Prepared remarks
Welcome to the U.S. Bancorp second quarter 2026 earnings conference call. Following a review of the results, there will be a formal question and answer session. If you would like to ask a question, please press star then one on your phone. If you wish to withdraw your question, please press star then one again. This call will be recorded and available for replay beginning today at approximately 10:00 A.M. Central Time. I will now turn the conference over to Brian Mauney, Director of Investor Relations for U.S. Bancorp.
Thank you, Krista, good morning, everyone. Today I'm joined by our Chairman and Chief Executive Officer, Gunjan Kedia, and Vice Chair and Chief Financial Officer, 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 two of today's earnings presentation, our press release, and 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.
Thank you, Brian, and welcome to our team. Good morning, everyone. Beginning on Slide 3, this quarter, we delivered earnings per share of $1.35, an increase of approximately 22% year-over-year. Record net revenue of $7.7 billion highlights the strength of our diversified business mix and improved execution. Results in the quarter reflect strong progress against our three strategic priorities. Revenue growth accelerated to 10.1% year-over-year. Expense discipline remains a hallmark for us, with 400 basis points of positive operating leverage this quarter. Our payments transformation is differentiating us and driving innovative client value propositions, especially for the Gen Z and younger generations. Importantly, we delivered these results while maintaining strong returns, credit performance, and capital levels. John will provide more details on our financial performance in his opening remarks. Turning to Slide 4. Fees rose to 44% of total revenue this quarter, with both scale and quality of our fee mix driving high returns, stable earnings, and enduring relationships. Fee growth has steadily accelerated; this is an important priority for us. While fee growth drives higher expenses, productivity initiatives helped improve our efficiency ratio and increased return on average assets. Moving to Slide 5. The successful completion of the BTIG acquisition marks a significant milestone in our strategic build-out of capital markets. In its first month as part of U.S. Bancorp, BTIG generated approximately $98 million of revenue, marking the strongest monthly revenue performance in BTIG's history and outpacing our earlier expectations from the deal. As integration progresses, we expect to capture more long-term strategic benefits of the combination. Our aim is to grow capital markets to more than 10% of total company revenue over time. On Slide 6, our payments franchise remains an important source of diversification and client engagement across the company. Total payment services revenue increased 5.7% year-over-year, compared with 4.7% growth in the prior year quarter. While merchant processing growth slowed during the quarter, card issuing continued to perform well, and corporate payments saw a strong rebound driven by core demand and new business installations. We are increasingly managing these products holistically at the client segment level and investing to be competitive as this space evolves. Turning to Slide 7. Our consumer franchise is a source of strength for the company and an important driver of long-term relationships and lower cost deposits. Given the increased interest we have seen in this space recently, we are spotlighting the strategy for the consumer franchise. We serve nearly 13 million consumers through a combination of digital and physical distribution, with approximately 18% residing outside of our traditional branch footprint today. In addition, we serve approximately 7 million customers through our card, co-brand, Elan, and partner platforms. Our core products benefit greatly from this expanded scale. Forty-two percent of our consumer clients are now multi-service, up approximately two percentage points over the past two years. These relationships are more durable, generate higher return, and strengthen engagement across our franchise. Slide 8 highlights the core strategies of our consumer franchise. We are seeing strong momentum from differentiated offerings like Bank Smartly, which we introduced in 2024, with balances across Smartly checking and savings now exceeding $84 billion. We have more recently introduced a similar interconnected product suite for small business called Business Essentials. Our branch expansion is focused on densifying our presence in approximately 10 markets within our footprint that have high rates of household formation. We expect our annual investment in branches to increase from approximately $200 million historically to $300 million annually. Importantly, these strategies are delivering strong results and have now driven a third consecutive quarter of record consumer deposits. Let me now turn the call over to John.
