Q1 2024 USCB Financial Holdings Inc Earnings Call

Participants

Luis De La Aguilera; Chairman of the Board, President, Chief Executive Officer; USCB Financial Holdings Inc

Robert Anderson; Chief Financial Officer, Executive Vice President; USCB Financial Holdings Inc

Sergio Garrido; Director - Credit Underwriting & Senior VP; USCB Financial Holdings Inc

Michael Rose; Analyst; Raymond James Financial, Inc.

Woody Lay; Analyst; Keefe, Bruyette & Woods, Inc.

Feddie Strickland; Analyst; Janney Montgomery Scott LLC

Presentation

Operator

Good day and welcome to the First Quarter 2020 for USCB. Financial Holdings Inc. earnings conference call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Luis De La Aguilera, President and CEO. Please go ahead.

Luis De La Aguilera

Good morning, and thank you for joining us for USCB. Financial Holdings First Quarter 2020 for earnings call with me today reviewing our Q1 highlights as CFO, Rob Anderson and Director of credit, Sergio Valerio, who will provide an overview of the bank's performance, the highlights of which commenced on slide 3, our Chief Credit Officer, Bill Turner, is not with us today as he is accompanying a family member who is undergoing surgery this morning, bolstered by the strength of Florida's economy.
Useb came off the blocks in the new year, posting strong growth in assets, deposits, diversified quality loans and profitability. Our results reflect the diligent execution of a business plan that focuses on organic growth, supported by diversified commercial banking initiatives designed to deep deepen existing relationships and develop new ones. In 2023, we sourced new production hires, expanded our business lines added deposit, aggregating verticals while carefully controlling expenses. These efforts have delivered results and have well positioned the bank in 2024 and reviewing our press release and noted Q1 highlights, I will comment on a select few as CFO. Anderson will further detail our growth, profitability, capital and liquidity positions.
Net income was $4.6 million or $0.23 per diluted share, an increase of $1.9 million compared to the fourth quarter of 2023. Also, average deposits increased by $204.3 million or 11.1% compared to the first quarter of 2023. Multiple deposit focused initiatives continued to deliver results as deposits grew $165.7 million on an end-of-period basis this past quarter. While growth in deposits has rebounded, we judiciously priced deposits based on relationship, great relationship and profitability. This past quarter, we completed a comprehensive review of the deposit portfolio, taking actions that would immediately improve net interest margin. We will discuss these actions as we go through today's presentation. Average loans increased $234.1 million or 15.1% compared to the first quarter 2023. Our loan growth has moved in line with accretive quarter over quarter improvement on average loan coupon, which contributes to net interest income to this, and the weighted average coupon on our quarterly loan production over the past six quarters has increased from 5.68% to 8.16%. This will be detailed shortly. During the quarter, the Company paid its first cash dividend to shareholders with an aggregate amount distributed being $1 million. The cash dividend program is an important driver to shareholder value, and the Board of Directors is committed to return capital to our investors while maintaining a strong balance sheet. As mentioned in the press release last night, the Board of Directors approved a new share repurchase program up to 500,000 shares of Class A. common stock or pack approximately 2.5% of the company's issued and outstanding shares of common stock. The stock repurchase program will provide flexibility in the event of market volatility, keeping in mind forward earnings risks and capital levels. Our intention and practice is to run a safe and sound institution always maintaining well-capitalized levels. As of April 22nd, 2024, 572,980 shares remain authorized for repurchase under the Company's share repurchase program.
Moving on to Slide 4. The following slide is self-explanatory. Directionally showing nine selected historical trends since recapitalization, profitable performance based on sound and conservative risk management is what our team is focused on consistently delivering.
So let's now turn our attention to our specific financial results and key performance indicators, which will be reviewed by our CFO, Rob Anderson.

