OFG Bancorp (OFG) 2020 Q1 法說會逐字稿

Good morning, and thank you for joining OFG Bancorp's Conference Call. My name is Kristel, and I will be your operator today. Our speakers are José Rafael Fernández, President, Chief Executive Officer and Vice Chairman; and Maritza Arizmendi, Executive Vice President and Chief Financial Officer.

A presentation accompanies today's remarks. It can be found on the Investor Relations website on the home page in the What's New box or on the Webcasts, Presentations & Other Files page.

This call may feature certain forward-looking statements about management's goals, plans and expectations. These statements are subject to risks, and results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. (Operator Instructions)

It is my pleasure to turn the call over to Mr. Fernández.

Good morning. Thank you for joining us. I hope all participants and their families are safe and healthy.

I will start on Page 3, talking about COVID-19 pandemic situation, and then we'll get to the numbers. The rapid spread around the world of the coronavirus is affecting everyone personally and financially. Our heart goes out to those who lost loved ones, are ill or suffering monetarily. In Puerto Rico, the spread of COVID-19 has not hit us as bad as in other areas of the world. Puerto Rico Governor Wanda Vázquez announced a strict curfew early on March 12, making Puerto Rico the first jurisdiction in the United States to implement such measures. As of Sunday, there were less than 1,400 positive cases and 85 deaths, but these numbers are based on an extremely low level of testing, in fact the lowest testing per 100,000 inhabitants of all 50 states. The governor is about to present a plan for slowly reopening the economy. It is critical that such attempt to reopen is done under the strict, knowledgeable advice of scientists and doctors to assure the safety and health of all. Thankfully, so far, everyone at OFG and Oriental are okay.

Our priority going into the pandemic was to keep our employees safe while maintaining our nimble and proactive approach to business. In doing so, we entered the crisis from a position of strength. We remain well-capitalized and highly liquid with a CET1 ratio of 11.67% and more than $1.6 billion of cash and unencumbered securities. This is not the first time this management team has faced and successfully dealt with externally created crisis situations. Coming out of this one, as we have done in the past, our goal is to maintain strong capital and liquidity, so we may continue to help customers now and throughout the inevitable recovery.

Our first quarter performance confirms the strength of our business, balance sheet and franchise during this critical time. This is the direct result of the proactive and customer-focused culture we have developed, our ongoing investments in technology and the effective strategies we have put to work.

We believe we're in a strong position going forward. In addition to closing the Scotiabank acquisition last year, we significantly reduced higher-cost noncore funding and sold a large amount of nonperforming loans. During the first quarter of this year, we significantly increased our allowance for loan losses.

In March, for our employees, we implemented a comprehensive program combining workforce safety, technology and special benefits. For our retail and business customers, we launched payment relief programs, waived charges and fees, and increased amounts that can be withdrawn or transferred electronically. As a result, more than 50% of our employees are working remote. We have achieved uninterrupted and superior levels of service through all channels. 47 branches are open for safe access to ATMs, interactive ATMs, drive-through or appointments. The 9 branches that are closed are all inside closed shopping centers. We have maintained employee and customer safety and social distancing. And clearly, the investments we made early on in digital are helping customers continue to do their banking. Our teams also worked quickly to develop new digital tools. More than 43% of retail customers requesting forbearance have done so digitally. Also, 100% of small business requesting SBA PPP loans have applied digitally. All of this has facilitated close communication with our customers. This has enabled us to provide the financial advice and resources they need to navigate this challenging time. For example, in the first round of PPP, we helped 900 small businesses with more than 25,000 employees access more than $140 million in loans.

Our deepest appreciation goes to frontline first responders and health care professionals dealing with the coronavirus. We also want to thank our teams at OFG and Oriental on the other frontline. They have done an outstanding job helping customers and businesses manage the financial challenges during this crisis.