Thanks, Gunjan, good morning, everyone. This was another strong quarter for us as we continue to execute against our strategic priorities. We delivered meaningful revenue and fee growth, significant positive operating leverage, and improved profitability metrics that are well within our medium-term target ranges. If you turn to Slide 9, I'll start with some highlights, followed by a discussion of trends for the second quarter. We reported earnings per common share of $1.35 and generated record net revenue of $7.7 billion, representing 10.1% growth year-over-year. This quarter, we continued to see strong loan growth in areas like C&I, commercial real estate, and card, reflecting steady client activity across the franchise. Meanwhile, fee income growth accelerated across most line items. Notably, this includes one month of BTIG. However, fee growth was still approximately 10% excluding BTIG. Average total assets increased 0.9% linked quarter to $695 billion. Key credit quality metrics improved both sequentially and year-over-year, reflecting a stable economic backdrop and the continued fortitude of our clients. As of June 30th, our tangible book value per common share eclipsed $30 and increased more than 13% on a year-over-year basis. Slide 10 provides our key performance metrics. ROA, ROTCE, efficiency ratio, and NIM all improved both sequentially and year-over-year as a result of disciplined execution. We delivered strong returns, which includes a return on tangible common equity of 18.7% and a return on average assets of 1.26%. The efficiency ratio improved to 57.1%. Slide 11 provides a balance sheet summary. Total average deposits grew 2.4% year-over-year and were flat linked quarter. Consumer deposits reached another record this quarter, driven by our Smartly flagship product. The offset was typical seasonality in our wholesale and investment services businesses. Average loans totaled $405 billion, up 7.1% from the prior year quarter and 3.0% from the prior quarter. Growth was broad-based in strategic categories such as C&I, credit card, and commercial real estate, which brings ancillary fees with them. Turning to Slide 12. Net interest income on a fully taxable equivalent basis totaled $4.4 billion, an increase of 7.5% on a year-over-year basis, above the range we had previously guided to, driven by stronger loan dynamics during the quarter. On a sequential basis, net interest income increased by $96 million, or 2.2%, driven by loan growth, recent investment portfolio repositioning, and ongoing benefits from fixed asset repricing. Net interest margin improved two basis points sequentially to 2.79%. Slide 13 highlights fee revenue trends within non-interest income. Total fee revenue accelerated during the quarter, reflecting broad-based strength across our businesses. Total fee income increased 13.2% year-over-year, driven by strong performance in capital markets, trust and investment management, payments, and other institutional fee businesses. In June, BTIG contributed approximately $98 million of capital markets fee revenue. Excluding BTIG, fee revenue grew 9.9% year-over-year. Capital markets revenue excluding BTIG increased approximately 31% year-over-year, reflecting strong client activity across foreign exchange, syndications, and corporate bond underwriting. Moving to Slide 14. Non-interest expense totaled approximately $4.4 billion and included approximately $84 million related to BTIG. Excluding BTIG, expenses grew roughly 1.9% sequentially and 3.9% versus the prior year. The increase in core expense primarily reflected continued investments in technology and marketing as well as higher incentive compensations associated with this quarter's strong revenue performance. These increases were partially offset by ongoing expense discipline across the franchise. Turning to Slide 15. This quarter highlights our ability to improve profitability while continuing to grow the franchise. Over the past several quarters, we have meaningfully improved profitability, significantly reducing our efficiency ratio from its recent peak. We remain committed to meaningful positive operating leverage as we fully integrate and normalize BTIG. While disciplined expense management remains an important contributor, we are increasingly seeing revenue growth become a larger driver of earnings growth. That combination of improving top-line momentum and ongoing expense discipline resulted in a year-over-year EPS growth of more than 20% this quarter. We remain confident in our ability to sustain strong profitability while continuing to invest for future growth. Slide 16 highlights our credit quality performance, which continues to improve. Our ratio of non-performing assets to loans and other real estate of 0.33% improved five basis points from the previous quarter and 11 basis points from a year ago. The second quarter net charge-off ratio was 0.53%, decreasing three basis points sequentially. Meanwhile, our allowance for credit losses remained steady at $8 billion, or 1.94% of period-end loans. Turning to Slide 17. As of June 30th, our common equity Tier 1 capital ratio was 10.8%, or 9.4% including AOCI. Strong earnings generation this quarter supported capital distributions, strong loan growth, and 12 basis points of impact from the BTIG acquisition this quarter. On Slide 18, we provide a comparison of our second quarter results to our previous guidance, provide third quarter guidance, and update our full year 2026 outlook. Excluding BTIG, second quarter net interest income and fee revenue exceeded previous guidance, while non-interest expense came in as expected. Turning to forward-looking guidance for the third quarter and full year 2026, both of which are inclusive of BTIG and recently announced partnerships. For the third quarter, we expect net interest income growth of 4%-6% on a fully taxable equivalent basis compared to the third quarter of 2025. Total fee revenue growth in the range of 12%-14% compared to the third quarter of 2025, with contribution from BTIG of roughly $200 million per quarter in the back half of the year. Non-interest expense growth of approximately 8% compared to the third quarter of 2025. Excluding BTIG, we would expect our core expense growth to be approximately 3.5%. Additionally, we expect to recognize approximately $160 million of reserve build related to the Amazon Small Business Portfolio purchase, which we anticipate will close in mid-August. For the full year 2026, we now expect total net revenue growth of 7%-9% compared to the prior year, or in the range of 5%-7% excluding BTIG, up from our prior range of 4%-6%. We expect to deliver approximately 200 basis points of positive operating leverage this year and more than 300 basis points excluding the impact from BTIG. Moving to Slide 19. Second quarter results represented another consecutive quarter operating within all of our medium-term target ranges. We are encouraged by the momentum across the franchise and remain confident in our ability to continue to build on these results to deliver consistent, sustainable returns over time. Let me now hand it back to Gunjan for closing remarks.
