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Synovus believes funding costs at FCB will fall as deposit mix shifts to retail

Columbus, Ga.-based Synovus Financial Corp. plans to bring down the cost of deposits at recently acquired FCB Financial Holdings Inc. as its deposit mix changes to include a higher percentage of retail banking.

Synovus acquired FCB in a deal that closed Jan. 2. On Synovus' fourth-quarter earnings call, management said they expect deposit betas to increase in the first quarter of 2019, as FCB and Synovus's cheaper time deposits mature and are replaced with higher-cost CDs issued after the Federal Reserve's rate hikes came into effect.

FCB's deposit mix has historically focused on middle-market corporate banking. "The cost of their deposits are generally higher because they are [a] more sophisticated customer," said Synovus CFO Kevin Blair. "There [are] certain higher-cost deposits that they have today that we'll be able to eliminate in the coming quarters."

Stelling said that as Synovus rolls out more small business and private wealth management accounts at legacy FCB branches, the cost of funding would go down.

Synovus' branch footprint extended into more rural markets — where deposit costs are lower — than FCB's did, Blair said. "That's a very stable funding base that generally has a lower funding cost," he said.

The cost of funds at Synovus increased eight basis points in the fourth quarter, while the cost of interest-bearing deposits was up 14 basis points. Synovus management said they are not expecting any further Fed rate increases in 2019, which also would help decrease the cost of funds.

"As rates pause, we'll see less migration into higher-cost deposits," said Blair.

Although the fourth-quarter cost of interest-bearing deposits was similar to the third quarter, the bank's deposit beta declined, dropping to 52%, down from 67% in the third quarter.