Please turn to Page 4. We immediately experienced a pickup in technology usage by both retail and business customers starting in March, and it has continued. For example, as of the first quarter, active mobile banking users and People Pay transactions increased 43% from the first quarter of 2017. And as of the first quarter of this year, 57% of all loan and credit card payments we received went through digital channels as opposed to customer mailing them or coming to branches to pay. As I mentioned, we enhanced this effort by quickly developing unique and first-to-market digital tools to help consumers apply for forbearance and businesses for PPP loans. Along those same lines, since mid-March, more than 1,000 clients have used our existing online appointment tool to conveniently schedule meetings in branches under COVID-19 safe conditions. Looking at the first round of SBA PPP program, we originated 32% of the loans in Puerto Rico and disbursed 21% of the total amount granted to Puerto Rico businesses. Our average cycle time was only 5 days. We're very pleased to see these trends. Technology is a core part of our overall corporate strategy, and we continue to look for new and innovative ways to use it to help our customers.

Now let's turn to our results on Pages 5 through 7 of our presentation. Let's start with our financial highlights on Page 6. Net core revenues increased 33%. That mainly reflects the significant increase in interest-earning assets from the Scotiabank acquisition on net interest income, net of the effects of lower interest rates on cash and variable commercial loans. It also reflects the much larger customer base on our banking and wealth management revenues. Due to the coronavirus pandemic, we increased provision based on the changed macroeconomic scenario we see ahead. Noninterest expenses were also much higher, primarily due to the Scotiabank acquisition. During this critical time, in order to ensure full service, we decided to postpone most of the planned Scotiabank cost savings until there is more clarity on how the coronavirus pandemic plays out. Partially offsetting these added costs was a gain on sale from mortgage-backed securities. The bottom line was a breakeven quarter. Tangible book value declined slightly, primarily due to Day 1 effect of CECL, which I'll get to in a few minutes. The key performance ratio we look at, efficiency, return on assets and return on equity, all improved sequentially from the fourth quarter when we had large merger and restructuring charges associated with the end-of-the-year acquisition of Scotiabank Puerto Rico.

Looking at our operational highlights on Page 7. Average loan balances increased 48% year-over-year, contributing to the increase in net interest income. This was mainly due to the acquisition. Average core deposits, excluding brokered, increased 71% year-over-year. This was similarly a result of the acquisition but also due to an organic increase in deposits. The overall increase in lower-cost core deposits has enabled us to reduce higher-cost brokered CDs and borrowing balances by more than 47% year-over-year. Loan generation was slightly ahead of the year ago. It should be noted, the first quarter of this year was affected by a slow start because of the earthquakes. Volume picked up nicely later in January and February, mainly due to the increased customer base and added capabilities from the Scotiabank acquisition. And as expected, production fell in March because of the impact of COVID-19. Loan yield at 7.01% held up well. The year-over-year decline reflected 2 factors. The first is our new loan mix, which includes a larger proportion of 30-year fixed residential -- fixed rate residential mortgages from the Scotiabank acquisition. The approximately -- the approximate yield on this loan portfolio is in the 5% range. The second factor was our variable rate commercial loan portfolio. On a year-over-year basis, this portfolio experienced the full effect of the Federal Reserve's 2019 second half rate cuts and the partial effect of the March 2020 rate cuts of 150 basis points. Approximately 60% of our commercial loans are variable rate. The cost of core deposits increased 14 basis points year-over-year before the fair value amortization for the Scotiabank deposits. As a result, net interest margin declined to 4.94%. I would like to point out that this decline includes lower yield on our cash balances as a result of the Fed rate cuts that I previously mentioned.

Please turn to Page 8 to review credit quality. There was little effect in the first quarter with coronavirus. The net charge-off rate was up 8 basis points from a year ago as a result of the previously reserved commercial loans. The nonperforming loan rate was down 131 basis points from a year ago due to the NPLs we sold in 2019.

Please turn to Page 9. This page provides detail on the impact of CECL Day 1 and our March 31 reserve build. CECL Day 1 added $39 million in allowance for non-purchased deteriorated loans. It resulted in a charge against retained earnings and capital of about $25.5 million net of taxes. For purchased credit deteriorated loans, we made a $51 million adjustment. It is important to note that this was made through the allowance and loan balances with no impact on capital. At the end of the quarter, we added a $34 million provision, incorporating changes in our macroeconomic outlook and qualitative adjustments as a result of COVID-19. We used Moody's economic scenario for Puerto Rico that incorporates COVID-19 for our CECL modeling. The continued uncertainty regarding the severity and duration of the pandemic and its related economic effects remains, and it is unclear to what extent various governmental initiatives will be able to mitigate future credit losses. This resulted in a year-over-year increase in our allowance of $68 million and a sequential quarter increase of $114 million.

