Synovus Financial Corp
NYSE:SNV
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Synovus Financial Corp
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Good morning, and welcome to the Synovus Financial Fourth Quarter 2018 Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Steve Adams, Senior Director of Investor Relations. Mr. Adams, please go ahead.
Thank you, Anita, and good morning, everyone. During the call today, we will be referencing the slides and press release that are available within the Investor Relations section of our website, synovus.com. Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today, with our executive management team available to answer any questions. Before we get started, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties, and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as may be required by law.
During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendix to our presentation. [Operator Instructions].
Thank you, and I'll now turn the call over to our Chairman and CEO, Kessel Stelling.
Thank you, Steve, and good morning to everyone. Welcome to our third -- to our fourth quarter earnings call. I'm joined this morning by our Synovus leadership team. As usual, I'll walk through the earnings presentation, and we'll open the line for questions. I'll start the earnings deck on Slide 3, which provides a summary of our fourth quarter results. Diluted EPS was $0.87 for the quarter. On an adjusted basis, diluted EPS was $0.92, down 3.1% from the previous quarter and up 28.1% from the same period a year ago. The adjustments this quarter of the reported EPS are largely due to merger-related expenses, the $3.4 million associated with the Florida Community Bank merger, and a $1.6 million decrease in the fair value of private equity investments, net of tax. Fourth quarter results were positively impacted by a broad-based loan growth, strong growth in deposits, due in part to seasonal inflows of state, county and municipal deposits, and an additional 3 basis points of margin expansion.
However, these benefits were offset by a higher effective tax rate during the quarter, due primarily to refinements of year-end provision estimates. For the full year, our effective tax rate was 21.7%, in line with the revised range we provided last quarter. Return on average assets during the quarter was 1.29% on a reported basis. Or on an adjusted basis, return on average assets was 1.36%, down 11 basis points sequentially and up 24 basis points from a year ago.
Total adjusted revenues increased 8.5% versus the same period last year, while adjusted expenses increased 2.5%. Though we experienced a slight increase in our expense run rate due to seasonality in the fourth quarter, we remain very focused on managing expenses in line with our objective to maintain a strong, positive operating leverage. On the balance sheet side, average loans for the quarter grew $303.7 million or 4.8% sequentially and just over $1 billion or 4.1% versus a year ago. On the other side of the balance sheet, average deposits grew $532.8 million or 8% sequentially and $634 million or 2.4% versus a year ago. Total deposits in the prior year -- prior quarter were elevated due to broker deposits received as part of the transaction with Cabela's and World's Foremost Bank.
We continue to benefit from a relatively stable credit environment with the nonperforming asset ratio improving further to 0.44%, a 2 basis point improvement from the previous quarter and a 9 basis point improvement from a year ago.
Lastly, in terms of capital management and returns, we continue to see improvement in overall capital efficiency with an adjusted ROE of 14.99%, up 303 basis points from a year ago. Adjusted return on average tangible common equity improved to 15.36%, up 310 basis points from a year ago. Moving to Slide 4. Total loans of $26 billion grew $369.5 million sequentially or 5.7% annualized and 4.7% from a year ago. We were pleased to see steady loan growth again this quarter with C&I up $278 million and consumer loans up $240 million, somewhat offset by commercial real estate loans, which declined $148 million. Declines in the CRE were spread across multifamily, shopping center, hotel and nonstrategic land and development portfolios. C&I loan growth was driven primarily by our general commercial banking teams across the footprint and was aided somewhat by seasonal growth in line utilization. Additionally, our interest premium finance business, Global One, grew $80 million during the fourth quarter, and our asset-based lending vertical grew $41 million.
Similar to last quarter, our consumer portfolio experienced growth across all categories, including mortgage HELOC, lending partnerships and credit card. From a geographic standpoint, our metro markets continue to drive a large share of overall loan growth. Total average loans grew $304 million sequentially. Compared to the same quarter a year ago, average loans grew $1.01 billion or 4.1%. We continue to be pleased with the balance loan composition and diversification of our balance sheet. C&I loans now represent 49% of total loans, with consumer loans increasing to 26% of the portfolio, while CRE loans have now declined to 25% of outstanding balances. We continue to be selective in our approach to CRE, monitoring our markets and asset classes very closely and maintaining very strong discipline around price and structure.
Moving to Slide 5. In deposits, total average deposits of $26.92 billion increased $533 million sequentially and have increased $634 million or 2.4% versus a year ago. As I mentioned earlier, the year-over-year growth was muted due to the expected decline in brokered deposits that were required in the fourth quarter of 2017 in the transaction with World's Foremost Bank. To date, just under $400 million or 1/3 of the original $1.1 billion broker deposits associated with World's Foremost Bank have matured. As a result, average brokered deposits declined to just 6% of total deposits in the fourth quarter of 2018. Excluding brokered deposits, average deposits increased $681 million versus the third quarter of 2018 with strong growth in non-interest-bearing deposits, up $342.8 million from the prior quarter, as well as a $114 billion growth in money market accounts and $205 million in time deposits. While a significant portion of the growth in non-interest-bearing deposits was due to seasonal state, county and municipal inflows, growth in other non-interest-bearing continues to be strong, resulting from account growth as well as balanced augmentation. As expected, we experienced seasonal inflows of state and county and municipal deposits during the quarter of approximately $313 million. We expect these deposits will return to more normalized levels during the first quarter of 2019.
Moving to Slide 6. Net interest income was $298 million, increasing $6.3 million or 2.2% versus the previous quarter. Compared to the same period a year ago, net interest income increased $28 million or 10.5%. The net interest margin for the quarter was 3.92%, up another 3 basis points from the previous quarter and up 27 basis points from a year ago. The net interest margin improvement for the quarter was driven by a 12 basis point increase in loan yields due to the September and December short-term rate hikes and resulting higher average LIBOR rate. The increase in cost of funds during the fourth quarter was consistent with the third quarter, as the effective cost of funds increased 8 basis points sequentially to 81 basis points and the cost of interest-bearing deposits increased 14 basis points this quarter. Deposit betas actually declined this quarter with an incremental interest-bearing deposit beta of 52% compared to 67% last quarter. Additionally, our cycle-to-date beta of only 23% continues to demonstrate the value of our strong core deposit franchise.
Turning to Slide 7. In fee income, total noninterest income for the quarter was $68 million, down $3.7 million versus the prior quarter and $1.4 million versus the same period a year ago. As I mentioned earlier, noninterest income in the quarter included a decrease in the fair value of private equity investments of $2.1 million. Adjusted noninterest income of $70.1 million decreased $1.2 million versus the prior quarter and increased $822,000 or 1.2% versus the same period a year ago.
