First Citizens BancShares, Inc. (FCNCA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to the First Citizens BancShares Third Quarter 2026 Earnings Conference Call. As a reminder, today's conference is being recorded. I would now like to introduce you to the host of this conference call, Ms. Deanna Hart, Head of Investor Relations. Deanna, you may now begin.

Good morning, and welcome to First Citizens' Third Quarter 2026 Earnings Call. Joining me on today's call are Chairman and Chief Executive Officer; Frank Holding; and Chief Financial Officer, Craig Nix. They will provide third quarter business and financial updates referencing our earnings call presentation, which you can find on our Investor Relations website. Before we begin, please note that our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from expectations. We assume no obligation to update such statements. Information regarding these risks is outlined on Page 3 of the presentation. We will also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in Section 5 of the presentation. Finally, First Citizens is not responsible for and does not guarantee the accuracy of earnings transcripts provided by third parties. With that, I will now turn it over to Frank.

Thank you, Deanna. Good morning, and welcome, everyone. Thank you for joining us today. I'll begin with a summary of our third quarter performance before turning it over to Craig Nix to review our financial results and fourth quarter outlook in more detail. Earnings exceeded our expectations during the quarter. Strong performance was headlined by high-quality sequential top line growth, underscoring the strength of our franchise and core client relationships and our disciplined focus on delivering long-term shareholder value. We generated adjusted net income of $652 million and adjusted earnings per share of $55.37, driving an ROE of 12.24% and an ROA of 1.08%. These solid results were fueled by accelerated loan and deposit growth, highly resilient credit metrics, expense discipline and systematic balance sheet optimization. Loan growth remained strong during the quarter due to high-quality client activity across both the commercial and general bank segments. Loans were up $6.2 billion over the linked quarter, spearheaded by our premier fund banking business. Concurrently, our deposit channels delivered another standout quarter of expansion, growing by $11.8 billion on a period-end basis and $8.0 billion on an average basis. These deposit inflows reflect healthy client liquidity and the power of our diversified multichannel funding sources, which reliably anchored our asset growth. Deposit balances directly benefited from the successful integration of the BMO branch acquisition, onboarding approximately $4.9 billion in high-quality deposits. This transaction efficiently scales our branch network across 11 states, adding scale alongside First Citizens' well-established footprint and driving enhanced liquidity. Beyond our robust balance sheet expansion, heightened client engagement and strong momentum across our innovation and fund banking businesses drove solid high-quality increases in both period-end and average off-balance sheet client funds. We also continue to deliver on our balance sheet optimization initiative. During this quarter, we returned $600 million to shareholders through share repurchases, successfully achieving our target operating range for CET1 capital. This deliberate capital management strategy underscores our financial strength and enhances our long-term capital efficiency. Furthermore, our strong liquidity position enabled us to prepay an additional $8 billion of the FDIC purchase money note during the quarter, followed by another $1.5 billion in October. Since commencing these prepayments in the fourth quarter of 2025, we have systematically retired approximately 47% of the total balance, representing $17 billion in debt reduction in a year's time. Our solid performance this quarter reinforces a core message we have consistently communicated. First Citizens is structurally resilient, not dependent on any single business line, interest rate cycle or macroeconomic variable. Instead, our diversified earnings profile leverages highly complementary business segments that reliably generate stable, sustainable growth across diverse operating environments. As we look forward to the conclusion of 2026, our strategic priorities remain clear and measurable, deepening core client relationships, driving operating efficiencies and maximizing long-term shareholder value. Backed by highly favorable credit trends, rigorous expense discipline, balance sheet velocity and robust client momentum, we are exceptionally well positioned moving forward. I am incredibly proud of the execution our team has demonstrated this year, and I have the utmost confidence in the growth trajectory ahead of us. With that, I'll turn it over to Craig to walk us through our third quarter financial metrics and our updated outlook for the remainder of the year. Craig?