Thank you, John. As we look ahead, our focus remains on sustaining the strong return profile of the company while accelerating growth. With resilient fundamentals, strong execution momentum, and an increasingly interconnected franchise, we believe we are well-positioned for the next phase of profitable growth and long-term value creation. With that, we will now open the call for your questions.
Questions and answers
Thank you. We will now begin the question-and-answer session. As a reminder, if you would like to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile that roster. We do ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. Your first question comes from Erika Najarian with UBS.
Hi. Good morning. Thank you for taking my questions. Gunjan and John, fully appreciate the revenue upgrade. I'm wondering if you could unpack maybe the path from 4% to 6%, to 5% to 7%, and perhaps separate the discussion with regards to the net interest income trajectory. Particularly how you're viewing net interest margin from here with deposit costs coming up a little bit in the quarter. I'm going to pause there because that's already a lot.
Sure. Good morning, Erika. Thanks for the question. Let me just start. We do expect, as I mentioned, the full year revenue guide to go up to 7% to 9%, or 5% to 7% excluding BTIG, which is better than where we started the year when we mentioned 4% to 6%. That just reflects a lot of broad-based growth that we just commented on in our opening comments there. You mentioned net interest income, and maybe just to talk through that a bit. We started the year expecting mid-single digits. I would continue to expect mid-single digits on net interest income. Just given the momentum that we've had in the first half of the year, I would just say that we expect to be north of 5% for the full year. Obviously, a lot can happen. I think in terms of net interest income and net interest margin in particular, we do expect that to grow over the course of the year, and that's reflected in the guide. The deposits, we think that nothing's really changed on that front from a competitive nature standpoint. We still feel really good about where we're moving here.
Just as a follow-up, I've already fielded investor questions on positive operating leverage. It feels so silly to even ask this, but I've been getting asked about the squiggly 200 versus the 200 plus. Anyway, I guess just to frame it for us, from your prepared remarks, it sounds like the fee generation ex-BTIG is better, right? Clearly that comes with higher expenses. Also, it seems like consensus has to frame BTIG with that higher efficiency ratio. I guess, is that a fair read of how positive operating leverage is tracking? It's because fees are driving the upside and thereby that comes with expenses. Further, the $98 million in a month is clearly better than the 200. Given the ECM activity that's happening in the industry, do you expect the pacing of BTIG contributions to be closer to $300 million this year?
Sure. A lot to unpack there. I think maybe I'll start on positive operating leverage. I would say that we're firmly committed to positive operating leverage. That is something we have said repeatedly since the investor day back in 2024. We've obviously been focusing more and more on fees, and you see that in the guide. We do expect our fees overall to be low teens from a full year perspective. Likely over four points of that is going to be on the BTIG side of the equation. In terms of the squiggly line versus the 300 basis points or more that we signaled, with BTIG, within that $200 million that we anticipate per quarter, we assume a 15% contribution margin. There's also about $60 million of integration costs that will likely come in that's embedded and that we'll call out as we move forward. We're firmly positioned for positive operating leverage. From a BTIG perspective, we're really excited about that acquisition and the new team that we have there. We do expect the contribution margin to improve over time.