Core banking fees of $36.8 million increased $1.1 million sequentially and were up $1.2 million or 3.5% compared to the prior year period. The improvement in core banking fees quarter-over-quarter was largely due to better card fee income as well as SBA gains on sale. Fiduciary asset management brokerage and interest revenues of $24.6 million increased slightly on a sequential basis and increased $2.8 million or 13% from a year ago. Assets under management declined in the fourth quarter due to a decline in equity markets, but due to account growth is up slightly versus the same period last year. That said, for the full year, revenues associated with these businesses increased 13.7% through our focused talent and expansion efforts, and we look forward to continued progress on these goals in 2019.
Mortgage revenues of $3.8 million were somewhat soft in the fourth quarter, declining $1.1 million sequentially as a result of lower secondary market production, which was due to seasonality and continued pressure on refinance activity.
Turning to Slide 8. Total noninterest expense of $209.9 million decreased $10.4 million or 4.7% sequentially and decreased $16.6 million or 7.3% versus the same period a year ago. The year-over-year decline is a result of a $23 million pretax loss from early redemption of senior notes that was incurred in the fourth quarter of last year as part of our balance sheet restructuring actions undertaken related to the Cabela's transaction. Also, as I noted earlier, the current quarter included FCB merger-related expenses of $3.4 million.
Adjusted noninterest expense of $206.1 million increased $4.5 million or 2.2% sequentially and increased $5 million or 2.5% from a year ago. The sequential increase in expenses is a result of a $3.1 million increase in advertising expenses, which were seasonally lower in the previous quarter, and a $3 million increase in consulting fees incurred as we prepare to launch our new consumer online and mobile platform known as My Synovus in the first quarter. We're very excited about that. These increases were partially offset by a $1.7 million reduction in FDIC expense, resulting from elimination of the DIC surcharge.
We were pleased this year [Technical Difficulty] which was 55.98% in the fourth quarter and 56.33% for the full year, improving 354 basis points from 2017 and exceeding our long-term target of 57%. Turning to Slide 9. You'll see continued excellent performance in our credit quality measures. The NPA and NPL ratios both improved, declining to 44 basis points and 41 basis points, respectively. Past dues greater than 30 days declined to 22 basis points, while past dues greater than 90 days were 1 basis point. Net charge-offs ended the quarter at 20 basis points. For the full year, charge-offs also came in at 20 basis points, which was right in the middle of our stated range of 15 to 25 basis points. The allowance for loan losses declined a modest $900,000 from the previous quarter, with a ratio ending at 97 basis points, down 1 basis point from the third quarter. However, the coverage ratios of reserve to NPL remains strong, improving slightly from the previous quarter to 235% or 298%, excluding impaired loans, for which the expected reserve has been charged off.
Before we leave the credit slide, I want to take a couple of minutes to reflect on the significant progress our company's made over the past few years, as we have completely rebuilt our balance sheet structure and greatly strengthened our credit profile and reiterate our commitment to this conservative approach to credit as we move into a more uncertain 2019.
Post crisis, the CRE book has declined from 46% to 25% of total loans, with C&I increasing to 49% and consumer increasing to 26%. In addition to reducing our CRE exposures significantly, the mix within CRE has shifted with investment properties now comprising 85% of the CRE portfolio. These loans have been originated under a conservative underwriting policy, with appropriate loan to value and debt service covenant requirements in place for each property type.
Residential C&D and land, which once comprised almost 25% of the entire loan book, now comprises only 1.7% of total loans. This is now considered a nonstrategic portfolio and only a small volume of nonspeculative loans made to well-established homebuilders under very strict underwriting guidelines. We adhere to a very comprehensive concentration policy, where we limit our exposure to any asset class or individual borrower. Our appetite for each property type and industry is determined by senior credit leadership based on real-time market intelligence and approved by our board-level risk committee. Additionally, we rigorously stress test our portfolio and results, showing that even a severely adverse economic scenario would result in significantly lower credit losses than during the last recession, with capital level remaining adequate throughout the period. This is a direct result of our efforts since the last recession to restructure and derisk the balance sheet. As I said earlier, while the future economic outlook is less certain, we believe we're well positioned from a credit quality standpoint, regardless of the timing or the severity of the next downturn.
Moving on to Slide 10 to talk about capital, where you'll see our ratios generally improved during the quarter. All ratios remained well in excess of regulatory minimums and are at the upper end of our internal operating ranges. Our CET1 ratio increased to 10.04% during the quarter. In December, we announced an additional common share repurchase authorization of $25 million that was completed in the same month. Together with the $150 million authorization announced in the first quarter of 2018 and completed in October, our total common share repurchases in 2018 were $175 million. This resulted in a reduction of 3.7 million shares, a 3.1% reduction in our share count. In the aggregate, we returned $281 million to common shareholders through a combination of share repurchase and common stock dividends in 2018.
Just to give you a quick summary of the year, Slide 11 highlights a number of key metrics that just show the broad-based financial improvement that our team achieved in 2018. So I'll hit those very quickly. Generally, our financial results were in line with our 2018 guidance. We're well ahead of the long-term targets for EPS growth, ROA, ROTCE and the adjusted efficiency ratio that were established just a year ago. For the full year, adjusted EPS grew 43.8%, adjusted ROA improved to 1.41%, return on average tangible common equity improved to 15.66% and the adjusted efficiency ratio improved to 56.33%.
Additionally, we achieved further growth and diversification of our balance sheet. We maintained strong credit quality. We enhanced our capital position and executed on a truly strategic merger with FCB that broadens our reach in one of the most compelling markets in the Southeast. In short, our team delivered on our objectives in 2018, and we have a high degree of confidence as we move into 2019. Before I give a brief merger update, I'd like to take just a minute and give an overview of FCB's fourth quarter financial performance with a summary of those results provided in Slide 18 of the appendix.
We saw continued strong fundamental performance during the quarter with net income of $41.8 million and EPS of $0.87 a share, down $0.02 versus the third quarter, primarily due to increased provision. Loan growth was sound during the quarter with average new loan growth of over $300 million during the quarter and period-end loan growth lower due to elevated CRE payoffs late in the quarter. Efficiency of operations continue to be a point of emphasis with noninterest expense of [Technical Difficulty] declining $4.1 million from the third quarter, resulting in an efficiency ratio of 36.22%.
Core NIM was 3.15% compared to 3.18% in the prior quarter, as the yield on earning assets increased 11 basis points, while the effective cost of funds increased 14 basis points. We continue to be very pleased with the quality of the loan portfolio. The quarter did include $10.7 million in provision expense associated with the charge-off of a syndicated C&I loan, which FCB had previously identified. The loan was incorporated into our due diligence process, as it was on nonaccrual status during our review. The charge-off this quarter represents further migration of the credit. We believe this fully covers the exposure. This one-off credit does not represent a systemic pattern. As we've stated before, Syndications represent about 3% of the FCB total loan portfolio.
