Q2 2020 Amerant Bancorp Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the M. <unk> second quarter 2020, <unk> earnings Conference call. At this time all participants are in the mix and only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the country.
Yes. Please press Star then zero on your Touchtone telephone as a reminder, this conference call as being recorded I wouldn't know love to turn the conference over to your host Ms. Lora Rafi Investor Relations Officer. Thank you Ma'am. Please go ahead.
Thank you operator.
Good morning to everyone on the coal and thank you for joining us to review Omron Bancorp second quarter 2020 resold.
With me this morning, our Mueller Wilson, Chief Executive Officer.
Honestly I feel that Chief financial Officer May get a lots yields chief business officer until Fisher credit risk manager.
Before we begin note that the company's press release comments made on today's call on responses to your question contain forward looking statements.
The company business operations are subject to a variety of risks and uncertainties menu, which are beyond its control and consequently actual results may differ materially from those expressed or implied.
Please refer to the cautionary notice is regarding forward looking statements in the company's press release.
For a more complete description of beef I know there possible risks. Please refer to the Companys annual report on form 10-K for the year ended December 31st 2019, and the company's quarterly report on form 10-Q for the quarter ended March 31st 2020, as well as to subsequent filings with the assay.
C, which you connections these filings on the Fccs website.
Please note that Ameren has no obligation and makes no commitment to update or publicly release any revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectations, except as required by law.
You should also note that the company's press release earnings presentation on today's call include references to certain adjusted financial measures also known as non-GAAP financial measures.
Please refer to appendix one of the company's earnings presentation for every conciliation of each non financial measure to its most comparable GAAP financial measure.
I will now turn the call over to Mr. Wilson.
Good morning, Thank you for joining I'm room second quarter 2020 earnings call.
Today I will begin by discussing how amarin continues to navigate the current environment.
Including an update around the initiatives put in place to mitigate the impact of the Cobiz 19 and damage.
And our second quarter Huh.
Most will then review our financial performance for the quarter in further detail.
After our prepared remarks cargoes for me go Cherilyn I will answer your question.
As I said last quarter, the safety of our employees and customers is our number one priority.
Our business continuity plan remains in place and that's already so we have been able to seamlessly serve customers and keep our employees customers and communities say.
That's the number of Corbett 19 cases has increased in the communities, where we operate we are diligently following our business continuity plan and are taking a cautious and phased approach that samara employees begin to return to the office.
Specifically employees are only returning to the office voluntarily at a capacity if not more than 25% at any given time.
Except our New York healthier witches kept at 50%.
Our BCP continues to successfully support approximately 86% of our employees with remote working work capability.
Regarding our banking centers, we have returned to regular business hours that said the entire omron team is following strict government safety guideline.
Our goal continues to be to provide customers with the surface. They have come to expect while maintaining a safe environment.
Additionally, our mine continues to provide customized loan payment relief auction to customers impacted by the Cobiz 19 pandemic.
In accordance with regulatory guidelines, including interest only payments him for parents auction.
At the end of the second quarter.
So extending maturities modified under these programs totaled 1.1 billion.
Modified loans from which the own interest only and door forbearance period had expired two to 519.5 million or 46% total modified loans.
As of July 17 modified loans totaling 164.9 million had shed you payments to.
The company collected payments due on 136.9 million on fees flown through this day.
Modified loans totaling 354.6 million.
Payments due by July 31st.
I'm also continued to participate in the pay check protection program more PPP.
As of June Thirtyth, we had received approval for over 2000 loans totaling $218.6 million.
Over 90% of these loans were under 350000 age, which translates into approximately 26000 jobs say.
We're extremely proud of Amarins contribution.
Looking ahead, we will continue to provide relief while closely monitoring the company's credit and liquidity risks.
The Executive Management Committee has taken an even more active role in this monitoring process, we have tightened our credit underwriting practices and significantly increased the frequency of loan portfolio reviews.
Together these actions will ensure amarins credit quality is closely managed amid these unusual and highly unpredictable circumstance.
Please turn to our second quarter highlights on slide four.
