding up some of our DevOps capability, taking advantage of our automation capabilities.
There's not a business imperative right now for us to go to the cloud. It would cost us more money. Back to chasing what seems really interesting, we're going to do it when it makes financial sense and sense from a risk standpoint as well.
Thanks. I'm going to say thank you to Jennifer, everyone from the technology group. We really appreciate you taking so much time today. Let's just give Jennifer and her team a round of applause. We're a little over time. I'm going to call a little bit of an audible here. If it's okay with everybody to take about 20 minutes to do what you need to do, get some food, we've brought in-- some of you have been here before, you know this. It's the good stuff. It's the Red Iguana Mexican food. Go ahead and get your food, then about 20 minutes from now, about 12:45 P.M. Mountain Time, 2:45 P.M. Eastern Time, we'll reconvene, we'll do a little bit of a working lunch as we go through risk and credit. Thanks, everyone.
[Break]
Thank you very much. I think we're going to go ahead and proceed with the agenda at this point. Thank you again for joining. For our next series of presentations, we have our Chief Risk Officer, Edward Schreiber, here, and our Chief Credit Officer, Michael Morris. They will both be going through their presentations. I was thinking back 10 years ago for the first Investor Day that I was here for, as an employee anyway. It was all about credit, were there any green shoots to be found or to be seen. We struggled to come up with some green shoots, but we did find some. Here we are today, and we really are in a very pristine sort of situation. I'm excited.
Even though it's not as controversial as a topic as it was 10 years ago, it is still a critically important topic. We'll cover that in depth. After that, there will be a short question and answer session there. We will then turn the time over to Paul Burdiss, our Chief Financial Officer, to review some of our financial things and to kind of show you some perspective of the yields on our loans and risk-adjusted yields on loans and the securities portfolio and the risk we've taken out of that. It will tie in pretty closely with what Edward Schreiber and Michael Morris have been talking about. With that, without any further ado, I'm going to turn the time over to Ed. Ed's just returning from knee replacement surgery, so he's doing fabulous. Thank you for coming back for this event.
Yeah. Do you want me to do it or do you want to do that?
Good afternoon, everybody. I'm going to hit some key highlights. Most of you have been around when we've talked about risk management, so I'm going to do a couple highlights, and then Michael's going to come in and talk about the credit book and emphasize a couple things, one on oil and gas, the book in general, some of our concentrations, and then where we're having some stress in the book. Those book sizes from an asset standpoint are pretty small.
Right.
The first slide I have in front deals, and you've seen this, as Harris had it up, but I want to emphasize a couple things here. First of all, on the simplify the processes and all the talk you've heard about technology, data management, et cetera, all of that, from my perspective, either being 19 years as a bank examiner and being a Chief Risk Officer in other companies, and this one, all of that helps reduce the risk to the company. The better we understand our own data, the better we can stress test and understand potential outcomes and make adjustments on how we approach things. The better the technology is, the faster the response. All of that helps simplify things, but also from a risk perspective, helps us manage things better because we know more.
On the simplified process, and you heard Keith earlier today talk about comments around wealth management. We had two registered investment advisors. We had multiple wealth management departments, et cetera. All of that has been simplified. All of that helped reduce risk. Trying to get your arms around, from a compliance standpoint, three wealth management groups, two registered investment advisors, a couple broker-dealers. From my perspective, and I joke with this, and some of you have heard this before, they don't make enough Maalox and Advil to help me get through that. All of that's helped reduce the risk to the company. And Rebecca Robinson, who you heard speak, really has done an excellent job of taking all of that and simplifying it and bringing it down and making it so, one, you understand it, and two, you actually make money with it.
On this slide, that's really one of the key things I wanted to talk about. Let's talk about how we've matured a little bit more our risk management process. All of you are well aware we have a risk management framework, and all that's designed really to help run the bank and keep it in a balanced perspective. Before I got to the company, which has now been about over 6.5 years, there's a whole construct that had been built, and Harris had led around a three-legged stool, and all those need to be in balance. One of them is risk management, one of them is on expenses, and the other one is on income streams.
What we've done is after we've identified the risk management framework and developed key triggers where we want to take our time to make sure we do our homework to determine, do we need to alter our course and adjust what we're doing from either an underwriting standpoint, a concentration perspective. We've now taken, and we really want to push from the second line down to the first line, a couple key things. On this chart, you'll see a credit risk management framework. We have an overall risk management framework for the whole company with all our key risks. We're probably one of the few companies that have taken cyber risk out of operational risk or technology and moved it as a standalone level 1 risk. We did that two years ago.
We think enough about cyber risk, and if you're wondering on the proverbial term, what keeps me up at night. If you read everything on cyber, it's not a matter of if, it's a matter of when you're broken into. The key is developing two things in there, and we have a great Chief Information Security Officer, and Jennifer, as the CIO, is spectacular to work with from a team perspective. The two things you need to do is make sure you manage and oversee that correctly, but more importantly, and one of the things that Dave was trying to talk about, and I'd recommend if you asked any bank, what is your playbook when things go wrong? Because it will happen here. How do you recover quickly from that?
If you followed various banks that have had issues in this space, and their recovery time or lack of recovery time, that means their playbook and their structure and how they manage that and how they trained for it didn't work well. That's something from our standpoint, from a cyber perspective, leveraging off of what we have here, that we've developed a really great playbook. We continue to do what we call tabletop exercises. We do mock reviews where we put the whole senior management team in a room, and we come up with a scenario, and it gets played out, and then we figure out how we're going to react to it and how we manage it. If that time comes, we can do that in a very effective manner. To come back to my point here.
What we have done now is we have pushed down to what I call the first line to the lenders, versus this always being in a risk management. We've now taken and developed what I'll call a sub-risk management framework for various aspects of the company's operations. Since we are not structured like most large banks, you would find that for commercial real estate lending, for whatever type of lending or various business lines, there would be a risk management framework designed for each one of those. We're not structured that way. What we've done is set up a program where we've done for all of credit, and we've developed triggers and a capacity or an appetite in all of credit. It's now led by the lender.
Olga, who you met earlier, leads one of these lines in here and developed the key triggers signed off by risk. We've shifted the focus of the company where the second line was driving it down to the first line, who's the closest and probably the best at managing the risk. That is a huge additional step in maturity in the company, and we'll finish out with probably six, what I call sub-risk management frameworks off the master. Where the first line is actually managing that and running that and escalating it versus where traditionally we've done that over the last four years, where the risk management group has done that. That's a huge culture shift in the company, very positive. Second of all, it's just the right thing to do. You get the people closest to it. We've talked a bit about concentrations.
Michael's going to do a little bit more discussion on this. A couple of things that we've started to highlight here is, one of the key things we put into place that wasn't in place in the last downturn was hold limits. How much do we want to loan to any one obligor or to combine entities, right, who have financial interdependence? To us, the fundamentals of managing concentrations, first and foremost, starts with your underwriting standards. We've got loan to value, et cetera. The next is the hold limit. How much do you want out to any one company? Our legal lending limit, right, calculated under statute, at 15% of the capital structure, right, because we're a national bank. State banks actually can have higher lending authorities, normally about 20%. Our legal lending for the company is about $1.2 billion. Right?
We did the calculation of the 15% of Tier 1 capital and the reserves. There's no way we can come close to that. That hold limit grid is trying to figure out, how much do you want to loan to a company, right? Acknowledging the fact that who would've ever thought that GM, and I'm not picking on any particular company here, Xerox and other companies all got themselves in trouble. Everybody thought at one point in time that what was the quote for GM? What's good for GM is good for the U.S. or vice versa, right? When they asked the head of GM. You think they'd say that now? I probably ought to let that go at that. In here, we've taken the stress testing now, though, and matured this process even further.
As we're looking at our underwriting standards, our hold limits, and then our aggregate capacity that we have from a risk-based capital standpoint on how much we want in segments, we now, and Harris mentioned this earlier, right? The CCAR process, one could argue or contend, does that really help a bank manage its balance sheet? It helps the Fed, but does it really help manage a balance sheet? I would argue or contend it probably does not. The stress testing in itself and the maturity of that does help you manage the balance sheet. We've embedded stress testing on a regular basis, probably even more than actually we would have done from a CCAR perspective.
We stress test more often, but more importantly, from an ad hoc perspective, if we're seeing trends either in the national economy or within the Western footprint of the U.S., right, where we loan our money, we do ad hoc stress testing. From there, we'll take a look. Do we need to adjust our underwriting standards? Do we need to look at the hold limit grid and make adjustments? I'm going to come up with a couple examples of how we manage that. Do we want to look at, do we adjust the overall aggregate? We'll talk a little bit more about oil and gas, but exactly in oil and gas, we used to have about 135% as a target exposure to oil and gas lending. That's now down at 80%. Right?
All based upon the stress testing and what we went through in the last oil and gas cycle. On this page, you can see some of the changes in the composition between 2007 fourth quarter and now. There's some key highlights that you'll see in that upper grid and changes. If you look across on how this looks, we have made significant changes, particularly from the last major downturn to what you see here now. Right? All that has to do with our stress testing and lessons learned, if you will, too. Really, we're guided and driven by stress testing and then the data that we have.
If you remember, in the oil and gas segment, we were one of the first banks in the last downturn that said, "We don't like what we see." We ran about five to six different scenarios, and we started provisioning before anybody. There were a fair amount of folks that questioned us that what do we know that anybody else doesn't? I'm not sure if we necessarily knew more, but nevertheless, what everything showed us on what we put in for governance and stress testing said, we ought to pay attention here, and we started making those adjustments, and we were proven right through that cycle. We were probably overly conservative with our numbers, but I'd rather do that than the other side of the house. Michael, if you would, on this chart. Why don't you come on up?
On this chart, I want you to, if you want to add some additional color on the concentration and composition of the loan book, if you would.
I'm going to use the red laser pointer here.
I'll get you a microphone.