Thank you, Frank, and good morning, everyone. I will begin today with a review of our financial performance for the quarter, followed by an update on our credit quality trends and balance sheet optimization efforts. I will close with our fourth quarter 2026 outlook. My comments will be anchored to Page 9 of the presentation with Pages 10 through 27 providing the details underlying our third quarter results. As Frank mentioned, we are highly pleased with our performance this quarter. In the third quarter, adjusted net revenue expanded by 1.4% sequentially, successfully driving positive adjusted operating leverage. This momentum was powered by net interest income expansion, resilient fee-based noninterest income and ongoing disciplined expense management. Delivering in line with our previous guidance, net interest income increased by $43 million over the linked quarter. This growth was driven by favorable earning asset volumes and strong yields, a deliberate reduction in borrowings and a higher day count. These structural tailwinds successfully offset higher funding costs and the anticipated growth in interest-bearing deposit balances. On a headline basis, NIM was 3.07% while NIM, excluding accretion, was 2.99%, reflecting excellent margin stability in the current environment and remaining essentially in line with our expected band in the prior quarter. While adjusted noninterest income declined by a modest $11 million sequentially, it exceeded our guidance. We continue to benefit from robust sustainable performance within our core fee-generating lines of business, underscoring the diversification and earnings power of our franchise. Lower sequential noninterest income stemmed almost entirely from a $37 million change in warrant income due to valuation adjustments in the current quarter. As we discussed last quarter, this portfolio is inherently subject to periodic valuation adjustments. For context, these are equity warrants acquired through our strategic lending and financing relationships. They are marked to fair value each quarter based on shifting public and private company valuations, representing a nonoperational market-driven fluctuation rather than a shift in our core performance. Importantly, our underlying core fee income engines delivered robust momentum. Lending-related fees were up $10 million sequentially and propelled by accelerating client lending and capital markets activity within the commercial bank. Client investment fees were up $9 million sequentially, benefiting from higher average off-balance sheet client funds, a direct result of sustained client inflows within our high-performing innovation and fund banking franchises. Our rail business delivered $10 million sequential growth in adjusted rental income. This business continues to capture high-value expansion within our railcar portfolio anchored by exceptional utilization stability and resilient positive repricing trends. We remain highly confident in the fundamentals of this portfolio and see clear near-term tailwinds ahead. Adjusted noninterest expense was largely stable sequentially, landing within our guidance range and reinforcing our commitment to expense management and operating efficiency. The sequential increase during the quarter was primarily driven by our continued investment in digital infrastructure and data center modernization and other expenses distributed across various operational line items. On technology investments, we are focused on an ongoing rigorous evaluation of our key vendor relationships to optimize investment and maximize efficiency. Importantly, these target investments were strongly mitigated by a sequential decline in professional services following the successful completion of key risk management and technology initiatives. Additionally, we achieved lower marketing expenses to enhance marketing effectiveness within our direct bank channel. Personnel expenses were essentially flat on the quarter. Turning to the balance sheet. Period-end loans expanded by $6.2 billion or 4.1% sequentially. While growth was broad-based within the Commercial Bank segment, a material portion was powered by continued momentum in our fund banking business. We also captured strong high-quality growth in innovation banking, middle market banking, industry verticals and our branch network. Further, the BMO branch acquisition contributed approximately $650 million in loan balances. In terms of business segment performance, Fund Banking delivered outstanding results with loans expanding by $4.4 billion or 11% sequentially. A combination of factors contributed to the performance, including higher utilization rates, reflecting strong market demand expanding capital call balances as market transaction values and line balances continue to decline and stable, limited partner capital calls. Innovation Banking loans reached $10.1 billion at quarter end, representing an increase of 6.6% over the linked quarter. Growth was anchored in the tech business and was supported by positive momentum from commercial finance referrals and strategic business partnerships, which continue to act as a powerful catalyst for loan production. We continue to capture high-value opportunities across our commercial finance verticals, where we see broad-based tailwinds in working capital, technology, media and telecom and energy. In the middle market space, we see robust expansion driven by a combination of higher utilization levels and slower prepayments. In the general bank, loan balances increased by $633 million reflecting the BMO branch acquisition and growth in our branch network and wealth management segments. Turning to deposits. We achieved high-quality growth during the quarter. Period-end deposits grew by $11.8 billion or by 6.8% sequentially. Deposit inflows were broad-based across all operating segments. This growth was successfully supplemented by the acquired BMO deposits totaling $4.9 billion. Our direct bank delivered outstanding performance generating $3.2 billion in high-quality inflows this quarter. These core retail deposits are granular and heavily insured structurally