US Bancorp Q1 2026 Earnings Call Transcript

US Bancorp (NYSE: USB) Q1 2026 Earnings Call dated Apr. 16, 2026

Presentation

Operator

Welcome to U.S. Bancorp’s First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now turn the conference call over to Jen Thompson.

Jen Thompson — EVP, Head of Corporate Finance

Thank you, Regina, and good morning, everyone. In our boardroom today, I’m joined by Chief Executive Officer, Gunjan Kedia; and Vice Chair and CFO, John Stern. In a moment, Gunjan and John will be referencing a slide presentation together with their prepared remarks. A copy of the presentation, our press release, and supplemental analyst schedules can be found on our website at ir.usbank.com.

Please note that any forward-looking statements made during today’s call are subject to risk and uncertainty. Factors that could materially change our current forward-looking assumptions are described on Page 2 of today’s earnings presentation, our press release, and in reports on file with the SEC. Following our prepared remarks, Gunjan and John will be happy to take questions that you have.

I will now turn the call over to Gunjan.

Gunjan Kedia — Chief Executive Officer

Thank you, Jen, and good morning, everyone. I will begin on Slide 3. This quarter, we delivered earnings per share of $1.18, a year-over-year increase of approximately 15%. Total net revenue of $7.3 billion increased 4.7% year-over-year, with broad-based growth across each of our three major business lines. Net interest income on a taxable equivalent basis increased 4.1% year-over-year, supported by robust core loan growth in commercial and credit cards, and a second consecutive quarter of record consumer deposits.

Fee income grew 6.9% year-over-year, reflecting improved payments performance and momentum across capital markets and investment services businesses. Capital markets performance was particularly strong as new product penetration with long-standing clients and favorable market volatility combined to drive strong revenue growth. We delivered positive operating leverage of 440 basis points in the quarter. Strong revenue growth and continued expense discipline improved our efficiency ratio by 260 basis points year-over-year. John will provide more details on our financial performance in his opening remarks.

On Slide 4, we are spotlighting our business banking franchise. This segment contributes approximately 9% of our revenues and represents a compelling long-term opportunity for us. We have been building out new products and operational capabilities for this segment. We have also expanded our client teams to build deep multi-serve relationships that are served in branches with direct bankers and exceptional digital experiences. That approach has driven high single-digit compound annual growth in both clients and fees over the past two years.

Looking ahead, we are investing in integrated solutions collectively branded Business Essentials. These solutions offer banking, card, spend management, and merchant solutions that support small businesses at every stage of their life cycle.

Our recently announced partnership with Amazon is significant in size and will meaningfully expand our small business reach. This partnership is unique from traditional co-brand card arrangements in anticipating a clear pathway to broader banking relationships over time.

On Slide 5, we highlight strong momentum in California, where we increased our scale and density with our Union Bank acquisition at the end of 2022. As previously reported, we realized merger-related expense savings of approximately $1 billion and are now focused on capturing the considerable revenue synergies offered by this acquisition. The map on the left illustrates our strong positioning in markets with a high concentration of small businesses. California is a powerful growth engine for us and is outperforming the broader franchise across multiple key dimensions.

Moving to Slide 6. Within payments, we continue to see fee revenue growth consistently strengthening across all segments. In our credit card business, new products aimed at affluent transactors, along with significant increases in marketing, have resulted in double-digit growth in account acquisitions over the past four quarters and a strong start to the year. Merchant processing fee growth remains steady in the mid-single digits, reflecting disciplined execution across three core strategies, software-led products, focus on five verticals, and expanding direct distribution. And in corporate payments and prepaid, we are beginning to see growth rebound as spend levels normalize and installations of last year’s strong business wins start to show through in results.

I’ll close on Slide 7. In capital markets, our organic product expansion, as well as our pending BTIG acquisition, are expected to drive sustained revenue growth. In payments, the Amazon partnership will meaningfully accelerate credit card revenue growth by the end of the year and expand our banking opportunity with the small business segments in the future. And in our consumer franchise, we look forward to building Financial Edge, a program to better serve the needs of NFL athletes and their families, and to build our brand nationally, both in partnership with the NFL.

Let me now turn the call over to John.

John Stern — Vice Chair and Chief Financial Officer

Thank you, Gunjan, and good morning, everyone. First quarter results showcased another quarter of strong business momentum and ongoing execution against our medium-term financial targets.

If you turn to Slide 8, I’ll start with some highlights, followed by a discussion of trends for the first quarter. We reported earnings per common share of $1.18 and generated $7.3 billion of net revenue, representing 4.7% growth year-over-year. Improved revenue trends reflect strong loan growth in areas like C&I and credit cards, along continued momentum in fee-generating businesses like capital markets, investment services, and payments.

Average total assets increased 0.7% linked quarter to $688 billion, reflecting steady client activity across the franchise. For the first quarter, ending assets were $701 billion. As a reminder, the Category II transition requires four quarters of average assets to be $700 billion or more.

As expected, credit quality metrics remained stable, underscoring the resilience of our clients in an uncertain operating environment. As of March 31, our tangible book value per common share increased more than 15% on a year-over-year basis.

Slide 9 provides our key performance metrics. We continue to operate comfortably within our medium-term targets for profitability and efficiency. Disciplined balance sheet management and strong returns drove a return on tangible common equity of 17%, while return on average assets was 1.15% this quarter. Net interest margin was flat linked-quarter at 2.77%, as core loan growth and stable deposit pricing were offset by elevated mortgage prepayments and somewhat tighter credit spreads.

Turning to Slide 10. Over the last two years, we have increased our tangible common equity 31%, while continuing to deliver high-teens returns on tangible common equity, given steady and improving earnings growth. The sequential step down this quarter reflects normal seasonality, along with the impact of continued AOCI burn down rather than any change in the underlying earnings or profitability trajectory. As we look ahead, we remain confident in our ability to deliver high teens returns on tangible common equity.

Slide 11 provides a balance sheet summary. Total average deposits were relatively flat on a linked-quarter basis, as record consumer deposits were offset by typical seasonality in our wholesale and investment services businesses, improving our deposit mix. Our percentage of non-interest-bearing to total average deposits remained stable at approximately 16%. Average loans totaled $394 billion, up 3.8% from the prior year or 5.3% when adjusting for loan sales in the second quarter of 2025. The growth was broad-based and centered around credit card, commercial, and commercial real estate. The ending balance on our investment securities portfolio as of March 31 was $174 billion.

Turning to Slide 12. Net interest income on a fully taxable equivalent basis totaled $4.3 billion, an increase of 4.1% on a year-over-year basis, driven by robust loan growth, funding optimization, and ongoing benefits from fixed asset repricing.