I mean, I think the key slide here over on the right, as you can see our loan growth, and concentration management. What you see on the left-hand side of the axis is you see a real emphasis to decrease our exposure in land and A&D. That's been a managed process. It's been part of the strategy. You also see a conversion from two-thirds construction to two-thirds term. That also is part of a big part of the strategy in the company. Over here, you can see owner-occupied is something that we are out trying to acquire relationships. We like owner-occupied. It comes with two repayment sources. Primary is the business. Secondary is the real estate. We've had a good LGD experience in this space over the years. You can also see oil and gas. This is where it grew.
This is where it is today. General C&I is something that we've focused on. As everybody has mentioned before me, we're a business bank. We're a commercial bank for the most part. Although we have a great consumer book too, which I'll get into. And then you see here the emphasis on municipal lending, which has been a real growth engine for us. Harris talked about it a little earlier. It's one of his brainchildren, actually. And we have really fanned out across the country, mostly in our footprint, but even outside of our footprint because of the granularity of it, the credit quality, and the way it maps in our risk grade system. Then CRE, again, you can see the de-emphasis of land and A&D here, and you can see the shift of construction.
This is the two-thirds, one-third over here to more of a two-thirds term, one-third construction, which is all again by design.
Thanks, Michael. This slide actually shows the same thing in the adjustments regarding CRE, but then looking at it for less than $1 million. Let's talk a little bit more about how we really truly manage things when we see concentrations or we look at our stress testing. On this slide, you can see our risk rating system. We do a probability default ratings with our models between a one and 10. Right? With 10 being the lowest of the pass grades or the weakest of the pass grades. Right? When we start doing our stress testing, we start seeing things. We'll start making adjustments for either debt service coverage or on the bottom bullet here. For here, we are not a bank who's going to abandon necessarily an industry.
Growing up, so to speak, in the industry and being on the East Coast, most of you will be familiar with a bank called Fleet. That eventually was bought. Fleet Bank was notorious, my terminology, not the company's. I should have my legal disclaimers all up here. Fleet was notorious for when they reached their target or their limits on concentrations, they would just shut the damn thing down and no longer do any lending in that book. If you are a customer and you are in the pipeline, you are just completely shut off. We take a completely tact or approach to this, and we'll say, we'll make adjustments. For instance, if we see some things, we'll say on that PD pass grade, we'll no longer do 10s, 9s, and 8s. We'll only do 7s or better.
We will allow exceptions to policy. If there's going to be an exception to policy, Michael has to approve it. If it's a big enough deal, Michael and I will sit down and have a discussion. We'll stay in the industry, and what ends up happening over time when we go do that, it ends up improving the quality of the book, particularly on the probability of default basis, but it keeps us in that line of business, and it keeps our customers, right, knowing that we will back them, but we're not going to just cut them off right when things are starting to go bad. The key is when do you invoke that?
That's where we use all our data that we have, the stress testing, and we use a couple major companies, Reis and some others, and I'm not endorsing anything here, to help us and guide us on how we make all these adjustments. As you can tell, and what we've given you here are actually real-life examples without telling you what segment that we've done it in. Right? We've actually made adjustments, particularly in investor commercial real estate, where we've made adjustments like this already, and we did that two years ago. Right? Based upon everything we saw with low cap rates in a couple particular industry types in investor commercial real estate, we had already made these adjustments, two years ago on one asset class, about 18 months ago on another. Right?
We're not trying to outguess the market, what we're trying to do, and this goes with the theme that's been mentioned earlier by various folks, is particularly compared to the last downturn, we want to make sure that we are going to be a positive outlier, and we perform better, right, through a downturn. The downturn is going to happen at some point. The adage is crystal balls are made of glass, they break. Who knows when? The key for us is making sure that we've thought about it and we're prepared for it, right, as best as we can be. I'm going to go a little bit more about losses, and we've talked a little bit about this, and Harris had mentioned it, but through everything here, right, our loss history here is really good.
One could potentially argue right now, particularly given how low our loss history is, are we taking enough risk? In a discussion last night, that was raised, and our CFO, every once in a while, will remind me, are we taking enough risk? You probably have seen in other areas that we've made some adjustments in how we're going to loan money on the installment side. We do try to keep a balanced approach here, right, and we're maybe slightly to the conservative side. From our perspective, and at least from my memory, through all the downturns, what you earn typically in three years in interest income on loans can be wiped out in six months.
Keeping that in mind, we're making sure we're balanced, and we might tweak things up and down, but we're using that on an informed basis, particularly with the models compared to what we didn't do in the previous cycle. I want to try to finish this up here. A couple things here, and this still goes down to past dues, OREO and everything. You can see through all of these charts, right, that we're in the green, that we have typically been out equal to or better in performance than our peers. Right. Our goal here is to make sure still with that theme that we get this right as possible, but we're trying to be a positive outlier because it gives us flexibility.
The one thing that Paul will be talking about here in a little bit, and you'll see that, is even with what we have put into place from a risk management framework, right, and how we govern this company with that, right. The risk-adjusted loan yields and spreads, even with this, are actually better than our peers. You can accomplish two things at once here. One, have a great governance and structure put into place to manage a company and make sure you get early warning signs quick enough, early enough to make adjustments in your path, but you can still get yields. We had great loan growth for two quarters last year, and there's always this balance. Have we tightened things down too much from a risk perspective that it slows growth?
Because that is a tension level, a natural one that gets done between the lenders and Michael and I all the time. It ought to be done. It makes this question to make sure, do we have it right? Is it balanced? I will tell you that I think we've struck a pretty clean balance in the approach of making sure that we have a well-done balance sheet, and it's geared toward ensuring, hopefully, that if we have a downturn, we will perform better, particularly much better than what we did in the last downturn. Compared to our peers, that we should fare well. I'm going to turn it over to Michael to go through more detail on the book, and then we'll take questions at the end. Thank you all for your time.
You got it.
All right.
I'm going to stand over here and use the laser pointer a little more for the group. I wanted to start out by giving a pitch to our snow. If you weren't thinking about skiing tomorrow is what would be considered, in this area, an epic day. There are people all over the world that watch weather patterns and try and get here by following the weather pattern. You happen to be here. That's just a pitch for the greatest Snow on Earth. I wanted to cover three things. I want to first talk about some thoughts and comments that you heard earlier about how does credit fit into some of the other discussions around technology, breaking down silos, and some of the things that you've heard already. Scott talked a lot about simple, easy, safe, fast, safe.
That has been a very collaborative process. When he talks about breaking down silos, it's really about the technology side, the risk side, the credit side, the business side, operations all coming together and thinking about how can we speed the process up without really sacrificing credit quality or making risk-oriented mistakes along the way. All of that has been really well thought out. I'll just give you a couple of examples. Sometimes we'll spend 40 pages on a write-up to process a $2 million CRE deal. What we have done over the past couple of years is we've taken a look at forms and wet signatures and ways that we exchange information internally, and we've cut out a lot of the bureaucracy, again, without really sacrificing credit risk and credit process.
A good example of how we have teamed up really with the technology side is if you think about spreading of financial statements, whether it's C&I or CRE, we kind of view the wholesale book as almost all the way down to $1 million. Even though we talked about micro and we talked about small business, we get pretty much really into the weeds and we risk grade almost everything down to $1 million, whether it's C&I or commercial. Spreading was a process that eight years ago was very distributed, done in the field, done at the affiliates, done by various lines of business. The next stage for us was outsourcing spreading, which sped the process up, improved quality, and lowered cost a bit. I want to talk about an initiative right now that's underway that's very exciting.
Jason, who you heard from earlier in the technology side, is working on a project that's a pilot, which is to create a portal for customers, prospects, to scan a financial statement, feed it into a work queue, turn the spread within an hour, inside of an hour, risk grade it, and give the banker a head start on the front end of the end-to-end process, the underwrite process. That can be done. We're looking hard at that. We're spending money and resources to invest in that. It's not a great spend. It's not a huge spend, but it will be very noticeable to the client and the banker. That's how we work together, one of the ways that we work together with our technology partners and other senior managers.
I wanted to cover that before we got into some of the metrics that I know a lot of you see. You see them in our earnings. You hear us talk about them. Like Ed said, we'll take questions later. The other thing I wanted to mention is how the credit organization is structured. The independence functions of appraisal, valuation of enterprise value, the valuation functions are in credit as an independence function. We have about 70 people in that world. I think you probably know that we're about 85% secured in the lending we do across the company, whether it's consumer. Consumer, we're 95% secured. We spend a lot of time on the valuation aspect of that, and that has to be independent of the line, and it is, and it's run very well. The special assets group also is in the credit organization.
A lot of people ask, I think it was asked on the earnings call, our regulators ask us, "What is your playbook for the downturn?" We actually have a playbook for the downturn. A lot of the attributes of the playbook we have learned through the cycles. We learned from the oil and gas turndown or downturn a few years ago. We've incorporated into a playbook how we're going to respond when things come, and if they come hard and fast, we think we'll be very well prepared. You know about our reduction in force initiative that we undertook last year. We spent a lot of time on special assets to make sure we weren't taking a lot out of that, if anything, out of that, because we know where we are in the cycle. We know it's going to come.
I have a credit downline that really focuses on the wholesale book. Approvers throughout the country, really throughout our footprint, three regional credit execs. They each have their downlines, and they each partner with bankers down to $1.5 million. Every banker that is originating $1.5 million and above has a credit partner, and we call them partners. We don't call ourselves credit administration. We view it as a partnership. Our approvals are a dual sign-off process. We don't use committees. Some of our affiliates like a committee process to get a deal ready to be approved, but it's the banker and a credit partner that approve every transaction. It's a dual signature process. It doesn't get hung up in a committee. Committees can be good, but they can also be bureaucratic.
When you get below $1.5 million, as the Chief Credit Officer, I delegate authority to centers. We talked a little bit about branch managers and the authority and the empowerment that we want to give them to react in the marketplace and react in the branches. That authority isn't going to be super high, but it has to be earned. Keith talked a little bit about what it means to earn it and what your credentials need to look like, and we spend a lot of time on that. A lot of the delegated authority in centers is by job type. We have a log of everybody who has credit authority in this company. Secured lending authority, unsecured lending authority, overdraft authority, it's in our system. We track every exception. We track breaches in exception thresholds. We dial into where it came from.