fortifying our liquidity profile while further minimizing depositor concentration. We are capturing a powerful secular trend as consumer adoption of digital only banking accelerates expanding our scale and deepening our digital relevance. The Commercial Bank segment increased by $1.5 billion stemming from growth in Innovation Banking and Middle Market Banking partially offset by lower end trends at balances compared to the prior quarter. Specifically, Innovation Banking deposits grew by $1.7 billion. This growth reflects a stabilizing and healthy innovation ecosystem with vibrant public and private capital deployment alongside new client acquisition. While normal course client cash burn offset a portion of these inflows, the underlying business remains robust as we are growing efficiently across a highly diversified, healthy mix of early and late-stage investors. This exceptional quarterly performance was further accelerated by deepening relationships with several large corporate clients. While institutional onboarding time lines naturally introduce minor quarter-over-quarter variability, the core trajectory and momentum are encouraging. Finally, to bolster liquidity to prepay the FDIC note, we continue to supplement organic deposit growth with the opportunistic use of broker deposits. We actively monitor pricing and tenor to ensure a resilient cost-effective funding mix and use this strategic deposit channel as needed to support funding needs. Period-end total client funds grew by $6.9 billion, while average total client funds rose by $7.2 million on a linked quarter basis. This growth was primarily driven by expansion in our innovation and fund banking businesses, which continue to capture substantial inflows. Our credit profile remains strong, characterized by improvements across our key credit quality metrics. Nonaccrual loans decreased by $80 million sequentially, concluding the quarter at 0.87% and of total loans. Net charge-offs were $103 million, relatively stable compared to the second quarter. Our net charge-off ratio improved by 2 basis points to 0.27% outperforming our guidance. Our performance resulted from successfully resolving several larger exposures within our general office portfolio to better outcomes than initially modeled. Furthermore, we observed consistent positive loss trends across our investor-dependent broader C&I and equipment finance portfolios. During the quarter, we continued to see a reduction in criticized and classified asset levels. This positive migration towards higher credit quality, lower risk portfolios such as capital call lending has fundamentally strengthened our balance sheet. As a result of these improving credit quality trends, continued low net charge-offs and a positive macroeconomic backdrop, we reduced our allowance for loan losses during the quarter. Building on Frank's earlier remarks, we are fully committed to the systematic repayment of the purchase money note. We are managing this proactively by optimizing our forward-looking profitability, strategic funding mix and channel utilization. This calculated approach allows us to remain highly agile, adjusting dynamically to market conditions and relative funding economics to protect and enhance our margins. I am pleased to report through October we have made outstanding progress on prepaying the purchase money note, having prepaid $17 billion, representing approximately 47% of the original principal balance. During the third quarter, we hit the high end of our guidance range successfully prepaying $8 billion, followed by an additional $1.5 billion in October. This accelerating momentum was efficiently powered by strong net positive deposit growth that outperformed loan expansion alongside the liquidity infusion from the successful BMO branch acquisition. Looking forward, we are maintaining a highly visible, predictable and steady paydown trajectory. We project consistent quarterly prepayments in the $3.5 billion to $4 billion range through the end of 2027, putting us firmly on track to extinguish the remaining balance in full by that time. To ensure complete transparency regarding our funding architecture, our baseline forecast for the fourth quarter and the entirety of 2027 anchors on sustained net deposit growth over loan growth as our primary prepayment engine. To supplement prepayments, we do contemplate using targeted FHLB debt and opportunistic market issuances. As a point of context, we have significant untapped liquidity capacity. The approximate $8 billion in FHLB advances outstanding at the time of the SVB acquisition were entirely paid off in 2023, and we have not yet utilized this channel for our prepayment strategy. While we have successfully leveraged the direct bank and the brokered CD market this year to capture high-value growth, we will continue to evaluate these options strictly against market pricing conditions. Finally, to support both long-term capital levels and the systematic replacement of the purchased money note, we anticipate aggregate senior unsecured and subordinated debt issuances will be in a modest range of approximately $1 billion to $2 billion through year-end 2027. Turning to capital. As of October 20, we have successfully repurchased approximately 24% of our outstanding common shares representing a significant $6.9 billion capital return to our investors. During the third quarter, share repurchases totaled $600 million, bringing our CET1 ratio within our target range at 10.24% at quarter end. Given that we are now operating within our CET1 -- looking immediately ahead, we project fourth quarter 2026 repurchases of approximately $300 million. This reflects our entry into a normalized capital range that balances sustained earnings with robust balance sheet growth. While we expect a similar quarterly baseline in 2027, the absolute volume of repurchases will remain flexible each quarter. This allows us to prioritize high-return organic growth opportunities, which we firmly believe represents the absolute highest and best use of capital. Ultimately, our capital allocation priorities remain unchanged. We will continuously