Slide 13 highlights fee revenue trends within non-interest income. Total fee income increased 6.9% on a year-over-year basis, supported by nearly 30% growth in capital markets, nearly 10% for trust and institutional fees, and ongoing momentum across our payments business. As a reminder, our capital markets business is focused on fixed income, foreign exchange, and derivatives, including our commodities business. Our pending BTIG acquisition adds equity and investment banking capabilities in the future.

During the quarter, we also made updates to a select number of fee categories to better align our disclosure with how we manage the businesses. Prior results were restated for these classification changes with no effect on total fee revenue.

Turning to Slide 14. Non-interest expense totaled approximately $4.3 billion, up 0.8% linked-quarter. On a year-over-year basis, ongoing productivity and continued expense discipline helped us fund strong investments in technology and marketing.

Slide 15 highlights our ability to effectively manage our expense base while driving top-line growth. Disciplined expense management has become foundational to how we operate, showcased by our seventh consecutive quarter of positive operating leverage. Looking ahead, we see opportunities to build on our strong operating leverage story, supported in part by the ongoing deployment of AI and other automation tools to improve efficiency.

Slide 16 highlights our credit quality performance. Our ratio of non-performing assets to loans and other real estate was 0.38% as of March 31, an improvement of 3 basis points from the previous quarter, and 7 basis points from a year ago. The first quarter net charge-off ratio was 0.56%, increasing 2 basis points sequentially, driven by the seasonal nature of credit cards, while our allowance for credit losses of nearly $8 billion represented 2.0% of period-end loans.

On Slide 17, we’re providing a closer look at our business credit exposure within the non-depository financial institution loan portfolio, given the increased attention on this segment. Business credit intermediaries represent approximately 3% of total ending loans, and these exposures are well structured. Our risk framework includes meaningful over-collateralization, clearly defined industry concentration limits, and first lien collateral. Importantly, this reflects U.S. Bank’s [Phonetic] long-standing approach to risk management and underpins our comfort with both business credit and the broader NDFI portfolio.

Turning to Slide 18. As of March 31st, our Common Equity Tier 1 capital ratio was 10.8%, or 9.3% including AOCI. On Slide 19, we wanted to provide some initial thoughts following the updated Basel III proposals. We’re encouraged by the initial proposals and expect to see meaningful RWA relief under both methodologies, particularly in areas like mortgage and investment-grade corporate lending, providing additional flexibility to support clients through disciplined balance sheet usage.

While we await final outcomes around key elements such as the AOCI phase-in and the effective date of the new rules, the framework as proposed supports our return to historical capital deployment ranges under both scenarios.

On Slide 20, we provide a comparison of our first quarter results to our previous guidance. For the first quarter, net interest income, fee revenue, and non-interest expense all exceeded our previous guidance. I’ll now provide forward-looking guidance for the second quarter and the full year 2026. Starting with the second quarter 2026 guidance, net interest income growth on a fully taxable equivalent basis is expected to be in the range of 6% to 7% compared to the second quarter of 2025. Total fee revenue growth is expected to be in the range of 6% to 7% compared to the second quarter of 2025. We expect total non-interest expense growth of 3% to 4% compared to the second quarter of 2025.

I’ll now provide full year 2026 guidance, which is consistent with our previous guidance. We expect total net revenue growth to be in the range of 4% to 6% compared to the prior year. We expect to deliver positive operating leverage of 200 basis points or more for the full year. Our guidance excludes the impact of the pending BTIG acquisition, which is expected to contribute approximately $200 million of fee revenue per quarter, with an anticipated close date in the back half of the second quarter. The impact of the Amazon Small Business Card and the NFL partnership are fully contemplated in our guidance.

Turning to Slide 21. First quarter results represent another consecutive quarter of operating within all of our medium-term targets. While we are pleased with our continued momentum, our focus remains on delivering consistent, sustainable, and industry-leading returns over time. And we have a high degree of confidence in our ability to strengthen our performance and build on these results.

Let me now hand it back to Gunjan for closing remarks.

Gunjan Kedia — Chief Executive Officer

Thank you, John. As we look ahead, the macroeconomic backdrop remains constructive despite some softening of sentiment recently. Consumer spend, core loan demand, and credit delinquency trends all indicate relative stability. The regulatory backdrop is becoming more helpful, giving us greater capital flexibility over time, and our execution has strong momentum. All of that gives us confidence in our ability to continue building earnings power and creating long-term value as we move forward.

With that, we will now open the call for your questions.

Question & Answers

Operator

[Operator Instructions] And our first question will come from the line of Scott Siefers with Piper Sandler. Please go ahead.

Scott Siefers — Analyst, Piper Sandler

Morning, everyone. Thanks for taking the question.

John Stern — Vice Chair and Chief Financial Officer

Good morning. John, wanted to ask about positive operating leverage. You kept the 200 plus basis points target for the year, although you did — you’re doing significantly more than that now. Looks like you’ll be about 300 basis points in the second quarter. Maybe it was something you could discuss how you’re thinking about it. Would you sort of manage to that level or maybe let some incremental revenues drop to the bottom line if they came in better? I guess the or more leaves a lot to the imagination. So just curious on your thoughts. Sure. Thanks, Scott. I appreciate that. Good morning. Yeah, no, we feel good about the outlook, as we mentioned in our guidance slide. We have a lot of growth opportunities as we talked about. As we’ve mentioned in the past couple of quarters now, as we think about 2026, we’re really thinking about our revenues growing faster, and that being the driver of positive operating leverage. And we have a desire really to invest some of the savings that we have into things like technology and marketing, some of the things that we’ve talked about in the past. And it also kind of depends on the nature of the revenues. If fee revenues grow faster, as an example that’s going to bring with it more expense just by the nature of the compensation and things like that. And the net interest income, of course, we welcome that as well. So from an operating leverage standpoint, we have a lot of flexibility and we feel good about our outlook.

Scott Siefers — Analyst, Piper Sandler

Terrific. Okay. Thank you very much. And then maybe Gunjan or John really good commercial loan growth. Maybe if you could touch on sort of what you’re seeing in terms of utilization rates, and then Gunjan, you touched on customer sentiment a bit toward the end of the prepared remarks, but maybe just some thoughts on what you’re seeing there. Maybe if you could expand upon that a bit.

John Stern — Vice Chair and Chief Financial Officer

Yeah. No, absolutely, Scott. I’ll start. The commercial loan side, we just — we saw broad-based, good core loan growth really across a number of different sectors. On the large corporate side, food and beverage, energy, healthcare, were probably the top ones in our area. M&A for these customers as well as just general capex really starting to kind of see its way through. Small business also continues to be a very strong performer for us, and that we expect that all to continue.

We’ve talked about loan growth to being in kind of that 3% to 4%, but I certainly think it’s going to be higher than that. It’s probably more in a mid-single digit range from a broader loan growth perspective for the full year. So I think there’s just a lot of momentum.