Every banker has their own banker code. If we have a banker that might be a little reckless, we'll have a conversation. If we have a business unit that might have inflated delinquencies, non-performing assets, we know where it comes from. A lot of it comes up through what Ed talked about, which is an enhanced risk management framework with key risk indicators, trigger levels, and a whole escalation process that goes right up through the ranks, lets us zero in on where there might be some weaknesses in the company. Also, where there would be strengths. Also in my organization, I have a credit analytics group, and tied to that is the ACL or the ALL function that you know about and that we talk about often. Then the risk grade function and the scoring function are also in the credit organization.
This is a little bit of a repeat of the slide we saw before. Here is kind of a time series of where you see our growth has taken place. The way to read this is left to right here up each one of these bar charts. You can see C&I, non-oil and gas growing. You can see a pretty flat real estate growth curve. Over here, you see our net charge-offs, which we talked a little bit about. It's relative to our peer group, we've always hovered below the industry and below our peer group average in gross charge-offs and net charge-offs. There have been times when we spiked. Oil and gas would be an example back in the day, A&D.
The way we are organized now, we think that we're managing our exposures a lot more expertly with second line of defense, shifting some of the accountability for credit quality and authority out to the first line of defense. Ed mentioned the build-out of the risk management frameworks, which came from the bottom up. Those work groups got together. They made recommendations on their KRIs. They had to be approved by credit. They had to be approved by risk. It was a very collaborative effort. The first line of defense really owns those risk management frameworks. This shows our weighted average risk grade over time in the C&I portfolio. You can see our problem loan trends, where we are in criticized, classified, non-accruals. This is the energy downturn here. Outstanding balance by industry in the commercial book.
Diversified very much in line with the strategy of the company. None of this growth and none of the proportional balances in here are accidental. This is where we want to take the company, where Harris wants to take the company, and where leadership has sent us in this direction. This is our commercial real estate weighted average risk grade. You see a little bit of an upward trend here. We went from one risk grade platform to another right about here. The model for non-stabilized commercial real estate, which is basically our construction book, hits vacancy very hard. It should in certain asset classes. Office, if you don't have pre-leasing and you have some vacancy, a construction deal, you need to know about that. It needs to be heavily weighted. Multifamily is a little different.
Our risk grade model for multifamily construction has a pretty heavy weight on vacancy, but multifamily absorbs, and you can't just call it zero vacancy on day one. You really have to look at some kind of future vacancy, which is something we're going to do and tweak the model. This is not a natural degradation of the credit quality in the portfolio. Multifamily is holding up very well for us in spite of the warnings and in spite of potentially a little bit of oversupply in the market. Okay. Problem loan trends in the CRE book. You can see where we are on criticized, classified, nonaccrual. Very low, very positive comparative to the rest of our C&I book. You can see where our exposure is by asset class. We've got a little of everything.
Over in here, these are the big four that most other banks would call their big four food group asset classes here. No real stress in any of these today. Then this is the term book. You can see where our weighted average LTVs are. We look at this monthly. We have a data tape that we run to try and know where we are at any one time. Same with debt coverage ratio. We just converted to a different methodology in how we characterize a term loan. We did it to sync up with call reports. Call reports ask you to call a term loan a term loan when you get certificate of occupancy. We used to say certificate of occupancy and some kind of minimum stabilized DCR is what we need to call it a term loan and move it over into this category.
This less than 1.0 is on properties that are absorbing. Got their C of O, certificate of occupancy, and are now absorbing, trying to get to these ratios here. Again, term loan by collateral type, and I talked about the two-thirds to two-thirds shift, construction to term. It's a good thing. We like our term book. We have bankers and business units that are trying to go out and compete on the term loan side. That's very hard for us to get. They're mostly mini-perms. Hard for us to compete with CMBS and the agencies. To do that, sometimes you have to take a little bit lower coupon, but sometimes the risk profile is that much stronger.
We have more and more clients that are liking the LIBOR spreads of today and then swapping with us into fixed so that the tenor and the fixed rate give them an opportunity to warehouse the loan in between real long-term markets and stabilization. Consumer portfolio. I just want to say one thing about the consumer portfolio. Through the CCAR process, we've always felt we had strong underwriting. We haven't changed a lot of our underwriting boxes, by the way, through the simple, easy, fast, safe process. Our boxes have stayed relatively static relative to our total experience of going through the cycles. The consumer book, it was interesting through CCAR in the 30 CCAR banks at the time. The Fed black box after we produced our stress test thought that we had a great consumer book.
We had the lowest loss output of all 30 banks through CCAR, through the black box. We think we do a couple of things that might be a little different than other banks do. I mentioned 95% secured. It's really a jumbo mortgage book, a HECM book with about 50/50 first and second trust deeds secured, and then some card and some other unsecured term. We think that's different. We think that other banks would have a higher profile of unsecured to the consumer. We may become a little more aggressive in that space if we decide to grow card. As we said, we're mostly a footprint lender. We're a relationship lender. Most of the card growth comes inside the footprint. In fact, the mortgage portfolio is 98% in our footprint. We're not Rocket Mortgage. It's not a commodity.
It's a relationship business, which I think is really important and really helps us in our local markets, especially when a downturn comes. We know how to collect those. Our special asset philosophy, by the way, is to work with the client. It's to rehab the business. It's to work with the consumer to get them on their feet. Ed mentioned we don't abandon industries. That's not our first action. We don't look at big portfolio sales. We don't outsource collections to third parties. We like to stay on our footprint and get the positive reputation from doing that. You can see the consumer loan book, and it has been talked about earlier. It's very strong. Our FICO averages are great. Our underwriting is really good. As we go up the LTV curve. I should say it a different way.
The higher the balance in the consumer world, the more there is a grid that kicks in that lowers LTVs, even if you have strong DTIs and FICOs. We have an exception process in these centers that can go one and two up in the center. Sometimes, there are loans that we should make, want to make, that might be a little bit out of the center, and it gets kicked up to corporate credit to approve. It could be one or 2 percentage point LTV kind of issues or a couple of bands on FICO. Here you can see again, in consumer, our DTI distribution. We refresh FICO in some instances monthly and in some instances quarterly, no less frequent than that.
We always kind of know where the health of the FICO, at least one metric is in our portfolio at a given time. We also use a BK score. A lot of banks don't think about the BK score, and there are bureaus that offer a BK score. BK score is really a measure of utilization on consumer credit and gives you an idea of propensity, potentially, to see a personal bankruptcy down the road. We have score bands for that. We, again, stay within that. I think that has helped us. That and being secured in our consumer book, I think are two real positive strengths that we have. We've talked a little bit about this in earnings. Where are the weaknesses in our portfolio? We don't have lines of business that focus on Ag.
Ag may be a little bit more of a line of business. A lot of it is in Idaho. We have a group there that finances a lot of potato and sugar beet farmers. We've been tracking this for probably three years. Elevated, criticized and classified loans, the net charge-off rate hasn't been high or really out of the box. Commodity price is a big factor. Weather is a big factor. We've stuck with our Ag clients through about a five-year commodity depressed cycle. It's starting to come back a little bit. Potato came back a little bit this year or in 2019. We're seeing some improvement in the Ag book. When we see criticized and classifieds double what our core portfolio is, that's what gets our attention. This is sort of NAICS driven.
We do a complete portfolio scan and say, "Okay, where is all the Ag in the book?" seven affiliates. "What are we going to do about it?" What we did here in all three instances is we put these in what we call a cautionary category. It's through policy. All the bankers know about it. Policy bulletins are sent. Cautionary for us means you need to have a credit partner sign off on your originations and your renewals. In many cases, these loans are small enough that field authority is where the credit approval is. In these industries, you need to have a credit partner sign off with you on these transactions. Of course, these can move in and out of industry. Subcontractors, kind of newer to the list.
We have our theories and realities of what our borrowers are telling us about where the stress is coming from. I won't belabor that. It's in your packets. Oil and gas, we've talked about. There have been some headline issues over the past nine months. You cover other banks. You're hearing about either upstream or midstream kind of issues. Oilfield services, of course, in the supply chain of that gets impacted. We did a couple of things through the oil and gas downturn. First of all, Ed mentioned we lowered our concentration from a risk-based capital standpoint. We also learned a few things through the cycle. You know that in the E&P side that we have six-month redetermination events where we go through the entire book. We look at the borrowing base. We rightsize with our sponsors.
One of the lessons learned, I think, for this company was some of our loss, a good deal of our loss came through generalist private equity funds versus specific private equity. Whether they were moonlighting or whether they were really great and had a lot of equity and a lot of capacity and a dedicated fund for oil and gas, we've moved more toward financing the specialty funds. We also changed our mix. We had about 40%-45% oilfield services in the entire oil and gas book. We're down to about 20%-21%. That's by design. We code oilfield services as a contractor, basically, that has more than 50% of their revenue coming from that industry. I don't think all the banks do that. There might be some that isn't captured in other banks, but some would say that might be a little conservative.
That's the way we do it, and so that's captured in here. Most of our loss through the downturn came from oilfield services. We've changed the underwriting there a little bit and the selection process. You've seen that some of the oil and gas book has grown over the last year. Some of that is utilization of existing lines. There was some M&A activity where we ended up on the buyer side. There has been a little bit of new growth, where it's, again, it's a specific company, maybe a new platform company from an existing PEG, that we decided to get into. Scott, of course, has a deep history in oil and gas. When we get to Q&A, maybe Scott could stand up and take a few of the questions about what's really happening on the ground.