Despite cope with 19 related headwinds I'm proud of the entire amarin team for continuing to push forward and execute our relationship focus strategy.
In the second quarter, we recorded a loan loss provision of 48.6 million compared to a provision of 22.0 million in the first quarter and the release of 1.4 million in the year ago period.
Harvest will discuss the drivers of this provision in more detail shortly.
As a result of this provision we're reporting a net loss of 15.3 million compared to net income of 3.4 million in the first quarter and net income of 12.9 million in the three months ended June Thirtyth 2019.
Lower interest income also contributed to this net loss, which was partially offset by lower non interest expenses.
It is worth highlighting that even though our loan loss provision has increased significantly our operating them.
Switching excludes the provision for income tax the provision for loan losses, or reversals and net gains on securities sales increased to 21.6 million.
53.9% year over year, and up 29.7% quarter over quarter.
Also in the quarter, our broker dealer Amarin investment successfully participated in the distribution of the senior notes, which among other factors contributed to stronger year over year noninterest income.
The investment team also launched Amarin investments mobile and application that facilitates customers engagement with our average investment account.
This application further supports our relationship focused strategy as well as our digital transformation.
Please turn to slide five.
As I mentioned, we had a net loss of 15.3 million compared to net income of 3.4 million is the first quarter 2020, and net income a 12.9 million reported in the three months ended.
And Thirtyth 2019.
Largely due to the higher provision for loan losses.
The adjusted net loss, which excludes restructuring expenses was 14.2 million compared to adjusted net income of 3.7 million in the first quarter at 15.0 million reported in the three months ended June Thirtyth 2019.
Our return on assets was a negative to your 0.75% or a negative 0.7 on an adjusted spaces and our loss per share was 37 cents or 34 cents on an as adjusted basis.
Total loans. So June Thirtyth were 5.9 billion, an increase of 3.6% compared to the first quarter.
This increase was largely driven by the PPP loans granted in the quarter.
Partially offset by declines in other loan origination attributable to the lack of business activity, resulting from the cobot 19 pandemic.
And the more stringent credit underwriting guidelines currently in place.
Funds from these PPP loans also drove total deposits, which was 6.0 billion as of June thirtyth up 3.1% from the prior quarter.
The fun small business customers had not fully utilized totaled 132.7 million at the end of quarter.
Additionally, we are we were pleased to see our foreign deposits increased by 3.5 million or 0.1% compared to the prior quarter, we're optimistic and hope this improvement will continue.
Shareholders' equity was 830.2 million so June thirtyth, a decrease of 1.3% compared to the prior quarter.
This decrease in stockholders' equity, it's mainly the result of the company's net loss in the second quarter, partially offset by higher higher valuations of the company's debt securities available for sale.
Attributable to the decline in market interest rates in the same period.
I will now handover the call to Carlos.
Thank you Miller, turning to slide seeks I would like to discuss the investment portfolio.
Our second quarter investment Securities balance was 1.7 billion down front at 1.8 billion at the end of the first quarter 22, and a relatively flat year over year.
During the second quarter prepayments on mortgage related securities has stabilized following the search and expected prepayments during the first quarter steel we continue to focus decreasing floating rate investments given the current interest rate environment.
At the end of the second quarter floating rate investments represented 17% of our portfolio down from 18% a year ago.
In the quarter, we center, where attention on purchasing higher yielding corporate debts, primarily in the subordinated five sector to minimize the cause of our senior debt issues, while maintaining the duration of our portfolio.
Turning to slide seven we provide an overview of our loan portfolio into second quarter at the end of the second quarter total loans were 5.9 billion up 3.6% compared to the first quarter of 2020 and up 2.2% compared to December 2019.
As Mealor mentioned previously these increases were largely we sold of the Triple B loans originated during the quarter and partially offset by declines in order loan originations attributable to the current economic environment, a more stringent credit guidelines as a result of the pandemic.
Loan production in the second quarter Center, and a triple B launched to small businesses as mentioned earlier as of June 30, 2020, Amarin had received approval and funded over 2000 launch on more than 219 through this program.