In terms of utilization rate we’re at on the 25% or so — a little bit north of 25%. That’s probably a good level for it. It’s been creeping up a bit. I don’t think there’s a lot more upside from that standpoint, but just in general, core loan growth has been really strong.

Gunjan Kedia — Chief Executive Officer

And good morning, Scott. What I’ll add on sentiment is it’s turning to more core demand, which we find to be very healthy. So if you compare this time last year when the tariff discussion was very present, the demand we saw last year was very focused on the AI trade data centers, some M&A driven trades. But a real pause pending some resolution or clarity around tariffs. What we see with loan pipelines going forward, which are quite robust, is people beginning to invest in kind of core middle market expansion and capex. So the sentiment has stabilized quite nicely.

Scott Siefers — Analyst, Piper Sandler

Perfect. All right. That’s great. Thank you both for the color.

Operator

Our next question will come from the line of John Pancari with Evercore ISI. Please go ahead.

John Pancari — Analyst, Evercore ISI

Morning.

John Stern — Vice Chair and Chief Financial Officer

Morning.

John Pancari — Analyst, Evercore ISI

And then just on the — on the funding and the margin side, I appreciate your loan growth commentary in terms of what you’re seeing. What does that imply in terms of how we should think about the pace of deposit growth? And what are you seeing on the deposit pricing side? We’ve got a number of — even the larger banks that are flagging some pressure still on the deposit pricing side from a competitive dynamic. And then lastly, how should we think about the progression of your margin here as you look out through ’26?

John Stern — Vice Chair and Chief Financial Officer

Yeah. A couple things there, John, on the funding side of things, the deposit equation. We’re seeing it’s a competitive market, right? It’s always been that way on the deposit side. But we saw, relatively speaking, price stability really within and across the portfolios that we have. Maybe just as a reminder, our focus is really going to be, and has been on growing consumer deposits. Again, we saw another record level on the consumer deposit side, and we’ve seen a $7 billion increase year-on-year, nearly 3% growth.

We’ve seen a focus for us on operational deposits on the wholesale side. Really utilizing deposits that can help us along with the broader relationship and leverages into fees and things of that variety. So that has been where our focus has been on the deposit side, and we’ve been able to just navigate the deposit environment as we typically do.

On the margin side of the equation, just as a reminder, I mentioned that the margin was flat this quarter, and we gave some color that the positive drivers were really good core loan growth as we talked about, and then the pricing characteristics I just mentioned on the deposit side.

On the other end of that, though, there was some of the loans we brought on were at tighter spreads. Still good returning, but these are larger institutions that trade at tighter spreads. And so that was a little bit of a way as well as the impact of some refinancings on the mortgage side as rates. We had more refinance activity of nearly 15% to 20% more than we did prior year. So those were kind of the puts and takes.

Going forward, I expect that the mortgage stuff will abate, and the other things to stick. Meaning our — the good core loan growth, the deposit pricing stability, our earning asset mix, all improving as we think about the future. So we see — we continue to see progression in our net interest margin going forward.

John Pancari — Analyst, Evercore ISI

Okay. Great. Thanks, John. And then just separately on the capital front. If we can maybe just talk a little bit about capital allocation priorities, how you’re thinking about the buyback expectation, and then as you look at inorganic opportunities, you’ve done the BTIG deal. Should we expect that there’ll be a more active effort to continue to build out the capital markets business, potentially inorganic? And then of course, Gunjan, I got to throw the whole bank M&A question at you as well. Sorry to ask it this early in the call.

Gunjan Kedia — Chief Executive Officer

Sure. John, you start.

John Stern — Vice Chair and Chief Financial Officer

Maybe I’ll start on the priorities of capital deployment. Really no change to our thinking here, John. I think from a capital deployment, we really focus our client and loan growth. And we certainly saw that this quarter. We’re going to support our clients as needed. And then we’re going to focus on the capital deployment to our shareholders.

Certainly the dividend is extremely important. And then the buybacks, as you know, we went from $100 million to $200 million this quarter. I would anticipate we’re going to continue to glide up. I think we’re going to start at $200 million would be my base case, but because we see such strength in the pipelines, but it could increase from there, or that would be our intention. We’re certainly going to glide up as we — again as we get to our capital levels that we need to get to.

Gunjan Kedia — Chief Executive Officer

Thank you, John. I do want to just reiterate that we are very committed to a long-term capital distribution targets of 70% to 75%, and we are keen to get back to those levels with share repurchases. And we are very close, John, to just stabilizing our capital ratios in a Category II framework, and of course, very encouraged by the capital rules that might accelerate that. So that’s the backdrop.

On our bolt-on acquisition strategy, we are constantly looking at properties. They are usually not as big as the acquisition we did with BTIG. It would be unusual for us to think about another bolt-on in the capital markets world because we are focused on closing the BTIG deal and getting synergies out of that. But we stay open to that. Those tend to be quite accretive immediately.

They’re small deals that give you local scale in a particular product to fill a gap. On your broader M&A question, nothing has changed about our strategy. We are very excited about the organic growth opportunities we have in front of us and the momentum we have. So that is our focus.

John Pancari — Analyst, Evercore ISI

Thanks so much.

Operator

Our next question will come from the line of John McDonald with Truist Securities. Please go ahead.

John McDonald — Analyst, Truist Securities

Hi, good morning. Thank you. John, maybe just to follow up on your net interest margin comment. Just to clarify, you do expect the margin to continue expanding and maybe expand in the second quarter and move steadily upward, and are you still on a path to that 3% sometime next year?

John Stern — Vice Chair and Chief Financial Officer

Yeah. John, thanks. Yeah, we certainly still see a path to that 3%. The margin is not always linear. And I gave kind of the reasons why this quarter the pluses and minuses, of course. I mean, if I think about just the underlying metrics, just to repeat we feel like in terms of loan growth is a good indicator and good — that will help in terms of the earning asset mix of how we think about the loan growth driving the balance sheet sizing. The deposits are stabilizing, as I mentioned, and then our asset mix is improving.

If I think about just the small business Amazon acquisition that’ll come on in the third quarter as an example. So it’s things like that that are going to be — that we will continue to focus on that should help drive the net interest margin go forward.

John McDonald — Analyst, Truist Securities

And that 3% target, is that still a good target for next year timeframe?

John Stern — Vice Chair and Chief Financial Officer

Yeah. We certainly feel there’s a path in 2027 to get to that level.

John McDonald — Analyst, Truist Securities

Got it. And then just maybe broader, your thoughts on the revenue growth guidance for this year. With the loan growth now looking a bit better and fees starting off strong in the first quarter, is it fair to say you’re starting off the year feeling like the higher end of that 4% to 6% range is achievable. And maybe just some thoughts on what are the big swing factors for the low end versus the high end of that 4% to 6%?