I'll just add, Erika, that we are very comfortable with our expense and productivity runway on our programs. Like John said, we're very committed to a healthy positive operating leverage on the core. Just a reminder here that between BTIG and the Amazon deal, we are installing more than $1 billion of run rate revenue over a very short period of time, and there's a fair amount of one-time cost that we are absorbing within the 300-plus basis points of positive operating leverage as well. Just a reassurance that we are both committed to it and very confident in our plans there.
Thank you.
Your next question comes from the line of John Pancari with Evercore ISI. Please go ahead.
Morning, John.
You've put up some good numbers on the fee side, you've acknowledged that fee growth has steadily accelerated, we certainly saw upside this quarter in card and corporate payments. I know in corporate payments you acknowledged the rebound that you're seeing. Can you maybe just give us a little bit more color? Given this, what is that growth rate that you believe is likely as for the overall fee component for the year? Also, maybe can you talk through what are you seeing as the greatest drivers of this accelerating growth in the fee trend that is materialized and that you expect to continue to play out? What are the biggest contributors? Thanks.
Yeah, sure. Thanks, John. The biggest drivers: we've seen a nice turn on the corporate payment side, you called that out. We've alluded to this at the beginning of the year: we see a lot of won, but not yet installed business, and that is certainly the case here. We're experiencing that. A lot of what used to be headwinds in this business earlier this year are now tailwinds. That, along with new business installations, is helping. On the card side, we're also seeing strong account growth. The fee revenue has been steadily increasing. We're going to get the Amazon book loaded here in mid-August, we anticipate. We think there's just a lot of momentum on the fee side of the equation.
John, I'll add, this is a very important part of our strategy. It's a defining feature of our banking franchise. We closed this quarter; we were at 44% fee revenue. That gives us enormous stability, both of earnings and depth in our relationship. We are building this four-legged stool of fees, which are very well diversified: capital markets, payments franchise, trust and investment management, and traditional consumer fees. We expect the fee complex overall will outpace net interest income, at least in the near term, and we see very healthy growth across the board on all fee categories. By design and strategy, we are very focused on that part of the business.
Based on that, how would you characterize the year-over-year growth expectation on the fee side? I know you said should outpace, but anyway.
We expect full year low teens on the fee side of the equation. That's going to include about four points, a little over four points will be BTIG-driven. Again, we assume $200 million per quarter on the back half of the year, inclusive of the $100 million they did in June. That's how we think about it. As Gunjan said, it's strength in capital markets, investment services, and payments that are really going to drive it.
Lastly, just around loans at the end. I want to see if you can give us a bit more detail on what you're seeing there as trends came in pretty solid for the quarter. Thanks.
On loan growth, a very strong quarter for us. The pipelines continue to look very good, particularly on the commercial and commercial real estate side. Commercial real estate saw some nice uptick this quarter. We continue to see that improve. It's in virtually all the categories that we talked about last quarter. Pretty much every category in the commercial side is green from a growth standpoint, everything from large corporates down to small business and SBA loans. We talked about mid-single digit growth previously; we anticipate being through that. Of course, we have the Amazon, the $1.6 billion that we will bring online in the August timeframe.
Got it. All right. Thanks for taking my questions, John.
Your next question comes from the line of John McDonald with Truist Securities. Please go ahead.
Morning, John.
Thanks. Good morning. Could you give us some color, John, on what you saw in terms of deposit trends this quarter and how you're thinking about the back half of the year in terms of deposit growth, costs, and mix?
Sure. Maybe just to start with the quarter. This is a pretty typical second quarter for us. Over long periods of time on the commercial side, we always see seasonal outflow, and that's a reflection of just the tax seasonality. We anticipated that we would have lower balances on the commercial side. We did see nice growth on the consumer side, and that's by design. We've been very much focused on growing our consumer deposits. As I look ahead, we've already made good progress on deposit growth starting in the third quarter. A lot of that just comes back over the course of late second quarter and into third for us. I would expect as loan growth continues, deposit growth will grow with some parity there. From a deposit rate standpoint, we're up a couple basis points this quarter. How we're looking at it going forward will be dependent on how strong loan growth is. The stronger the loan growth, potential rates might go up on that deposit side. We anticipate some of that in our guidance as well. Those are the puts and takes right now as I think about deposits.
Just following up on that, could you remind us of the broader drivers of the NIM expansion story and your thoughts on getting into that 3% range next year that you've talked about on the NIM?