Beyond Triple B launch real estate loans were also up quarter over quarter and year over year due to increases in jumbo mortgages within our single family residential portfolio.
Going to slide number eight we see the credit quality of the portfolio.
We recorded a provision for loan losses of 48.6 million during the second quarter of two any twin up from a 22 million dollar provision recorded in the first quarter of 2020 on a release, a 1.4 million in the second quarter of 2019.
This provision includes two key drivers first were treated 20.2 million estimated losses reflect in deterioration macroeconomic environment. As a result of the impact of covered 19 across multiple impacted sectors and second the increasing probation includes 28.2 million due to.
Loan portfolio deterioration, reflecting downgrades on specific reserve requirements.
Of this amount 20 million is related to a Miami base coffee trader.
On expected.
Announced liquidation plans early this month.
The borrower had an outstanding indebtedness of 39.8 million as of June 32020 on their every board revolver line of credit.
We have plays alone in nonaccrual status downgraded to substandard and we're working to recover as much as possible through the liquidation proceed is however de outcome of this process. This is still uncertain.
We continue to model estimated losses to provide us with a comfortable coverage ratio under the existing difficult macroeconomic environment as a result of the ongoing pandemic.
Our ratio of allowance for loan losses to total loans increased 75 basis points compared to the prior quarter ending at 2.04%.
Next nonperforming assets increased 43.9 million quarter over quarter, and 44.6 million compared to the year ago period.
Total in 77.3 million at the end of the second quarter 2020.
The ratio of nonperforming assets to total assets was 95 basis points up 54 basis points from both first quarter 2020, and second quarter 2019.
For leases from this increased 49 basis points resulted from the lawn up to the coffee trader being placed into non accrual status.
I would like to discuss our loan portfolio more broadly in light up for the current carbon 19 market environment.
Approximately 42% of our outstanding loan portfolio is tied to industry potentially more vulnerable to the challenging dynamics created by the pandemic.
67% of out of this exposures are secure were real estate collateral I would like to note that our CRM portfolio remains well diversified would not significant property type regional or tenant concentration.
This portfolio has a low loan to value healthy debt service coverage ratios on a 42% is represented by top tier see every customers.
We are encouraged by the recent pace of recovery efforts across the country and well cautious expect our retail portfolio to be well position as a country begins faces up reopening.
Im rent retail portfolio is primarily made up of highly trafficked locations, including grocery anchored shopping centers on service oriented neighborhood shopping centers, many of which are essential business or included in the earliest reopening phases.
Finally, we remain committed to the communities we serve particularly during this difficult times to support our customers and as Mealor mentioned previously we continue to offer a customized loan payment relief in accordance with regulatory guidance included interest only payments on forbearance options, while it's difficult to forecast.
The impact of carbon 19 on our credit quality, we're proactively monitoring all of our credit practices as well as individual exposures bird business line and geography I.
As a result of this solid practices AMR and credit quality remains down on our reserve coverage is strong.
Turning to slide nine we can absurd that in general you loose jewel of our office assets trended down following the performance of an asset sensitive balance sheet.
You can see that our loan yield decreased 54 basis points compared to the first quarter 20 twin.
This was largely due to the impact of the federal reserve emergency rig costs in March 2020.
We were able to minimize decreasing deal, resulting from lower rates and investment portfolio to only nine basis points quarter over quarter through the purchase of higher yielding securities as previously mentioned.
Going to slide 10.
I would like to provide some color around amarins wholesale funding strategies.
The second quarter, we continue to implement wholesale funding strategies focused on managing the Corbin low interest rate environment at the beginning of the quarter, we modify maturities on 420 million fixed rate FHLB advances, representing 2.4 million of cost savings for the rest of the 2020.
Also as mentioned before we completed a 60 million offering senior note of a coupon of five on three quarters, which provided the company with a new source of funding as we continue to navigate the covet 19 pandemic.
Looking ahead, we will continue to actively leverage opportunity this into wholesale market to decrease funding cost as we managed through the current and future market environment.
Moving to slide 11.
Total deposits at the end of the second quarter, where $6 billion up 3.1% quarter over quarter.