John Stern — Vice Chair and Chief Financial Officer

Yeah. No, good question. We certainly have good momentum on a number of different areas in the fee categories. As we’ve listed out, capital markets has been extremely strong for us. You see that growth. Payments is, we’re starting to — we’ve been making a clear inflection there and things like the corporate payments after the second quarter are going to — the drag of government spending from last year, that’s going to fall away. And we have good pipelines in that area, and our institutional businesses are doing extremely well.

So I would expect, yes, my bias certainly is to be on the higher end of that 4% to 6% range on the fee revenue side of the equation.

John McDonald — Analyst, Truist Securities

And I was thinking also on the total revenue guidance, is it also the 4% to 6%?

John Stern — Vice Chair and Chief Financial Officer

And the total — yeah total revenue is 4% to 6%. We feel like that’s the right level for us to be at this particular juncture.

Gunjan Kedia — Chief Executive Officer

And John, on NII, we are very — we are feeling optimistic about the volume demand for loans and the deposits have stabilized. It’s just the Iran war has a level of uncertainty around monetary policy and rate path that does impact the resi mortgage book and credit spreads. So we are staying with the 4% to 6% on the NII just because there’s quite a heightened level of uncertainty around the rate path.

John McDonald — Analyst, Truist Securities

Okay. Thank you.

Operator

Our next question will come from the line of Ebrahim Poonawala with Bank of America. Please go ahead.

Ebrahim Poonawala — Analyst, Bank Of America

Hey, good morning.

John Stern — Vice Chair and Chief Financial Officer

Good morning.

Gunjan Kedia — Chief Executive Officer

Morning.

Ebrahim Poonawala — Analyst, Bank Of America

So I had two questions. One, I think on the regulatory stuff or the regulatory changes, just talk to us. I think given you obviously slightly crossed $700 billion this quarter. We have heard tailoring is front-burner agenda for the Fed over the summer. If Category II moves to, I don’t know, $900 billion, $1 trillion in assets, what does that mean for you strategically, capital allocation-wise? Does it change anything? Does it not change anything? Would love your perspective there.

John Stern — Vice Chair and Chief Financial Officer

Yeah. Sure, Ebrahim, thank you. I think from a Category II, certainly we’re watching to see what the rules are and how those come up. Right now we have to focus on just kind of what the rule set is. So we are focusing on our Category II level. Of course with the regulatory changes, we put the slide in on the two different proposals in terms of standardized and expanded versions. Both of those are better than the Category II regime. So that’s going to be a better — more of a help for us, and in the end, it’s just going to give us more flexibility. So those are going to be kind of the helpful nature of the capital areas.

Gunjan Kedia — Chief Executive Officer

Ebrahim, the big variable is timing of when the rules, either indexing and tailoring or even the proposed Basel III rules are effective. So to the extent that the indexing is forward-looking, it doesn’t make a difference. If the proposed rules get implemented sooner than we think, then we are in a good shape. But either which way, we are very prepared for Category II with full AOCI in our capital. That’s what we are counting on, and we are very proximate to that. So it’s not a meaningful change to anything we would anticipate doing with capital distributions.

Ebrahim Poonawala — Analyst, Bank Of America

Got it. Clear. And then on your Slide 5 and 7, I’m just trying to right size the idiosyncratic growth opportunity for USB. In Slide 5, California, super competitive. You have a Canadian bank that’s also trying to gain share in California. And then on Slide 7, where you lay out Amazon, NFL, like I’m not sure if that’s going to be a needle mover or it’s a good logo to have. If it’s possible to frame what the actual opportunity could be on both those, as we think about the P&L over the next year or two, I think that would be extremely helpful. Thank you.

Gunjan Kedia — Chief Executive Officer

Yes. Thank you. These are quite needle-moving. So John, why don’t you give some color on that and I’ll add on?

John Stern — Vice Chair and Chief Financial Officer

Yeah. So on the Amazon side of the equation, we expect that to be coming online in the third quarter. The loan amount is going to be about $1.6 billion area — is likely the area, and it’s going to be about 70,000 co-brand clients. It’s probably going to add in the neighborhood of $75 million to $85 million per quarter. A majority of that is going to be on the net interest income side of the equation. Again, this is all taken into our guidance, of course, as I mentioned on our prepared remarks. But we’re going to expect to see that in the third quarter, and we’ll take a reserve with that at the appropriate time. That’s about the same level that our card book represents.

Gunjan Kedia — Chief Executive Officer

And I’ll add on California. Yes, it is competitive, as are any other regions that have a big opportunity to bid. It’s a very, very big market too, and we are becoming very significant as a player there, and we are seeing the growth be higher than the rest of our franchise. I’ll say a word about what is the significance of the new co-brand relationships we are doing. We built our digital platform to nationally serve co-brand card clients with banking services for the first time with State Farm. We improved that platform with Edward Jones, and it’s unique in the market today. And it’s very attractive to partners because you can provide a full range of service to your clients under sort of your user experience.

The Amazon deal allows us to take that platform and then expand it to the small business side, at which point it becomes a very big asset to attract big co-brand mandates. So that’s a lot of revenue. We have 1.4 million small businesses today. These are banking clients. And the Amazon deal will bring 700,000 new small businesses to the co-brand side with the opportunity to attract them to the business side. So it’s a pathway to a very different type of growth that doesn’t need to come with sort of deposit pricing erosion or any of the usual ways banks grow their business. So we are very excited about these possibilities.

Ebrahim Poonawala — Analyst, Bank Of America

And if I may follow up just, Gunjan, on the State Farm and the Edward Jones, because it is idiosyncratic what you’re doing there.

Gunjan Kedia — Chief Executive Officer

Yeah.

Ebrahim Poonawala — Analyst, Bank Of America

Is the view that you can actually grow cards or grow rev fees in markets where you obviously don’t have an on the ground presence or is the success there determined by converting that State Farm client into a core USB client? Like, how do you — what determines success?

Gunjan Kedia — Chief Executive Officer

We think of it as an attractive value proposition for co-brand relationships first and foremost. That’s the easiest value proposition to the partner because they like to provide the banking services. We think it’s a good front edge brand build with the local client base on the ground. It does not compete in size with what the deposit gathering machine of a bank generally is. But the results show up here in a very unique way to go to market on our card business, on attracting new clients for — for a bank of our size, that’s the fifth largest bank, and we’re very, very well known within our own franchises, but trying very — in a very disciplined way to build our brand out outside of our franchise. And that’s what the NFL deal is about too. So it is an idiosyncratic approach. It has been very economically lucrative for us.

And because the platform is now built and now we are going to expand it to small business, it also supports our own product sets, like the Bank Smartly product set that is attracting very meaningful level of deposits along with the card loyalty programs.

Ebrahim Poonawala — Analyst, Bank Of America

Got it. Thank you both.

Gunjan Kedia — Chief Executive Officer

Yeah. Thank you.