Still has a house in Houston, still is close to our bankers. One of the things that we did about three or four years ago is, we saw alternative energy come online, wind, solar, gas-fired. We had an opportunity to hire a banker who, in my opinion, and maybe his opinion too, he's one of the best subject matter experts in alt energy in the country. Has a great history, great story. We, when we hired him, kind of settled him up, like we do when we go into newer industries. Fill this bucket and then come talk to us. Let's look at the credit quality. Let's look at your process. We're growing that book of business. We like it. It's a counterbalance to fossil fuel. More and more ESG green philosophies are entering the business industry and the banking space. We like it.
It may overtake our traditional fossil fuel oil and gas book someday. Maybe not in my lifetime in the bank or others that are more tenured here, but most would say it's really the future. We've got a really good start on it. Leveraged lending, there was a lot of talk about it. We know that most of leveraged is outside of the banks. It's taken a lot of research to get there. I think the regulators were quite concerned initially when they heard that there were some big bank originators that were originating some fairly iffy credit, some highly leveraged credit, and that banks in the participation world were out there buying it, just kind of hanging paper. We have our own leveraged book. We're comfortable with it. We know it's high risk. We know it's mostly unsecured, for the most part.
Some of it sits in oil and gas. We have a very tight limit on it, concentration limit. There's very little capacity for it, so that creates a higher selection when the bankers are considering it. We have this independent valuation process now. We really dig in on projections. If clients miss projections, then there will be a grading action that takes place. This has some grading risk. It also has some LGD risk. We think we manage it well, and we think we're where we want to be. Muni lending, we talked about. You can see the weighted average risk grade here. You saw the conversion table earlier about how our PD grades map over to standard S&P or Moody's risk grades or ratings. These are very straightforward credits. They're small. They're large. It's a fire truck. It's a school. It's a school district.
Really, really high credit quality, as Harris mentioned, a little bit lower coupon. Mortgage book, can't say enough good things about it. Their process to take seven banks, seven affiliates, and merge this book and this operation into an overall center and unit. Great leadership. Worked through some early operational issues, and is really flying well right now. The Zip Mortgage program, as was mentioned, a way to integrate the technology into the origination side. Average balance, reasonable. Like I said, the higher up we go on balance, the lower down we go on LTV, and the stronger our DTIs and stronger our FICOs. This just shows our LTV and FICO distribution on the mortgage loans. You can see that there's a heavy emphasis on the quality of our borrower.
We talked about the business borrower as a primary beneficiary to our mortgage product and us as a beneficiary to their credit strength and our knowledge of their business that helps us underwrite them through the mortgage channel as well.
Great. Thank you, Michael. Thank you, Michael and Ed. Let's take maybe a couple of questions on credit for now, and then we will move to Paul's section, and then we've got the Q&A at the end, which I think we could take more questions on credit and risk at that point as well. Let me come back to the back. Tim Coffey at Janney.
Thank you. My question has to do with kind of the lessons that you learned from the oil and gas issues that you had in, say, 2015, 2016, 2017, in terms of your risk rating. Did you make any tweaks to the methodology that you were using at the time? How do your lessons learned from that time period set you up for what we're seeing right now in that marketplace?
Well, we did make some changes. When we converted over to the new risk grade platform, we specifically created a model for oil and gas, in more particular, the E&P side or the upstream. We learned, I think, from that how to weight that model and where to weight the model. Like I said, the redetermination cycle allows you to constantly right-size your borrowing base, which is very helpful. It's unusual.
We learned from the private equity side a little bit more about the motivations of private equity in this space. We know right now the returns aren't great. A lot of production companies are managing to kind of break even cash flow. Not a lot of new exploration. We learned that there are certain basins that we probably shouldn't go deep into. What else did we learn? Scott?
Yeah. I would just add to that real quickly that I think it was fundamentally a mix issue. That energy services business, the company's been in since 1995. We went 20 years with about a $1.5 million net charge off over 20 years. This downturn started with the decline in oil and gas prices at the end of 2014 going into 2015, 2016. It was a catastrophic collapse of that industry. Most of these companies that we underwrite, the underwriting in that was about 50/50 equity to debt. Very conservative underwriting. Term loans amortizing in three to four years, very conservative. When cash flow goes from really good to negative for two or three years, nothing works. That's what happened.
Consequently, we took the mix from 40% of our portfolio, as has been noted, to now it's down to less than 20. I think mix was part of it. The times were part of it. These were not hobby bankers that were doing this. This was all done in a centralized group that had been doing it for 20 years.
The other comment I'd make is when we do the stress testing, when we were back in the CCAR deal and when that started happening, the key is making sure you're realistic on your stress testing. How low can oil go? Most people, when you keep looking at it, they go, "Well, that can't happen." There's two things from a risk perspective that always get me excited. When somebody says it'll never happen, right, or it's different this time, my head will snap, like, well, 180. Like, we need to talk. Right? For us, in the downturn there, we actually stressed oil down at $25 a barrel. Right? Everybody kept thinking, "Well, is that too low?" It turned out We had bets in the company on how it would go, and oil got down that far.
I think we try to be very realistic on making sure that, oh, this can't happen. No, we take a look at it and we stress it to see what can happen, and then hence the results that we've been talking about why did we make all these adjustments.
Ed, I might just add that not only do we take it down really low, but we keep it there because one of the things why we didn't really have loss content in oil field services in 2008 and 2009 timeframe is because it didn't go down for an extended two, three-year period of time. One other thing, let me just add on the oil field services. We also learned that when everything hits at once, even if you underwrite to orderly liquidation value, we call OLV, we've lowered our advance rate, and we've thought more about OLV because things were not trading even at that value because it all hit kind of at the same time. We've revisited our advance rates in certain types of equipment and inventory.
During that period, arguably the worst period in sort of the energy industry, even worse than the '80s, 75% of our losses came from the services portfolio. 75%. That services portfolio, the term portion of it is less than $300 million today. We have virtually no exposure in that industry, in that class. What we're left with is upstream, which is reserve-based loans. It's secured, and there's a tremendous discounting that we utilize in underwriting that allows you to go through periods of volatile prices. Midstream, which is not a great place for equity investors, but it continues to be a very safe place for senior debt lenders.
Cool. One more question on credit?
Hey, Will Waller with M3. I saw a statistic recently that apartment construction in Salt Lake is the highest % of existing stock. It's around 11%. If you took all the apartments in Salt Lake and said, "How many are being constructed right now?" It would equate to 11% of the total stock. That ranked above Miami, which was at 10%. Do you have concerns about that? What are your views on how that affects the overall multifamily market over the next two, three, four, five years?
I'll take that. I know this market quite well. A lot of the stock is affordable. The city has pushed very hard for any Salt Lake Valley new build apartment to have a pretty substantial affordable component, which is going to be somewhere around 80% of AMI, and there's some subsidies in there, and that's how they get their permits to build it. These multifamily projects down here in downtown and in the surrounding area, they're going to get leased because they're going to have a component that's below market. There was a luxury transaction that was done here that kind of shocked me. It was really the first and only big luxury deal that I've seen. It's where Donovan Mitchell and some of the Goldman Sachs folks who have relocated here live.
I didn't think it would fly at the rents that were pro forma'd. It beat my expectation by about 40%. The cap rate was about 4.5%. I just thought, okay, that's frothy for luxury, but mostly everything else in here is going to have a pretty big affordable component and get leased. There's the West. You can talk about the West. There are affordability issues everywhere. I think about household formation. I think about 69% home ownership at the peak or the trough, however you want to look at it, down to 63%, inching back up. We've had net immigration. We've had procreation. We have kids moving out of their parents' basements. There's still quite a bit of demand for multifamily. It's been on the radar of the OCC for years. It's been on our radar for more than that.
We're pretty prolific in the space. We have great sponsors, and we have quite a bit of recourse on that portfolio. We're feeling okay about it. Not as great as we would've felt three years ago. We do have limits, and we're managing to our limits. That creates a higher selection when bankers are out there trying to quote the next deal.
When we talked to you, when I mentioned before on that one chart where we had, two years ago, made some adjustments, you get the asset class. We did that two years ago. I think that's why we're probably pretty comfortable with that. My final comment here, and I'd be remiss if I didn't say this, but a good risk function is only as good as the culture of a company, right? I am not a big believer in that you have a risk culture and then you have a culture of a company. The culture of the company should have a risk culture component of it. Without the support, and I'll start at the top at the board, right? Particularly our risk committee, and Harris had laid out some of the new members on there that are on the risk committee. They're excellent.
Harris, Scott, you have Keith, Jennifer, all the folks that are on the Executive Management Committee, I would view as great partners and supporters of doing things right, which means you balance it, and risk is a component of it. Without that, all these changes that you see and everything that's been done could not have been done, right, without the support of the Executive Team of this company. It makes our lives, particularly Michael's and I's, a lot easier. I'd probably say we're pretty blessed because I've seen other companies, as I mentioned, as being a bank examiner, where you surely can't make that statement, and then all hell breaks loose. Thank you guys for your time.
Thank you. Thank you, Ed, and thank you, Michael Morris. With that, I am going to ask our Chief Financial Officer, Paul Burdiss, to come up. You want the podium microphone, or do you want this one?
Please.
Okay.
Can I take that one? Great. Thank you, James. Thanks, everyone, for coming. I think we all appreciate you being here. I certainly do. One of the hard things about when you really start controlling expenses, it's all about prioritization, making hard decisions, resource allocation. I couldn't help but notice that there are no tortilla chips with lunch today. I think that's maybe a problem as it relates to the budget, but we'll be sure to get some. I will say there is cake, and nobody's taken any yet. If you want some cake, please go over and get some. Thanks, everyone, for coming.
We do this every two years. If you take a step back and you think about where we were two years ago and where we are today, this page, I think it says 107, is kind of a reminder of what we said two years ago and where we were two years ago. I am really proud about our performance over the course of the last couple of years. Earnings per share, you can see, have gone from $2.60 to $4.16 this past year. Very strong growth in pre-provision net revenue. You can see all of that on the slide. The efficiency ratio, which if you go back five years in the fourth quarter of 2014, was 74%. It's under 60% this year. We feel good about the progress there. We think we can do better, and that's what we're fighting to continue to do.