fuel client growth opportunities across our franchise, maintain a fortress balance sheet and consistently returned surplus capital to our shareholders. Our capital position remains comfortably and securely above all regulatory requirements. This provides us with meaningful strategic optionality to support client needs, fully fund high-value strategic growth initiatives and deliver consistent premium long-term returns to our shareholders. Turning to Page 29. I will conclude with our outlook for the fourth quarter and full year 2026. We are raising our fourth quarter loan guidance to a range of $158 million to $161 million. This upward revision is propelled by high-quality expansion within our commercial and general bank segments backed by sustained client activity, disciplined pipeline conversion and accelerating momentum across our core business lines. In the commercial bank, growth remains firmly anchored by our higher-performing fund banking business. This is supported by elevated utilization rates in a highly resilient pipeline which averaged a robust $10 billion during the third quarter. Following record-breaking production levels year-to-date, we prudently anticipate that balance growth will moderate from the exceptional pace observed in the third quarter. In the General Bank, loans are positioned for steady reliable growth driven by targeted expansion within our branch networks business and commercial portfolios. We project fourth quarter deposits between $189 million and $192 million, reflecting a significant increase over our prior guidance, driven by powerful continuous traction across our primary deposit channels. We anticipate deposit growth within our branch network, innovation and fund banking channels. This will be strategically bolstered by growth in the direct bank alongside our tactical optimized use of brokered CDs. Turning to net interest income. We are raising our full year guidance to $6.68 billion to $6.75 billion, while establishing a fourth quarter range of $1.7 billion to $1.77 billion. This range factors in 0 to 125 basis point rate hike in the fourth quarter. We expect continuous expansion in earning assets and that the benefit of higher asset yields will outpace rising funding costs by accelerating deposit generation across all channels and efficiently retiring the FDIC note, we are systematically optimizing our balance sheet for high-quality net interest growth heading into 2027. Due to the specific timing of recent and potential fourth quarter rate hikes, a meaningful portion of our net interest income upside will materialize as a tailwind in early 2027, rather than late 2026. This reflects a temporary lag as our proactive deposit repricing naturally moves ahead of our variable rate loans, which typically lag by up to 1 quarter to capture full repricing benefits. Finally, regarding credit quality, we expect fourth quarter net charge-offs to remain stable within the 30 to 35 basis points range. This matches our consistent predictable performance throughout 2026. We view this as a normalized, highly manageable credit environment for the organization. Reflecting resilient performance year-to-date, we are tightening our full year net charge-off guidance to 29 to 31 basis points. We observed no systemic trends signaling credit quality deterioration across the portfolio. Our loans remain well reserved and we are highly encouraged by our credit metrics. Looking ahead, we project sustained declines in nonaccrual loans as our disciplined asset resolution continues to outpace new inflows. For the fourth quarter, we expect noninterest income to land between $540 million and $580 million while our fee-generating engines continue to trend higher, this range accounts for potential warrant income fluctuations. Underpinning this, we see broad-based strength and momentum across many of our core fee income lines. Driven by strong year-to-date execution, we are raising our full year guidance to $2.22 billion to $2.26 billion. This upward revision is backed by sustained highly visible momentum in client investment fees, deposit fees, lending fees as we continue to capture high margin upside in our lending-related business directly benefiting from strong organic loan growth and robust capital markets activity. Rail as the segment continues to operate from a position of strength driven by high asset utilization and favorable lease rate repricing and finally, wealth management. We project fourth quarter expenses to remain stable landing us within the $1.35 billion to $1.39 billion range. This positions our full year expenses to come in between $5.39 billion and $5.43 billion. As we enter the final quarter, we will fully realize the BMO branch acquisition within our run rate. Furthermore, we anticipate continued expansion in both equipment and third-party processing directly driven by our high return investments in digital infrastructure and technology capabilities. To robustly support our deposit pipeline, we will continue leveraging our high-performing direct bank backed by a calculated marginal increase in marketing expense. As is typical for this period, our fourth quarter outlook incorporates seasonally higher benefits-related expenses. It also includes an increase in incentive compensation a direct reflection of our strong performance across the organization this year. Additionally, professional fees will shift upward relative to the third quarter, timed with the launch of several milestone projects that directly support our key strategic initiatives. To wrap up on expenses, leadership is highly encouraged by our current trajectory. The rigorous expense discipline embedded across our organization reflects deliberate successful actions to streamline our cost of doing business. Our strategic focus on operating efficiency is effectively bending the cost curve in our favor. For both the fourth quarter and full year 2026, we expect our tax rate to be in the range of 24.5% to 25.5% which is exclusive of any discrete items. This concludes our prepared remarks. I will now turn it over to the operator to open the line for questions.