We continue to see a path on the 3% journey at some point in 2027. It was good to see the NIM go up this quarter. We expect that to continue to progress. The positives are going to be on the asset mix side as well as continual fixed-rate repricing. The speed at which we get there will come down to the deposit side and the slope of the curve. There's some talk of rate hikes; the hikes themselves are not consequential—it's more about the shape of the curve after that. That's what we'll focus on as we move forward.
Okay, great. Thank you.
Your next question comes from the line of Ebrahim Poonawala with Bank of America. Please go ahead.
Morning, Ebrahim.
Morning. I guess maybe one just big picture question on Slide 19. When we look at your returns for the second quarter and for the first half, like ROA, ROTCE, how do you think about it? I mean, obviously all banks want to use a strong revenue backdrop to invest in the business. When you think about return on assets at 1.26%, the higher end of the guidance at 1.35%, how do you think about it? Do you think this should move towards that 1.35%, or are you happy operating at this midpoint?
Hey, Ebrahim. Thank you. First of all, we're pleased with where we're at in this part of the journey. It's good to see that we're well established in our medium-term targets that we talked about in 2024. Our hope and expectation is to continue to improve. We started at the lower end of the range late last year, and our continual push is to continue to improve these metrics as we progress.
We think about it in waves. We published these medium-term targets at Investor Day in 2024. The first goal was to get into the ranges across the board. The metrics balance growth, productivity, and returns. The first progress was on capital; we were low on capital coming out of the Union Bank acquisition. We're feeling good about capital and a Category II transition. Expenses was the next area where we made a difference, then fee revenue growth, and right now we are focused on net interest income expansion, which will help ROA. Broadly speaking, we are managing the bank to move towards the right on these ranges over time.
On the capital front, we've made tremendous progress over the last couple of years. We've grown capital over 30% in the last two years and think we're on the last lap of capital build. Our first priority will be supporting loan growth. This quarter we had a lot of loan growth and the BTIG acquisition. We anticipate increasing buybacks and gliding into the 70%-75% range as we approach approximately that 10% adjusted CET1 level. This quarter we had $200 million of repurchases, flat versus the prior quarter. If we continue to see opportunities like these, we may pause or keep repurchases at these levels, but we intend to glide up into that level.
On potential bolt-ons, we steadily look at smaller tuck-in deals. It would not be our expectation that we would need to do a bolt-on on capital markets. BTIG brought equity trading and advisory businesses to complement our fixed income and currencies business. We have a complete offering now at about 7% of total revenue, roughly in line with regional peers and with headroom relative to global systemically important banks. We expect to grow organically to the 10% capital markets revenue target. Bolt-ons would be very accretive, localized scale deals when they make sense; we view them as complementary to organic growth.
Super clear. Thank you so much.
Your next question comes from the line of Mike Mayo with Wells Fargo. Please go ahead.
Morning, Mike.
Hi. I think the key phrase here is fee complex. You keep mentioning fees in many different ways. What's the output of all your plans here? Like fees over 50% or up to 50%? Then as a component of that, how do you plan to get that capital markets number higher, investing in legacy U.S. Bancorp or BTIG relates to cards, in terms of, by the way, is Amazon in the guide for the year and then corporate payments? What's really the plan for the fee complex as a whole, and how does that overlay with your existing business relationships?
I do call it the fee complex because the quality and mix are important to our franchise. The four categories are very diversified and underpinned by faster-growing markets. We would aspire to be in the higher 40s as a total percentage of revenue. We were at 45 at one point; if we can keep our efficiency ratio in the mid-50s and grow fees at that level, it makes for a durable franchise. Fees create enduring relationships and bring high-quality deposits on both consumer and corporate sides. The intent is not just about business portfolio but also deep consumer relationships. The strategies are anchored around each of those four pillars, and we will invest to grow alongside the bank.
I'll add we're leveraging the balance sheet and growth in the loan book to help with fee categories, whether capital markets or investment services. That's why the fee complex is important; we have many products to apply to clients that have balance sheet usage for us. Yes, the Amazon components are in the guide; we talked about $75 million to $85 million of revenue. A majority of that is in net interest income, so there will be some split between NII and fees. We also anticipate a $160 million reserve build associated with the Amazon small business portfolio closing in mid-August.