Please turn to Page 10. Starting mid-March, we have been communicating even more closely with customers over what effect the COVID-19 pandemic will have on their personal and business situation. To date, approximately 30,000 customers, accounting for $721 million or 16.9% of our retail loan balances, have been granted moratoriums. Moratoriums are available for up to 3 months on interest and principal, but each one is reviewed on a case-by-case basis. This is as opposed to Hurricane Maria when 3 months deferrals were automatically granted to all retail loans. On the commercial side, $204 million or 8.8% of a total of $2.3 billion of commercial loans have been granted deferrals and received deferral of principal and interest payments. We have also escalated the monitoring of industrial sectors in our commercial portfolio now considered to be more economically sensitive. That mainly consists of hotel and restaurant chain clients, which account for about $224 million or 9.7% of commercial loans; hospital clients, which account for $103 million or 4.5% of commercial loans; and retail shopping center clients, which account for about $74 million or 3.2% of commercial loans.

Please turn to Page 11 to review our capital position. As I mentioned earlier, we believe we have entered this pandemic with a strong capital position. All our regulatory capital ratios increased from December 31 and continue to be significantly above requirements for a well-capitalized institution.

Please turn to Page 12. To conclude, we think we have operated well so far in this very challenging environment. Operationally, we were the first and only bank in Puerto Rico to provide COVID-19-related digital solutions to help consumers bank online. We have provided uninterrupted and superior levels of service through all channels while maintaining both employee and customer safety. This has enabled us to keep in close communication with our clients in order to understand well their needs and provide them with the advice and resources required to navigate this challenging time. Our digital capabilities are helping customers do their banking with ever greater ease and convenience. Financially, we are in a strong capital, liquidity and reserve position. Looking ahead, our priority is to protect our employees, help our customers, and thereby, support the communities we serve. I'd like to add that the Scotiabank operations and technology integration has continued on track. We anticipate completing it over the course of this year as originally planned. Based on our success, we anticipate continuing to invest in technology to digitize our business at a faster pace than originally planned.

Ultimately, our goal is to continue to demonstrate our financial strength, operating agility and resiliency with strong risk management, and build an ever stronger company for all our stakeholders. For more than half a century, we have been there to help customers manage their finances, own homes, buy cars, build businesses, protect themselves with insurance, and save and invest for retirement. We are ready to continue to help them now, and we will be there for them for decades ahead.

With this, we end our formal presentation. Thank you for listening. Operator, let's start the Q&A.

(Operator Instructions) Your first question comes from the line of Alex Twerdahl with Piper Sandler.

Just first off, I was hoping you can maybe just talk a little bit more about what's actually happened in Puerto Rico with COVID. And you touched on it a little bit in your prepared remarks, but what kinds of stuff are open right now? And you kind of alluded to a plan that the governor is working on. Do we have any sort of projected time frame for the nonessential businesses to start reopening down there? Or is it too early at this point?

So Alex, we've been at a very strict lockdown for the better part of 6 weeks where the governor started, as I mentioned earlier, very early on. I think it was March 12 or 13. And it was very strict. People were not allowed outside of their homes after 7:00 at night, and the only businesses that were allowed to operate were essential services as they were defined in the executive order that she put into place. Those services were hospitals; pharmacies; supermarkets; and financial services only for payments and deposit transactions, not allowed -- not allowing financial institutions to originate loans or do other type of transactions or businesses. So I think, again, from the ground, and I'm not a scientist, but I think the fact that she started with this early on has been very good. And now it's the point in time where she needs to start considering an opening of the economy. And it's a tricky issue, right, because it's very contagious, the COVID-19. So she has a medical task force, and the medical task force published on Sunday, I think it was, a paper where they basically delineate how should we open, and there's 3 phases where they start opening a little bit. She has not yet decided on how to proceed. The business sector is -- also there is a task force, and they are also engaged with the governor. And I think they're also pushing for an opening of the economy, as you can imagine, and it's happening everywhere in the United States. But unfortunately here in Puerto Rico, I would say the only thing that I would be very cautious about is the testing side of it. We are really the jurisdiction in the United States with the lowest testing per capita, and it doesn't give enough visibility on how the contagion is moving along. So I would be very cautious. And we, at Oriental, will be very cautious on a reopening of everything simply because for us our people come first. And by them coming first, our customers are going to be well served.