Robert Anderson

Thank you, Lou, and good morning, everyone. Overall, I would characterize Q1 as a solid quarter for USCB. despite a tough economic backdrop, as you look at pages 5 and 6, there are some positive trends to keep in mind when reviewing the quarter, including the following net income was $0.23 per share and higher than the past three consecutive quarters, demonstrating an upward trend as it relates to the balance sheet, loans, deposits and total assets were all up approximately 15% from the prior year. Deposit growth was up 34% annualized from the prior quarter. This growth allowed us to pay down high priced overnight FHLB borrowings and reprice higher cost deposits at quarter end. While we won't see the benefits until the second quarter, we do expect our net interest income and net interest margin to improve from this point. During Q1, we purchased an additional $34 million in securities with a yield of 5.85% and a duration of 2.08. The intention was to provide and support them while maintaining sound liquidity practices. Depending on the interest rates, we expect to receive $30 million to $35 million in cash flows from the securities portfolio during 2024, which will be used to support loan growth in Q1.
Net interest income increased $782,000 or 21.8% annualized compared to the fourth quarter of 2023. This is due to a larger balance sheet. Noninterest income was up 19% over the prior year. Expenses were up in Q1 due to new hires, seasonal spike of taxes and some operating expenses, but remain low for our asset size, which is shown on page 6, we initiated and paid our first dividend, starting at $0.05 per share and tangible book value per share grew to $9.92. AOCI. was up slightly from the prior quarter. Nam was 2.62% and down three basis points from the prior quarter, driven by excess liquidity and higher funding costs. I'll discuss what we did and we'll continue to do with any excess funding and a bit in terms of soundness, our credit metrics remained strong and our loan loss reserve coverage remained at 1.18% so let's discuss deposits on the next page. While we present this page on an average basis, a big part of the story for the quarter is what happened in the last month of the quarter. First, our sales team delivered strong deposit growth in Q1, evidenced by both our average deposit growth and on an end of period basis. Deposit balances at the end of the quarter were $2.103 billion, which is $54 million above the average of $2.049 billion. More specifically, while our average non-interest-bearing deposits had a slight decrease in the first quarter 2024. Our end-of-period DDA balance increased $23.9 million or 17.4% annualized. While we expect rates to remain higher for longer. Our ability to attract and retain DDA will be the focus of our sales strategies and bank officers. As Lou mentioned, we are gaining traction in our new business verticals, which we expect to attract additional operating accounts. The additional deposit growth in Q1 put $126 million of cash on our balance sheet at quarter end, which negatively impacted earnings in the quarter, but positions us well for Q2. With this additional funding, we paid down all high priced overnight FHLB borrowings and rationalized some higher priced public fund money. Furthermore, because public funds require collateral, reducing balances in this funding bucket also helped our liquidity.
So with that, let's turn the page and look at our loan book, average loans increased $82.9 million or 19.6% annualized compared to the prior quarter and $234.1 million or 15.1% compared to the first quarter 2023 on a spot or end of period basis. We ended the quarter at $1.821 billion which is $39 million above our average loan balance for the quarter, loan coupon increased 22 basis points compared to the prior quarter and 87 basis points compared to the first quarter of 23. Our loan book will continue to grind higher, but much depends on our new loan originations as the refinance volume is diminimus. As for the guidance, we expect loan growth to continue in the low double digits.
Turning to page 9, you can see for the past three quarters, we have originated loans above 8%. We expect a similar amount of loan originations in Q2 with yields above 8% given the current pipeline. Additionally, our loan book has transitioned over time and is more diversified as of quarter end, non-CRE loans are 29% of the total loan portfolio.
With that, let's take a look at the margin on the next page. For the first quarter of the year RNIM. contracted compared to the previous quarters. However, our net interest income increased $782,000 or 21.8% annualized compared to the fourth quarter 2023. This is a direct result of a larger balance sheet.
As discussed on the deposit slide, the cost of funds remains one of the biggest challenges that this year, although we grew deposits in the first quarter, the majority of the growth was in interest-bearing deposits, which resulted in higher than expected interest expense. As a response, we have adjusted deposit pricing and reduced higher priced public funds. We expect the changes will have a positive impact on earnings going forward. And in short, we have several reasons to believe the name will improve.
So let me point those out since the end of the quarter, we have reduced our dependency on public funds by over $100 million, which are rate-sensitive deposits, we have adjusted money market rates. Additionally, currently, we don't have any money market deposits paying above 5%. Deposits also have already adjusted to a higher rate environment. So we don't expect material jumps in our interest expense. New loan production has been above 8% for three straight quarters, and we expect this trend to continue in 24. And with a higher for longer rate environment. We expect our interest rate swaps to generate $2 million of additional interest income for the year.
And finally, with strong liquidity position beginning in Q2, we can pass on non-relationship rate-sensitive deposits. Bank is well positioned for rates to be higher for longer. However, as we navigate some uncertain times, i.e., the inverted yield curve, geopolitical conflicts and the election year, among others, the challenge will be managing under uncertainty.
So with that, let's take a look at our interest rate risk models on the next page. According to our ALM model. The bank's balance sheet remains slightly asset-sensitive, but part of the asset sensitivity comes from a higher cash position at the end of the quarter, while some of these inflows are temporary. We believe that we are going to be able to reinvest the cash into longer duration assets, which will protect our balance sheet from expected lower rates. Additionally, as rig rates remain higher for longer, our asset sensitivity may result in improvement in if rates drop 100 basis points across all tenors. The model is telling us that the NIM. will contract. However, 100 basis point drop across all tenors is highly unlikely. A more likely scenario would be a drop in short-term rates, which would immediately allow us to reprice our $1 billion plus money market deposit book. Additionally, we had three consecutive quarters booking loans with a weighted average coupon above 8%. And while this may have a minimal impact in our current name as rates drop. These longer duration loans with embedded premium prepayment penalties and floors will help to protect our margin in a down rate scenario.
So with that, let me turn it over to Sergio to discuss asset quality.