As far as how you intend to go from 7% to 10% in capital markets as a percentage of revenues, will you be hiring more people through BTIG, or is it through legacy U.S. Bancorp or other means, or do you have in the back of your mind maybe a small bolt-on?
We are not anticipating a small bolt-on to get to the roughly 10% target. This is organic growth from leveraging relationships and product capabilities on both sides. In the first month, BTIG's performance showed there's revenue opportunity in relationships we already have. BTIG is being invited into our existing client relationships. The organic growth does not anticipate a massive headcount expansion; it's more cross-selling and capturing more share of fee revenue from the balance sheet that we have deployed. That is the plan, and we have confidence it will get us to about 10% of total revenue.
All right. Thank you.
Your next question comes from the line of Ken Usdin with Autonomous Research. Please go ahead.
Morning, Ken.
Hi, good morning. I was just wondering if I could just clean up a couple of these acquisition-related math things. First of all, on BTIG, you mentioned you've got the $60 million of restructuring. That's all in the second half. Will that be the end of it? Do you see an improvement in incremental margin post the end of the year as we go forward?
Yeah, Ken, that's right. The $60 million would be the merger-related items we anticipate this year. There may be some tail into early 2027; we'll update as we progress. We anticipate the contribution margin to build over time. We're thinking about mid-to-high teens on contribution margin initially, with room for improvement toward the low 20s as integration proceeds.
On BTIG, they just did a $300 million run rate in June, almost $100 million that month, but you're only building in $200 million into the forward guide from here. Was there something extraordinary? What's a right run rate for that capital markets line once fully run rate?
A couple things: $200 million per quarter is what we anticipate in the back half. There is seasonality in capital markets; June was a record month for BTIG with a lot of transactions. Could it go higher than $200 million? It could—capital markets fees can swing. Capital markets grew about 30% year-over-year excluding BTIG in the first half. I don't anticipate that pace sustaining in the back half, but we expect strong growth. The trajectory and the new business give us the positivity and momentum we expect for this business.
The third one, thanks for mentioning the $75 to $85 on Amazon. Just want to make clear again, that's an annualized number, would you expect that to be fully run rate in the fourth quarter?
That's a per-quarter number on an annualized basis. We would anticipate approximately half of that benefit in the third quarter and then being fully in for the fourth quarter. So on an annualized basis, that's roughly $300 million of revenue.
Got it. Thank you.
Your next question comes from the line of Gerard Cassidy with RBC Capital Markets. Please go ahead.
Morning.
Hi, Gunjan. Morning. Can you share with us the build-out of the consumer branches that you mentioned? I think you said you're going to spend $300 million up from $200 million. How much of that is for new branches versus rehabbing existing branches? How long does it take when you build a new branch in your markets to reach breakeven and then to a profitability level you're satisfied with?
Thank you, Gerard. We spotlighted this because, after working on expenses and fees, we are now focused on the consumer deposit franchise. These consumer relationships drive card and wealth businesses and are increasingly important. The increase in investment is not a one-time step up but a gradual leaning into new builds. Over the past decade we've reshaped our branch network from many Tier 3 markets and in-store locations to modern, technology-enabled multi-product hubs in attractive Tier 2-like markets. The refurbishment of our branch network is largely done; we are now leaning into new builds and densification. The returns on densification are quick because the brand is known; new outposts have a longer runway. Client centers that house wealth, commercial, and mortgage teams are important anchors. We expect the next few years to focus on densification where returns are very good, with strategic inch-outs over time.
Gerard, we anticipate accelerating branch activity. Part of this is reducing the cost of branch build-out and doing it faster. We don't have a specific numeric target disclosed today, but it will ramp. Densification is our first priority since refurbishments are largely complete. We'll keep refurbishments ongoing as part of maintenance. It's important we equip frontline branch staff with the tools to grow, which will drive down breakeven time, and that's our focus.
Very good. As a follow-up, have you looked at the impact of the AI and data center build-out on your business? For example, any second derivative exposures or benefits in lending, BTIG activity, or trading volumes this quarter? If it slows down, what might the impact be on growth you're seeing?
Good question. There's more direct impact in capital markets. The biggest headlines may not be where we are most involved, but clients across industries are growing their businesses—food and beverage, media and technology, power. Some of that is tied to AI build-out, some are not. Overall, clients feel optimistic and want to grow, and we're here to support them.