The overall credit metrics continue to be strong with NPAs of 25 basis points, NPLs of 11 basis points and 60-day delinquency also at 11 basis points. And with the aforementioned charge-off, net charge-offs were only 14 basis points for the year. Kevin Howard will give a little more color on credit for the combined company later on, but again, we've been very pleased both with the performance of the existing book of FCB and, certainly, the loans we've seen originated since we've begun our association. And Kevin, again, will cover more on that later.
So we've mentioned the FCB integration a number of times. Before we talk about our 2019 Outlook, I want to just offer a few comments about the success of our legal day 1 conversion and why we're so confident as we prepare for the full conversion of our systems and branding by mid-2019. We were very pleased with the efficiency of the regulatory approval process and our own internal planning and organization, which allowed us to close on January 1, 2019, just 161 days after announcing the transaction. Our top priority in preparing for legal day 1 was caring for the FCB team members and their customers. We took the important steps early in the process to assess talent and offer competitive packages for those we wanted to retain. We also began introducing our culture. We regularly share information and offer training that enabled a smooth transition into our team on day 1. We're very pleased with the employee retention rate to date, while also remaining in line with our efficiency targets, including headcount-related expense savings.
We now expect merger-related cost savings in 2019 to exceed $25 million, well ahead of our original 2019 estimate of $20 million. We're also pleased with customer outreach and response. So far, both account attrition and call volume under our customer care center had been low. And we continue to equip our Florida team to constantly promote the long-term customer benefits for our combined bank to actively promote our brand in that region through multiple channels and to take steps to enhance the customer experience during the transition.
Finally, as we prepare for legal day 1, we're already planning for the full brand and systems conversion, which we expect to complete by midyear. The time line on the slide provides a very high-level view of key activities and when they occur over the coming months. Our team is energized around the even more complex work ahead and ready to move us through the next several months, so that we're able to fully execute as one team serving customers in our newest high-growth markets.
Moving to Slide 13 and beginning to look forward. You'll see that these 5 key opportunities we've outlined for 2019 are in some ways very similar to those that enabled our company to generate significant financial improvement over the last few years. The mid-single-digit growth profile we've demonstrated historically will be enhanced by FCB's strong Middle Market Banking award culture that is characterized in both institutions. In addition to growing our balance sheet, interest income, our expanded talent base in wealth management, insurance and brokerage will further diversify our source of revenue, which makes our business more resilient over the long term. The work we've done to rebuild our consumer product offering will be invaluable in deepening our share of wallet with existing customers and acquiring new ones. As we grow revenue, ongoing rationalization of our core expense base is just a way of life. This will continue to be the case in 2019. And just as we have in the last few years, you should expect to see us maintain positive operating leverage of 1.5 to 2x. As these financial results are delivered, our expected earnings and capital optimization actions in 2019 will lead to an outsized opportunity to return excess capital to our shareholders. And now that we've completed the first phase of the merger, we can begin to deliver on the cost savings associated with the acquisition, again, expected to exceed $25 million in the first year. More importantly, though, we're eager to leverage the complementary strengths of our platforms and begin generating revenue synergies by deploying a best-in-class set of products, services and capabilities to our collective customers.
So with that backdrop, I'd like to take you to Slide 14, which will give you a view into our 2019 guidance. And then I'll talk more specifically about our capital plans and how we anticipate these results to tie in with these long-range objectives.
We expect 2019 to be another solid year from a balance sheet perspective. We expect loan and deposit growth of 5.5% to 7.5% on a period-end basis, with deposits growing at a pace that supports our loan growth, while maintaining an appropriate loan-to-deposit ratio consistent with earnings operating range of 95% to 97%. This expected growth is measured off of a pro forma combined baseline of $35.37 billion in loans and $37.6 billion in deposits based on a preliminary consolidation of both balance sheets.
We also expect revenue growth of 5.5% to 7.5% in 2019, in line with our balance sheet growth expectation. This outlook assumes no short-term rate hikes in 2019, and we expect the post-merger adjusted NIM to compress slightly as a result of the flatness of the current yield curve and our plans to optimize the capital stack. We also expect adjusted noninterest expense in the range of 2% to 4%, net of synergies tied to the FCB acquisition. As I indicated earlier, we fully expect to manage ongoing expenses in a prudent way, while also realizing merger cost savings in an accelerated manner throughout the year.
Our effective tax rate is expected to be 23% to 24%, and we anticipate a net charge-off ratio of 15 to 20 basis points, which incorporates the impact of large acquired loan portfolio as well as an expectation of slight normalization of charge-offs in 2019 relative to the historically low levels in 2018.
And finally, our capital actions for 2019 will include a 20% increase in our common dividend to $1.20 per share and expected share repurchases of $300 million to $350 million, which we largely support by capital optimization strategies, including expected capacity to issue Tier 2 instruments.
On Slide 15, you'll see some additional detail related to the 2019 capital actions I just mentioned, which, collectively, are expected to return approximately $500 million to common shareholders over the next 4 quarters. I'll walk through the components of this plan, which include both the larger common dividend and an increase in common share repurchases.
As we've shared many times before, our capital prioritization strategy always begins with funding organic growth and investing in appropriate level of capital back into the business, followed by a pursuit of competitive dividend, optimizing the capital stack and then finally evaluating the risk-return trade-off between share repurchase and M&A.
We're pleased to announce that our Board of Directors has approved a 20% increase in the common stock dividend for 2019 to $0.30 per share, with a quarterly dividend payable effective with a dividend payable in April of 2019. As a result of our higher share count after the issuance of stock to acquire FCB, the dollar impact on an annual basis associated with the dividend is $190 million to $200 million. Including the current increase, the dividend growth rate for Synovus has been 30% on a compounded basis since 2014.
In 2019, we'll also have an opportunity to optimize combined capital base of Synovus after merging with FCB. The chart at the bottom left of the slide reflects our pro forma capital ratios post merger and reveals that while our total risk-based capital ratio will begin the year in the low end of our operating range, we would have the capacity in our other capital ratios to issue $300 million to $350 million of Tier 2 qualifying instruments for the purpose of repurchasing common stock, while remaining well within our desired operating range.
On Slide 16, as you -- we've said over the last few months that we'll provide updated long-term targets having exceeded or on track to exceed all of our previously stated goals, included 20% compounded EPS growth of 1.35%, ROA 15%, return on tangible to common equity and an adjusted efficiency ratio below 57%.