Loans and deposits. Loan growth has been great. Deposit growth is even a better story, and I'm going to talk a little bit more about deposits today. Credit quality, we just talked a lot about that. I won't get into it. It is strong and continues to be strong. Capital. We had more capital than we needed a couple of years ago. Just this past year, as Harris mentioned, we bought back $1.1 billion of stock. Our common equity Tier 1 ratio now is a little over 10%, and I'll talk a little bit more about that too. Let's look at the last five years. If you go back to 2014, fast-forward to 2019, our revenues have grown 30%, 30. Our expenses have grown less than five. Think about the operating leverage that we've achieved over the last five years.
30% revenue growth, less than 5% expense growth. That creates I think you're familiar with these bars at this point. The gray bar is sort of the top quartile. The blue bar is the bottom quartile of our peers. You can see that our PPNR is in the top quartile over the last five years because in the upper right-hand corner our expenses have effectively, I would argue, been flat over these last five years. As you know, we provided an outlook for next year which is not just flat, but flat to down. I think it's important, it's an important part of our story, it's something I want to make sure we continue to reiterate as we go through the day. One of the big changes over the last several years is the composition of the securities portfolio.
If you think back to 2005, going back even further now, on the left-hand side of this chart, you can see the composition of the securities book in 2005 and the composition of the securities book today. Completely changed. I'm going to talk about in composition and risk profile, and I'm going to talk a little bit more about composition and risk profile in both the securities portfolio and the loan portfolio over time. You can see here how the composition of our securities portfolio has changed. Then the securities portfolio yield on the right-hand side, you can see that, and I'm going to talk a little bit about why that yield is where it is. The point, and I think everyone knows, the point of the securities portfolio now is on-balance sheet liquidity. That's number one, and it's very important.
These are relatively short-duration assets. We don't go over 15 years on anything we buy. It's highly liquid which is really important as we think about liquidity risk management. It exists first for liquidity risk management, second for interest rate risk management. There's a very little bit of credit risk in there, largely related to our municipal portfolio strategy. This is a securities portfolio that exists for liquidity and secondarily for interest rate risk. Let's go back in time, okay? 2005. Let's do a little kind of thought experiment, and I'll be the first to admit that the numbers aren't perfect because we had to make a lot of simplifying assumptions, particularly around the peer analytics. I think it's directionally right.
I think it tells a really important story that not only applies to the investment portfolio but applies to the entire balance sheet and the risk management infrastructure we've put in place over the last 15 years. Take a look at, on the left-hand side, the securities portfolio spread. This is where our spread was relative to peers 15 years ago. You can see we really stand out on the right-hand side. I firmly believe that spread and risk are tightly related. This implied that there was a lot of risk in the portfolio, and in fact, there was. You may recall, for those of you who have followed us for a long time, we had collateralized debt obligations in that portfolio upon which I believe we lost about $1 billion over the kind of ensuing five years after this snapshot.
There was a lot of risk, a lot of yield. We have changed that around completely. Right now it's a lot of liquidity with some interest rate risk management. You can see that the sort of implied portfolio spread on the right-hand chart reflects that. We just have a lot less risk in that portfolio than we did previously. That is reflected in the spread. This is a loosely analytical chart, I'll say, but we kind of take a look at yield versus duration. The idea behind the chart is if you're above the line, and I'm not trying to cast shade on any of our peers, but the idea conceptually is if you're above the line, maybe you're taking a little more risk than the duration would imply. Below the line may be a little less risk.
This is where we're kind of on the line as it relates to risk and duration. The point is the yield is consistent with the risk, and we are on the shorter end of the duration spectrum. Let's take a look at loan portfolio yields. Just as with the investment portfolio, the composition of the loan portfolio has changed a lot over the last 15 years, right? You can see that on the left-hand side of that chart. Take a look at the composition of commercial real estate in our book in the fourth quarter of 2015. That was 36%. Today it's 24%. The composition of the book has changed. A lot of that change is, I think Harris mentioned previously and I think Michael may have mentioned, is sort of the decline in the A&D part of that portfolio.
The risk portfolio has changed. The overall yield you can see on the right-hand side. Again, we have taken some liberties around analytics to come up with yield. Well, it is spread, which you will see in a minute. Overall, the yield is roughly comparable to our peers 15 years ago and today. If we break that down a little bit more and we get into this is loan portfolio spread, but it is not credit spread as you might think about it. This is actually rate spread. We are looking at the yield on the loan portfolio relative to the yield on the deposit book. Obviously, our results are helped by a very strong deposit franchise.
You take a look at where the spread was 15 years ago relative to peers, and you look at where the spread is today, and you can see that has migrated left today from where it was previously. The reason is, I would argue, that we are taking a lot less risk today in the loan portfolio than we have previously. That shows up in yield, it shows up in spread, and it's also going to show up in much better credit results, we believe, as we move through the next phase of the economic cycle. This is a little something that we call the risk-adjusted loan yield and the risk-adjusted loan spread. Again, spread is not credit spread, it's like rate spread.
What we're trying to do here is we take the loan yield, we scale charge-offs to the loan portfolio so it's consistent with the yield calculation, right? You take the loan yield, you subtract off the equivalent amount of charge-offs to come up with a risk-adjusted loan yield with the idea there that, of course, charge-offs are the ultimate measure of risk in the portfolio. This is how we compare. We're the blue bars. The red line is the median of the peers. You can see in this page, in this chart, how we compare to peers on this risk-adjusted basis. Yields are really consistent with peers. Actually, spreads are better. Spreads are better, as I said, because we've got a really strong deposit base. We have a very good credit quality. That all affects this comparison in a positive way.
This is a longer-term average from 2014 to 2019. Kind of over the last five years, what does that risk-adjusted loan yield and loan spread look like relative to peers? You can see on both a yield and a spread basis by this comparison we look pretty good relative to peers. This is kind of an interesting chart. Just to be consistent, we calculated this risk-adjusted loan spread as we just calculated it relative to duration. Duration is a lot harder to capture for peers but you probably know on the RCC of a call report, there's kind of a gap report that's created as a non-prepay adjusted gap. You can kind of get a pretty good estimate of loan duration for all banks based on that call report information.
That's kind of what we tried to do here, which we explain in the footnote. You could see it's interesting that it doesn't feel like there's sort of a tight line between spread and duration. That just tells me there's a lot of other stuff going on in there. I'm not surprised by that given cost of deposits and loan composition and everything else. You can see we're the green dot there. You can see where we compare relative to peers. On the spread basis, as noted in the previous slides we compare really well relative to peers. Let's talk about deposits. Deposits, in my opinion, or a lot of value of any bank is based on deposits. Certainly in our organization that's absolutely true. On the left-hand side is the deposit composition and how that's changed over time.
You can see that the dark blue bar on the bottom there is non-interest-bearing demand deposits. You think about where interest rates were back in 2005 and where interest rates are now, and the fact that we've got so much more demand deposits is pretty interesting. The fact that rates have gone up here over the last several quarters you can see that our demand deposits have really stayed pretty stable relative to that underlying change in rates. It's a testimony to our customers, to the operating nature of their deposits. They are less rate sensitive for a lot of reasons we can talk about. Largely that they are the main operating accounts for our customers. That's created a lot of stability, and I would argue less price sensitivity on our entire deposit base, particularly on our demand deposits.
You can see that on the right-hand side of this chart, non-interest-bearing demand deposits to total deposits compared to peers. I think everyone who follows us knows this is a good story for us and continues to be a really good story for us. Likewise, the cost of deposits. We've got one of the absolute lowest cost of deposits in the industry. As I'll point out a little bit, our loan deposit ratio is 85%, right? We've got $58 billion of loans, $49 billion of deposits. I'm sorry, other way around. $58 billion of deposits, $49 billion of loans. When you kind of consider the sort of strength and flexibility that we have from a funding perspective, it's a really powerful value creator for our organization. Now interestingly, I showed some other charts that sort of implied loose correlation between the axes.
Not surprisingly, there's a pretty decent correlation between the cost of deposits and the cost of deposit increases relative to deposit growth. You can see how that pulls out on this page. You can see where we are too. Obviously, below the line on this chart is good because the y-axis is deposit increases, so you want to be low there, and you want to be off to the right. You can see how we compare to peers. We are a real standout on deposits. This is another way to say that. Then let's look at deposits over history. Deposit value is not a new thing for us, right? For 20 years our cost of deposits has been very strong relative to peers and continues to be strong and arguably even stronger today than it was 10 or 15 years ago.
We put it all together. Here's our cost of deposits, our risk-adjusted net interest margin, risk-adjusted loan yields and our cost of deposits. You sort of put the two on the right together to come up with the one on the left. Again, the risk-adjusted net interest margin is pretty strong I would argue relative to peers. Let's look at volatility of the net interest margin over time. On the left-hand side, you can see where our margin has been relative to peers going back to 2004. Volatility is on the right-hand side from 2004 to 2011 on the top and then 2012 to 2019. You can see in the last seven-ish years, volatility is a lot lower than it was in that 2004 to 2011 timeframe. I talked about liquidity. This is really important.
Loan-to-deposit ratio, very strong. We do have some broker deposits in here, but our broker deposit strategy is really a wholesale funding strategy. That is to say, we are stingy with the broker rates we offer. If people pick them up, fine, if they don't pick them up, that's okay. It's really an extension of our wholesale funding strategy. You see that there's a combination of large corporate deposits, which show up as deposits, which are more rate sensitive. We've talked about that on previous calls and other things. It's broker deposits and other forms of senior funding. We've issued, as you know, $1 billion of senior notes here over the last 18 months or so, and another $500 million of subordinated notes.