Sergio Garrido

Thank you, Rob. Please turn to Page 12. As you can see from the first graph, the allowance for credit losses increased to $21.5 million. This was due to 410000 first quarter provision and the ratio remain unchanged at an adequate at 1.18%. The provision was driven by the $40 million net increase in the loan portfolio. Net losses remain near zero for the quarter. The remaining graphs on Page 12. So the non-performing loans as of the end were unchanged at 0.03% of the portfolio and classified loans improved from the fourth quarter to 0.44% of the portfolio. No losses are anticipated from these classified loans. Also, bank continues to have no other real estate loans.
On page 13, the first graph shows the loan portfolio mix at three 31, it before increased $40 million on a net basis in the first quarter to a little more than $1.8 billion. The competition continues to be well diversified. Commercial real estate represents 58%, a little over $1 billion. Commercial real estate is segmented between retail, multifamily, owner-occupied and office properties. Second graph represents a breakdown of the commercial real estate portfolios for the non-owner occupied and owner occupied loans, which also demonstrate this portfolio diversification. The table to the right of the graph shows that a weighted average loan volumes at 60% or less, and the debt service coverage ratios are adequate for each portfolio.
Second, the loan quality and payment performance are good for all segments. As the past-due loan percentage remained less than one.
On page 14, we discuss the bank's office portfolio. Our portfolio at quarter end consist of 128 loans totaling $187 million with almost all being B and C properties with over 75% located in South Florida. The average loan amount is up $1.5 million with an average loan-to-value of 57%. The average debt service coverage stands at almost two times. The first graph shows that owner occupied office make up 34% of the office segment with 63% of those loans being occupied by professionals and medical businesses.
The second graph represents the nonowner-occupied office loans, which company which comprise 66% of the office portfolio was 84% of their use. The multi-tenant Americas, the quality of the office portfolio is satisfactory with all loans paying as agreed with no classified We're especially vigilant of the upcoming 2024 loan repricing and maturing schedules. We monitor we model the loan repayment, the ability to service our loans to proactively act as needed overall the quality and performance of the loan portfolio, we mean pristine.