Operator

Our next question will come from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Mike Mayo — Analyst, Wells Fargo Securities

Hi. You certainly have come a long way with your CET1 when you highlight over the last three years going from 6% to 9%. So the days of are you going to be issuing caps are long behind you. But still, when you look back over time, the positive operating leverage is something relatively new. It’s not the U.S. Bancorp of old in terms of the efficiency ratio. And John, you mentioned this is the second quarter in a row of a positive operating leverage. Is this something that you’re going to kind of track quarter to quarter to quarter?

And then on the other side of that, I’ll contradict myself a little bit here. I think everybody wants to make sure you’re investing for that growth, and you’ve highlighted all sorts of growth initiatives from partners to California to small business, to middle market to payments. If you were simply to highlight your three priority areas for investing for growth, what would those be? But first, the operating leverage, if you would. Thank you.

John Stern — Vice Chair and Chief Financial Officer

You bet. Thanks, Mike. Yeah. We’ve had seven quarters in a row of positive operating leverage, which is we are very proud of, and we are very much committed to positive operating leverage. We are tracking that. We will continue to track that. We’re going in with the mindset this year of, while last year was more driven by expense management and finding savings within the Company to become more efficient, we continue to do that. But what we’re doing now is we’re taking those savings and investing in some of these projects that we were talking about, and Gunjan will highlight some of the priorities here in a moment. But the things like the small business area, the more of the marketing, more of the technology builds and all that sort of thing are really what we are very much focused on. But we are very much committed to positive operating leverage and having it more driven by revenue growth here as we look into 2026.

Gunjan Kedia — Chief Executive Officer

Thank you, John. Mike, what I’d add is last year we were very focused on expense management and fee growth. Both of those were natural extensions of last five years of very heavy investments digitally into a really world-class product set, and the product set is very good, and it came with some sacrifice of efficiency ratio in the past. And going forward, our business mix is very, very helpful to delivering consistent positive operating leverage, and I want to just reiterate that we are very committed to sustaining that over time.

The priorities in terms of growth are very simply to continue to grow out our fee categories. We want to always be known as very heavy in fee mix, driving heavy returns for us as a bank. Our second real focus is to strengthen our consumer and small business franchise. And all of the examples that we are sharing here are towards that goal so that the consumer franchise and the core funding mix continues to strengthen over time.

And we do want to go back to our DNA of being a very simplified, streamlined cost structure, which we think we can do. In the past, it was very much around the automations, and going forward, we are very focused on what AI can do it. So that’s the priorities, fee growth, strengthen the consumer franchise, and go down the journey of becoming an AI native organization.

Mike Mayo — Analyst, Wells Fargo Securities

All right. That’s clear. And then just one follow-up. You’re saying you have credit card customer growth of 10%, but you’ve only had fee growth of 5%. So does that imply you expect much better fee growth ahead or it doesn’t work that way?

Gunjan Kedia — Chief Executive Officer

No, it does work that way. There is a leading gap between acquisitions and when revenue shows up, and that’s just the reward structure and the upfront rewards of transitioning the book. So if you see what we have done really over the last six quarters is elevated our marketing and acquisition spend, and we track that very closely across the two big types of segments, the balance revolvers and the transactors. We’ve always been quite strong on the balance side. If you look at our ANR, it has consistently exceeded H.8 data. But it was the fee side, the transactor side, that we really accelerated acquisitions.

Faster acquisitions are actually negative revenue on the core revenue pipeline. So you see this measured balance between acquiring new clients and it showing up in revenue. And so you see the acquisition numbers be much stronger, and they will lead to stronger, strengthening revenue growth about four to six quarters out.

Mike Mayo — Analyst, Wells Fargo Securities

That’s helpful. Thank you.

Gunjan Kedia — Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Erika Najarian with UBS. Please go ahead.

Erika Najarian — Analyst, UBS

Hi. Thank you so much. Just a few follow-up questions for me, please. Just on the forward look for deposit costs, if the Fed doesn’t cut, John, do you think U.S. Bank can hold the line on deposit costs? And to that end, some investors were asking for clarity on your response to John’s question. Just wanted to make sure we were taking away the right thing in that fee revenue, you’re confident you could be at the high end of the guide, but you’re keeping your ranges for both net interest income and total revenue because while loan growth is strong, the rate curve has a little bit more volatility in terms of the forward look.

John Stern — Vice Chair and Chief Financial Officer

Yeah. Thanks, Erika. On your first question on the deposit side of the equation, yes, I think the short answer is yes. I think we’ve seen stabilization in our deposit mix. We are ultra focused on the priorities that I just mentioned in terms of consumer deposit growth as well as on the wholesale side of the equation.

What we’ve been doing, maybe just to add a little bit more color, is we have been doing a lot of work to reduce, and you’ll see this in our numbers, CDs and higher cost institutional type deposits and things like that that have less value, maybe are one more one-off type transaction as opposed to multi-serve. So that’s really where our focus is on the deposit side. And so we do see that.

Just to repeat what we’ve said, our bias is really on the high end of the range for fees, just given the momentum we’re seeing in all those categories. And we have that visibility because you can see the pipelines of the businesses that are coming online. You can see in all the different categories that I just talked about, including payments, including institutional services. And then capital markets just has been continuing to be robust.

On the net interest income side, we continue to expect mid-single digit growth in that area. And that’s a reflection of just the uncertainty in the marketplace right now. There’s a lot of puts and takes that are occurring. And so while we have deposit stabilization, while we have good core loan growth, those are all good things. Some things are coming on tighter spreads, and the interest rate environment is uncertain, and we just are taking that into consideration here.

Erika Najarian — Analyst, UBS

Got it. And the second question is just a follow-up on the capital discussion. So under the current rules, obviously in theory, you’ll be crossing CAT 2 at some point next year If you do elect to be ERBA or enhanced risk-based approach, is your understanding that is the five-year phase-in going to be the overarching sort of guide, or does the AOCI cliff once you cross over? Or to Gunjan’s earlier point, does it matter very little because of the timing issue and your AOCI would burn down by the time that’s valid anyway?

John Stern — Vice Chair and Chief Financial Officer

Yeah. It’s a good question, Erika. And it’s one we actually have for the regulators in terms of just clarification of it. We’re unique in that we have proximity to Category II. So there is a little bit of a timing collision between the Category II, timing of when we come online, which is we expect that to be under current rules sometime in 2027. The effective date of ERBA and when does that occur and then, of course, Ebrahim, I believe had the comment about is there some rules that will change on the index.

So a lot of things are moving. What I will tell you is that we’re preparing for a CAT 2 world. That is what we have been ensuring that we will be in compliance with. We have the capability to go to standardized or ERBA. Technologically, that’s very simple for us to execute. And I think overall we will just — we’ll monitor and we’ll update you as we go. But we feel prepared, and we have a lot of — we feel like we have a lot of flexibility now with the capital rules and how that will go — how ultimately will play out.