Further, by enhancing our growth and profitability profile with the merger with FCB, we believe we're on track to deliver top quartile financial performance. So we're resetting our long-term targets accordingly. As you'll see on Slide 16, our team has defined key areas of focus around which we're building core strategies that will enhance the customer experience and solidify our value proposition. Of course, by doing so, we'll continually elevate our financial performance in key areas of growth, profitability and efficiency.
Over the three year time horizon, we've defined, for meeting these targets, we believe we'll reach an ROA of 1.45%, an ROTCE of 17% and maintain a tangible efficiency ratio of around 50%.
So before we open the line for questions, I just want to reiterate how proud I am of our combined teams for their contributions to a landmark 2018, a year that included a historic transition to a single brand, among other milestone accomplishments. As evidenced in the priorities and opportunities we outlined during our call today, you can see 2019 is already fast and furiously underway for our team. We're very aware of the challenges ahead, but that's really when our team is at its best, as we've demonstrated time and time again. In addition to our intensive focus on successfully completing the FCB integration and launching our new My Synovus digital banking experience through the first half of the year, our team is also aggressively positioning talent and building synergies through our new go-to-market delivery model announced late last year.
As you've already heard, our new Chief Operating Officer is Kevin Blair. And under his model, we'll combine our revenue-generating businesses, our technology and operations team for what we believe will be much better alignment and execution of our growth strategy.
Kevin and his team, which includes Kevin Howard, whom, as you know, is transitioning out of his role as Chief Credit Officer to lead our newly combined wholesale bank team; Wayne Akins, who's expanding his role from Retail Executive to Chief Community Banking Officer, leading a combined retail community bank team; Bart Singleton, who continues serving as our Financial Management Services President and EVP; and Zack Bishop, new to our team, our IT and Operations Executive. All of them have made significant changes in reporting and named key talent to new or expanded role in the organization. We're very excited about the way this team is going to market. You'll hear again from Kevin today in his last official day as a spokesman for our credit team. And we'll have a search, as we have said before, underway today for a new CFO.
We really do believe this new model is going to foster a more fluid, effective approach for attracting and winning new business, especially as we integrate the newest Florida team members into our relationship-centered sales and service culture.
And then finally, as Kevin Howard transitions to his new role, we announced just yesterday, Bob Derrick is our new Chief Credit Officer. Bob's with us today. We won't have him speaking on this call. We're really excited about Bob and his role. He's not new to credit. He's not new to our company. He's got more than 15 years in various credit supervision roles within Synovus, most recently as Chief Credit Officer for the entire community bank. Bob is a very natural choice to succeed Kevin Howard. We appreciate his willingness to relocate to our headquarters here in Columbus and to lead this critical function for our company. Again, as I mentioned earlier, we have an active search underway for our new CFO and believe we'll have that talent in place soon.
With that, we look forward to reporting our progress to you throughout the year. Thank you for your continued interest in our company.
Operator, we'll now open the floor to questions.
[Operator Instructions]. The first question today comes from Ken Zerbe with Morgan Stanley.
So I'll just start off on the buyback. So obviously, it's good to see the higher buyback amount. Could you just talk a little bit about the timing of how those -- the $300 million to $350 million could progress in terms of the buybacks over the course of the year, but also throw in the Tier 2 debt. Do you need to -- is it going to be a 1:1 issuance? And what's the timing of when that might be issued?
So Ken, obviously, the way in which we look at share repurchases, they're situational based on the stock price, our liquidity position, the level of organic growth. So you may want to model share repurchases happening across the entire 4 quarters. But as it relates to the Tier 2 issuance or the potential Tier 2 issuance, we're constantly looking at the markets to understand when they're constructive. I would suggest that we would look to do -- if we were to go to market, we would look at benchmark-type transactions. So you could look at a site that would be fairly correlated to the level of share repurchase. But again, it's hard to foreshadow when that opportunity would arise based on the markets and how constructive and what pricing we would receive on those instruments. So not a specific answer. We're in -- we're constantly looking at the markets, and we're evaluating what's opportunistic for Synovus and that's when we would go to market with any transaction.
Got you. Understood. Okay. And then just second question, in terms of the FCB cost savings and in terms of the $25 million, does most of that get realized after the full systems conversion in sort of second half of the year? Or could any of that be front-loaded?
Some of it will be frontloaded as we get some expense saves upfront with certain personnel that we're able to get some savings from the reduction in the workforce. There will be additional personnel savings as we go through the rest of the year, but there are other items like contracts and one-time expenses that would be reduced in the first half of the year. So it's largely spread across the year.
The next question comes from John Pancari with Evercore.
If you could just give me -- give us a little bit more color on the FCB credit that you flagged, Kessel, mainly just around the -- why they have confidence that it's not a one-off -- or that it is a one-off and not indicative of a trend. What are they looking at that gives them that confidence? And also, could you just remind us of the size in the industry of the credit?
Yes. I'll let Kevin delve into more detail there, John, but I'll just say, as I said, syndication's a very small part of their book. It's a nonorganic piece of their book, less 3% or less. Again, this particular credit was identified by them and moved to nonperforming. I don't know the exact timing. But certainly, when we did our due diligence, it was already classified. So this was not a surprise to them or to us. And it's just in those nationally syndicated credits, where we've got a lot of banks, there's just a process you go through. But Kevin, let me -- not to steal your thunder. I'll let you add anything else you want to...
Yes. Kessel pretty much covered that. But I would just say this. There were -- the reason we feel it's not a systemic issue, again, 14 other banks involved. Their exposure was around $15 million, $16 million. It was, again, in the syndication book, I think there's just a handful of those credits that they're in. It was identified. As Kessel said, it's had some further migration during the year. And to their credit, they went ahead and dealt with it in the fourth quarter and charged it down to where, out of luck, there's any more exposure left. So it's very one-off-ish and -- John.
And John, I'll just add again that we look at that entire syndicated book as part of the due diligence. And again, this was one that was NPL at the time of due diligence. So there's no surprises here at all to us.
Yes. And since John asked, I guess, the industry was health care-related.
Got it. Okay. All right. That's helpful. And then related to that on the credit side, can you just talk about -- your charge-off guidance that you're providing for '19, given where you came out in '18, it doesn't really imply an increase to the overall charge-off level, and then particularly even when you factor in the mark that you took on the FCB book. So no real increase implied. How do you look at that? Because more broadly, the industry is going to see some incremental normalization of losses here. And you would think that charge-offs are going to be going higher. And then lastly, how do you still -- how do you feel about the mark, the low mark that you took at this point?
I'll maybe start it. I'll let Kevin Blair finish it. But I mean, we did. If you look at -- if you just have the legacy part of Synovus, I think we were right around 20 basis points. But if you look at the last 2 or 3 quarters, we were probably more in the 24, 25 range on average. And that's kind of where we think the year will play out this coming year. So if you just took our part, if we're going into the year, we would probably have guided somewhere in that 25 basis points range. We don't see anything out there that gives us pause to maybe want to increase. So we sort of stayed the same. And then I think, Kevin, maybe you can explain the purchase accounting better than me from there to kind of how we got the 15 to 20.