Robert Anderson

Okay. Thank you, Sergio. Let's go to Page 15. A couple of items to point out here. First, you'll notice the nice upward quarterly trend in service fees. We have been speaking for some time that we are gaining traction, differentiating ourselves from our competitors and becoming our clients' go-to bank for their operational wire needs. We are gaining new for corn, new foreign correspondent banks, doing more business with current clients and modifying our approach to wire fees with clients across board, all these strategies have yielded new business. Other noninterest income increased due to the bold restructuring we did last year, increases in treasury management fees and an increase in swap fees with clients on a go-forward basis, we believe a $2.5 million or slightly higher is a good quarterly run rate for the noninterest income line item.
So with that, let's take a look at expenses on the next page. Our total expense base was $11.2 million and up from the prior quarter. Salaries and benefits are up due to three net new FTE. seasonal payroll taxes and stock-based compensation. Other operating expenses were up 271,000 due to 67,000 increase in promotional expense to support our business verticals, 60,000 increase in force placed insurance and 40,000 increase in property insurance. I would note that the noninterest expense to average assets improved less 11 basis points year over year and has been below 190 basis points for three quarters in a row. Going forward, we expect the quarterly expense base to grind upwards from this point.
So with that, let's take a look at capital. Useb capital levels remain comfortably above well-capitalized guidelines. Also worth noting, as the Company repurchased 71 hundred shares of common stock at a weighted average price per share of $11.15 during the quarter. As mentioned in the press release last night, the Board of Directors approved a new share repurchase program up to 500,000 shares or approximately 2.5% of the company's issued and outstanding shares of common stock. So as of the end of or as of April 22nd, 2024, 572,980 shares remain authorized for repurchase under the Company's share repurchase programs.
So with that, let me turn it back to Luis for some closing comments.

Luis De La Aguilera

Thanks for all US centers' performance. This past quarter is squarely on track with our expectations and budget five new production hires brought on board in late 2023 and early 2024 are hitting their stride and contributing to both loan and deposit growth. This past January, we launched another business line branded D advantage, a new deposit aggregating vertical, focusing on servicing medical professionals and led by two experienced bankers having over 30 years of combined experience in the field. We now have seven non-CRE business lines, including association banking, SBA lending, yacht lending for correspondent banking, private client group, as well as our jurors and new MD advantage initiatives, which were up which respectively, focused on supporting both the attorney and medical professionals market. Collectively, these business lines of account account for $554 million or 26% of total deposits. These business verticals have also contributed greatly to the diversification of the loan portfolio, of which 29% of $528 million is now non-CRE by comparison only 9% of the bank's loan portfolio was classified as non-CRE as of June 30th, 2020. Furthermore, these business lines have driven non interest income, which was 14% of total income this past quarter, up from 11.5% of total income in Q1 2023, growth in wire activity gain on sale of SBA seven a. loans swap fees as well as greater demand for treasury services have steadily contributed to increases in noninterest income. The bank's performance is supported by the overall robust economy of Florida, which is forecasted to grow by a solid 3% in 2024, more than double the projected national economy's growth of 1.4%. Florida's statewide unemployment rate has been lower than the national rate for 39 consecutive months. The national unemployment rate was 3.7% for January 2024 or 0.6% points higher than Florida's rate in short, Florida's strong economy serves as a foundation from which we continue to grow our franchise. These factors, along with long-standing draws of low taxes, warm weather and housing, that's more affordable than in the North East are expected to contribute to another solid year of population gains for the state and further growth opportunities for the bank.
With that said, I would like to open the floor for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Michael Rose, Raymond James.

Michael Rose

Hey, good morning, everyone. Thanks for taking my questions. I just wanted to Good morning. I'm just wondering to dig into the deposit growth and expectations. Obviously, very good this quarter, and it was good to see DDA balances up, which is good. And the way you talked about one of the newer verticals, the NG Advantage coming online. I'm just wondering to get a sense for now that the loan-to-deposit ratio is kind of back in the mid 80 range after this quarter's growth. And it sounds like there's some hopeful remixing opportunity as we move forward. Can you just talk about expectations for the need to continue to grow deposits. It seems like you could probably dial back on some of the higher-cost funding as some of the specialty verticals and their deposit growth kind of ramps that the way to think about it. And then I know given this quarter start, you're going to probably blow past the 10% that you talked about last quarter, but just wanted to kind of see the expectations for we measured growth as we move forward.