To add: data center loans on our balance sheet are not very large. Sentiment rebound from pauses last year has been the story. In our Midwestern footprint, people who paused last year are seeing resilient consumer demand and are beginning to lean into growth. It's broader and healthier loan demand than a concentrated AI trade, and we're seeing that across categories.
Thank you. I appreciate the color.
Your next question comes from the line of Manan Gosalia with Morgan Stanley. Please go ahead.
Good morning.
Hi. You mentioned deposit rates might go up a little as loan growth is stronger. Is there a difference in how proactive you want to be here? We're hearing loan growth stronger than expected across banks. Your loan growth outlook is pretty good. Rates have been volatile. Is there anything different you're doing now versus the start of the year, maybe in terms of promotional balances or marketing incentives to get ahead of more volatility on the deposit side?
Largely, our strategy on deposits remains on track. Consumer deposits are a continued focus; we've had three quarters in a row of record consumer deposit growth. The commercial side was seasonally lighter this quarter, but we expect that to rebound. Commercial deposits will help fill any gap we need from loan growth. Pricing on the commercial side is well understood by us. The consumer side has added tools and models to help frontline pricing. We see pockets of pricing in different geographies, which is normal. Largely, our strategy is intact.
Got it. Maybe a follow-up: which geographies are you focused on for branch expansion, and what level of densification do you expect in these markets? Is there a specific branch share or rank you're targeting in new markets?
We are looking to be more than 8% of the branch count in targeted markets, which can get you into the sweet spot to be a top-four depositor in a region. Our focus has been on the Southwest—growing in Arizona—Nashville and surrounding Tennessee markets, parts of Utah, and Boise. We are surgical about permit strategies years in advance where household formation is higher. Since COVID, we've seen many areas within our footprint revive with younger generations moving in. We're focused on high rates of household formation and quality household attributes.
Great. Thank you.
Your next question comes from the line of Chris McGratty with KBW. Please go ahead.
Good morning. Thanks for the question. John, on the fixed-rate asset repricing, maybe remind us the pick-up on both the loans and security side. Thanks.
Sure. As we've been repricing, the volumes have picked up. Think of roughly $10 billion to $11 billion per quarter that come through in repricing, with about three to four billion on the investment portfolio and the balance on the loan side. The pickup depends on rolling-off amounts and prevailing rates, and that's fluid. It's been helpful. The Fed funds versus five-year Treasuries around a 60 basis point spread has supported that. We monitor forwards and curve shape as those inform our outlook.
Given the positive commentary on loan growth, focus on deposits, and branches, is there any scenario where you might consider a depository acquisition over the medium term? I know the message has been no recently.
Good question. Nothing has changed about our stance. We're very targeted with our organic build on the deposit quality and customer franchise. We're focused on organic growth.
Great. Thank you.
Your next question comes from the line of Saul Martinez with HSBC. Please go ahead.
Hi, Saul.
Hey, good morning. I apologize in advance, I'm going to get into the weeds on some of the numbers with a few questions. On your NII guidance, that does include Amazon, $75 million to $85 million a quarter. That's half a quarter. That's about one percentage point of benefit in terms of year-over-year growth. Four to six is organically maybe 3% to 5%. If I look at it on a sequential basis, it implies flattish to up about 2%, which isn't really suggestive of much NIM expansion. Given everything else—loan growth, controlled deposit costs, fixed-rate repricing—whether there's an element of conservatism in this guide and how you think about all that?
Thanks. Just to reiterate, the $75 million to $85 million is total revenue; a majority is NII—roughly two-thirds NII to one-third fees, though that can move. The third-quarter guide of 4%-6% includes a half quarter of Amazon, with the remainder ramping in the fourth quarter. We anticipate NII trajectory growing through the year, in part due to Amazon, loan growth momentum, and fixed-rate repricing. We're watching the deposit side and the curve shape closely, and those will influence actual results.
Okay. That's helpful. On BTIG numbers to follow up: $200 million a quarter plus $100 million in June is about $500 million. You have $60 million integration costs and a 15% margin. Is that margin net of those integration costs? That implies a much higher cleaner margin, maybe mid-20s. Am I thinking about that right? You also said 20% was in your head.