So that's a little bit of a peek on how I see things from the ground. And I am hopeful that with the early-on lockdown and with a disciplined process of reopening stage by stage and I think as presented by the medical task force, I think we will be coming out at the other end of the road in very good shape.

That's helpful. And then just kind of a sort of a similar question, just macro related. Does Puerto Rico get the same equal treatment as anyone else in the United States under some of these federal stimulus programs, including the $1,200 stimulus check, the extra $600 per week on unemployment and things like that? And then, if I'm not mistaken, Puerto Rico also has kind of a separate stimulus program. Can you give us some sort of details on kind of what that includes and entails?

So yes. As opposed to the prior crises that we've been honored to serve under like Maria or the earthquakes, COVID-19 is a global crisis, and it's hitting the United States completely. So for the first time in one of the crises that we're operating here in Puerto Rico, we are receiving the same benefits that apply to all the states in the United States. So we're going to be receiving the federal funds. As a matter of fact, we already received around $2 billion of funds that need to be deployed. And there's the $1,200 checks is also -- they haven't yet disbursed them, but they're in the process. And so Puerto Rico will probably receive between $4 billion to $5 billion in federal funds from the COVID-19 as of now.

The governor and the Fiscal Supervisory Board also teamed up, and they put up around $700 million to $1 billion that they had for emergency in the budget, and they're also deploying it out slowly but surely. And that is also being included as part of the incentives or the cash that is being added to the economy while we're managing the lockdown and the pandemic.

And is that $700 million to $1 billion, is that for small businesses or for individuals or for health care workers? Or kind of what's the general sense for what the money will be spent on?

Mostly for individuals, I would say, health care workers, individuals, people -- remember, Puerto Rico has a high level of poverty compared to the states in the United States, so it's a supplemental to help out. Certainly, unemployment benefits apply to Puerto Rico, and then the governor -- the government is adding to those in some way, shape or fashion. Certainly, the health care providers are being helped and some small businesses also that are being affected, primarily on the health care side.

Great. And then just as I think about the reserve methodology, you guys have obviously been through crises before with Hurricane Maria. Were you able to draw on some of that playbook for kind of -- obviously, CECL is a different can of worms here, but were you able to draw on that same sort of playbook for coming up with the reserve under the scenarios that you were given from Moody's? Or are there some major differences that we should be considering?

So I'll answer that high level. But certainly, the experiences we've gone through with Maria and the earthquakes, they put us in good shape in terms of addressing the crisis from all aspects, not only provisioning, but from a financial perspective, from a people perspective and certainly from a customer perspective. So the experiences of the 2 prior crises has helped us be ready for this one.

Now regarding the provisioning, there are some -- big-picture, there are some similarities in the sense that there are forbearances being given, and people are locked out. So when we were here with Maria, the decision was to give automatic moratoriums. This time around, we decided to go on a case-by-case basis and use technology to allow clients to request for those forbearances. And I think the reasoning behind it is because not all the industries are furloughing or letting go of their employees. They're paying out salaries, particularly the central government and the municipalities. They're all paying their salaries. So we took the experience from Maria, but it also adapted to the realities that we have today in terms of how to approach it.

Great. That's -- oh, and then just final question from me, and I'll get back into queue, is just you alluded to the Moody's forecast for Puerto Rico. Can you share with us what the -- what that suggests GDP on the island goes to in the second quarter and kind of what shape of recovery it expects to see afterwards?

Yes. I'll let Maritza answer that one, Alex.

Well, Alex, probably before getting into the updated macro scenario, probably I shall go back to Day 1. And I think when we made Day 1 allowance under CECL, we used a mixed macroeconomic outlook and scenario that predicted a moderate GDP growth with a steady unemployment in the near term. When we updated for the Day 2 provision, we obviously updated the macroeconomic scenarios and applied a negative GDP growth in the near term with an immediate increase in the unemployment to about 13.5%. So what we're seeing is an immediate reaction, an immediate negative reaction in the short term. And probably we will continue monitoring, as we have more information, to see what type of recovery we will have, if it would be a V type of shape or a U type of shape. But right now, initially we have an immediate negative impact in the GDP and unemployment rises.