[Operator Instructions] Our first question comes from the line of Bernard Von Gizycki with Deutsche Bank.

Just on asset sensitivity, how do you expect that to evolve as you further pay down the FDIC purchase money note as there'll be some change in the funding mix as noted.

Yes, Bernard, this is Arch McClure here. I can take that on asset sensitivity. Overall, we should see from a mix perspective, a more beneficial backdrop for us to manage the position that way. As a quick level set, the FDIC note is a fixed rate note. And due to the option component to it, we are unable to hedge around that position. So as we look at the alternative funding sources that Craig kind of mentioned in his prepared comments, we have a more compelling capability to manage the current position for asset sensitivity down to where we probably will land. Generally speaking, directionally, it should trim a little bit from where we're positioned this quarter. But ultimately, it's going to provide us an appetite or an opportunity to manage across a wide range of cycles here.

And then just maybe following up, what's the appetite for pursuing either a whole bank deal or a branch acquisition, similar to BMO to help pay down the efficacy purchase money note further?

We don't have any specific plans currently for whole bank acquisition, but I do think that the BMO transaction indicates that M&A will remain an important part of our growth strategy and a way for us to continue delivering value to our shareholders. So we would look for opportunistic or opportunities in the space, especially in opportunities for -- to increase and improve our liquidity profile.

Your next question comes from the line of Chris McGratty with KBW.

Craig, maybe starting with the margin, the moving parts. Could you help like you've done in prior quarters with kind of a look forward between margins and NII growth? And I did see you nudged up your beta assumptions a bit. So any comment there?

Sure. In terms of looking at where we were in the third quarter, actual compared to the fourth quarter exit, we expect headline net interest income to be up low single-digit percentage points and ex accretion to be up low to mid-single-digit percentage points. From a NIM basis, we expect headline NIM to be in the mid-310s and ex accretion in the high [ 300s ]. In terms of that fourth quarter 26 exit the fourth quarter '27 exit. And this assumes we're anchoring to 1 more rate hike this year and 2 rate hikes in 27 is our baseline scenario. So the fourth quarter '27 exit, we would expect headline net interest income and ex accretion, net interest income to be up mid- to high single digits percentage points. We would expect headline NIM to be in the mid-320s and ex accretion NIM in the low 320s. In terms of betas, we don't expect our betas ultimately to be up significantly from where they were in the last up cycle. So think in deposits in that 50% range in loans and maybe that lower 60% range, ultimately increasing to 100% over time on loans.

Okay. Just the mid-320s, low 320s, that was 4Q '27 anchored against 4Q '26?

That's correct. That's correct.

Okay. Great. And then on the capital, I hear you on the -- you're in the range, in the pace, I think that's in line with our expectations. Can you just walk through how you're thinking about when Basel III gets finalized, any capital relief there or the toggle between CET1 absolute targets? And any comment on the TCE ratio?

Yes. I mean we're currently assessing those proposals in terms of ERBA versus the standardized approach for the impact on our capital ratios. At this time, I think we're estimating the standard approach would reduce our current risk-weighted assets in the mid- to high single digits percentage range and it would improve -- would be accretive to our CET1 ratio by around 70 basis points. We also don't expect the AOCI inclusion to have a material impact on given our relatively short duration. Investment portfolio at the quarter, we were down -- it would have been about a 42 basis points drag. So in terms of that, we're still assessing -- and I don't think we're ready to commit to ERBA today, but we'll continue to evaluate it. Arch, anything else to add there terms of Basel III.

I think you hit the highlights there, Craig. I mean, the only thing I'll add there, Chris, is Obviously, time line. I would say we're expecting by end of the year for at least an update or a final rule determination on that front. From there, we'll assess the opportunities ahead of us. But I think to echo Craig's point, with OCI kind of being front and center with the September move in rates at a 40 basis point impact on the OCI mark from the portfolio. We feel like we're in a very good place here to kind of manage through the final rule and what the potential impacts would be for us. .

Your next question comes on the line of Brian Foran with Truist.

I guess on fund banking, any thoughts -- obviously, great growth. Any thoughts on what pricing on loan and deposits looks like? And I guess, ultimately coming on at a similar net interest margin in that business to the overall company or in you'd flag about it being higher or lower?