So John, just our range is 20 to 30. And with the purchase accounting that we'll have on their portfolio with the credit mark, as we've said in the past, based on the deal metrics, it was 111 basis points, would be right around the $105 million. We'll obviously update that for the fair value of those loans when we -- this quarter. And so when we appropriately mark those loans, the expectation is there will not be any charge-offs on those legacy FCB loans in 2019. So the only way that you could get a charge-off in FCB would be any newly originated loan that would be through a payment default, which would be highly unlikely. So when you look at the math behind our 20 to 30, and their number largely coming in at 0, it would give you a rate that would come in between that 15 to 20 basis points.
Okay. And then your thoughts on the mark?
I think my thoughts on the mark are, as we said, we haven't seen any change or deterioration in the credit book itself. There's been no change in the composition of the loans. Kessel mentioned earlier in his prepared remarks, when you look at NPA levels at 24 basis points, delinquency levels at 11 basis points as well as the overall charge-off level, inclusive of this credit that we took this quarter at 14 basis points, we still think that the math that we shared with the deal announcement makes sense, but we'll be going through and updating that credit mark this quarter, but I don't expect there to be any shift in what we thought -- from what we thought last time.
The next question comes from Ebrahim Poonawala with Bank of America.
I guess, I just wanted to hit up on the revenue growth guidance. And I guess, Kevin, give or take, my sense is pro forma margin for 1Q should be in the low 3.70s as we start off the year. Can you talk about, one, what happens with the margin where balance sheet growth turn outs to be lower than expected? And what gives you confidence just in terms of loan growth? Like, do you expect legacy Synovus loan growth to be better in '19 versus '18? And where at FCB do you expect loan growth to come from in '19 given just this overall caution? And I think Kessel mentioned the high uncertainty. Would love any clarity on where you expect loan growth, particularly FCB, to come from.
Sure, I'll start with NIM, and I'll try to walk, Ebrahim, through the adjustments. I mean, the first two quarters are going to be a little messy with the margin. And so let's just start with 3.92% where we ended this quarter. What you should expect to see is roughly a 25 basis point decline in our margin. That's a function of the math of the deal. And so when you break that down, it's 20 basis points, just the combination of both companies' margin, plus an additional 5 basis points by losing the loan fees that are currently in the FCB margin that would be accounted for as part of the rate mark -- or as part of the mark on the loans, so 25 basis points just due to the combination. If we were to execute on a Tier 2 issuance in the first or second quarter, that would also dilute the margin by another 4 basis points based on a potential offering. In addition to that, there could be as much as 1 basis point that we would see in terms of margin compression associated with some modest restructuring of the FCB investment portfolio.
We're not going to make wholesale changes there, but we may restructure a portion of that. So that gives you roughly 30 basis points of decline to get you from the 3.92% to 3.62%. From that point, as Kessel mentioned, if you were to just look at today's forward curve and the interest rate environment, there would be a bit of a headwind on our margin just due to the flatness of the yield curve, the long end of the rates that have rallied. It would make it more difficult to get margin expansion. Now we do include 5 basis points in our revenue guidelines associated with the scheduled PAA with the rate mark on the loans as well as a small mark on our CD portfolio that will accrete in over the next 12 months. We do not include any unscheduled yield accretion that would occur in 2019. So as you know, the margin's going to be much more volatile with the purchase accounting side, but we expect to see a margin post merger somewhere around 3.65%. And so with all the puts and takes and our ability to restructure their liabilities, the determination on whether there will be a rate hike in 2019, which we have not included, that will be the deciding factors on where it moves from that level.
So moving over to loan growth, in terms of the guidance, as you've mentioned, we did guide 5.5% to 7.5%. Kessel mentioned that the legacy Synovus portfolio would continue to grow in that mid-single-digit ranges of 4% to 6%. So you would see more of a sustained growth level from the legacy Synovus. That would put the FCB portfolio in the high single digits, into the 10% range, and that's obviously much lower than what they've done in the past. And we feel very comfortable with both organizations' ability to deliver the growth. And as Kessel mentioned the 2019 opportunities lie, it comes in all asset classes and categories. So we expect to see growth in C&I in both organizations. We have modest growth planned in CRE. And again, that can come from both organizations. And then we have consumer growth. As we've shared in the past, FCB has not been as focused on the consumer lending asset class. And although we will continue to get growth in legacy Synovus, we think there's opportunity to expand that into the FCB franchise. So quite frankly, we think there's going to be balanced growth, and there's not any one big bet on any one asset class or category. And then the last thing I'll mention to your question was what happens if we don't get loan growth.
One of the things that we've tried to build as an organization is a much more dynamic revenue model. So that if we do not get the level of loan growth, the economy were to change, we have other levers that we can pull to generate bottom line improvement. That starts with the expense line item. And we talked about -- Kessel mentioned, we will continue to deliver positive operating leverage again this year. We had 2.6x operating leverage in 2018. And so we think there's extra capacity there. If you wouldn't get the growth on the revenue side, we can manage the expense line item. And then lastly, from a share repurchase perspective, if we're not getting organic growth, as Kessel mentioned, that is the top priority, we have additional capacity to repurchase shares, which would also drive EPS without getting the benefit of additional loan growth.
So very helpful. And I know there's a lot there in my question. Just one sort of follow-up on the margin. So the 3.65% starting point, very clear. Should we not have any benefit from the December rate hike going into 1Q to the -- particularly to the SNV margin as we think about where 1Q resets? And is it -- and what level of deposit migration do you continue to expect, either through time deposits or rising deposit betas, as you think about your revenue guidance for the year?
Yes. Well, I'll answer him quickly because he's cutting off. But we'll get some benefits in probably the legacy Synovus portfolio. FCB largely mitigates that. So it would be awash going from the December rate hike. And as you look forward, in terms of deposit migration, we're actually seeing -- as rates pause, we'll see less migration into higher cost deposits. But as you've noted, both organizations over the last two quarters have had outsized sales in CDs. So the percentage of CDs in terms of the total portfolio will increase in 2019.
The next question comes from Brady Gailey with KBW.
So when you look at FCB, I know you all talked about the cost savings in 2019 being $25 million or maybe even a little above that versus the initial expectation of $20 million. But when you look longer term, I mean, I think 2020 is the first full year where you'll see full cost saves. I know when you all announced the deal that number was around 26% of their expense base, but what's the update for kind of the longer-term kind of full cost save estimate for the deal?