Luis De La Aguilera

Thanks. Well, I as I reported in the last quarter, and I'm kind of really emphasizing in today's call, we hired two teams that came in late 2023, early 2024, and then again hired one that joined us in February of this year. These teams are very much focused on deposits. They're coming in from other banks where they no longer had any kind of non-compete situations. Collectively, these teams handled about $315 million in in the deposit book, and they're really focused on bringing in their clients without any any real issues. So all of these are part of these verticals, the MD advantage, the tourist advantage, the Private Client Group. So they're moving very established relationships. So we don't believe are going to be subject to high interest rates coming over with bankers that have served them for many, many years, and we are taking advantage of that.

Michael Rose

I appreciate the color, Luis. And as it relates to Rob to kind of how the margin should trend from here. It obviously the bringing on the deposit growth this quarter obviously was a step down, but I think you did a really good job kind of pointing out all the factors that it will help support margin expansion from here. Can you just talk about expectations with and without rate cuts and what the delta could be just as we move forward as you continue to grow deposits, but also have continued pretty healthy loan growth at above 8% ongoing coupons.

Robert Anderson

Thanks. Yes, sure. And just pick and picking up on what Luis mentioned, you know, with our deposit aggregating teams that came on. Typically, what would happen is that as they bring customers on, they're bringing over the money market first, and then the DDA comes a little bit later as they move those funds. So you did see the DDA come in towards the end of the quarter. And with that, additional funding. We did reprice down some high priced public funds, which is collateralized. We will see some of that move off our balance sheet in April, which we fully expected that was not a surprise, but we are bringing in lower cost funding. So if we can replace you $100 million to $200 million of funding from, let's say, something above five with something with a four handle on it in the mid fours with some DDA, that's going to help the margin plus multiple quarters with loans above 8%. Those originations will start helping the NIM. I think what we're anticipating, absent any rate cuts that the deposit costs will start to plateau, the loan yields will continue to grind higher and we could be anywhere up five, hopefully 10 basis points, we'll know in April, but we're very optimistic about the things we did in the early part of April, end of March on the deposit side to curtail that deposit cost. And I think you'll see the loan yield continue to pick up. I mean, if you look at the slide on page 8, you can see the loan yields are increasing at least 20 basis points per quarter. We expect that to continue.
And if you go back to page 7, we're going to stop the deposit cost going up 20 basis points a quarter. So so that will help help the margin. And we'll know within the next week on how we did on April and we got another round of deposit cut cuts coming because we are still have the cash on the balance sheet, which is good.

Michael Rose

It just did. And just to clarify, Rob, is that 5 to 10 basis points in the second quarter? Is that through year end?

Robert Anderson

Not just in the second quarter, just in the second quarter, I would conservatively say five um, but no, we could see on the upper end of it, maybe 10.

Michael Rose

Okay. And then just I'm sorry, drop, Tom, but if we do have rate cuts, maybe one or two. I think that's where the forward curve is now changing by the minute. And then if we don't know how big is the delta and I understand that you have some and I sensitivity, but I know it's a static, so and things change. Thanks.

Robert Anderson

I think with rate cuts, if you get one or two, depending upon when they come that could help us maybe another five to 10 basis points above what we just mentioned. It can be low 10s, but it depends on when they come out, they come in like November and December, then it's going to be higher. It is about it's going to be harder to get the margin back up. It should grind higher. But with cuts, we believe that we have $1 billion plus Money Market book and there are some opportunities in there with rate cuts to have a more aggressive beta. I think we modeled in the model like up 40% deposit beta, I think we can outperform and so.