Can you help us quantify a little bit of that immediate negative impact in GDP? Is it in the range of 10%, 20%?

No. Yes. In average, it's about negative 2.5%.

Your next question comes from the line of Joe Gladue with Alden Securities.

I guess just want to, I guess, first touch on a little bit of some help on the net interest margin. I guess there's a lot going on there. I guess I'll just start with -- looks like after some of the security sales and everything, balance sheet had a fairly sizable cash balance on there at the end of the quarter. Do you think in the current environment, there will be opportunities to deploy that more profitably?

So this is the way I see the net interest margin and what are the effects of, let's say, having a lower net interest margin than anticipated. And first, wholesale funding. Since we have excess core deposits from the Scotiabank acquisition, we have an opportunity to continue to let go of that wholesale funding. So we need to wait for the maturity of those in order for us to cancel them, right? So that's kind of going to play itself out this year.

Number two, certainly, the drop in interest rates has affected the margin, particularly the effects on the variable rate commercial loans, and that is something that we are very much focused on.

And then you mentioned it, the high cash balances. That cash balance was yielding 1.25, 1.30, now is yielding around 10 basis points. So that has created a different scenario than what we had anticipated prior to the crisis. Now having said that, we think that at this point in time there's not necessarily opportunities for us to deploy that cash above and beyond the great job we're doing with the SBA PPP program, and that's on the short end. But as Maritza mentioned on our scenarios, once the economy starts to reopen, either a U- or a V-shaped scenario, will give us ample dry powder to, as we always do, very prudently deploy that cash and put it to work. So I think we're in very good shape in spite of the external challenges. We're in very good shape for the expected, who knows when, recovery and deploy the cash that we have in higher yielding assets and help the communities and the clients.

Okay. You mentioned, of course, the PPP program. What are you expecting in terms of how the fee income from that comes into income over the course of the year?

So I'm not an accounting expert, but I suspect that the fee is going to be part of the yield, and it's going to be accounted as part of the net interest income. So yes, it's a 1% yielding with -- I think the size of the loans that -- the average size of the loans is relatively small, so we probably get the higher end of the range in terms of the fees on the PPP program. And we're in the middle of the second round. And early indications show that we're doing more loans than what we did on the first round, although they probably have a lower balance per loan. But we're very encouraged with the fee generation that we will get from there as well as the ability to be able to help our customers in a very expeditious way. I mean we're disbursing this money in 5 days after it's been approved, or less actually. So we're very excited and happy to help our clients, and that's kind of our perspective from the SBA program that just launched.

Okay. Just wondering if you could give us a little outlook on the loan production sort of by segment. In the current environment, clearly, there's probably not a lot of mortgage transactions going on. I believe most of the auto dealerships are not doing any business. And just wondering, is there any -- are any loan segments still maintaining some volumes?

So apart from the SBA PPP loans, of course, we're doing a little bit of -- nothing to write home about for sure, of personal loans and a little bit of auto loans that were in the pipeline before the lockdown, but nothing in particular to be significant. So if you think of it, the second quarter, we'll have a very depressed loan production given the lockdown. And during the full month of April and parts of March that you really saw the effects and then the full month of April, and we're still expectant on how is it going to open. And how will that play out in terms of business generation, nobody knows. So we rather play it conservatively. And as I mentioned in the remarks, we're in very good strategic position right now, making sure that, first and foremost, we -- because we closed Scotia transaction on December 31, we're in very good position in terms of core funding and other clients and added opportunities, liquidity, for sure. But we're also very excited with the digital adoption and how our clients, because they are in a lockdown, they're incrementally utilizing our digital platforms and services; and also how we immediately adapted to the forbearance and also the SBA program, providing them digital tools for them to also apply, and in the case of the SBA program, run the whole program without printing a piece of paper. So it was all digitally done and disbursed, and that is a differentiating factor, and I'm really proud of the work that our teams have done.

(Operator Instructions) Your next question comes from the line of Glen Manna with Keefe, Bruyette & Woods.

I just have a couple of questions on net interest income. In the past, you had put a schedule that had accretable yield in the press release, but I didn't see it. How much accretion was still in that number that you booked today?

Glen, could you repeat the question? We could not hear you well.

Sure. In the past, you had included a schedule of accretable yield in the press release. How much accretion was booked in the number in the first quarter?