This increase was largely driven by default of the triple the loans originated during the second quarter, 2020, which small business customers have not fully utilized.
These onions funds totaled 132 million as of June Thirtyth. Additionally, higher deposits in the second quarter of 22 and include 56 million growth in reciprocal deposits compared to the first quarter 2020, which we offered to certain customers who wanted to make their deposits fully legible for at the scene.
Sure.
Domestic deposits, excluding online deposit growth I know news triple B related deposits.
Increased 24.5 million in the second quarter of 2020, approximately 8.8% from the first quarter 2020.
This increase was mainly driven by the continued successful execution of our relationships centric strategy.
Foreign deposits, which include departed from customers in Venezuela, and other countries increased $3.5 million 4.1 per cent compared to the prior quarter.
While customers in Venezuela continue to use their deposits to cover living expenses.
Annualized decline rate of foreign departed to reverse into second quarter, showing an increase in deposits equivalent, 2.1%, 4.5% annualize compared to the annualized decline of 7.1% during the first quarter of 2020.
Well treated this increase through the combination of our teens improved customer service and felt air Force got three more share of wallet with the lower pace of economic activity in Venezuela as a result of the covenant in pandemic.
Finally, brokered deposits declined 15% or 9.1% quarter over quarter.
On a final note our cost of interest bearing deposits was down 24 basis points in the second quarter of 2020 compared to the first quarter. These are result of our fab efforts to proactively reprice Cds relationship money markets and Peter product.
Turning to our BNL on the slide 12 second quarter 2020, net interest income was 46.3 million down almost 6% front of first quarter on down almost 14% from the second quarter of 2019.
The quarter over quarter decrease was driven by assets haven't reprice fostered a liabilities following the emergency rig costs enacted by the federal reserve.
This quarter labor rates closely track. The Federer result costs in terms of magnitude, which led to a larger impact on our interest income dining previous quarter. These resulted in lower origination and repricing rates across our portfolios.
Partially offsetting the decrease where haggard loan volumes, resulting from our active participation into triple B program.
The year over year decrease was driven by federal reserve three cost to the benchmark rates in 2019. In addition to the two emergency cost in March this year.
This cost in a declining yields of our interest earning assets.
This decline was partially offset by actions that I, just mentioned as well as lower interest expenses due to the trust preferred securities we redeemed less water.
The net interest margin for the second quarter 2020 was two point 44%.
Representing a decrease of 21 basis points from the prior quarter and 48 basis points compared to the second quarter of 2019.
Looking ahead to the balance of the year, we continue to anticipate our net interest income on net interest margin to be pressured largely as a result of the low interest rate environment and uncertain economic conditions caused by the carbon 19.
Despite a slight increase in foreign deposits reported during Q2, we expect deal. This low cost funding to continue to run off which will pressure our NIM.
As we did in the previous quarter, we continue to implement actions to partially offset these headwinds, including proactively caught in rates on deposit relationship on the market and order top pricing.
Great that we pay to customers.
Leveraging opportunities for lower cost, including FHLB and broker Cds as you remember, we modify 420 Neely.
Continuing to maximize high yield investments evidence this quarter by the purchase of high yield corporate securities.
Actively planting and managing flow rate in our credit portfolio, which has begun to year. This year and provides higher than average spreads and working to further reduce asset sensitivity, which I will discuss shortly.
We remain focused on implementing this actions and evaluating order to help us to navigate through the current environment.
Now turning to slide 13, noninterest income in the second quarter was 19.8 million down 9.8% quarter over quarter and up almost 40% year over year.
The quarter over quarter decline in noninterest income was largely driven by a lower net gains on sale of investments. We recognized a 7.5 million net gain on the sale of 30 year Treasury securities compared to a 9.2 million.
Gain in the first quarter.
We purchased a portfolio of 30 year Treasury securities last quarter to offset higher than expected prepayment rate on mortgage related securities in an increasingly lower interest rate environment. We sold off this portfolio as the anticipated prepayments speeds stabilized.
These gains together with our efforts to reduce funding costs have help us to compensate for dating back on interest earning assets.