Brady, we haven't provided a 2020 view on that, but I think you can read into our comments from the $25 million that we think there's additional opportunities in the long-term cost savings. Similar to the last question with Ebrahim, if we get the level of revenue growth, you may see the expenses staying more in line with the expectations. If you're not getting it, you may see additional expense savings. But we feel very good about what we've identified at this point. We know where there are expenses in both organizations that are scalable. And so we're going to be very mindful of the top line growth that we deliver, and then we'll use the expense number to help mitigate any pressures we see on the revenue side. So there's always opportunity there.
And Brady, just to put an exclamation point on that, I think the key takeaway today is that we found more sooner, and that's a good thing is the $25 million versus the $20 million. But before we update the longer term, we'd like to get a little further in, get the systems conversion, make sure that as we migrate customers, we've taken the appropriate care there. And as we can give more guidance or more specific guidance in the long term, we'll certainly do that.
All right. That's helpful. And then my follow-up is just about, now that FCB is in the fold, just an update on how you guys are positioned to rates. I know, historically, Synovus has been asset-sensitive. You've all seen the net interest margin go up with these rate hikes. If you look at the curve now and if you look with the FCB in there, like I know you all used to provide the guidance of what plus 25 and plus 100 basis points would do. Maybe just an update on kind of where you consider Synovus' position related to rates with the FCB in there.
Great question, Brady. We took that out this quarter just due to the fact that we didn't want to have a misleading slide in there that just included just the Synovus asset sensitivity. But what you should take away from that is that, with the combination of FCB, our asset sensitivity actually remains asset-sensitive. It actually mitigates or comes down just a little bit. And that's solely based on the mix of CDs that FCB has. So our overall asset sensitivity is slightly less, but we remain asset-sensitive. But what it does is -- and entering into a longer-term view of rates and if we were to go into a declining rate environment in the foreseeable future, it actually helps to mitigate some of the pressure that we would see on NII naturally without having to go out and do anything synthetically on terms of just a down 100 shock. So it doesn't materially change our profile in the short term in terms of the plus 25, but it does give us an additional insurance for a down 25 or down 100 shock as we look at the long term.
Next question comes from Jared Shaw with Wells Fargo.
Just on the FCB charge-off, you said that, that was included in the NPL due diligence. Was that part of the credit mark, the initial credit mark? Or was this in addition to the incremental credit mark?
So great question, Jared. It was partially included, the credit mark. What we do obviously in the credit market, we would have taken that nonaccrual credit at the time and place some level of reserve. What Kevin Howard said in his comments was that there's been additional migration on the credit since we did that July credit mark. So we didn't have it fully marked in there, but a large portion of it would have been considered in our initial credit mark.
Okay. So with that charge-off and then the incremental migration, we shouldn't expect to see the actual final credit mark probably being too much different? We shouldn't exclude that from the -- from the credit mark then at this point?
I wouldn't because there could be other things that enter into the equation, just with the growth that they've had over the last several quarters. But I think, your math, you're thinking about it the right way. It was something that we had included there, but not the full amount, but it wouldn't have a material impact on the overall credit mark.
Okay. For my follow-up on the -- with the capital position now. What's the appetite, I guess, for looking at additional M&A as opposed to the buyback? Or should we expect that M&A is completely off the table at this point?
Jared, it's certainly off the table at this point. As I've said often, our focus is on getting this one integrated and get the cost save we've talked about, get the revenue synergies that we really believe will come and truly begin operating as one company. And you don't prove that out in 1 or 2 quarters, maybe even 1 year or so. Yes, it's completely off the table. We certainly always evaluate M&A. You could look at -- as I've told every investment banker out there, find me another Global One, which is a nonbank that's bolt on with an earnout. And could that be attractive? Sure. But for whole bank M&A, that's off the table. We've got both teams, and when I say both teams, really one team now, but everybody's excited about the opportunities. And it's going to take this year and I believe next year to prove that out, to prove what we strongly believe today. So our efforts are on execution. I think our teams have done a great job, by the way, getting this from deal announcement to deal close in 161 days. I think that speaks to our process, to our ability to plan, organize and execute. I think it speaks to regulatory credibility. I think it speaks to really good efficient operation. We want to take that same energy now and move it towards systems conversion. And then the real work begins. As I told at dinner last week, that's when the real work begins, which is running the company in a way that provides the value to the combined customer base that we believe it does. So that was a 5-minute answer to yes, you can take M&A off the table.
The next question comes from Casey Haire with Jefferies.
Kevin Blair, just a clarification question for you on the revenue outlook. Does the 5.5% to 7.5%, does that bake in the cost of the Tier 2 instruments?
It does include some level of Tier 2 instruments in there.
Okay. Great. So all right. Okay. And then just following up on the CRE and the loan growth guide. It sounds like CRE, you guys -- that's been a soft category for you in '18, but you do expect growth. Just what's the underlying confidence with -- on the CRE front given what sounds like a pretty competitive environment?
Yes. I think a couple of things. I think we had a good last couple of quarters of new construction loans that were originated. That will start to fund up, we think, a little bit higher than maybe the pace has been in the last few quarters. That's been primarily in the multifamily space, in some of the owner-occupied space as well. And also -- and I probably said this too many times, but we feel like the payoff velocity even really never seem to let up during the year. And I just look -- our outlook is that the payoff velocity will be less next year than this year, and then our construction fundings will be better next year going in. Plus, we have better territory to lend in. I mean, we're better in the Florida markets that we're now more deeply involved in should also give us a little bit there. So you put those kind of 3 things together. I'm not saying CRE's going to jump off the page. It was negative, I think, 5% or so for the year in growth. I think it gets at least probably low single digits, which is a good improvement. It is driven by those 3 components that we believe going into '19.
Next question comes from Steven Alexopoulos with JPMorgan.
I wanted to start on the deposit cost. So if we look, interest-bearing deposit costs were up 13 bps in the quarter, which is the same as 3Q, how do you guys see that progressing through 2019?
It's a great question, Steven because -- this is Kevin Blair. What you're going to see -- obviously, the first quarter, you're going to get a similar level of repricing off of the December rate hike. The betas that we had in fourth quarter were much lower than what we saw in the third quarter for total interest-bearing deposits. We had a beta of 52% versus a 67% beta in the prior quarter. We expect to see a similar impact in the first quarter. It's going to be somewhere around the 60% beta based on that December rate hike. Now post first quarter and assuming no additional rate hikes, what you're going to see is there's going to be a natural increase in our cost of interest-bearing deposits just as we refund our maturing CDs. So to give you 2 data points there, our portfolio -- CD portfolio today has a rate of 1 50. Our new and renewing rate that we had in the same quarter was about 1 77. Now those numbers are becoming much more aligned. But if we look out into the first quarter of this year, we can see that what's maturing is at a much lower rate. As we look out into the second quarter and beyond, what's maturing is carrying a higher rate, but there's still a difference between what we're putting on new promotional CDs or the average and what's rolling off. So there will be a little bit of a headwind associated with time deposits. But we think that we can help to mitigate that from a total margin perspective as we continue to see repricing fixed rate loans that will mature as well as some of our shorter-duration loans that will renew and potentially at a higher rate. So it will increase in 2019 but not at the same pace.