Okay, Glen. That is way, way above my IQ level. I'll let Maritza answer that one.

Yes. At the end, Glen, remember that we changed the accounting because SOP accounting disappear, and accretion was part of the -- of that type of accounting. So what we have right now is a deal adjustment to the interest income. I don't have the precise figures of how much was the deal adjustment that we did for all the acquired books. But in general, it's part of the deal that bears the each type of loans. It's not like before that we have that different type of segmentation in the interest income.

Okay. And I got on the call late; I had some technology problems. But could you discuss where deposit pricing was at the end of the quarter kind of relative to where it was to the average?

Yes. So that's a good point, Glen. Thank you for bringing it up. Throughout the latter parts of the quarter, we were very proactive in repricing some large commercial relationships, and now we're in the process of looking at the whole retail side. But I think when you look at our core deposits, and remember, the acquisition that we closed in December 31 added to that, what we're seeing is not only good traction from the Scotia -- former Scotia clients that they're adding deposits to their accounts, but we also see the ability to also look at those buckets and be more proactive in repricing them. So we're looking now at that side of the equation. But we have, at the end of the March quarter, pretty much looked at most of the commercial -- large commercial deposits and we priced them to market.

Okay. And on the fee income, I guess it's always difficult to kind of estimate the fee income line after an acquisition. But it looked like The Street, and I was -- we're expecting about $31 million on that line ex any security gains or anything like that. And the run rate looks like it came in a little bit lower. Was there anything special in other income that weighed that down? Or is this kind of the run rate that we should be using going forward, noting any variability in mortgage banking?

Yes. Maritza will give you some details on that.

Yes. Glen, I think, in general, the last 2 weeks of March there were lower fees because of lower transactionality. Probably banking service fee revenues probably we know was impacted because of that. Also mortgage banking activity, as the impact of the MSR valuation that came at $2 million negative adjustment. So probably that's why you see these figures are little bit off of your estimate. So at this point, we need to see how the lockdown -- how we will get back to a normal level of activity, so we can see that fees in a more normalized figures. And in the MSR, it depends on the market rate. So that's why you see that levels not necessarily in line with what you were expecting.

Right. And just to confirm, you said that was a $2 million MSR write-down that includes this...?

MSR valuation.

Yes. Valuation, right. Okay. And on the tax rate, is that 26% that you noted in the press release a good effective rate to use going forward given the level of securities and cash that you have now and the tax-exempt income?

Yes.

Your next question comes from the line of Alex Twerdahl with Piper Sandler.

Just first, I wanted to go back to what you said about the assumptions in the reserve rate of the decline of 2.5% on GDP. Is that -- I assume that's specific to Puerto Rico. Is that because the economy is not expected to go down or I guess the pullback is not expected to be as bad in Puerto Rico? Or is that just because Puerto Rico is already 13 years into a recession and there's not much more to go down? Can you just kind of put that into context for us?

So if I understand your question correctly, Alex, you're saying on the Moody's Puerto Rico scenario when we're seeing a contraction of 2.5%, that is a 2.5% annualized but they impact on a quarterly basis for the next couple of quarters. So it's like a real drop from plus 2.5% to -- I'm just using numbers here -- from plus 2.5% to minus 2.5%, so it's a drop of 5% annualized immediately due to the COVID-19.

Okay. Yes. I was just -- we have some banks in the mainlands that are reporting or I guess using scenarios that are like down like 10% to 20%. So just kind of want to make sure I understand the context properly.

And then as you kind of look at some of the high-risk portfolios that you disclosed in the presentation, are you able to give us some characteristics on like the hospitality and restaurants in terms of LTVs, things like that?

You want details on the LTVs on those?

On the hotels and the restaurants' LTVs, debt service coverage, anything that can get us a little bit more comfortable with the standings of those high-risk categories.

On average, I would say hospitality is around 70% LTV.

Okay. And what about hospitals and retail shopping centers?

Shopping centers, more or less the same. There are some that are lower LTVs, but because they've been longer in the books. But on average, I would say around the 70% kind of.

Okay. And hospitals is the same?

Say that again?

Hospitals is the same?

Hospitals? I don't have right here the hospitals, but Maritza can bring that number to you later.