It all goes together, the broker deposits are just a really important part of that wholesale funding strategy, but priced very well. I think Keith talked about this a little bit, it's worth reiterating. As a reminder, about a third of our deposits are consumer, two-thirds are commercial. You can see the distribution of those commercial deposits on the left-hand chart as you move to the right. Small business, commercial real estate deposits, those make up, in the aggregate, the majority of our deposit base. Again, just a reminder on non-interest-bearing deposits on the right-hand side, how we continue to perform really well by any measure on our non-interest-bearing deposits, particularly in light of a recently pretty significantly rising rate environment. We've really been able to maintain and hold on to those non-interest-bearing deposits.
The net interest margin is down about 20 basis points over the last year, which is on the left-hand side of that chart. The right-hand side of the chart goes back two years. You can see the margin is relatively stable. There's a lot of activity that happens in the middle that's not covered when you go year-to-year because I think we all know the kind of margin went up with rates and has come down a little bit with rates. The change on a two-year basis is on the right-hand side of that chart. Net interest income, back to the left-hand side, is down versus last year. We had a lot of loan growth in the last year. It wasn't quite enough to offset the net interest margin compression, which is why you see a slight decrease in net interest income over that timeframe.
A little bit about interest rate sensitivity. I think, as you know, for 100 basis point shock we see up 3%, for 200 basis points up 6%. A little more extreme on the downside. The reason it's a little more extreme on the downside is because our rates on deposits are so low they don't have a lot of room to go lower, which is why we have been actively, where possible, have been actively managing the downside risk through the addition of primarily interest rate swaps, but also interest rate floors. We've done a little bit of both over the last year. I think everyone knows. Cecil is an exciting topic. There's really not a new disclosure here. We've been talking about Cecil and working on this for years.
We feel really good about the process we've put in place. We had certainty around that day one adjustment, which we disclosed on our earnings call a couple of weeks ago. We can provide granular details on how things have changed with the adoption of Cecil. As we've mentioned, the allowance for credit losses is down about 5% in Cecil land versus non-Cecil land. We get a lot of questions about the day two effect. The day two effect is heavily weighted to the change in the economic outlook. Whatever the economic outlook is at the end of this quarter, that's going to be a large determinant of what our allowance ends up being all other things being equal. Obviously, adverse credit migration can also affect that.
Really the key factor in our analytics is really, as you can see it on the right-hand side of this page, the key driver. The key driver is the R&S, as a reminder, is the reasonable and supportable forecast, which is part of the accounting principle. A relatively benign, reasonable, and supportable forecast creates a relatively low allowance related to our commercial real estate. Duration is also a really important part of Cecil, and you can see that in the consumer side. Consumer's up largely because of the mortgages we have on the books. They are 30-year final. A lot of them are ARMs, but they've got 30-year finals. The new rule says you need to take it all the way out to final maturity. Which is why you see an increase in the allowance associated with consumer loans. That's really term related.
Let's talk a little bit about capital. Our common equity Tier 1 ratio, 10.2%. As Harris mentioned, it was over 12% 18 months ago. We have really been actively managing this down. We're doing it because our stress test results support that. I'm going to talk about that in just a little bit. I think increasingly important is going to be on the right-hand side of this chart. I think that looking at common equity Tier 1 capital and adding the allowance to it, the adoption of the accounting standard, Cecil, is going to create a lot more volatility in the allowance for credit losses over time.
I think when you're thinking about ability to absorb loss and manage risk, I think an important analytical exercise will be to look at the combination of both the common equity Tier 1 capital on the books as well as the allowance for credit losses. Ultimately, as we all know, the allowance for credit losses is the same thing as equity. It's just on the other side of the balance sheet. Because there's going to be more volatility, I think we're all going to probably start looking at that a little bit more in the aggregate. Then you can see how we compare to peers on both sort of a straight common equity Tier 1 and common equity Tier 1 plus the allowance. Now, this is a backward-looking allowance, so this is not Cecil.
We'll be paying a lot of attention to this as we get into the first quarter and beyond. As I mentioned, on the lower right-hand side of that chart, we bought $1.1 billion of common stock. We've announced a $75 million share repurchase in the first quarter of this year. We have substantially increased our dividends over the course of the last couple of years. You can see that 170% of earnings were distributed to shareholders in 2019. We disclose our stress test results. I think everyone knows that we're no longer a CCAR bank. As I think Ed and others have mentioned, stress testing continues to be a really important part of our risk management activities. Stress testing is a really important part of that. In fact, it underpins a lot of the other things we do.
We do interest rate stress testing, we do liquidity stress testing, importantly, we do credit stress testing in addition to any other things we might be doing. On the left-hand side of this chart, you can see what I call capital destruction. This is the deterioration of the common equity Tier 1 ratio in this hypothetical adverse event. It has significantly declined over time. Now there's two things going on there. One is that the credit quality of the portfolio has improved, but it hasn't improved that much. The other thing is the economic forecast has also improved. That is, the adverse economic forecast has gotten better over time. The key economic scenario that we use to manage capital and risk is one that goes back to the extremes in terms of decline from the financial recession of 2007 to 2010.
We're looking at the decline in economic activity and other key measures. The Fed's severely adverse scenario actually takes it down to the levels that occurred. It's two ways of looking at it. The way we have presented it here is a little less extreme than what the Federal Reserve's supervisory severely adverse is. We think it's more indicative because we use stress testing to manage so much of a book. We don't want to be overly punitive when we think about the stress test because it can really adversely affect the way we go to market and the way we do business. This is why we do it this way.
You could see while capital has come down over the course of last year, you can see that if we were to take the losses implied in last year's stress test applied to the current capital ratios, our common equity Tier 1 is still in the 8.5% range on a post-stress basis, which is significantly better than it was five years ago. A little bit about warrants. We've been talking about warrants for a couple of years. Because they expire on May 22nd, I thought that this group might want to just have a little refresher to the extent you really haven't been looking at it. The warrants are a key determinant of the difference between basic shares and diluted shares. The warrants go into the diluted share calc.
Ultimately, the stock price that is in place in the month of May is largely going to determine the permanent dilutive nature of those warrants. Just as a reminder, we've got a little analytical chart here that shows the dilution relative to the share price. That volatility in implied shares outstanding is going to be gone on May 23rd because the warrants will have expired and presumably all the warrants will have been exercised at that time. These are net share settle warrants. If I remember correctly, the net shares are based on the prior 30 days before settlement. We'll have a pretty good idea what this number is as we roll through May. Certainly, by the time we have our second quarter earnings release in July, that will be totally resolved.
As we think about our key financial objectives, I've got a lot of commentary on positive operating leverage. We remain committed to positive operating leverage. We remain committed to controlling expenses. As I said, when revenues have been up 30% over the last five years, our expenses have been up five or less than five. We went through a pretty significant realignment of our positions in the fourth quarter, reducing about 5% of our outstanding positions to ensure that these expenses are going to continue to remain controlled as you look into next year. Just as a reminder on the expense control efforts, when you think about that 5% increase or so of expenses in the last five years, go back to the other presentations we had today. Go back to Keith's presentation, Jennifer's presentation. We have been investing so much money into this organization.
FutureCore alone, as Scott said, is in the $40+ million range. Think about our expenses. They are $1.7 billion, which approximately what they were on an adjusted basis last year, $1.1 billion of that was compensation effectively, right? There's $600 million non-comp expense. FutureCore alone, just the core system replacement was kind of $40 million of that. That's like 7.5% of that $600 million. We are making a massive investment in this organization, we are holding expenses flat while we're doing that. We think it's going to create a lot of positive opportunity for us because we are making the investments today that are going to free us up to do other things in the future.
One of the questions I get is, "Well, when you're done with this, expenses are probably going to drop, right?" I am not expecting expenses are just going to fall off a cliff once we get all of this technology infrastructure in place because we're going to continue to invest in technology. Banks ultimately make money on information and information asymmetry, and all of information now is defined by technology. We're going to continue to make those investments, and it's going to be an increasing part of our expense base. I think for those of you who have spoken to me recently, I think you know that we're in the process of trying to realign our expense breakout on our income statement. The reason I want to do that is because we have got a fantastic story on technology spend relative to total spend.
If you look at the face of our financials, it's really hard to see. We're in the process now of going back and reassessing the alignment and the mapping of costs to line items. I'm hopeful in the near term that we'll be able to break that out because I think we've got a great story. It's going to continue. Expenses are going to grow much slower than our overall level of technology and technology investment. Financial performance continues to be really important to us. You have seen that over the last five years, and I'm certainly hopeful and expectant that you will see that over the next five years. The technology upgrade, really important to us. That is not going away. It's an important part of who we are, and that will continue.
Automation and simplification, I hope you guys enjoyed that conversation we had with Jennifer's team. Ken Collins, who was up here, he sat here on the right-hand side. He's been doing so much with automation and artificial intelligence and other things. It's creating a lot of opportunities for us. We're continuing to invest in those enabling technologies. Returning capital continues to be important to us. We have been telegraphing that our share buybacks would be declining in 2020, and you saw that with this most recent announcement. We went from $275 million a quarter to this quarter is $75 million. That's because we've gotten to a level of common equity Tier 1 relative to the risk in the balance sheet, relative to our expectation for the next couple of years in terms of economic risk. We think the level of capital that we have today is appropriate.
That's what we're targeting, and it's very consistent, as I think all of these messages are, with the story that we've been saying for the last couple of years. Doing business on a local basis. This is so important to our organization. When you look at the value in our balance sheet and the value that resides in the deposit portfolio, this exists because we are banking on a local basis. You know our brands, you know the states. In fact, the little things that we left on the tables, you guys have probably noticed that there's something from every bank in there. It's just a reminder. The intent of that is it's a reminder that if I go to Irvine, California, nobody knows who Zions Bancorporation is, I hope. Everyone knows who California Bank & Trust is.
Likewise, if I go to Denver, nobody knows who Zions Bancorp is, but they know who Vector is. It's a really important part of who we are for our customers to be dealing with their local banker, empowered, as we discussed previously. Not somebody who's running widgets through the machine, but somebody who is empowered to make decisions and develop the relationship. That's a really, really important part of who we are, and that's not going to change. I could spend a little time on the outlook, but it's unchanged from what you saw, which I think everyone's probably noticed at this point. I just want to reiterate, though, that we are absolutely committed to controlling non-interest expenses. What we went through in the fourth quarter was difficult, as it would be for any organization.