Okay. That's helpful. And then my follow-up for Kessel. What are your plans for the deposit franchise at FCB? I mean, do you just run off all their higher-cost funding? They have quite a bit of that. And do you need to actually invest in their deposit franchise to improve their mix? They were known previously having a great deposit mix.
Now we do invest. There are plans right now with the existing physical locations that we think we can invest in and maybe some changes at our existing footprint. Our retail teams are very involved right now. They were a part from day 1 in planning in terms of additional product offerings. Maybe take some pressure off in terms of when they're having to fund outsized loan growth in their own footprint, there are only a couple of ways to do that quickly. We can take some pressure off and really introduce more product, a more disciplined sales approach. We think that over time certainly allows us to change the mix. But our retail teams are fast at work to do that right now. Our private wealth teams are energized there as well, our small business teams, again, all things that -- products and services that come with more core deposits. It's really certainly no criticism of their model. But when your customer base is -- that middle market banking, it's hard to fund dollar for dollar with your deposits. We think that -- we think a more balanced approach will serve them well and serve us well.
The next question comes from Tyler Stafford with Stephens Inc.
I just wanted to clarify a few things on the revenue guide. What's the total dollars of scheduled accretable yield that's in that revenue guide? And then can you just confirm that the 3.65% margin you pointed to, is that a GAAP or a core NIM?
Got it. So Tyler, let me go back. So the 3.65%, I said included 5 basis points of accretable yield that was scheduled. So that's about $27 million currently. And that's just based on our math that we came off the deal metrics. It's about $11 million on a 1-year CD accretion, and then we have about $16 million in the first year for the rate mark on the loan books. So about $27 million is included. That's about 5 basis points in margin. So if you were to back that out, core margin would be somewhere around 3.62%.
Okay. And then I know in the '19 guide this year, you folded in the fee growth into the revenue growth. But I guess, I'm just trying to triangulate to the total revenue growth that you're looking at, just given the loan growth and the margin commentary. To me, it implies a fairly sizable step-up in fees. So can you just talk about any color that the fee growth that's kind of embedded within the revenue growth for the year and how you're thinking about the fee growth?
Yes. It's still going to be mid-single digits. And if you look at where we've had the biggest headwind this year, Tyler, it's been on mortgage. And we think that we can change the trajectory of the year-over-year decline there. We've obviously been adding a lot of mortgage loan originators. Our production was down this year both on the secondary and portfolio mortgage side; but on the secondary, more so. And so as we add these mortgage loan originators, we think the market will continue to -- we'll be able to take share from the market and you will not see a year-over-year decline. So just not having that will be a benefit. But we also see continued growth in our fiduciary asset management brokers business. We're optimistic on our capital markets business. We have a strong fourth quarter in swaps. We know that FCB is also a heavy user of customer derivatives, so we're optimistic there. And then we also continue to see good growth in our card fee businesses. As you know, we rebranded and relaunched our consumer credit card. We also have a strong ISO business there. And the interchange on our debit card fees have generated somewhere around a 9% growth year-over-year. So when you add up all the minor components, we feel very optimistic that we'll get strong growth year-over-year. And mostly, it's different from this year in only that you won't have the abatement of the mortgage income.
Next question comes from Brad Milsaps with Sandler O'Neill.
Kevin, I just wanted to get some clarity on the -- additional clarity on the expense number. The 2% to 4% guidance, that doesn't include -- that includes the $25 million of cost saves but does not include the essentially offset number in goodwill amortization, is that correct?
Yes. So we did that and we footnoted. Hopefully, you saw that, Brad. And the only reason for that is, in the past, Synovus has excluded the amortization of intangibles from its adjusted expense base, and so -- mainly because it was not a large number. So for this exercise, we felt like we wanted to stay consistent with the categories and not confuse folks. So just know that there is roughly $20 million in there that would be in total expenses that's not included in that line item that would be associated with the amortization of the core deposit intangible.
And safe to assume the upper end of the expense guide would equate to the upper end of the revenue guide?
That's right.
Okay. And then just final follow-up, back to the Tier 2 issuance. How much of the buyback would you guys be willing to fund or could fund without any Tier 2 issuance?
I mean, it's really dependent. That number moves based on what the organic loan growth is. So it's hard to give you an answer with that. If you didn't -- if you hit your targets for loan growth, there's still a modest capability to buy back shares. If you exceed your loan growth, it starts to diminish the ability to buy back shares. So it's hard to answer that without going through each quarter and seeing what risk-weighted asset growth looks like.
The next question is from Jennifer Demba with SunTrust.
Could you talk about the enhancements you're making to your mobile and online platform that you discussed inflated the consulting fees in the fourth quarter? And then my second question is there's been a lot of rhetoric in the industry about enhanced competition for leveraged loans, just wondering if you have those outstanding.
Yes. I'll let Kevin take the leverage loans, Jennifer. I'll take the enhancement. We have spent a lot of time over the past 12 months investing in our new customer portal, My Synovus. I personally have done the pilot for maybe 3 or 4 months. We hit another great milestone this past Thursday night when we added more and launched the enhanced pilot, which we believe we will roll out to our customers in the first quarter. It is state-of-the-art. It's sleek. It is a great customer experience. I don't like inflating consulting fees. But when they deliver a product or service to the customers, which we think will be as good as any out there, they excite me. The entire executive team actually had a demo yesterday of the new [Technical Difficulty] and so we're very excited about it. We're excited about how our existing customer will view it, and we're excited about how a potential customer will view it as it relates to the technology capabilities that come with a bank our size. So first quarter launch, very successful launch of the new pilot, Thursday night. And there's still a couple of bugs because you always want to work out, but I couldn't be more pleased with our progress. And I think I speak for our entire team about their excitement about the mobile experience.
Yes, so I'll follow up on the...
Leverage lending.
Leverage lending. This is Kevin. Jennifer, it's not a big part of what we do. It's low single digits of our portfolio. Typically, if we're going to leverage loans, it's an existing relationship that may have made an acquisition, short-term related. So it's a small part of our book. A small part of our C&I lending is in the leverage side.
And that low single digit, is that off the C&I portfolio or off total loans?
It would be about 7-or-so percent of our C&I and about 3%, 3.5% of our total loans. And that's about where we're comfortable at.
The next question comes from Michael Rose with Raymond James.