Additionally, the politics on order service fees.
Deep lower Asps service charges and why transfer fees continued to decline due to the implementation of zale.
And is low down of economic activity due to the pandemic.
Also this quarter.
We had no credit card referral fees, which are received annually during the first quarter, partially offsetting this decline was an increase in the derivative income due to restore customer activity.
Our broker dealers participation in the distribution of the senior notes demonstrated our investment platform capabilities for additional revenue generation as well as excellent team of professionals, who help create momentum during the sales process.
This activity as well as higher customer trading volumes in the current volatile market resulted in increased broke brokerage fees compared to the previous quarter.
We are prepared to continue serving our investment clients in this environment.
And the addition of the remote capabilities can help us to accelerate our work here.
The 40% year over year increase was due to similar drivers as those associated with the quarter. In addition to Credicorps fee income due to the closing of our international credit card program and the absence of professional service previously provided to our former parents and its affinion.
Amarins asset under management and cost city decreased 71.5 million to one point 72 billion in the second quarter of 2020 from one point $79 billion into second quarter of 2019 decreases largely due to cobbett headwinds.
Partially offset by account growth as amarin sales team continued to execute our relationship centric strategy, our new customer relationship balances brought in.
By the acquisition of the land Bank and trust.
We plan to continue growing at Ameren investment platform to take advantage of this asset to generate additional fee income.
Moving to slide 14 second quarter, non interest expenses was 36.7 million down 18% quarter over quarter and down 30.6% year over year.
This quarter over quarter decrease is largely due to the deferral of the red cost associated with the origination of Triple belongs Doug Miller Discloser earlier on this call.
This cost our deferred and amortized over the term of their related loans as adjustments to interest income in accordance with generally accepted accounting principles and consisted of 7.8 million of salaries and order employee benefits on point 7 million of order operating expenses.
Partially offsetting this decline was an increasing professional and order services fees due to our ongoing digital efforts.
The year over year decline was largely the result of lower salaries and employee benefit expenses. Following our 2018 2019 staff reductions. In addition to decrease in deferred costs associated with your origination of the Triple B loans.
The absence of rebranding costs.
Last year related to our transformation efforts also contributed to this decrease.
Look into the remainder of 2020, we continue to focus in cost reduction strategies that entails physical space and key vendor analysis.
On slide 15.
Second quarter adjusted non interest expenses was 35.4 billion down 20% quarter over quarter and down 29% year over year.
Adjusted non interest expenses decreased quarter over quarter as noninterest expenses were meaningfully lower due to the reason I just discussed.
In the second quarter, we had a restructuring expense of 1.3 million attributed to the ongoing transformation compared 2.4 million last quarter.
This quarter costs included 1 million in digital transformation expenses as we move forward with implementation stage of Salesforce and Encino on stopped reduction costs of about point 4 million.
We remain committed to the implementation of initiatives that create efficiencies were moving forward with the closure of two banking centers and where renegotiating the termination of this leases as result of this actions.
Restructuring expenses decreases 52% year over year into second quarter due to the absence of rebranding costs related to the prior year transformation efforts.
What we have reduced our staff by 1.7% since the second quarter of 2018, we have not made any staffing changes in response to carve it out.
Moving onto onto next slide number 16, as we have said in prior quarters on throughout this call Amarin continues to be sensitive to interest rate as over half of our loan portfolio has floating rate structures or matures within a year.
Our team is working hard to reduce asset sensitivity increasingly low interest rate environment.
We continue to implement floor rates in the loan portfolio and actively manage the investment portfolio in order to improve our NIM.
In line with this and as previously mentioned, we sold off approximately 60 million up notionals than 30 year accretion Treasury securities and purchase higher yielding corporate debt mainly in the five subordinated notes we continue to be on the look up to leverage opportunities to purchase higher yield.
Longer duration investments now I will hand, it over back to me not to conclude our prepared remarks.
Thank you Cardless.
Moving onto our last slide we continue to execute on our goals to drive shareholder value. We remain focused on generating profitability core deposit and loan growth as well as maintaining credit quality as we navigate through the economic term or created by the cold.