Erika Najarian — Analyst, UBS

Yeah. And just a quick follow-up question in terms of what Gunjan is saying with regards to optimizing the payouts. Does the timing of the clarification impact sort of the path to optimization? Or does that really have to do with sort of the RWA demands from stronger loan growth in terms of timing of capital payout optimization?

Gunjan Kedia — Chief Executive Officer

Erika, I would say that we believe the regulator’s intent is to allow all banks a five-year phase-in on AOCI to take the cliff effects away. But we are waiting for that clarification.

A very good outcome from a capital distribution side for us will be, let’s say, a very prompt date to have the current proposals of Basel III be effective and for us to get a five-year phase-in period. In which case, we’ll be well ahead of our capital needs, even as a CAT 2, and we will bring forward the capital distributions. We are thinking here one or two quarter changes. So that’s why I say it’s not that material to our strategy or our timing. But it can move by one or two quarters in terms of how quickly we step up.

Erika Najarian — Analyst, UBS

Thank you so much for indulging me the extra question. Thank you.

Gunjan Kedia — Chief Executive Officer

Sure.

Operator

Our next question comes from the line of Ken Usdin with Autonomous Research. Please go ahead.

Ken Usdin — Analyst, Autonomous Research

Thank you. Good morning. Just one question on the expense side. You did a great job holding the line as you’d expect it to on year-over-year growth in first. And we can see in the second quarter guide that it’s as expected moving higher. Just wondering first and second quarter costs last year were actually down. So understanding the year-over-year growth goes up a little bit, but kind of tied to the prior points about operating leverage and magnitude if we get back into this 3% to 4% growth, is that how we kind of think about it as we just move forward on a regular basis? That the investments that you’re making and revenue related lead you to that decently higher expense growth rate than what we had seen in the first quarter, which I don’t think people thought was going to be the baseline. Thanks.

John Stern — Vice Chair and Chief Financial Officer

Yeah. Thank you, Ken. Yeah, I appreciate that because right, we’ve been operating at pretty much a flat expense base for several quarters now. I think it’s 10 or something like that. And here we are stepping that up. And it’s — I’ll tie it back to some of the answers we’ve been giving on positive operating leverage. We’re very much committed to positive operating leverage, but we want it to be driven by revenue. And so to the extent that revenue is at the levels that we are forecasting, for example, here in the second quarter of that 6% to 7% area, then that calls for expenses to be elevated and higher so that we can invest more into the business. Certainly, if the revenues don’t materialize, we have levers to move that down.

I think you can tell from our actions over the past two to three years plus, maybe decades, that we have the ability to manage expenses and have the different levers to do so. So we have a lot of confidence in our ability to achieve positive operating leverage.

Gunjan Kedia — Chief Executive Officer

Thank you, John. I’ll add, Ken, you can be confident in our degrees of freedom around expenses. We have quite a lot of flexibility in delivering the positive operating leverage and flex with the revenue set up. The productivity that the franchise is observing is very real and not just squeezing expenses, which I know investors worry about whether that is sustainable. So we are, as John said, very committed to positive operating leverage and with some ability to flex on the expenses as needed.

Ken Usdin — Analyst, Autonomous Research

And are you able to pull forward investments? If you are doing that well on the revenue side and you still want to keep closer to that $200 million, I mean, I think people hoping for more than $200 million. But how much on the flex side do you also kind of have the opportunity to just get some spending done and then set yourself up for even better results in the future?

Gunjan Kedia — Chief Executive Officer

It’s a combination. So there are things like branch investments and things like big technology builds that you don’t think you can flex and change in the short term. But a lot of our expense is contra revenue in the sense of marketing expense for acquisition of card or marketing expense for brand building is very short-term flex. So that mix is flexible enough for us to think about it. And we do hear your point. I’m not ignoring it, that investors would prefer it to be more than 200 basis points.

But as the opportunity set in our portfolio is really very attractive. So we are leaning into it this year. While last year, we realized that we really needed to put some points on the board on positive operating leverage.

And you saw from John’s chart, we have reduced the efficiency ratio by more than 400 basis points over the last two years. And we still have some aspirations to be just a lean bank, but not at the expense of really investing to capture some of the growth opportunities we have.

Ken Usdin — Analyst, Autonomous Research

Thanks, Gunjan.

Operator

Our next question will come from the line of Gerard Cassidy with RBC Capital Markets. Please go ahead.

Gerard Cassidy — Analyst, RBC Capital Markets

Hi, Gunjan. Hi, John.

Gunjan Kedia — Chief Executive Officer

Morning.

Gerard Cassidy — Analyst, RBC Capital Markets

Gunjan, can you share with us, obviously you were very clear about focusing in on organic growth, and we all know in the banking industry that consumer transaction accounts or DDA deposit accounts are the gold that really drives profitability from the liability side of the balance sheet for all the banks. And our industry, or your industry has obviously consolidated. U.S. Bancorp has been a big consolidator over the years, and that’s one way to grow those core deposits, of course. But with organic growth, is there any plans for U.S. Bancorp? Maybe they’ll follow some of the strategies your peers are pursuing now of building out nationwide or regional-wide branches to grow these core deposits, even though I know online digital is a main driver of capturing new growth, but it seems like it’s complemented by having physical branch presence. What are your thoughts on that?

Gunjan Kedia — Chief Executive Officer

Good morning, Gerard. Well, we very much agree that the physical branch presence is very critical both to the quality of the deposits and the deposits per account. So the economics of a branch-based deposit acquisition are very attractive to us.

As you know, we spend $200 million a year on our branch network. We still have work to do in changing the formats of the branch to go from focus on servicing, which our legacy branch network very much had focused on, like these small branches many times and in-store.

What you see us building out, even sometimes in the same location are these multi-product branches where you can have a small business advisor, a wealth advisor, a mortgage advisor, and of course, our banking and loan and small business specialists. So we are very committed to branch expansion.

The slight nuance here is that our focus is on densifying those parts of our existing footprint where our brand is very powerful to become the top three depositor in that geography. And so that’s been our focus.

We’re building our branches in places like Nashville. Phoenix is a big focus for us, and Reno, and pockets of sort of really new young growth is where we are building out the branches. What we want to do, though, is to leverage the uniqueness of our payments franchise and our digital capabilities to augment that branch-based growth. But all of this to say we strategically understand the need to be very highly focused on building out a high-quality consumer and small business franchise and improving the deposit quality over time.

That’s why we track the consumer deposits as a mix of our total deposits like a hawk now, and we’re very focused on growing that mix. What would you add, John?