The purpose of that was in a rapidly changing interest rate environment where we saw revenue headwinds developing on the horizon. I am just so proud of the way this organization reacted to a rapidly changing environment to rapidly change the way our expense trajectory was moving. I just want to reiterate that we are absolutely committed to continuing to control non-interest expenses in a difficult revenue environment. With that, James, I think we could probably open it up for Q&A to probably stay on time, right?
Yeah. Oh, sorry. Would you guys like to sit?
No.
Oh, you're going to stand.
Not at all.
Okay. Okay. Let's see. We may have to share a mic or two, but oh, wow. You guys are popular. Everybody wants to ask a question. Okay, I got to go to somebody who I haven't had yet. I'll be back.
Yeah, Ken, you're out of luck.
Thanks, James.
Appreciate all the color on financials. When I look at your Uniform Bank Performance Report, which is a little bit old school, but you guys, when you look at the way you pay your employees, it's pretty much on average with the peer group. When you look at assets per employee, you're around $7 million and then peers are closer to $12 million. I'm sure some of that gap can be explained by what Scott said earlier about things you don't do, whether it be Share National Credits, leveraged lending, the more riskier aspects. That gap is still pretty large. Just curious, do you have the capacity with the employee base that you have now to narrow that gap?
As granular as you want to keep things, do you have to keep adding to the employee base to continue to leverage the balance sheet infrastructure that you have in place to decrease that gap and create more earnings?
My own belief is no, there's a lot of opportunity to continue to lever that. We do have a more granular kind of loan portfolio, and the composition of the business is different than some of our peers.
I think fundamentally, the transactional part of this business has changed so much that it's becoming, I think, a little more fixed cost in terms of the infrastructure we have out there. I would expect that we can see sort of operating leverage in the physical infrastructure that we have.
I'll give you an example. While we look, the FTE level is moderately flat, and we just brought it down 5%. If you take our deposit operations, our branch back office support group, our enterprise loan operations, it's about 1,000 employees in total. It was about four years ago. It's down 25% during that time. You may say, "Well, about 250, almost 300 people. Why didn't your total FTE change?" Well, a lot of that has been redirected to technology. Our investment in technology colleagues has gone up during this time. It's not just same old, same old. There's significant reductions in staffing that are coming from automation and simplification in back-office functions that we're redirecting either to the front office, revenue-producing groups, or to technology.
That number should come down, too. That is part of the reductions that we did in the fourth quarter. The other piece of it is that we actually have about how many people working on the FutureCore project?
We have about 300 here and about 150 offshore.
Yeah. There's some things that weigh on that ratio a little bit.
Okay, next question.
One of the other things, too, and it depends on what banks you compare us to. A lot of our large peers probably offshore 10%-15% of their FTEs. We're at about 4%. I'm not saying we're going to 10% in terms of either domestically, onshore or offshore. Like we look at automation, offshoring of activities is a strategy that we've basically gone from 0%-4% in a fairly short period of time. We'll continue to look at that. It does make these kind of comparisons a little complicated, though.
Harris, you mentioned some of the challenges that you have with a flat yield curve and some momentum you have on some of the fee income businesses. I'm just curious what your thought is on doing both on fee income acquisitions and getting that growth rate higher?
Well, the opportunities, I think, are a little bit limited. Wealth management is one that some companies pursue. It's one we've been wary of because we really think that the real opportunity is within our own customer base and to do it organically. The risks in doing wealth management acquisitions are, I think, reasonably high in terms of just retaining people. We have been building, I mentioned corporate trust. We've been hiring people, teams of people. We've been doing kind of little micro acquisitions, if you will, just in terms of hires. If anybody sees anything that you think would be a good fit, let us know. I have investment banker. I had somebody here yesterday. Now, they're always fishing. "Well, what can we sell you?" I said, "Show me an interesting fee income business that's really a good fit." Because we're looking for them.
We want to be sure that they really are a good fit and that it is things that you don't end up paying twice for.
All right. Thanks. Back to the operating leverage comment. I know you're focused on achieving operating leverage, but I think you've also indicated that achieving it in 2020 will be a challenge.
I said that on the call, yeah.
You said that on the call, right? I'm assuming that's still the case. The question is, what's the likelihood of positive operating leverage for 2021? It looks like it'd be pretty substantial. Do you care to give us an idea of the magnitude that you would expect that you could achieve when you look at 2021?
Look, it is so hard to see what is going to happen two or three years from now, right? As you know, we've been reticent to provide kind of two or more year guidance. Even this year, I think everyone knew going into 2019 that rates were going to go up throughout the year. That changed so quickly, changed our revenue outlook so quickly, that it's really hard for us to predict with 100% certainty positive operating leverage when the revenue picture is somewhat interest rate dependent. That part of it is a little cloudier.
I just say, tell me what the yield curve is, and I'll tell you what the probability was.
We're confident on expenses, as I tried to sort of reiterate in my call. We are actively managing expenses, and we are committed to flat to down, and we will be. The revenue piece of it is just a little harder to predict.
Okay. My follow-up would be around the topic that we talked about last Investor Day, that you're reluctant to provide a comment around the return ROE. Wanted to see if you're willing to go there now.
We're two years closer to that.
ROTCE, I wanted to get if you're able to comment on where you think an appropriate long-term ROTCE is, and what do you think you're looking at for 2020?
Well, again, an important determiner of that is credit and economic outlook related to credit. While we look at our ranking relative to peers, and one of the things I think I have said, and I've even said here, is that we are continuing to be focused on improving relative financial performance. That is relative to peers. It's hard for me to provide an absolute sort of hard number figure, but I can say that we're committed to continuing to improve our relative standing.
John, I'd also just add, one of the ways I kind of think about all of this, given where we are almost 11 years into a cycle is just a determination that we go into whenever it comes, that we have a little somewhat stronger capital, better credit quality, and really good technology. I think it's going to be a powerful combination. I know you all have models you're trying to populate and everything else, and I respect that. It's hard in the absence of kind of understanding what the yield curve looks like. I was looking recently. Our margins, which have been under pressure for a long time and kind of coming down. The Fed had been down at zero, and they started to raise rates. Our margins started to improve. Then they took a reverse course back in about July. They started coming down.
We're still somewhat asset sensitive, less so than we used to be.
Yeah.
It is going to be a factor. It's just hard to know in the absence of kind of being able to predict what that curve looks like.
I would hope, too, on this topic, that we have some credibility in the sense that, as Paul Burdiss pointed out numerous times, our expenses literally for five years are virtually flat. If you take our guidance for six years, they're going to be virtually flat based on that guidance. It's not like we're just powering forward blindly increasing expenses. Now the revenues, we're facing headwinds. We're highly committed to adjusting the expense side of this equation. As we've tried to point out, we have purchased with that flat expense environment for five years. We have purchased a tremendous amount of technology that is going to be a strategic differentiator, and we've also been investing in our growth businesses. It hasn't just been a slash and burn thing. It's been a heavy investment piece while keeping expenses flat.
Harris, actually a question for you. Anyone feel free to jump in. You mentioned at the very beginning you had a 55% efficiency ratio target over some future period, right? I know you didn't quantify that. Even if I hold expenses literally zero for the next several years, and I'm putting in mid-single-digit loan growth, which I think is what you guys are targeting, I think mid, low single-digit fee growth, which is what we've seen. I still don't get you there for at least four years, give or take three or four years from now. Is that consistent with what you have in mind?
I think, again, what are you doing to margins in that?
Oh, I also have a rate cut. Only one, but the futures curve has two rate cuts in there.
Yeah. That's where I think. I fundamentally don't think that the kind of yield curve that we have today is what we're going to see for the next five years. Now, who knows?
Yeah.
Listen, if we do, I think it's going to be a challenging time.
Okay. I read that.
Yeah.
Have a steeper curve.
Yeah. I think without some steepening in the curve, we don't get to 55 anytime really soon anyway. I think it's going to take a normalization. When I say normalization, most of us grew up thinking that a yield curve kind of looked like that.
Yeah.
Not like that. That's a yield, whatever it is. There's no curve in it.
Yield line.
It's a yield line. Yeah. We need something beyond a yield line to make this work.
Okay.
Jennifer had a question.
Jennifer's got it.
Hi. Paul, I have a question. You've guided modest provisioning for 2020. You had $39 million in provision last year. Are we looking at just slightly up versus last year? What are you kind of thinking, assuming the credit environment stays stable right now?
The reasonable and supportable forecast, as I would say, in Cecil land, is the key determinant of that. Assuming that we stay relatively consistent, that's why our guidance is where it is. We are not seeing a deterioration in any significant part of the portfolio. Based on sort of early warning indicators and other things, I think if we were to see some activity over the course of the next 12 months, we would start to see it. We're just not seeing it. There's two vectors now. One is sort of overall credit quality, and the other is what is the economic forecast, right? Based on both of those things, and I'll look for both of those things. Our outlook is based on those.
I can't help but think of Cecil without thinking of Beany and Cecil, somehow this seems about as ridiculous. I don't know how any of us kind of start thinking about forecasts of provisions. I guess we all learn to wrestle with that.
Yeah.
Can I ask one more question while I'm still at the mic? Harris, can you clarify your interest in bank acquisitions over the next two, three years? Thanks.
Sure. We would look at things. There is a lot of stuff out there that just doesn't fit very well. There are a lot of banks with a whole bunch of commercial real estate. We could do more commercial real estate. I hope one of the things you go away thinking is that we're trying to be disciplined about that. It just doesn't make a lot of sense to me to go out and buy a bunch of it when we can do it organically. It's all about the deposit base. It's about kind of the fit. We'd look. Clearly the work we have going on with this FutureCore is really top of mind for us. Distracting the several people we have working on that with an acquisition integration isn't something that I'd want to do, but sometimes you can't pick the timing.