Yes, this is Elliot Howard, I'll start there and then kit any comments from Jesse. I mean, I think, in general, very healthy spreads in the fund banking business. I think we did over probably a 6- to 8-quarter period, a little bit of compression in that business. That's largely stabilized. So if you look at our overall portfolio, I mean, it's coming on, I'd say, slightly above what we consider very healthy spreads and very healthy, I think, even to kind of our marginal funding in -- as far as the deposits in that business, they're actually lower than our average deposit at the bank so really some of the lowest ones that we probably have from a lot of business perspective. Not all those obviously are completely lendable given the nature of decline holding liquidity. But from a just absolute rate perspective, positive on the loans and also certainly lower than our average cost of deposits. Jesse, anything to add on kind of either of those points?

Elliot, I think you said it well. Competition does remain active. We have, as you said, experienced some spread compression in our markets I think that's across the broader fund finance market in general. But I do think it differentiators -- our pricing decisions consider the economics of the entire client relationship that includes lending deposit fee income, obviously. And so we're evaluating opportunities based on an overall risk-adjusted relationship return rather than just loan spreads or deposit spreads in isolation and so. And I think that continues to allow us some favorable risk-adjusted returns accretive to FCB overall. That said, compression has slowed competitive environment has not slowed, but the compression we've seen in the market has slowed on the loan yields. And so we're anticipating it to go to a more muted pace going forward.

Great. If I could ask 1 follow-up. Historically, in the -- days, when you got a sharp move higher in rates or the rate outlook, it wasn't always the case, but there were times when there was an air pocket in activity in BC World. Is that something you're watching at all? Sound like it -- so maybe what's different this time that's making Fund Banking kind of zig where this historically would have lagged as rates move up?

Yes. So in general, higher rates could slow transaction velocity, right, particularly for higher leverage transactions. This is more on the private equity side of the house. But we just think it's going to take substantially higher rates for things to slow materially. Sponsors still have a ton of dry powder, fundraising is active among the more established managers, our clients continue to be focused on deploying that capital in. So our growth rates are more influenced by fund rising in capital deployment, less so by rate movements alone. Historically, we have seen overall minimal impact on activity levels from rate increases alone in our loan book. I'll pass to Marc if he has any comments on the overall venture ecosystem and how rates can impact that?

Yes, I will pick up on that. And as noted, higher interest rates, rising interest rate environment can be a headwind for venture investment, as I think Jesse mentioned given the extraordinary pace of venture investment that we've seen year-to-date, we could see some slowdown, expect quite likely we'll see some kind of slowdown. But at the same time, haven't really detected any dampening of enthusiasm, I guess I would describe it, based on rates. The pace of venture investment through the third quarter remain pretty robust, I think part of this is likely a function of the diminished outside of AI investment anyway, the diminished pace of venture investment in '22 to '25, I think results in a little bit of a pent-up, if you will, pent-up investment that we've seen really pick up as noted year-to-date. And there certainly is that question of how much higher will rates go how swiftly and it remains to be seen going into '27 if that turns out to be more of a headwind. But so far, again, the enthusiasm we're seeing from venture investors is notable and seemingly not diminished by what we've seen so far in the rates.

Our next question comes from the line of Anthony Elian with JPMorgan.

Just following up on that previous question. Marc, are you seeing any signs of a slowdown or cause from concern or hesitation from IPOs getting pulled or delayed? Is that causing any concern among your clients?

Specifically, it's not a concern I've heard of specifically, I would broaden that to say in general, while exits were better in the third quarter, there was some concentration in that 1 transaction was, I think, about half of the exit value. And when you net that out and then add the bar remains high for IPOs. We're still not seeing the degree of exits and capital making the round trip that we would hope to. And again, we'll see if that changes. But for the moment, that, I think, remains a bit of a headwind, though at the same time, there are other avenues for liquidity and things like secondaries, et cetera, that continue to provide some degree of liquidity while we wait and see when we're going to get a more wide open IPO window.

Okay. And then on Slide 23, you gave us some of the funding sources such as FHLB brokered and issuing debt that can help offset prepaying the note. Those to me sound all like more incrementally expensive sources of funding relative to the note. Can you help us size up how much of a drag on NIM or NII, you expect next year from placing the note with those funding sources?

Anthony, it's Arch here again. Point taken there. I mean, obviously, with the marginal cost of funding through those channels being that in higher of the purchase money, no coupon and effective yield we have on it. It will pressure and have a bit of a drag there on the margin component. I think overall, though when we look at how the balance sheet forecasts and models out through the program or the strategy here, we expect to still continue to have some positive operating leverage across the aggregate. So again, I think for us, it's more of a temporary drag and something we feel like we can work through again as we look at a longer horizon here. .