John Stern — Vice Chair and Chief Financial Officer

Yeah, I mean — I think that’s well said. And from a deposit standpoint, as I mentioned, we’ve been growing those deposits. And I think the opportunity for us to refurbish and to where we have scale and lean in on those areas that you mentioned and then some is really where we are focusing our investment and time. And that’s where ultimately, once you have scale in those markets, you can get the deposit features that you want that help us with the things like the deposit stabilization that we’re getting in terms of not as much rotation in the consumer side of the equation and things like that. So that’s very much a focus for us as Gunjan has articulated.

Gerard Cassidy — Analyst, RBC Capital Markets

Very good. Thank you. The follow-up question is, I direct it to you folks because you’re well-respected on credit quality through a full cycle. You’re one of the banks that has demonstrated consistent underwriting conservativeness. And I want to come back to the slides that you put out, John and Gunjan, 17 and 26 on the NDFI portfolios. What’s interesting is that many of the banks are giving us this information, which is very helpful. And it doesn’t appear that these NDFI portfolios, even in the business credit intermediaries category, are that frightening, if you will, because of the structure of the portfolios.

And so this is more of an educational question I’m asking for myself and probably others. What kind of scenario — and again, I’m not saying it’s going to happen to you folks, but again, it’s more you guys know credit very well. What kind of scenario would you actually have to see for losses to show up in these types of credits? Because it doesn’t appear that it’s going — excuse me, it’s going to happen even in a traditional credit cycle, or am I way off?

John Stern — Vice Chair and Chief Financial Officer

Well, thanks, Gerard, for that thoughtful question. I think a couple points I’d make. One, we put the slide out there. This really started, I think a couple quarters ago and there was a couple of unique losses that were in the marketplace. And there was a reaction to hey, what’s in the book from an investor standpoint. And so I think more information, more education is helpful.

I think getting more granular like we did on Page 17 in terms of giving you some color on the structure and how it’s set up to give just how you — what exactly you just said that we think there’s very low loss likelihood in these sorts of structures. In terms of like AAA CLOs, I mean, we’ve never really seen losses. And of course, as a banker, you want to never say the never say never, because that’s why you have limits.

That’s why you have underwriting practices. That’s where the risk management comes in because it’s hard to envision any — there’s lots and lots of scenarios out there, and there could be one that could trigger something. I don’t know what that would be. I don’t know what the trigger item would be, but that’s why we have the limits. That’s why we have the rigor that we do, and we’ll stay true to that. And that’s — we wanted to illustrate that on Page 17 and the other page in the appendix.

Gerard Cassidy — Analyst, RBC Capital Markets

I appreciate that. Thank you, John.

Operator

Our next question will come from the line of Saul Martinez with HSBC. Please go ahead.

Saul Martinez — Analyst, HSBC

Hi. Thanks again for squeezing me in here. I want to go back to Amazon. You guys seem very excited at the opportunity set here. And Gunjan, I think you said it meaningfully expands your card growth. And John, you gave some numbers around it, $1.6 billion of loans and I guess $75 million to $80 million of revenue.

But can you talk to the size of the opportunity? It seems like a relationship that can really grow. How big can this get either in terms of volumes, loans, revenues, and what can you do — what are you doing to ensure that this partnership is enhancing value for yourselves and for Amazon?

Gunjan Kedia — Chief Executive Officer

Thank you, Saul. We have a portfolio of co-brand partners, and the growth in that book is very reliant on the growth of the customer base of our partner. So to that extent just because Amazon’s ability to grow its small business base and their aspirations around this segment give us optimism around our path forward. Just when we convert the book in the third quarter, what we are expecting is about a $75 million to $85 million per quarter type of impact, which is meaningful from a growth standpoint.

Our intention would be to have some of that show up in the revenue projections of the business, but some of that we’ll reinvest in driving new client acquisition.

But our goal here is to take our payments business to a more robust long-term growth trajectory, and that’s what this platform helps us do, along with many others that we are building.

Saul Martinez — Analyst, HSBC

Okay. That’s helpful. Maybe to stay on payments, I wanted to ask about the merchant acquiring business. The merchant processing fees did grow nicely again mid-single digits, 5%. The volumes have been a little soft, though, the last couple quarters. I think it was 2% last year — last quarter, 1% this quarter. It’s actually a little bit lower than even the number of transactions which grew slightly more than that, which would suggest lower average tickets. A little bit unusual in an inflationary backdrop.

But anything to read from this? Are you seeing higher take rates? Does it reflect a mix shift? Are you seeing changes in consumer behavior or consumer spend patterns? I’m just curious if there’s anything to read from this, because obviously the volume, eventually, I think you would want to have volumes growing a little bit faster than what they’ve been growing the last couple of quarters.

John Stern — Vice Chair and Chief Financial Officer

Thank you, Saul. It’s a great insight and question. I’ll give you — the quick fact on it is it’s just — it’s basically one or two clients that have exited that have really no revenue impact on the numbers. And so the big picture then, therefore, is that the underlying trends of our clients are more reflective of the growth rate that you see. So if you were to take that, then, and what I mean by that is the growth rates we had in card are kind of in that 5% to 6% area.

That’s kind of more reflective of what we’re seeing in our core for merchant, which is reflective of that growth rate of 5.1% that you see for the quarter. And broadly speaking, payment trends have been just very strong.

Gunjan mentioned in her comments, despite the sentiment that is out there, the spend patterns that we’ve seen, both in terms of high FICO and in mid FICO are about the same. Discretionary versus non-discretionary, about the same. We’re just — it’s just broad-based strength in the spend despite the sentiment that you see out there.

Gunjan Kedia — Chief Executive Officer

And over time, we do want to decouple from the volume growth. This is a vast industry, and a lot of volume comes with very little revenue and a lot of risk. So we are going to be quite disciplined about only focusing on the revenue growth. And I do understand from your point of view, there’s not that much visibility to revenue trends. A lot of the external reporting is only volume. And we’ll try to bring as much transparency. But we are very committed to a profitable business that grows modestly and not chase after sort of big volume that comes with very, very thin revenue, which you can do in this market quite a bit.

Saul Martinez — Analyst, HSBC

Yeah, yeah. All right. That’s very helpful. Thanks so much for the answer.

Operator

Our next question will come from the line of Vivek Juneja with JP Morgan. Please go ahead.

Vivek Juneja — Analyst, JP Morgan

Hi. Thanks. I have a couple of questions. One, to sort of follow up on payments. I think you have a new category now. It says corporate and treasury payments. Pardon me if I get that wrong. Or is it treasury and corporate? I know you just changed.

John Stern — Vice Chair and Chief Financial Officer

Yeah.

Vivek Juneja — Analyst, JP Morgan

Yeah. Corporate payment and treasury management revenues. You can reclassify that. The growth rate in that slowed to 2% year on-year. And you have the fuel card, which sort of benefited a lot from gas prices. So any color on what’s going on there that you can help elaborate on that growth rate?

John Stern — Vice Chair and Chief Financial Officer

You bet, Vivek. Yeah. So with the change, we combined treasury management as well as corporate payments. That’s kind of the classification change based on how we manage the businesses here within the company, along with other changes that we put in the 8-K a week or two ago.