Okay. Sounds good. And then in the OFG USA, the growth this quarter that we saw, can you just remind us kind of what kinds of loans those are and sort of how the underwriting works and everything, just because it's been a few quarters since we've seen participations there and just obviously the world has changed a lot in the last couple of weeks?

Yes. Well, these are small. Some of them are SBA loans. Some of them, a proportion of the origination is small commercial loans, SBA guaranteed. Some of them are straight SBA loans that we participate on. And we feel that these are not necessarily high-risk industries given the COVID-19. And again, the production that you see there is prior to all the pandemic.

Right. So I mean what percentage would be SBA guaranteed?

I don't have it off the top of my head, but we can give you the details off-line.

Okay. But it would be at a high enough percentage to just to get you a little bit more comfortable? SBA, I believe, is making payments on a lot of those loans in the next 6 months, if I'm not mistaken.

Yes.

Okay. And then just back to the question on the margin, kind of 2 parts. One, you kind of talked about the higher cash balances, and those are going to stay elevated for a little bit of time until loan growth picks back up and until you have some of the borrowings that come due. One, can you give us a schedule on when those borrowings are going to come due, so we can kind of think about funding costs coming down later in the year? And then, two, just kind of with all the moving parts, what's the right starting point to think about for the margin going into the second quarter, considering what's happened to LIBOR and prime and everything during the first quarter?

So we're not giving any guidance on the margin, Alex, but I'll let Maritza talk to you about the maturity of the wholesale funding and all that stuff.

I think, Alex, it's important to notice that we have reduced our wholesale borrowings, including brokered deposits, by about 50% year-over-year. And at this point, what we're seeing is that about 3/4 of what we have at this point will mature during this year, and the remaining balance, about $100 million something, will be maturing during the next 2 years. So that's the perspective we -- that's the maturity that we have for the year, around $300 million.

And these are yielding -- they're yielding 2.25 or so.

2.25 something, yes.

Okay. And that includes the brokered deposits as well as FHLB advances?

Yes, yes.

Okay. And the PPP program, is it a fair presumption to assume that you're only doing that for existing customers?

We're doing it to primarily existing customers, but we're also receiving requests from non-clients, and we are certainly serving them. And hopefully, we can expand relationships there, too.

Okay. And then just as we think about the cost savings, you mentioned in your prepared remarks that the plan -- you plan to postpone some of the cost savings from the Scotia transaction. One, what was the impact of postponing those in the first quarter on expenses? And then how should we be thinking about sort of how expenses shape out for the next couple quarters and when those cost savings potentially could start coming back online?

Yes. So expenses is an area where, as you guys who have known us for a while know that we are pretty focused on efficiency, and we try to act on expenses pretty quickly. This time around, because of the COVID pandemic, we postponed the efficiencies from the Scotia transaction just until further notice, really, because we want to know how this plays out. First, people come first, and we don't want to affect lives of individuals, but also because we need to service our customers well also. So we are keeping it on the hold handle right now. But certainly, that does not mean that we're not going to execute on our plan as we designed it originally. As a matter of fact, we probably with this experience, what we have seen is that we have been able to break down barriers, break down silos, break down bureaucracies and get things done faster. So I'm actually getting -- I don't want to get myself ahead of the curve here, but I think there are opportunities for us to change processes -- above and beyond the acquisition, change processes, be more efficient in many, many things that we do. But as of now, we haven't done anything on occupancy; we haven't done anything on payroll; we haven't done anything on contracts; and there are several redundancies that we still have not even acted on. So for the time being, I would model relatively similar expense level as you're seeing this quarter just to -- until we find out how the COVID pandemic plays out. But as you know, we're very, very cognizant of that.

Right. So I mean if I kind of interpret what you're saying correctly that, over the last couple of weeks, you guys have maybe learned something, some new things about the operating environment and kind of rethink about how the branch and how some of these processes can work going forward, not necessarily under a new normal, but just kind of maybe an acceleration towards what you guys were trying to get to if you backed up a couple months.

Correct. You said it better than I did.

(Operator Instructions) At this time, there are no further questions. I will now turn the call back to management for closing remarks.

Thank you, operator, and thank you to all for listening in. Our hope goes out to all that we will end up this pandemic soon, and we all stay safe. Thank you again. Have a nice day, and thank you for listening in.

This concludes today's conference call. You may now disconnect.