I wouldn't say I'd take it off the table. Some of it's going to be a matter of just the economics of the deal. You're seeing a lot of low premium deals. Is it possible? Sure. It's nothing that we're out looking for right now.
Sorry, it's another question on expenses. You guys had $1.7 billion of expenses in 2019. You're starting the year with 5% fewer headcount. You're closing 15 branches. What's the gross amount of cost savings that realizes, and then how much do you expect to reinvest in everything that we've talked about today?
Did we expose the gross amount of cost savings? I don't remember.
What we have said is that, yeah, there's a lot of things in the stew, right, in terms of outlook for next year. The workforce, the number of positions are down about 5%, and the reduction in comp is roughly proportional to that. Now we're taking some of that, investing it in technology and other enabling businesses, but that's sort of the scale of what we're describing.
You also have merit increases. We're in economies that are actually pretty full employment, there are pressures that way, too. We boil it all down, and that's where we say kind of flat to slightly decreasing. We think there is room to see an absolute decrease. I don't think it's going to be significant, but I think it's really going to lead us to be able to keep things flat.
Yeah, maybe just to clarify, if we look back and 2020 is flat or $1.7 billion, would you be pleased with that number or would you like to be below it?
Well, we've said flat to slightly down.
Yeah.
We'd obviously love to be below it.
Yeah.
That'd be great. I think there's reasonable odds that we will be. It's not going to be materially below it, but I think we can actually bend the curve down on an absolute basis.
I'm just going to pause the Q&A for just a second. For those of you that are heading to the airport right now, the cabs are down there waiting. They'll wait for about 10 or 15 minutes or so. You can join us on the webcast as you head to the airport. We're going to continue for a few more minutes. Let me go over to Ryan.
Thanks, James. This question's for Paul. Harris has communicated that the yield curve is just not that conducive for your business right now. When I think about what transpired over the last quarter, you saw a little bit of net interest margin pressure. We saw loan yields come down a decent amount, half of which I believe was due to portfolio churn or repricing. I guess when I think about all the moving pieces related to the guidance, it implies that we're going to see some net interest margin pressure clearly over the course of the year. How do you think about the remixing of the portfolio? How far of the way through are we through in terms of the repricing down of the loan portfolio?
That's a hard question to answer with a lot of specificity. I will say we're focused on loan growth. We recognize that there could be some margin compression. We are absolutely looking for opportunities to continue to hedge. One of the artifacts of our portfolio is because we're 42% sort of DDA funded, it's all fixed at zero. We've got a natural bias to asset sensitivity that we're constantly sort of fighting. It's not like it's an adverse struggle, but I think you know what I mean. We need to really actively manage it. When the yield curve has got two or three rate cuts priced in, it's kind of hard to put on that next hedge, right? Our outcome meets regularly. We are actively thinking of ways to manage and hedge that risk.
The biggest lever that we have next year while there's some modest loan repricing that has been occurring and will continue to occur. The biggest lever we have is actually deposit pricing. While it's true that we've got one of the lowest interest-bearing and overall deposit rates in the industry, it's also true that we have managed that very effectively. In my mind, from a revenue perspective, our biggest opportunity next year is really around deposit pricing.
Next question. Amanda, Jefferies.
I guess on that point, deposit cost decreases. For the month of January, where are you guys at to give an indication into the quarter?
We usually don't talk about the intra-month stuff. What I can say, though, and what you saw, and I think what we said on the call, is that you saw in approximately August or September, rates had been increasing on our deposit portfolio while market rates were decreasing, right? There was a, what, five or so month period where that sort of difference occurred. That crossed over again late in the third quarter and well into the fourth quarter we saw deposit rates falling while the Federal Reserve, while there was one rate decrease, I guess, in October. That has now kind of slowed down, but we've continued to see those deposit rates falling as we move through the fourth quarter.
Thanks. I think the last time I was in this building was 2008, and I remember the pain in commercial real estate and construction. I guess the good thing about construction is that it can burn off pretty quickly if course of all things go well.
It can burn off in other ways.
It can. It can. As you look at your portfolio flat since 2015, at least, this may be the wrong management team to be asking this question, but do you ever think about whether you're taking enough risk there, especially on residential construction projects?
Yeah. The question gets asked around here. We had a board member who asked that question in 2006 because we had zero charge-offs and everything looked great back then, too. I remember saying, "Our objective, Ping, is to try to be as consistent through cycles as we possibly can be in terms of how we think about credit." I think there are some people who are really good at calling troughs and peaks and things like that. I give credit to Robert Sarver. He started Western Alliance. He's one of the best people I ever knew in terms of figuring out when to get in at the bottom, get out at the top. God bless him. Most mere mortals aren't very good at this.
Trying to be as consistent through a cycle as you possibly can, I think, is probably the better formula for someone like us. I think that we're taking the right kinds of risks. We haven't changed the credit box, and in my mind, that's the right way to approach this, and especially given how long we are in this cycle. I'd rather see just flat loans for two or three quarters than to start to panic and say, "We've got to go out and just grow." I say this all the time. We'll have growth targets. I seldom really pay much attention to them when I'm thinking about bonuses and everything like that because you'll get what you ask for. If you create a culture where you say, "We got to have loan growth," I almost guarantee you'll live to regret it.
We want people out looking for good business, including good construction business. The stuff is structured right, but it's just not where I'd want to get everybody all choked up about, "Hey, we got to go out and do things that feel unnatural." I don't know.
I would just add that the industry has changed. The home builders themselves are more disciplined, and most land and A&D is equity capitalized these days. We could really lean in there and probably have a really nice spread, maybe even have good loan-to-cost metrics in there. When it all stops, when the music stops all at once, land has negative value in many cases. There are probably other places to look inside our book of business and the skill sets that we have around the banking universe of bankers that we have, and especially that wouldn't be one. The home building space has changed. It's not that banks have changed as much as the industry has. When we bank a home builder, we'll have a borrowing base that will have some land because that's essential to their production.
It'll move into an A&D phase. It'll move into sticks, sometimes models. They're very disciplined now. It's all equity capitalized really on the dirt.
Go to Lanta and then Peter.
I just wanted to get an update on what you're hearing from your commercial business borrowers. We've had some pretty weak HE data, and fourth quarter was pretty weak across commercial. Any change in terms of what you're hearing from demand and from your borrowers?
It's a great question. I would say no. I think our small business customers, medium size, they're working in a pretty good environment. The economy is strong, and interest rate environment is favorable. The global trade issues, it's had an impact on some industries, but generally speaking, most folks in small business and middle-market business land haven't seen a real significant impact on that.
I do think, though, that said, I think everybody is just probably waiting longer. I think everybody's been more conservative since the 10 years ago, since the crisis. People are stretching things out further. We've talked about loan demand today, and given the strength in the economy, it's not what I would have expected it to be.
Right.
Some of the riskier stuff has probably gone to non-bank lenders and that kind of thing. You get this very flat yield curve, these low levels, and you've got people refinancing into life companies and what have you with real estate. The loan demand picture, I think, continues to, at least to me, to be a little bit of a mystery in terms of why we're not seeing more growth. I think it's probably everybody's being pretty careful.
As Harris said, these are hard things to project. The fourth quarter was soft. We're not overly anxious about that. We had four really good quarters before that. Loan growth was kind of 7% year-over-year for four quarters in a row. Everybody was like, "Gee, are you going to raise your estimate to maybe high single-digit loan growth?" No. Couldn't really explain the 7%, and we're not sure we can really explain the flat quarter. We had three moderately flat quarters in loan growth before the four really strong quarters, and now we've had a flat quarter. You just have to keep doing the right things. If we thought our people weren't out there in the fourth quarter or third quarter trying to generate business, well, that would have us anxious. They're out there doing the right things, and we're working on processes to make their life easier.
Loan growth will just take care of itself.
Along those same lines, with all this focus on automation and eliminating a lot of the manual processes, have you seen the productivity increase with the business bankers? Or is that a real more to come where you can see them more out calling clients than you have?
Yeah. It is hard to measure the percentage of time that our bankers are actually outside of their office and actually talking to customers. Michael spoke about some simplification we are trying to do on the credit side. Not cutting corners, but just simplification in processes. I will give you an interesting example. It was on page 13. There is this internal system we call BEST. It basically took about 700 processes in our affiliates and simplified them down to 70, okay? Then put it into an online tool they could utilize. Our frontline employees are hitting that site 38,000 times a month now. That is how many times they hit it in December. We have an internal hotline for bankers to call when they have questions about how to get stuff done. Calls have gone from 37,000 to 23,000 a month since this system has been in existence.
37,000 x they were having to call somebody to figure out what to do to service a customer or get things done. 37,000 calls to 23,000. I don't know how you measure that. Folks ask us, well, are we going to have a named expense reduction program? We had one. It was in June 1st of 2015. We've been doing this for five years. It's things like that. How do you measure the dollar amount? I think that it comes through in employee satisfaction. There's more time they can spend on stuff that matters. Customers benefit from that. There is a dollar benefit to that, either in expense or revenue.
If you are somebody waiting for a ride to the airport, we need you to please come now.
Thanks, Jennifer.
Wrap it up.
I was just going to say, we probably need to wrap up anyway. We've disclosed everything that we can possibly think of from a Reg FD perspective. If you have a follow-up question, we'll be around. We'll be happy to clarify anything. Thank you very much for your attendance. Thank you so much for those of you who came in person. Thank you for those who have been joining us by webcast. The Snowbird Ski Resort has a one-star marketing campaign, too much snow, too steep, that kind of thing. Not enough green runs. Maybe the Zions Investor Day, not enough breaks. Hopefully, we've given you great access to management and great disclosure that you can make the most out of. We really appreciate your time today. Look forward to seeing you again in this forum a couple of years from now.
Harris, any final comments?
Well, just my thanks to all of our colleagues over here too, who participated today. We've got some great people and just super people to work with, and so we really appreciate them. Thank you all for coming out and being with us.
Thank you. We will stand adjourned.