In terms of the growth rate, just on the corporate payment side is where we’re seeing the drag in that number. And that’s really a reflection of last year at this time, recall there was the tariff announcements and things of that variety, and a lot of focus on government spend from DOGE and other things like that that really — we’re beginning to lap that in the second quarter. You’ll start to see that lapped in fully in the third quarter.

So we see the pipelines being really strong there, and so by the time we get to the third quarter, that’ll be more representative of what we believe that’ll be the true growth rate in that business.

Vivek Juneja — Analyst, JP Morgan

Great. Okay. Thanks. A different question. John, thanks for the disclosure on the NDFI stuff. I know you give BDCs and CLOs. How about private credit? What’s your exposure there?

John Stern — Vice Chair and Chief Financial Officer

Yeah. So I think if I’m reading you right, just on the capital call facilities and things like that.

Vivek Juneja — Analyst, JP Morgan

No, that’s private equity. I was thinking private credit, because that can be different from BDCs, or is that, in your mind, synonymous?

John Stern — Vice Chair and Chief Financial Officer

Yeah I think of Page 17 as a lot of the private credit type of exposures. So I think that’s the laundry list is how I would lead to then the call facilities, which I know you mentioned private equity. That’s going to be in the other equity component of NDFI. So I look at this page as really the private credit component and exposure on Page 17.

Vivek Juneja — Analyst, JP Morgan

Okay. You mean because you’ve got the five different categories, but not all of that should really be private credit, no?

John Stern — Vice Chair and Chief Financial Officer

Yeah. No, true. True. True. Yeah. CDF, BDCs and the CLOs, I would say are really representative of the private credit components, yes, which is just under 3% of our total loans.

Vivek Juneja — Analyst, JP Morgan

Okay. All right. Thank you.

John Stern — Vice Chair and Chief Financial Officer

Yeah, you bet.

Operator

Our next question comes from the line of David Chiaverini with Jefferies. Please go ahead.

David Chiaverini — Analyst, Jefferies

Hi. Thanks. So the other boogeyman out there is AI disruption risk as opposed to just private credit. Can you frame to what extent any of your fee income businesses could be at risk from AI, particularly payments and the moats you have to defend your position?

Gunjan Kedia — Chief Executive Officer

Let me start. We don’t see any particular business be truly exposed to an en masse sort of disruption, either in terms of price collapse or volume transition. What we are seeing is a very rapid shift in customer search behavior in how they find products and services. So to the extent that we need to keep up with the discovery, and it’s very like basic things like search engine optimization tools for marketing are very rapidly migrating to the AI world. The reason we don’t think that is going to be impacting our business is because we are building those capabilities and transitioning our approaches pretty rapidly too.

And there’s a lot of toolkit. So I will tell you, we are watching these trends very carefully to see how it might be, but as of now, we are not seeing anything that would show a sudden discontinuity or shift here.

John Stern — Vice Chair and Chief Financial Officer

Maybe I’d just add, I mean, I think of — we had a commentary from Steven in a recent conference about the usage of AI. We have a lot of businesses that have complex operations that we do very well if you think about fund services and corporate trust. So this is an opportunity for us to leverage AI and go on offense really and simplify our operations, and the complexity that goes along with it. We have the knowledge of how these things work, and so we should be able to take advantage of that faster than any other outside competitor fintech or whatever the case may be. So that’s kind of how we think about it.

David Chiaverini — Analyst, Jefferies

Very helpful. That’s all I had. Thank you.

Gunjan Kedia — Chief Executive Officer

Thank you.

Operator

Our next question will come from the line of Chris McGratty with KBW. Please go ahead.

Christopher McGratty — Analyst, KBW

Great. Good morning. Thanks for the question. I’m interested if any of the optimism on loan growth is perhaps non-bank lending turning back to the traditional banks such as yourself.

John Stern — Vice Chair and Chief Financial Officer

I don’t think so. This is — what we’re seeing is if I think about private credit and where they’ve grown, they’ve grown in more of the leverage space, more in HLT and other places like that. And a lot of that we just because of our credit underwriting, and the way we look at things, those are areas that we’re not as focused on really. So we never really have truly competed head-to-head with the private credit wing, so to speak. This growth that we’re seeing is going to be more in the large corporate space.

I mentioned food and beverage and energy, all these sorts of categories are really coming online, and that’s unique. That has not shown up in the last several quarters. So I think that is why we wanted to call that out and why we have such optimism in our pipelines going forward.

Christopher McGratty — Analyst, KBW

Okay, John. Thank you for that. And then given the optimism on growth, is the expectation core deposit funded? Do you think you’ll need to rely on perhaps more expensive sources to fund the stronger growth? Thanks.

John Stern — Vice Chair and Chief Financial Officer

Yeah. Maybe just to link a couple comments we’ve made here. I think deposits will generally grow in line with loans, although it may not be one for one. It’ll probably be a little bit less. And the reason I say that is because our focus is really on consumer deposits and growing operational deposits and really limiting or eliminating things like CDs and higher cost institutional or just kind of one-time clients that just — that’s all we have is just the deposit. So we’re going to be more nimble on the deposit side of growth versus the loan side, I would imagine.

Christopher McGratty — Analyst, KBW

All right, perfect. Thank you.

Operator

Our next question is a follow-up from the line of John McDonald with Truist Securities. Please go ahead.

John McDonald — Analyst, Truist Securities

Hi. Thanks, guys. Just a quick modeling question on the BTIG, John, understanding it’s not part of the guidance. When you say accretive for the year, does that include any integration charges? So that’s kind of all in accretive to your results for the year is the expectation?

John Stern — Vice Chair and Chief Financial Officer

Yeah, that’s our expectation, John, is slightly accretive to inclusive of those charges. We’ll start to provide some of that information as we come online. We’re expecting kind of back half of the year in terms of that. So obviously there’ll be a bigger expense base. There’s less of a margin with this business than most of our businesses. So you’ll see that flow through, but — and then it’s a merger cost that we’ll identify as well.

John McDonald — Analyst, Truist Securities

Okay. The financial impact, probably not much in the second quarter. This will all start hitting towards back half.

John Stern — Vice Chair and Chief Financial Officer

Yeah, that’s right. Yeah., I wouldn’t expect much of anything in the second quarter and then the third and fourth quarter, we should be pending regulatory approvals. Yes.

John McDonald — Analyst, Truist Securities

Okay, great. Thank you.

Operator

And there are no further questions at this time. I’ll hand the call back over to Jen for closing comments.

Jen Thompson — EVP, Head of Corporate Finance

Thank you everyone for joining our call this morning. Please contact the investor relations department if you have any follow-up questions. Regina, you may now disconnect the call.

Operator

[Operator Closing Remarks]