Thanks, Saul. To clarify, the $60 million is outside of the 15% contribution margin. The $200 million per quarter assumes roughly an 85% expense payout, implying about a 15% contribution margin on that revenue. The $60 million of integration is separate, and we expect roughly $30 million per quarter for the third and fourth quarters with possible trailing items into early 2027. Over time we expect to improve contribution margins above the initial 15% base.
Okay. Got it. Thank you so much.
Your next question comes from the line of David Chiaverini with Jefferies. Please go ahead.
Morning.
Hi, thanks for taking the questions. On Slide 6, you highlight the payments businesses. Good trends overall, but the merchant processing chart shows a slowdown. You cited softness in Europe. Anything else driving that? What's the outlook for merchant processing going forward?
On the merchant side, Europe had an impact with slowness post-war and the loss of some non-strategic distribution partners, which will affect us for the next few quarters. This is part of the payments transformation. While we anticipate lower growth rates in the near term for merchant processing, we expect other parts of the payments complex—cards and corporate payments—to improve. Card issuing is doing very well, and corporate payments have rebounded strongly.
To add, the total payments business is sizable—about 23% of total revenue this quarter—and grew 5.7% year-over-year. Last year corporate side was a drag; it's now come back strongly. We see mid-single digit growth as a reasonable medium-term expectation for the payments complex and are optimistic it will be on the better side of that range.
Great. Shifting to a housekeeping question on Amazon: how much in one-time costs, if any, related to Amazon are embedded in the expense guide?
We've embedded some of those costs in our run rate; there have been some incremental items. It's largely embedded in the guide. If you want a ballpark, there's been about $20 million to $30 million or so this quarter of incremental items related to that set-up and ramp, and some items prior to that. It's been relatively immaterial in the overall expense base.
Very helpful. Thank you.
Your next question comes from the line of Vivek Juneja with J.P. Morgan. Please go ahead.
Morning.
Hi. A question on BTIG: what are your plans for expanding capabilities like research, sales, etc.? Also, what have you factored in for risk and controls and regulatory overlays now that it's part of a bank with a widespread global footprint?
Broadly, BTIG's product capabilities are complementary to the franchise. Our immediate focus is leveraging those capabilities within our existing client base rather than building new product lines. Risk and control overlays are very important and were anticipated; we built those earlier in the year and have infrastructure in place from day one to support the combined business under the bank umbrella.
Thank you.
Your next question comes from the line of Matt O'Connor with Deutsche Bank. Please go ahead.
Hi, Matt.
Good morning. I know period-end balance sheets can be a little quirky, but you had a big increase in cash, lower securities maybe from restructuring, and then a big increase in short-term borrowings. Is that the BTIG deal or something else going on with quarter-end oddities?
Thanks, Matt. June 30 and December 31 are heightened activity periods for clients, especially given investment services. Ending balance sheets can have elevations, but averages are best to look at. On the investment portfolio, we had about $1.6 billion of sales this quarter as part of repositioning. We anticipate the investment portfolio to remain at similar levels as we trade securities balances for more loan balances, which is healthy for the balance sheet.
Okay, helpful. Separately, on the Amazon/Amex-originated deal: what's the opportunity over time? It's $1.6 billion and a switch to Mastercard. Why did Amazon pick you, and do you expect the book to grow meaningfully over time?
It's a very strategic and economically attractive deal that introduces us to small business customers at scale through a partner with a strong ecosystem. Amazon's vision is to support a large small business ecosystem; they are keen to explore interconnected banking and card products that leverage our Smartly and Business Essentials platforms. We expect a visionary product development partnership and anticipate the book will grow, though we'll learn more after conversion. This joins our robust co-brand platform and provides scale across our existing products. We expect it to create a strategic platform that can be leveraged across small business and partner channels.
More than just credit card balances—have you considered pursuing primary small business checking accounts as part of this relationship?
Yes. We've had partnership platforms for consumer co-brands and have experience integrating banking and credit card in a partner-branded model. The expansion to small business is a natural extension. Operational processes to bank a credit card and banking customer digitally are in place from prior partnerships. Expanding partner platforms to small business is part of the strategy and could be grown over time.
Okay. Thanks.
There are no further questions at this time. Mr. Mauney, I'll turn the call back over to you.
All right. Thank you to everyone who joined our call this morning. Please contact the investor relations department if you have any follow-up questions. Krista, you may now disconnect.
Ladies and gentlemen, this does conclude today's call. You may now disconnect.