Michael Rose

Got it, Rob. That's very helpful. And maybe just finally for me on the expenses were roughly in line with what you kind of talked about last quarter. I'm sorry if I missed it in the preamble, but Luis, maybe how do you think about balancing what looks to be a pretty good NI margin inflection point here. We're also controlling costs, which I think you've done a really good job that despite the growth on, are there incremental opportunities now that looks like NII is going to inflect decently higher on to go out and continue to press in terms of hiring now that to the the run rate for revenue looks to be a little bit stronger? Thanks.

Robert Anderson

Yes, maybe I'll start with Michael, but I think our expenses will grind a little higher. And then we're always opportunistic about getting good salespeople in the market. There has been a lot of disruption in South Florida with a couple of the acquisitions. We are having ongoing conversations with people, but periodically we'll be able to have a small, what I'd say, small teams like we picked up, right, five people in the last, what, six months, something like that. So we're continuing to look to pick up strong salespeople. We're beginning our verticals on MD advantages. That's really hitting a stride. We expect that to increase as well. But we will see a slight uptick in our expenses. But we'll be mindful of that.
And I'd also point to the noninterest expense to average assets. I think marker below 2% has always regarded well, we're at one 84. I think that's going to show well, and I'd leave it at that for right now.
Great.

Michael Rose

Appreciate all the color. Thanks.

Robert Anderson

Thank you, Mike.

Operator

Woody Lay, KBW.

Woody Lay

Hey, good morning, guys.
So I believe you touched on it in the opening remarks, but how much of the growth of the deposit growth in the first quarter was related to these on deposit verticals that you added.

Robert Anderson

Over the past couple of months, I'd say it was maybe $40 million to $50 million in the in that first quarter of kind of contributed from the from the Private Client Group, the Durus advantage and the new higher. So we're very bullish on that. There was a there's been a couple of new hires that have come in here, roaring. And so we're very excited to see that continue. The response from their clients has been better than expected. So we think we're very much in line to a two to continue hitting our numbers.

Woody Lay

Yes. And how did the deposit pipelines look heading into the second quarter and they may they obviously have larger books of business. It feels like you could continue to make headway in those verticals.

Robert Anderson

Yes, I think we're going to in the second quarter. I mean, even as of now, we still have plenty of cash sitting on the balance sheet and we've had some higher priced pub funds move off. So those teams will continue to bring on good solid deposits. And I think we have the right teams to support the loan growth that we have. I think the loan to deposit ratio will tick up as we're pricing down some of the higher priced non-relationship funding. If you recall, when we were back in December of last year, we had probably over $100 million of fundings in December alone. And a fund that we had to one get on some borrowings, but also get some higher price of fund money to do that. Now that we have the teams generating relationship funding, we can let that other stuff go. So I think what you're going to see is that we have the teams capable of supporting the loan growth, which has been robust here over 15% per year. And then worse, we're supporting that with deposits around the same number.

Woody Lay

Yes, that's helpful color. And then I did want to shift over to loan growth and just interested on how the pipelines are looking into the second quarter. Are there any specific segments that you expect to drive strong growth in the year?

Luis De La Aguilera

I believe the we check with pipelines on an ongoing basis. G&a management worked very closely with the lending teams. We do this on a weekly basis, and it's just the type of the pipeline right now is very much on track to in our numbers for the quarter. I think we're going to continue seeing very strong activity from from on our HOA side on the lending side we have on the multifamily side, it's pretty diversified. And I think it's going to continue to be in line with what we've been seeing that it's probably about 40% of what's coming in is non-CRE our sources. So I think we're going to continue seeing more of the same. And I'm very excited and pleased that we've been able to in that 3.5 year period of time really move the portfolio in the way that it has. So we're almost at 30% non-CRE where this bank at one point in time was probably 98%. So it's going to be a it's going to be more of the same. A lot of this is also coming in from these diversified business verticals of the seven that we have for our were created as deposit aggregators. But the HOA one in particular also brings in a lot of them of business on the loan side.

Woody Lay

Perfect. Thanks for taking my question.