19 pandemic.
In the current low interest environment. We also plan through lean more on the careful management of our noninterest expenses, an expansion of our noninterest income to drive growth in our bottom line.
Looking ahead, we will continue to focus on proactively assessing our loan portfolio in order to preserve asset quality.
In addition, we will be actively prioritizing the preservation of capital.
With this close monitoring of all aspects of our business, we will ensure that despite these unprecedented times amarin emerges stronger them before.
Moreover, we look forward to continuing to support our communities through the Covidien 19 pandemic.
The entire amarin team is headstone.
Pressing ahead on finding solutions for customers, whether it's a customized loan payment relief auction or a new PPP loan we have dedicated additional employees to these efforts and we'll continue to be hyper focused on meeting customers needs. During this time.
I know I speak for the entire Amarins team when I say, we're truly proud to be providing solutions and helping our communities. During this time.
With that we'll be happy to take your questions. Operator. Please open the line for Q1 day.
Thank you Sir.
Ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone. If your question has been answered all your wish to remove yourself from the Q Brent enhance.
Thanks.
Your first question is from Michael Rose of Raymond James Your line is open.
Hey, good morning, everyone hope you're well.
Yes, My IRA has gone you.
Good.
Just wanted to start with with expenses. So on a core base back those items out that you called out and then add back the 7.8.
Million looks like where a run rate of about 43 million. So good expense control is that a good.
Based in which the build off and maybe can you talk about some of the the expense reduction efforts I know you mentioned the branch.
Your branch you're going to close.
And can you give us a sense for kind of what expenses could look like over the next quarter too. Thanks.
So high Mike how I. So in terms of the of the recent reduction that you notice on the on the second quarter. So primarily is driven by the triple B origination as as we mentioned on the on the call there was.
About a million dollars that were deferred.
Over the life of the loans and and of course the fee income associated with those loans will also be amortized so that definitely doesn't represent a structural change on the cost structure of the bank.
So that will definitely come back at a rate of about a million a quarter until we reach the.
The two years anniversary of the loans, however, forgiveness or acceleration of this loans will definitely bring back those costs faster as well as well as the other fee income.
So I wouldn't take it us a structural change we still keep I would target of being close to the 48 on a quarter on quarterly basis.
This quarter, we spent about a million the digital transformation, but we expect that too.
To catch up during the third and fourth quarter of the year remember that during the first quarter.
We under a span does Pacific item, so progressively the normalized or cost structure should be closer to the number that we provided below before upper roughly 48 $40 million to $49 million.
Okay. That's a that's helpful and then.
Yeah, I notice that the.
For deposits.
The other foreign deposits were up but the Venezuelan deposits were were still down, but but obviously slower than we've seen can you talk about what drove the other foreign deposits higher and then if this is a good run rate for.
At least in the near term attrition for the Venezuelan deposits. Thanks.
Hi, Michael It's Miguel.
Definitely the changes on customer service on.
Payment platform, how to help retain those international deposits on and we started at the beginning of the year a repair program also be sitting all the countries a in particular, Colombia, where.
A lot of Venezuelans move there. So we are capturing the same nature of the policies on we're expanding our relationship abroad and that has stabilized significant the bid previews.
The basi Dk, how to stabilize significant and we are deeper relationship which is very important and also it has been compensated by commercial.
International accounts, where we continue to have very good relationship on and those are the impacted very positive that trend.
Okay. Appreciate the color and then maybe finally from me just just on the margin.
Obviously, the step down this quarter.
Given the rate sensitivity.
Good should we expect some some modest compression our core basis ex ppt impact as we move into the third quarter and do you have a sense for how much that might be thanks.
[noise] expectation on the on the impact of the of the mean should be roughly close to the 10 basis point extra so should be between the range of the 230 to 40 more or less we ended up to 44, but remember there is still up several time deposit.
It's that we need to reprise for the remainder portion of the year.
Those time deposits definitely they came at a great saw a 2019 and some of them 2018, which were definitely a hybrid under prevailing rates that we have in the market as of now. So you would expect that that definitely will help.