Just on the FCB side. Just trying to figure out why their margin was actually down when LIBOR was up so much in the quarter. It may have had to do with that credit that was mentioned earlier. But I guess, can you give us a sense for kind of what their margin expectations would be on a stand-alone basis?
Michael, the nonaccrual loan was 1 basis point of the decline. The other 2 basis points had more to do with just the mix shift. They continue to bring in CDs. And as you know, that artificially increases the beta because of the mix shift into the fixed rate deposit. So they've got -- actually very similar to us, their increase on the asset side was on top of ours. So they've got the same benefit that we saw on LIBOR. It's just that their mix shift drove the other -- drove the decline on a quarterly basis. As you look out into the future, it's hard to say what theirs would have looked like under their existing strategies. But we think that we can -- as we combine them with our NIM, we'll be able to normalize their funding costs and get betas that are more in line with what we have. So you'd like to think that they would perform more similar to what we've had in the past, but it's hard to do that looking into the future knowing what that would look like.
Understood. And then maybe just one follow-up question on them specifically. You mentioned paydowns on their side. Is that more episodic? Or is that somewhat of a structural change just given the proliferation of nonbank lenders moving downstream?
It was episodic. They noted three credits that paid out early. And I think that that's just -- to your point, it may be due to nonbank competition. People are out there moving their financing to permanent financing as soon as they can. So they were episodic. And for their portfolio, given the size, you can have 1 or 2 or 3, and it makes a big difference in their outstandings. But it's not something that they've seen over the last several quarters, so these appear to be more episodic.
Okay. And then maybe just one follow-up. Just as you move forward, you've talked about lower hold limits for them. Can you give us any update there on kind of what that means?
Talk about loan hold -- this is Kevin, I'll talk about loan hold limits. They're similar with ours. I don't think there'll be any change either way. We noted that early on in the due diligence process. They have a strong middle market lending team that lines up real similar to our corporate lending team. And so I just -- I don't see a whole lot of that changing at all. So if I -- we're real similar in those categories.
Next question comes from Christopher Marinac with FIG Partners.
Just quickly, guys. The change in the wholesale -- or excuse me, the change in the total funding coming from FCB, to what extent are there new opportunities that you see now that you didn't see before? And then also, to what extent can you use the funding capacity of existing Synovus franchise perhaps that you haven't done in previous years?
Chris, we think there's tremendous opportunity there. Kessel highlighted some of that earlier. From my perspective, there's really 3 strategies. One, there are certain higher cost deposits that they have today that we'll be able to eliminate in the coming quarters. If you look at our loan-to-deposit ratio, this quarter, we came in at 97.1%. On a pro forma basis, it takes us to 94%. And so if we were to just look at some of their lower-value deposits, we feel very comfortable running some of those off and putting our loan-to-deposit ratio back to the level we're at today. So that's the first opportunity. The second opportunity is, as Kessel mentioned earlier, some of the products and solutions that we currently offer through existing channels, so selling our products and solutions to their branches, making sure that we're using not only their capabilities, but ours to have outsized growth. I'd give an example.
In the past, if you're going to do a CD promotion, if you're going to do it in South Florida, you're probably going to pay a 20 basis point premium to generate the volume. We can do those and spread it out throughout our footprint and mitigate some of the increased costs of that funding. And then the longer-term opportunity, as Kessel mentioned, was on the customer segment side. As FCB has been mostly focused on that middle-market corporate banking customer segment, the cost of their deposits are generally higher because they're more sophisticated customer. As we roll out our small business, our private wealth management play, there's going to be a lot of core deposit generation that comes with those. And they won't happen in the first quarter, but they'll start to occur over time. And that provides a new funding base at a much lower cost that will allow us to pick and choose the wholesale funding that comes in at a much higher cost.
And Kevin, my follow-up is just related to kind of the funding differentials within the Synovus footprint. I mean, if you look at your major metro areas versus your nonmetro areas, you still have an advantage today that you can do more of, to your point, is that right?
That's correct. We have models that we look at, that look at price elasticity by market, and that's how we choose where to do our promotions. And that's how we determine the ultimate market level price that we provide. So yes, there is an advantage to be in these rural markets. We've talked about in the past, the legacy Synovus portfolio has 60% of its deposits in nonmetro markets. So that's a very stable funding base that generally has a lower funding cost.
The last question today comes from Garrett Holland with Baird.
Just following up on that last point. To what extent are the potential revenue synergies with FCB? Or really, the lower the marginal funding cost included in the '19 outlook?
They're really not included at all, and it's something that -- we've said from day 1, Garrett, that as we continue to focus on improving the collective franchise, that we're not going to come out and bid against ourselves and keep upping the ante to say how great this could be. We're going to deliver on those results. And so as we have the opportunity throughout 2019 -- and the reason that we haven't provided more detail around that is it largely depends on what the interest environment is to be able to tell you what sort of benefit we can achieve on the liability side. And on the revenue synergy piece, as Kessel mentioned earlier, our game plan there is we're going to start sharing with the investment community the benefits that we're able to achieve from the synergies as we start to achieve them. So it doesn't become a goal but rather a scorecard on how well we're performing and generating those.
No, that sounds good. And just one quick follow-up. So with more anxiety broadly on the outlook for credit costs, I'm just curious what the charge-off assumption is embedded in the updated financial targets and how that normalized loss rate may have changed with the addition of FCB.
Generally, we keep -- for the three year targets, we provide a similar economic forecast. We're not trying to predict where the next recession is coming. So you would expect to see charge-offs continue in a similar pace, but they would increase slightly each year as there's a larger portfolio that's not covered under purchase accounting. So going back to the Synovus guideline of 20 to 30, you probably could use that as a longer-term guidance for the company's long-term targets.
This concludes our question-and-answer session. I would like to turn the conference back over to Kessel Stelling for any closing remarks.
Thank you, Operator. And I'll be brief. Thanks for you all in staying with us through what's maybe one of the longer calls we've done. And we're happy to do that. We really do appreciate everyone who's been on the call today, including many of our retail shareholders, our team members. We know we get a lot of people on this call. So I just want to really thank the team for the great job they've done and getting us to this point, for a great 2018, for just extraordinary effort both on the FCB and the Synovus side over the last couple or 3 months, during the holidays to, again, get to a legal day 1 closing, which just sets up the next events in a really great way. So stay tuned. As Kevin said, as we get closer to conversion, as we get our team working more closely together, we certainly hope to capitalize on revenue synergies. And we'll share those as we get them. But in the meantime, our focus will be on again core blocking and tackling with our core banking, making sure that this extra merger of systems conversions and customers goes well. So thank you very much for your interest. Again, thanks to our team, and we look forward to sharing more about our results on the next earnings call. Thank you very much.
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.