Operator

Feddie Strickland, Janney Montgomery Scott.

Feddie Strickland

Hey, good morning. And just wanted to start with on the discussion around the cash used to pay off some of the wholesale borrowings and how that affects earning assets. I mean, I know we're going to have continued strong loan growth here but can we see earning assets potentially on a good bit and earning asset growth a bit slower of a we've been down linked quarter, just with some of that, some of the paydown of those wholesale borrowings?

Robert Anderson

I don't think you're going to see it go down, Freddie, I think it might slow on the earning assets. The growth will slow a little bit. Like I said, we had some of the public fund money, our runoff in early April, but we quickly got client money in to replace that probably at 80 basis points spread improvement. So if you think about that at over $100 million, $125 million on a big balance sheet, it takes a lot to move the numbers there, but it's the little things and that really matter. But I think the overall average earning assets will continue to grow, but maybe at a little bit slower pace.

Feddie Strickland

Got it. That's helpful. And then just on that, Rob, did I hear correctly? I think you were talking, Michael, about five to 10 basis points. Was that downward movement on the cost of funds from from everything you're doing? Or I'm just trying to get clarity on what exactly that discussion scheduling.

Robert Anderson

Yes, I think if you look at page 7 and just the general trend on our cost of funds or in cost of deposits. What I think's going to happen and what we're modeling with the changes that you're going to see that deposit costs start to plateau every quarter. It's been going up approximately in the last few around 20 basis points if we can hold that at two 75.
And then on the following page, the loans continue to go up, grind higher about 20 basis points, then that will impact them positively an additional five basis points. We're saying five to 10 on the range. So I think it's not necessarily deposit costs going down, but plateauing and hopefully leveling off.

Woody Lay

Got it. That's helpful. So you're talking about the actual potential upside of the margin that makes sense.

Robert Anderson

And then just lastly, I know it's not a huge contributor today, but I know maybe in the future, particularly if we get rate cuts, SBA, it could present a potential opportunity. I was wondering if you could talk a little bit in more detail about just what you're seeing there, both in terms of credit in terms of potential future volume and where we could maybe see that go if we get a little bit more favorable environment down the road.

Luis De La Aguilera

But we're putting a lot of emphasis on our SBA activities and actually have the largest pipeline that we've ever had in the first quarter. As a matter of fact, if we close, but we have in the first quarter, we beat what we did in the entire year last year. So we have contributions from all our lenders and and I believe that we will see in the second quarter of really strong activity looking to close what we have, and we're very focused on it. And I think that it's going to be via plan for the rest of the year. We are typically our typical SBA seven a., you know, they're capped at about $5 million. I think ours is about 2 million on average. And we also launched last year a program with a digital partner to source a small-ticket SBA. It was launched in September. Our banking centers are very active with it. So that's also going to be contributing. So the entire bank is really, really focused on the opportunity for Celanese.

Feddie Strickland

And just one more for me. Just just curious on on the deposit front, have you seen anything incrementally different from competitors as the market gotten a little bit less competitive for deposits, or is it still pretty pretty intense?

Luis De La Aguilera

Competition I would say is pretty sporty in our banking centers report on a daily basis, you know what's happening as far as the competition and also on the loan side, we're seeing we're seeing deals that with six samples were our average coupon is in the eights. There's a lot of business that are that we turned down. We're being very disciplined on our lending or our team understands that we source relationship, not transactional deals, but it's serving us well, and we're going to keep that disciplined. But the market here in South Florida is very competitive, very competitive on loans and deposits. That hasn't changed.

Feddie Strickland

Understood. That's helpful. Thanks for taking my questions.

Operator

Ross Haberman, RLH Investments.
Ross, your line may be muted.
This concludes our question and answer session. I would like to turn the conference back over to Luis De La Aguilera for any closing remarks.

Luis De La Aguilera

Thank you. On behalf of the U.S. Century team, I would like to thank you all for your attendance and look forward to meet again in our next earnings call in July. Have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.