The cost of funds.
Progressively so I would say that should we should be able to stabilize mean between the 230 to 40 more or less.
Okay I appreciate all the color. Thanks.
Your next question is from Michael Young of Suntrust. Your line is open.
Hey, good morning. Thanks for the question wanted to just start on the credit side.
With the relationship that you guys provided announced previously in the additional deterioration can you just provide any details around how that relationship was identified as a problem and then how the resolution efforts are going.
At this point.
Hi, Mike It's May get a this is our relationship that has been the books for more than 15 years.
He has been Morningstar at least 20 times during those years, we'd data about a billion dollars in constant self liquidation transaction on an average of between 300 to $400000 on sees the pandemic starter.
As as you know were started on a money during our portfolio. When we had become constant communication with all our customer in particular with this customer we have communication in March and April on in June. We broke we were provided financial statements for December on March that did not require any forbearance and we risk.
Payments through the month of May and June definitely that it was.
An impact because of non information of the liquidation process was given to us.
We we knew about the is on a search with other companies that are in the same sector. So definitely we have not have any contact with a company northern liquidator only with the liquid or through our legal counter so we're still monitoring the situation by no means.
Fine on on any weakness nor in our promises norian on conversation with the company.
It was kind of a digital event it was file until it gets fat yep.
Okay. So have you conducted any sort of review.
Results for this kind of the rest of the portfolio or are there any other relationships that.
Ours would mirror this relationship in terms of.
What they do on an operating basis [noise].
Yes, we've definitely not not any particular because of the situation. We have the review where between risk credit on the business we have review.
Almost on numbers I know that put 20 portfolio almost 65% of the overall credit portfolio in particular on the credit commodity sector.
We have a small presence or.
Hopefully station has dropped significantly those relationships are mainly on the scrap metal on some propanes. They are all under a video with that.
Participation or we that we valley bank that has expertise on those commodity traders. The ABS transaction are not relying on inventory that majority are Trey secure I know ensure sorry, and also based on account receivables with.
I would it's every year or two by L. twice a year monitored by availability. So we don't foresee any issue. We have received financial information from at least on deal April or May and we are constantly reviewing those credit and.
Today, the exploratory thought around $80 million.
Okay, and I guess, just with with the specifically identified relationship what happened from a process standpoint that allow them to end up in that big of a net loss position.
We are on on review with the legal we have not determined that cost of that have a bit of the issue as I mentioned, we receive financial information up to March we receive payment on through May and June.
The last communication with Ben was.
Typical answer related to a slow down on sale to talk Bobby button. There wasn't all a specific result, I like I said, we have not being able to two to talk to that to the management of the company.
Basically to the because of that type of liquidation that they decided to go through and it's important to mention that this company has went through.
If reviews volatility in commodity prices in the past into 2011.
Coffee prices that doesn't 14 drought also in there was no indication that the company was not going to be able to the sustainable whether the situation as dense and was supported by the financial performance that we were receiving.
Okay.
And I guess aside from that did you guys provided.
Loans that are currently in some state of deferral or forbearance and any breakdown on that by by category.
So.
And.
That's provided the in the.
Documents, we have.
Approximately I mean from what is.
And.
I've mentioned, there's about 500 million that that expire and that we have those that where do we have received almost everything and or they have recently.
Everything though there is out there is another 300 million that are coming due a bill payment in April.
In the month and we based on conversations we have out with the customers.
And the weekend they improvement that we have seen in some of the collections and all but two levels, we believe the or not and EMEA issue.
What what from what it flat.
We will we have about 12% of the real estate portfolio will still be in one type of up are bearing.
And then from the commercial another 10%, though we think that.
That this number will be removed from the 20% that we see there to about eight or 9% of the portfolio and then that the this equation progresses and things reopenings are happening.
We believe that that number should should improve.
We have been that many of the customers have views at first 90 days.
The management.
For the.
Prevention, and and we have seen that in the second expansion they have not the.
Need for that.
Those for I guess, that's a very important point, because one or if you look at the trend of the Forbearances. After reporting on the first quarter 1.1 billion one to 500 now into second quarter and most of what we discussed in the first quarter was the where identified that most of our customers.
We are using this type of arrangements to preserve liquidity and now it's it's kind of that that is.
That is consistent with the performance that we're seeing that now we just have 500 million a steel on their under forbearance.
Okay.
That's all for me thanks.
Thank you Michael.
Your next question is from Brady Gailey from KBW. Your line is open.
Hey, Thanks, good morning.
Morning Brady.
So I was wondering about.
Our ability to further reduce the cost of deposits.
Yeah, the cost of deposits was down in the second quarter, but it's still.
Relatively high versus peers.
You know over 90 basis points, how how rapidly do you think you can get that down and how how low do you think you can get on the cost of deposits from here.
Okay.
Thats a good question, so they're they're wanting media.
Actioned down, though we're working and actually has been up a working progress since Q1, which was the progressive repricing of our a high cost time deposits. So we have.
Change on were stable rate several times scenes the federal ups in the since the Fed fund dropped significantly March and Im now we continue to do so so you based on the repricing scheduled that we have on that on the time deposits, which it's roughly between 300 to 400 million front.
Now to the end of the year.
There should be an opportunity to reprise those time deposits too.
Lets call it between <unk> 0.5 to point 75, a basic point and that will definitely create an opportunity for cost savings. Additionally to that we're evaluating our premium products like the relationship money market, which is roughly $400 million imbalances that cost us roughly.
The 1% that also being a review a fourth quarter fourth quarter drops so that combination between the actions that we can take in those premium products plus the repricing of time deposit you'll definitely see a potential savings.
Coming into the into the interest expenses.
Okay. That's helpful. So, yes, I know a lot has changed from when you guys went public.
And then take rates are now zero its harder to grow loans, but a lot of what we talked about on the IPO Roadshow was this profitability improved let story.
So you've had several things go against you, but as you look at.
The opportunity you have on the expense side.
To reduce expenses as a way to increase profitability.
Is that you is that something you're considering further reducing the expense base from here.
Definitely that's a working process that that we have been working for for about two years now.
We have several strategies that constantly evaluate our.
Cost structure, not only head count, but physical space.
As we disclosed today during two branches that are being a close so there is.
Multiple efforts being done throughout the whole balance sheet to identified what areas are subject to have a more drops in the cost structure. We continue to do so so.
As I said from physical space, Tony implementation of technology to create more efficiencies increased productivity. We are working on that a day by day and of course efficiency impacted by the drop in the mean, so that doesn't definitely play in our favor, but it's a it's a.
Working process and rest assured that we're working on that.
Okay, and then just finally for me.
Back to the loan modifications.
So I read in the press release, you're at 1.1 billion as of June 30, 30, you.
So what you're saying is as of now that number has dropped to 500 million is that correct.
Yes, Thats correct. There 1.18 loans that we have approved forebear or they were under forbearance and they are those are the ones that are outstanding those those other loans that we provided forbearance and they're still outstanding but I don't that hey, we have received payment or weeks.
Back to receive payment.
Okay, all and Thunder Hawk expire that program spirits and whatever is left is if I on rent we mentioned.
Better to say about 600 million out of the 1.1, a day expire dare forbearance period, and they are coming in do for for payments.
Some of that already received payment as of July 17. Some of then are due for payment before July.
The first enisa constant communication with the customers and customer I'm not requiring the extension there are some that since the beginning were 480. They sold will still be there, but definitely that if that trend continue like that is that good sign on those so we're monitoring the situation of each of the regions where do we.
Yeah.
Right got it thank you.
I'm showing no further questions at this time I wouldn't low like Attorney conference back to Mr. Wilson.
Thank you for joining our second quarter earnings conference call.
As we manage through the unknown to the current co bid environment, we intend to continue to implement mitigation strategies that ensure long term success for the benefit of all our stakeholders.
We look forward to continuing to communicate with you regarding our progress in the quarters ahead.
Thank you again for your time today, we will now disconnect.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day you may now disconnect.
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